The California 4th District Court of Appeal on Monday ordered the city of San Diego to make back payments to workers who were hired after voters passed the landmark pension reform measure, Proposition B.
The court was tasked with carrying forward a ruling from last summer by the state Supreme Court, which found city officials violated state labor laws when they placed Prop B on the ballot. While Prop B was a citizens' initiative, the high court found then-Mayor Jerry Sanders was still obligated to meet and confer with city unions over the pension reform.
Prop B eliminated pensions for all newly hired city workers, except sworn police officers, and replaced them with private 401(k)-style retirement accounts. Monday's ruling affects all those employees hired since the measure took effect — about 4,000 workers, from 911 operators to traffic engineers.
The court ordered the city to pay the workers the difference between what they have earned under the new system and what they would have earned if Prop B had never passed—plus 7 percent interest. It is unclear what form the compensation will take since Prop B remains in effect and continues to limit who is entitled to a pension.
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It is also unclear how much the ruling's implementation will cost city taxpayers. Previous analyses have ranged from $20 million to $100 million, but have been largely imprecise because the ultimate cost may be determined through a negotiation process with the unions.
Ann Smith, the attorney representing the affected city unions, said some estimates have been exaggerated and that a quicker resolution could actually save taxpayers money by minimizing the nearly eight years of attorneys fees the city will likely be forced to pay.
"The sooner Prop B is invalidated, the better this cost impact will likely be from the city's perspective," Smith said.
The ruling is another stinging defeat for the pension reform advocates behind Prop B, who had asked the Court of Appeal for a less severe punishment for the city's violation of the law. The advocates had argued in the Prop B campaign that public pensions are inherently unsustainable for taxpayers.
While employees can earn just as much in private retirement accounts as they can with a pension, private accounts are subject to the booms and busts of the stock market while pensions are guaranteed by the city. City unions argue this security in retirement is necessary to make up for the generally lower wages earned by public employees compared to the private sector.
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The Court of Appeal did not invalidate Prop B, but rather gave the unions permission to initiate a longer legal process that could ultimately strike it from the City Charter. First, the unions must petition the California Attorney General's Office for permission to file a new lawsuit on behalf of the state that would seek to invalidate the measure.
The city, in light of its losing history in the courts, could attempt to speed up resolution of the case and join the unions in arguing for Prop B's invalidation. But City Attorney Mara Elliott did not indicate whether that would be her advice to the mayor and City Council.
"The city should immediately begin taking all steps necessary to comply with the court's order in a way that is fair to both the public and to city employees," Elliott said in a statement. "Frank communication between the parties is essential to achieving a fair and full resolution."
Mayor Kevin Faulconer, an original supporter of Prop B, indicated he would not go along with the effort to strike Prop B from the City Charter, saying in his own statement, "I applaud the appellate court's decision to uphold the will of San Diego voters by leaving the city's landmark pension reform in place."
The city had sought intervention from the US Supreme Court, but the justices declined last week to take the case on.
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