August 16, 2013 01:22 PM UTC

Grand Theft Pension: Lessons from the Colorado Supreme Court Case, Golden v. Parker, for the Colorado PERA Retiree COLA Lawsuit.

• 3 Comments
• by: PolDancer

The Colorado PERA retiree COLA lawsuit, Justus v. State, is currently pending before the Colorado Supreme Court.  In this lawsuit, retirees in the Colorado PERA pension system contest the retroactive reduction of their contracted public pension COLA benefits by the Colorado General Assembly in 2010.  (The Colorado Legislature seeks to take money from old people to maintain Colorado's status as a "tax haven."  A deal IS NOT a deal, according to the Colorado Legislature.  This is the politician's idea of "good faith and fair dealing.")

In Colorado, we have long-standing, on-point public pension case law (Bills/McPhail) holding that, once a member of a public pension system meets all statutory conditions and retirees, the retirement benefits of that pensioner are inviolate . . . the contracted pension benefits cannot be reduced by the Colorado Legislature for any reason.  Colorado's public pension case law allows changes to be made to public pension benefits while a pension member is still working, under certain conditions.

Colorado's pension administrators at the public pension system Colorado PERA, and other conspirators truly want to claw back benefits from Colorado PERA pensioners.  In 2010, their lobbyists passed a bill (SB10-001) to do just that.  If they are successful in this pension "claw back" a significant chunk of the accrued pension debt of Colorado state and local governments will be wiped out with the stroke of a pen.  (I wish I could do the same with my home mortgage.)

In 2012, the Colorado Court of Appeals agreed with Colorado PERA pensioners that they have a contractual right to be paid the total amount of their earned, deferred compensation (PERA pension) that the Colorado General Assembly has chosen to deliver by means of a base benefit that is increased incrementally each year (a COLA.)  (Private sector insurance companies also offer COLA provisions in contracted annuities that are sold to the public.)  However, in the 2012 Decision, the Colorado Court of Appeals left open the possibility that “fully-vested” PERA retiree pension benefits can be reduced if it is “reasonable and necessary to serve a significant and legitimate public purpose.”  This finding, that public pension benefits can be changed under certain circumstances after a pension member retires does not comport with Colorado's long-standing public pension case law.  So, the PERA pensioners appealed the decision of the Court of Appeals to the Colorado Supreme Court.  The Colorado Supreme Court has agreed to take the case.

If the Colorado Supreme Court follows the doctrine of stare decisis, and determines that Colorado's public pension precedent (Bills/McPhail) continue to control, then PERA retiree COLA benefits will be confirmed as inviolate.

But, since launching the scheme to take pensioner property, the proponents of SB10-001 have found a new argument.  The proponents of SB10-001 now argue that a more recent Colorado Supreme Court decision addressing contractual rights is now in control (DeWitt.)  The proponents of taking pensioner assets argue that this newer Supreme Court decision sets the bar a little lower, and might allow property to be taken from retirees under certain conditions.  I believe that taking PERA COLA benefits from Colorado PERA retirees is not constitutionally permissible under Bills/McPhail, and further, that the taking is not constitutionally permissible even under the new rules (DeWitt) that the proponents of SB10-001 would like to see controlling.  In spite of the desire of those who seek to break PERA pensioner contracts, DeWitt is not a "get out of your contractual obligations free card."

Yesterday, I read another decision of the Colorado Supreme Court (from 2006) that addresses contractual rights in our state.  The Colorado Supreme Court decision in the 2006 case, City of Golden v. Parker, provides insight into the doctrinal views of the Supreme Court regarding the retroactive application of public acts in Colorado to existing contractual relationships.  I read through the 2006 case with the Colorado PERA retiree pension case, Justus v. State in mind.  Below are my layman's reactions to the case, City of Golden v. Parker.

City of Golden v. Parker.

In its 2006 decision in City of Golden v. Parker, the Colorado Supreme Court determined that the retroactive application of a City of Golden Charter Amendment (that required voter approval of development incentive agreements) to existing agreements with the developers was "unconstitutionally retrospective."  The Supreme Court found that the developers had vested rights in their agreements and that these vested rights were not overridden by "public policy considerations."

