Pension bonuses shouldn't be graven in stone

The News TribuneOctober 25, 2013 

ferguson

In hard times, can the Legislature revoke an explicitly revocable pension sweetener it enacted in boom times? The state Supreme Court will answer that seemingly obvious question in two cases it heard Thursday.

Attorney General Bob Ferguson is challenging two lower court rulings that effectively turned provisional retirement bonuses into perpetual entitlements.One involved automatic cost-of-living increases; the other involved “gain-sharing” – the practice of giving retirees a piece of unexpectedly (and temporarily) high investment returns

The starkest case involves the COLAs, adopted in 1995, which gave a large group of retired public employees 3 percent annual increases regardless of inflation and regardless of state finances.

Lawmakers correctly anticipated that the unexpected windfalls of the 1990s wouldn’t last forever. So they added the following provision to the automatic COLA:

“The Legislature reserves the right to amend or repeal this section in the future, and no member or beneficiary has a contractual right to receive this post-retirement adjustment not granted prior to that time.”

The Legislature exercised that right in 2011 after the Great Recession devastated projected state revenues.

The context is crucial. At the same time, lawmakers were also cutting funds for public schools, higher education, health care for the poor and assistance for the developmentally disabled.

It all came from the same painfully stretched operating budget. Education and social welfare programs would have suffered more had the Legislature not trimmed the pension sweetener it had made explicitly trimmable.

Gain-sharing, approved in 1998 during the heady dot.com bubble, had already been repealed in 2007.

Public unions have challenged both repeals, arguing that they violate the Washington Constitution’s guarantee of inviolable contracts.

The unions shouldn’t be faulted; it’s their job to advocate for their members. But even were these enhancements viewed as contracts, contracts can’t be divorced from their terms, and revocability was one of the terms of this deal.

If the high court buys into their argument, state and local governments will be on the hook for more than $10 billion over the next 25 years – including hundreds of millions in the next few years.

Much or all of this would likely be squeezed out of operating fund priorities that have been repeatedly squeezed in recent years, including higher education and social welfare. It would make it even harder for the Legislature to provide full funding for the K-12 system, as mandated last year by the state Supreme Court’s McCleary decision.

That’s far too high a cost for mutating a legislative maybe into a judicial forever.

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