Court Invalidates Proposed CA Pension Bond Sale

November 18, 2005 ( - A California state judge has declared as unconstitutional a plan to sell $525 million in bonds to cover part of the state's pension obligation this year.

Sacramento County Superior Court Judge Raymond Cadei ruled that the pension bond plan violated constitutional mandates that voters approve all large loans, the Associated Press reported.

Cadei’s ruling is the second time in three years a California court has thrown out the idea of selling bonds to pay for retirement costs. Finance officials in Governor Arnold Schwarzenegger’s administration said they will appeal.

Lawyers on the other side were jubilant at the ruling. “This decision is a victory for all Californians against spendthrift practices in the state legislature,” said attorney Harold Johnson of the Pacific Legal Foundation. The Sacramento-based conservative nonprofit group filed the challenge to the bond sale last year on behalf of an anti-tax group from Orange County.

Johnson’s group had contended that Article 15 of the Golden State’s constitution prevents lawmakers from borrowing more than $300,000 without voter approval (See CA Group Challenges Pension Bond Sale ). However, state officials asserted that the proposed bond sale doesn’t come under that provision because the sale does not create new debt, but rather refinances existing debt.

The bonds are tied to pension-reform measures negotiated last year with unions that will save three times the cost of the pension bonds, Department of Finance spokesman H.D. Palmer said.

The anticipated $525 million proceed from the bond sale was included in the state’s existing budget, but none of the bonds was sold because of the pending court case. Palmer said that if the ruling is allowed to stand, the governor will need to address the loss of that money in next year’s budget.