California (San Francisco) — Reduc...

California (San Francisco) — Reduced COLAs

Posted by StuartBuck in California on April 9, 2015 with Comments Off on California (San Francisco) — Reduced COLAs

Law:

Proposition C  (November 2011)

Type of reform:

Proposition C (Nov. 8, 2011) amended the San Francisco Charter through section A8.526-3(d) to condition the payment of the supplemental COLA to retirees (first enacted in 1996) on the city’s retirement fund being fully funded based on a market value of assets for the previous year.

Case:

Protect our Benefits v. City of San Francisco, No. CPF13512788 (Superior Court of California, County of San Francisco) (filed Feb. 25, 2013)

Status of litigation:

The supplemental COLA was first established as a supplement to the basic COLA by voter proposition on Nov. 5, 1996, through an amendment to the city charter.  Proposition C added charter section A8.526-1, which required that “all earnings of the Retirement Fund in the previous fiscal year which are in excess of the expected earnings on the actuarial value of the assets” be placed in a reserve account and used to pay a supplemental COLA on top of the 3 percent of current benefits, inclusive of the basic COLA. The supplemental COLA was not initially a permanent measure, but was made permanent by voter proposition in March 2002.  In June 2008, another voter proposition increased the supplemental COLA from 3 to 3.5 percent (less the costs of the basic COLA).

The retiree fund had been fully funded during this time, but in the fiscal crisis of 2008-2009, the fund lost about 25 percent of its value and was no longer fully funded.  Retirees contended that they should nevertheless be paid the Supplemental COLA, but on Nov. 8, 2011,  city voters adopted Proposition C, which, among other things, contained an amendment to the city charter section A8.526-3(d) that provides:

To clarify the intent of the voters when originally enacting this Section in 2008, beginning on July 1, 2012, and July 1 of each succeeding year, no supplemental cost of living benefit adjustment shall be payable unless the Retirement System was also fully funded based on the market value of its assets for the previous year.

The plaintiffs filed a petition and writ of mandate seeking to have the voter-approved Proposition C determined unconstitutional and to have the supplemental COLA paid regardless of whether the fund was fully funded.

On Sep. 10, 2013, the Superior Court judge denied the plaintiffs relief and granted costs to the city, finding that Proposition C merely clarified the original intent behind the supplemental COLA, which was to allow retirees to share in the bounty of a year in which the investment fund reached excess earnings. The court read the legislative history of the statute to reflect that the drafters’ intent was to distribute the excess through a supplemental COLA when the fund was fully funded (although that requirement was not express in the charter language).  Accordingly, the enactment of Proposition C had not impaired a substantial right.

The plaintiffs appealed to the California First Appellate District  (1st Court of Appeals, Case No. A140095), and on March 27, 2015, that court reversed the lower court and found that the amendment was unconstitutional.  Unlike the lower court, the appellate court found no evidence that the intent of the supplemental COLA (or the subsequent modifications) reflected the precondition of full funding.  Thus, the amendment was not a mere clarification of prior law, but, in fact, it substantially modified the retirees’ vested rights to the supplemental COLA.  The court found, however, that Proposition C was effective as to employees who retired before the initial enactment of the supplemental COLA in November 1996, because these employees did not have vested rights to the supplemental COLA.

On May 5, 2015, Protect our Benefits filed a petition in the California Supreme Court for review of the issue that Proposition C is effective as to employees who retired before the enactment of the supplemental COLA.  On May 6, the city filed a petition in the Supreme Court for review of the appellate court’s decision regarding the constitutionality of Proposition C.

On May 26, 2015, defendant and respondent City and County of San Francisco filed an answer to Protect our Benefits’ petition for review.  On May 27, Protect our Benefits filed an answer to the city and county’s petition for review.

On June 17, 2015, the California Supreme Court denied the petitions for review.

Relevant documents:

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