FACT celebrates anniversary of court victory against pension bonds
I couldn’t let today pass without noting that it’s the one-year anniversary of FACT’s resounding court victory which blocked the state of California from issuing hundreds of millions of dollars worth of pension obligation bonds without a vote of the people as required by the state constitution.
Well, actually, yesterday was the anniversary of the court’s ruling. But by the time we all learned of the decision, we were already moving into Fourth of July mode and it seemed logical to celebrate on that auspicious date. Here’s the Associated Press story as it appeared in the July 3, 2008 issue of The Bakersfield Californian:
State loses legal battle over pension bonds
By AARON C. DAVIS
SACRAMENTO (AP) — Gov. Arnold Schwarzenegger’s administration on Tuesday lost a long-running court battle over its plan to sell bonds to cover the state’s public employee pension costs.
The ruling by the 3rd District Court of Appeal could complicate negotiations over the state’s already overdue budget. Republican lawmakers are holding up the $104 billion spending plan in part because they believe it will leave California with an unmanageably large budget deficit next year.
Tuesday’s ruling may only add to that concern, depriving the state of more than $500 million to help close the estimated $5 billion-plus deficit in the 2008-09 budget year.
Schwarzenegger and Democratic leaders have proposed balancing the current, 2007-08 fiscal year budget with billions of dollars from a prior-year tax windfall. That money will run out by the time officials begin drafting the budget that begins on July 1, 2008.
Consumer rights and anti-tax groups praised Tuesday’s ruling. They said it set an important precedent limiting the state’s ability to borrow money to pay ongoing expenses without voter approval.
“If they had gotten permission to do this, we could have seen massive deficit spending,” said Harold Johnson, an attorney for the Pacific Legal Foundation, which fought the bonds. “It’s a big victory and a sobering message for the spendthrifts in the Legislature. They can’t use the credit card to cover ongoing costs of government.”
Former Gov. Gray Davis’ administration designed the pension bond plan.
In 2004, Schwarzenegger endorsed the plan. He proposed paying a portion of the state’s annual contribution to the Public Employee Retirement System with money raised from a $560 million bond sale.
Schwarzenegger’s administration argued the state did not need voters’ approval to do so.
But a three-judge panel on Tuesday upheld a lower court ruling that said voters – or two-thirds of the Legislature – had to approve the use of bond money to pay the state’s pension obligation.
H.D. Palmer, spokesman for Schwarzenegger’s Finance Department, said the administration would not appeal the decision to the state Supreme Court.
“This is a great Fourth of July gift to Californians,” said Pacific Legal Foundation attorney Harold Johnson, who represented the Fullerton Association of Concerned Taxpayers (FACT) in challenging the bonds. “The court upheld the basic right of the people of California to chart their fiscal destiny and have the ultimate say over major state borrowing. The court affirmed that the Legislature can’t saddle the people of California with major debt without first getting their permission. This ruling should also be a warning to spendthrifts in government. They can’t spend like tipsy sailors and automatically borrow their way out of the mess they make.”
The decision was the subject of a subsequent editorial in The Orange County Register and was a hot topic on several blogs, such as this entry on the Cal Law blog and this one on the San Diego Union-Tribune’s editorial blog by Chris Reed regarding the decision’s application to local governments.
The case is Pension Obligation Bond Committee v. All Persons Interested in the Matter of the Validity of the State of California’s Pension Obligation, Appellate Court No. CO51749. You can read or download the court’s decision here.