Here's a link to the Colorado Supreme Court decision in City of Golden v. Parker, June 26, 2006:

http://www.cobar.org/opinions/opinion.cfm?opinionid=5666&courtid=2

Here are some excerpts from the case, Golden v. Parker, and my comments.  Colorado Supreme Court:

"We granted certiorari to consider whether certain real estate developers . . . who entered into economic incentive agreements . . . with the City of Golden . . . and its City Council had vested rights in those agreements that could not be disturbed by an amendment to Golden’s home rule city charter . . . enacted subsequent to the Agreements which required, with certain exceptions, voter approval of all new grants of development subsidies or incentives in excess of $25,000."

"The Court of Appeals held that the Developers did not possess vested rights under the Agreements that precluded application of the Charter Amendment to subsidies and incentives paid to the Developers after approval of the amendment . . . We reverse the Court of Appeals’ judgment."

(My comment: The City of Golden created its economic incentives program in 1992.  Under the agreements, developers were eligible for reimbursement of taxes and development costs in exchange for the economic activity and jobs their projects would generate.  The Colorado Supreme Court notes, in the decision, that the TABOR amendment passed by Colorado voters in 1992 requires voter approval for the creation of multiple fiscal year debt.)

Colorado Supreme Court:

"All of the Agreements provided that the reimbursements did not constitute a multiple fiscal year debt or financial obligation and were subject to annual appropriations by the City Council."

Colorado's Constitutional TABOR Amendment.

(My comment: I have some views on Colorado's 1992 TABOR constitutional amendment and its impact on the Colorado PERA pension system.  The TABOR Amendment was adopted six decades after the creation of Colorado PERA.  An exclusion of public pension debt is incorporated into the TABOR Amendment.  Most current Colorado PERA retirees entered into a contractual relationship with Colorado PERA and their PERA-affiliated government employers before TABOR was adopted by Colorado voters.  Since the adoption of the TABOR amendment, the Colorado Legislature has acted to restrict its available revenues beyond that required under the amendment.  The existence of the TABOR amendment in the Colorado Constitution did not prevent the Colorado Legislature from improving the PERA COLA benefit in 2000 in HB 00-1458.  Such improvements in the PERA COLA benefit are permissible as no harm is done to PERA retirees.  The improvement of the Colorado PERA pension COLA provision to 3.5 percent [non-DPS], and further restriction of the State of Colorado's revenue stream occurred AFTER the adoption of the TABOR amendment.  Thus, the TABOR Amendment can provide no rationale for the 2010 breach of Colorado PERA pension contracts in SB10-001.

Colorado's TABOR Amendment recognizes public pension obligations as permissible multiple-fiscal year "debt" of Colorado's "districts":  "(b) Except for refinancing district bonded debt at a lower interest rate or adding new employees to existing district pension plans, creation of any multiple-fiscal year direct or indirect district debt or other financial obligation whatsoever without adequate present cash reserves pledged irrevocably and held for payments in all future fiscal years."

A recent Denver Post article on TABOR:

“But former state Rep. Brad Young, a Republican from Lamar and a former chairman of the legislature's Joint Budget Committee, agrees with many on the left who say TABOR reduces the size of government over time.”

“He and others point to state spending as a proportion of Coloradans' personal income, which has dropped from 6.7 percent of personal income in fiscal 1993-94, the first year TABOR took effect, to 3.9 percent in fiscal 2011-12, the budget year that ended in June.”

“Colorado ranks 45th in the nation in terms of combined local and state tax burden as measured by taxes paid per $1,000 earned.  By that measure, Colorado's combined state and local tax burden is lower than every one of its surrounding states.”

“In 1999, the Republican-controlled legislature reduced the state's income tax from 5 percent to 4.75 percent and then, a year later, to 4.63 percent.”

“Meanwhile, lawmakers cut the state's sales tax from 3 percent to 2.9 percent in 2000.”

“But because of TABOR, those effectively became permanent tax cuts, Young and others say.”

Link:

http://www.denverpost.com/ci_22248157/two-decades-later-tabor-praised-blamed-limiting-government

Since TABOR was adopted by the voters in 1992 the Colorado Legislature and Governor Owens have cut the state's revenue stream, imposing even tighter budgets than would have otherwise existed under TABOR.

