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Perez's Pension Power Play


Vinny Sidhu
Legal Intern, Manhattan Institute's Center for Legal Policy

Newly-confirmed Labor Secretary Thomas Perez seems to certainly have no problem with courting controversy. After his widely-publicized quid pro quo with the city of St. Paul, Minnesota, which was designed to subvert judicial review of his prized "disparate impact" discrimination theory by the High Court, he has immediately found a new target to try and manipulate into submission. Allysia Finley of the Wall Street Journal recently reported that Mr. Perez has sent a warning shot across the bow of California Governor Jerry Brown over the state's recently-enacted pension reforms:

Two weeks ago, Mr. Perez sent the governor a letter warning that the pension reforms he signed into law last year violate the 1964 Urban Mass Transportation Act, which purportedly protects public transit workers' pension benefits and collective bargaining rights. California's pension legislation, Mr. Perez wrote, "diminishes both the substantive rights of transit employees under current collective bargaining agreements and narrows the future scope of collective bargaining over pensions."

It seems a bit odd that Congress would enact a law that would limit the ability of a sovereign state legislature to negotiate contract renewals dealing with future benefits of its own public employees, which does in fact constitute the substantive aspect of the CA legislation. The apparent implications of Mr. Perez's statement are that 1) any sort of pension reform enacted by a state is illegal, because pension reform done in the present restricts the bargaining position of unions in the future (regardless of the fact that the pension reform is duly-enacted state legislation), and 2) Congress may usurp the federal-state political structure when it is not happy with the results of pension reform done in the state context, under the pretext of a supposedly-preemptive piece of federal legislation.

This all seems odd because Congress did not in fact mention federal restrictions on contract bargaining in the context of future negotiations. Ms. Finley writes:

Thing is, the 1964 federal law merely protects employees' existing benefits under collective bargaining agreements and says nothing about the "future scope" of collective bargaining. California's pension reforms apply only to future benefits for new hires.

Mr. Perez's real play here seems to be to restrict the ability of states to negotiate in good faith with their public unions, while making sure that the liberal power base stays happy. The biggest problem with this tactic is its potential budget-busting effects on the state:

Thus, Mr. Perez is threatening to cut off billions in federal grants for local transit agencies starting Friday if California doesn't fix its reforms to comply with his interpretation of the 1964 federal law. The Los Angeles County Metropolitan Transportation Authority would stand to lose $268 million. Nearly $70 million in funding for Sacramento's Regional Transit District could dry up, thus halting construction on a light-rail line. Santa Barbara's Metropolitan Transit District has warned that it would have to reduce services by 30% and lay off 50 bus drivers.

Mr. Perez might want to make sure that the very public unions he is trying to keep happy do not revolt when the inevitable austerity measures arrive.





Three years ago, a majority of Colorado legislators decided to attempt to break state contracts to cut the debt of Colorado state and local governments. In 2010, Colorado legislators passed a bill, SB10-001, that attempts to discard the obligation of Colorado governments and the state's pension system, Colorado PERA, to pay cost-of-living (COLA) increases due retirees under their state pension contracts.

Like salary, Colorado PERA pension COLA benefits are compensation for work performed; specifically "deferred compensation," presently earned. When a Colorado PERA member has completed the job, and finished earning her salary, her employer cannot retroactively take that salary from her.
A public pension COLA is simply a method by which a defined pension benefit is provided. There is nothing inherent in this "method" (provision of a pension COLA) that negates its essence as a contractual obligation of Colorado PERA-affiliated employers.

The Colorado Legislature has placed into Colorado law an agreement to provide an "automatic," fixed, pension COLA "escalator" to PERA members upon retirement. When the Colorado Legislature created the Colorado PERA contract in statute, the Legislature could just as well have offered PERA members a higher total pension benefit and no COLA escalator. Instead, Colorado legislators chose to deliver accrued Colorado PERA pension benefits by means of a pension COLA "escalator."
If I buy an annuity from a private insurance company, and I opt to have my purchased income stream delivered via a cost-of-living escalator, does the insurance company that sold the annuity to me have the right to eliminate that purchased COLA benefit after the fact?

The contractual obligation of an accrued pension benefit does not disappear simply because state legislators have agreed to use a particular method of delivering the benefit.

Support public pension contractual rights and the rule of law in Colorado. Contribute at saveperacola.com. Friend Save Pera Cola on Facebook!

Quoting ..."Congress did not in fact mention federal restrictions on contract bargaining in the context of future negotiations."

If this is true, Mr. Preez's true colors as extension of the Public Sector Unions is so unacceptable and untenable that he should be fired forthwith.

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Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.