The California Supreme Court ruled on Thursday that San Diego’s six-year-old pension cutbacks were not legally placed on the ballot because city officials failed to negotiate with labor unions before pursuing the measure.
The ruling, which could cost the city millions, overturned an appeals court ruling last year that had upheld the cuts.
The Supreme Court ordered the appeals court to take the case back and evaluate the state labor board’s conclusion that 4,000 employees hired since pensions were eliminated must receive compensation that would make them financially whole.
While the unanimous ruling stopped short of reversing the cuts, it essentially ordered the appeals court to invalidate the ballot measure that imposed those cuts.
The ruling directs the appeals court to enact “an appropriate judicial remedy” for the city’s failure to follow all of the legally required steps before placing the measure on the ballot.
The only way to do that, attorneys for the city’s labor unions said, would be to invalidate the ballot measure and nullify the pension cuts.
The ruling vindicates claims by city labor unions that then-Mayor Jerry Sanders needed to engage in labor negotiations before pushing the Proposition B pension measure onto the ballot in 2012.
The measure, which was approved by more than 65 percent of city voters, replaced guaranteed pensions with 401(k)-style retirement plans for all newly hired city employees except police officers.
Sanders maintained he supported the measure only as a citizen, not as mayor, and therefore negotiations with unions weren’t required.
The Supreme Court disagreed in its ruling, concluding Sanders was obligated to meet with the unions before placing the measure on the ballot because he used his power and influence as mayor to support the measure.
“Sanders supported the signature-gathering campaign,” the court said in the ruling, which was written by Justice Carol Corrigan. “He touted its importance in interviews, in media statements, and at speaking appearances.”
Sanders said by phone on Thursday that his actions were based on legal advice he received, and that he still doesn’t believe he acted improperly. But Sanders also said he should have handled things differently.
"If I had it to do all over again — and if I had better advice — we probably would have done meet and confer (labor negotiations),” he said.
San Diego is the only city in California to discontinue pensions for new hires, so the ruling could have an impact across the state as other city and county governments consider pension cuts and how they can be legally enacted.
Supporters of Proposition B have said they may place a similar measure on a future ballot if the cuts are eventually nullified.
In Thursday’s ruling, the Supreme Court emphasized that it wasn’t taking a position on pension cuts.
“We are not called upon to decide, and express no opinion, on the merits of pension reform or any particular pension reform policy,” the ruling said.
The ruling reinstates a 2015 decision by the state labor board that also concluded the city was legally required to conduct labor negotiations before placing Proposition B on the ballot.
In that decision, the labor board ordered San Diego to make employees hired since 2012 whole by compensating them for the loss of pensions and paying them interest penalties of 7 percent. Estimates of how much that would cost the city have ranged from $20 million to $100 million, depending on a variety of factors.
The labor board, formally known as the Public Employment Relations Board, couldn’t invalidate the ballot measure because that power is reserved for state courts.
When the appeals court overturned that decision last year and ruled the city had acted legally when placing the pension cuts on the ballot, the appellate judges didn’t evaluate the proposal to make employees whole because it seemed unnecessary.
The Supreme Court, however, ordered the appellate court on Thursday to evaluate the proposal to make employees whole and to take judicial steps to reverse Proposition B because the city skipped a key legal step when placing it on the ballot.
Supporters of Proposition B on Thursday issued news releases saying that the Supreme Court’s ruling didn’t invalidate the measure or reverse the pension cuts.
Ann Smith, an attorney for the Municipal Employees Association labor union, said by phone on Thursday that those supporters are misreading the ruling.
“They’re out to lunch,” she said. "The Supreme Court is telling the appeals court you should add the judicial remedy of invalidation because that's the only outcome that's consistent with the Supreme Court's binding conclusion that the city violated the law."
Courts, however, have typically been reluctant to nullify ballot measures that are citizen’s initiatives.
Mayor Kevin Faulconer issued a new release on Thursday afternoon noting that the ruling leaves Proposition B in place until the appeals court acts.
“San Diego pension reform remains the law of the land and today’s Supreme Court decision keeps Proposition B in full force and effect,” the mayor said. “My administration will work closely with the City Attorney’s Office on the direction provided by the Supreme Court.”
A spokesman for City Attorney Mara Elliott said she wouldn’t be commenting on the ruling on Thursday.
Former Councilman Carl DeMaio, who helped write Proposition B, said he was pleased the Supreme Court didn’t overturn the city’s pension cuts, but added that still might occur.
“Taxpayers must be very concerned by what may happen next,” he said in a news release. “Specifically we are concerned that the Supreme Court ruling opens the door for the lower court to consider a yet-undefined ‘remedy’ for the so-called violation of the city of San Diego’s duty to meet and confer on pension changes before implementing them.”
DeMaio said the remedy could be as small as a fine for not meeting and conferring, or as big as overturning part or all of Proposition B. DeMaio vowed to appeal any remedy prescribed by the appeals court to the Supreme Court.
Based on the labor board proposal that the city make employees whole, the actuary for the city’s pension system estimated in late 2015 that it would cost the city $20.1 million for 1,600 employees hired without pensions at that point. But the number of employees hired without pensions has increased to more than 4,000 since then, more than doubling the city’s potential cost.
In addition, new demographic studies showing the city had been underestimating life expectancies for its retirees prompted city pension officials to significantly increase the projected cost of pensions in 2016.
The labor board recommendation, however, said the city could count against its costs the many millions it has contributed to 401(k)-style retirement plans for those workers.
Because of the particularly strong performance of the stock market since 2012, those retirement plans are worth more than expected. That could make the city’s costs relatively minimal.
Employees would also be required to contribute to pensions created retroactively for them, further reducing the city’s costs.
The state labor board ruling didn’t recommend any changes for a separate element of Proposition B, a five-year freeze on pay raises for city employees that expired June 30. The pay freeze was not part of the labor board ruling because the city’s labor unions agreed to it during negotiations with then-Mayor Bob Filner in 2013.
This story was updated at 3:40 p.m. with additional information and interviews