Since TABOR's adoption the Colorado Legislature has transferred $700 million of state revenue to pay off Colorado local government legacy pension debt that IS NOT the contractual obligation of the State of Colorado, while failing to pay PERA pension bills THAT ARE the contractual obligation of the State of Colorado.  The Colorado Legislature has also limited its available revenues by granting discretionary corporate subsidies and foregoing opportunities to raise reasonable levels of revenue from mineral extraction.  Legislative and executive actions that have diminished Colorado PERA's funding ratio were taken with full knowledge of TABOR's presence in the Colorado Constitution and the contractual nature of accrued Colorado PERA pension benefits.  The decisions of Colorado voters at the polls over the last two decades have real consequences for our state; but, there is no polling booth lever that voters can pull to eliminate contractual protections in the Colorado and U.S. constitutions.)

Colorado Supreme Court:

"On November 6, 2001, Golden’s voters approved an amendment to the Golden City Charter, which required that the city obtain voter approval to grant development subsidies or incentives in excess of $25,000 in any one year."

"Subsequently, on June 13, 2002, Golden passed Ordinance No. 1590 . . . which provided in part that 'economic development subsidy or incentive agreements in effect on November 6, 2001, shall remain in effect, subject however to the provisions and conditions of each such individual agreement.'  In July 2002, following the adoption of the Ordinance, Donald G. Parker, a Golden resident and the respondent here, filed a complaint in the trial court challenging Golden’s continuing obligation under the Agreements. Parker sought a declaratory judgment and injunctive relief to prevent further appropriations to Developers in excess of $25,000 absent voter approval."

"The (trial) court determined that the Developers had vested rights to have the City Council exercise reasonable discretion annually in determining whether or not to appropriate funds to reimburse the Developers under the Agreements.  The trial court found that retroactive application of the Charter Amendment to the Agreements would violate the prohibition against retrospective law in the Colorado Constitution. Colo. Const. art. II, § 11.  The Court of Appeals reversed the trial court, holding that the Agreements did not confer vested rights upon the Developers.  We granted the Petitioners’ request for certiorari review and now reverse."

Retrospective.

"Under the Colorado Constitution, the General Assembly is prohibited from enacting any law that is 'retrospective in its operation . . . .' Colo. Const. art. II, § 11.  The prohibition against retrospective laws at the state level applies equally to local government."

"The general prohibition against retrospective legislation is intended to prevent any unfairness that might result from the application of new law to rights already in existence. In re Estate of DeWitt, 54 P.3d 849, 854 (Colo. 2002).  Legislation is presumed to operate prospectively unless there is legislative intent to the contrary.  Retroactive application of a law, although disfavored, is not necessarily unconstitutional and may be permitted if the law at issue effects a change that is procedural or remedial.  Kuhn v. State, 924 P.2d 1053, 1056-57 (Colo. 1996).  In order to distinguish legislation that is merely retroactive, we use the term 'retrospective' only in regard to legislation that 'impairs vested rights acquired under existing laws, or creates a new obligation, imposes a new duty, or attaches a new disability, in respect to transactions or considerations already past.'"

"However, in Ficarra we also stated that a vested right may originate from a statute or the common law and it is only 'once it vests that it is no longer dependent for its assertion upon the common law or statute under which it may have been acquired.' 849 P.2d at 15.  Our analysis in Ficarra in no way indicates that a vested right cannot originate from the common law."

(My comment: Colorado PERA officials have testified before the Joint Budget Committee of the Colorado Legislature that a reduction of the contracted PERA COLA benefit would necessarily operate retrospectively, impairing existing vested rights.

December 16, 2009

Colorado PERA officials in written testimony to the Joint Budget Committee: “The General Assembly cannot decrease the COLA (absent actuarial necessity) because it is part of the contractual obligations that accrue under a pension plan protected under the Colorado Constitution Article II, Section 11 and the United States Constitution Article 1, Section 10 for vested contractual rights.”

http://www.kentlambert.com/Files/PERA_JBC_Hearing_Responses-12-16-2009_Final.pdf

Statements made by the co-prime sponsor of SB10-001, Senator Josh Penry, document legislative intent that the bill operate in a retrospective manner:

Senator Josh Penry, co-prime sponsor of SB10-001, in a videotaped discussion with Representative Mike May, [videocenter. denverpost.com] said ‘we can’t, can’t miss this window.’  And, . . . we have an opportunity to pass something that Republicans have long advocated, a significant increase in retirement age, which the PERA Board embraced, reigning in the cost of living increases . . .

