Compliance December 12, 2003

CA High Court Declines Review of Pension Borrowing Plan

December 12, 2003 (PLANSPONSOR.com) - California's highest court has let stand a lower court ruling declaring unconstitutional the state's plan to borrow nearly $2 billion for employee pensions - part of a $15 billion+ borrowing package.

Reported by

Fred Schneyer

The California Supreme Court has declined review of Sacramento Superior Court Judge Thomas Cecil’s September ruling that the proposal violated a portion of the state Constitution requiring voters to give their thumbs up before the state can borrow more than $300,000 over several years to pay for routine spending, according to a report in the Metropolitan News-Enterprise.

“This is a significant victory for taxpayers,” Jon Coupal , president of the Howard Jarvis Taxpayers Association and a member of Governor Arnold Schwarzenegger’s transition team, said Thursday in a statement. “It clarifies that the state constitution entrusts to the voters, not the Legislature, the responsibility of deciding whether the state should incur debt.”

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The Jarvis association, represented by Coupal and the group’s legal director, Timothy Bittle , had contested the bond validation proceeding, arguing that the state could not stick taxpayers with responsibility for payments of principal and up to 15% interest in order to make this year’s annual payment to the California Public Employees’ Retirement System (CalPERS) (See State of CA “Bonding” With CalPERS, CalSTRS ).

The plan would have freed up money in special funds that is earmarked for CalPERS, allowing the state to transfer that money to the general fund to be spent on other things, the Jarvis group argued. The administration of since-recalled Governor Gray Davis had asked the high court to hear the merits and to expedite the case.

The pension bond offering was part of the compromise that lawmakers agreed on prior to the recall election after legislators cut spending on programs and services by $11 billion, but Republicans unanimously opposed raising taxes to offset other cuts.

The biggest part of the compromise package, a $10.7 billion deficit reduction bond issue, was quietly endorsed by Schwarzenegger last week as negotiations to roll that obligation into a $15-billion issue that would be placed on the March 2 ballot stalled. Lawmakers were at work late last night on a compromise that may yet place the larger bond program before voters.

The case is Pension Obligation Bond Committee v. Superior Court (Howard Jarvis Taxpayers Association) , S119882.