“Penry went on to say, ‘I think it is important to pass something because if you lose actuarial necessity, as you know, it becomes extremely difficult to increase retirement age. You cannot change course and this year, when PERA’s investment numbers come out, their investment returns . . . numbers are going to be significant, like double, 15-16% investment return. So that could change the specter of actuarial necessity. We gotta’ do it this year or else these other structural changes won’t be possible.”

http://www.leg.state.co.us/Clics/clics2010a/commsumm.nsf/b4a3962433b52fa787256e5f00670a71/84960fa73d53e222872576c600712e80/$FILE/10HseFin0210AttachG.pdf

SB10-001 co-prime sponsor Senator Penry states his intent here to use recent market volatility to justify the proposed PERA pension contract breach.  His comments reveal an awareness of the recovery of equity markets in 2009, his intent to justify the breach of PERA pension contracts based on outdated PERA pension funding statistics (prior to the release of new pension funding ratios,) an intent to impose a new disability on Colorado PERA retirees, and an intent to defeat the expectations upon which these PERA retirees have altered the course of their lives.

On-point Colorado public pension case law [McPhail] cites Retirement Board of Allegheny County v. McGovern, “The language of the [Pennsylvania] Court is applicable to the conditions which are here present: Retirement pay is defined as ‘adjusted compensation’ presently earned, which, with contributions from employees, is payable in the future.  The compensation is earned in the present, payable in the future to an employee, provided he possesses the qualifications required by the act . . .”.  “ . . . when the conditions are satisfied, at that time retirement pay becomes a vested right of which the person entitled thereto cannot be deprived; it has ripened into a full contractual obligation.”)

Colorado Supreme Court:

"We use a two-step inquiry to determine whether or not a law is retrospective in its operation. DeWitt, 54 P.3d at 854.  First, we look to the legislative intent to determine whether the law is intended to operate retroactively.  We require a clear legislative intent that the law apply retroactively to overcome the presumption of prospectivity."

(My comment: The mantra of the proponents of SB10-001 during the public relations, lobbying and legal campaigns to take fully-vested Colorado PERA retiree pension COLA benefits has been "shared sacrifice."  The proponent's of SB10-001 seek to force a "sacrifice" from Colorado PERA retirees.  Colorado PERA and the 27 statehouse lobbyists working SB10-001 in 2010 sought to force PERA retirees to relinquish their contracted benefits in order to diminish the accumulated pension debt of PERA-affiliated employers.  Obviously, the "shared sacrifice" that was the object of SB10-001 is not achievable without retroactive application of the bill's COLA provisions to existing PERA COLA contractual rights.

If SB10-001 sought to alter the PERA COLA only on a PROSPECTIVE basis, the legislation's pension debt "cost-shift" would not be possible [90 percent of the bill's "savings" resulted from shifting costs from PERA-affiliated employers to PERA retirees.])

Colorado Supreme Court:

"If we find intent of retroactive application, the second step of the inquiry is to determine whether the retroactively applied law operates retrospectively.  A law is retrospective if it either "(1) impairs a vested right, or (2) creates a new obligation, imposes a new duty, or attaches a new disability.. .." DeWitt, 54 P.3d at 855."

(My comment: Again, a defendant in the case Justus v. State [Colorado PERA] has previously acknowledged [in recorded testimony to the Colorado General Assembly] that a reduction in fully-vested PERA COLA benefits impairs a vested right: “The General Assembly cannot decrease the COLA [absent actuarial necessity] because it is part of the contractual obligations that accrue under a pension plan protected under the Colorado Constitution Article II, Section 11 and the United States Constitution Article 1, Section 10 for vested contractual rights.”

The administration of Governor Bill Ritter [who signed SB10-001 into law] has acknowledged that SB10-001 attaches a new disability on Colorado PERA retirees.  Officials of the Ritter administration write that SB10-001 will cost an average PERA retiree $165,000 in the coming decades:

August 2, 2010

Ritter Administration letter to GASB on contractual public pension obligations:

“In Colorado, a class action lawsuit has been filed challenging recently passed statutory reductions in annual COLA increases which for an average member would result in $165,000 of reduced benefit over a 20 year period.”

http://www.gasb.org/cs/ContentServer?site=GASB&c=Document_C&pagename=GASB%2FDocument_C%2FGASBDocumentPage&cid=1176157387791)

Vested Rights.

Colorado Supreme Court:

"We do not employ a fixed formula or a bright-line test for determining whether a right is vested. Rather, we look to three factors: "(1) whether the public interest is advanced or retarded; (2) whether the statute gives effect to or defeats the bona fide intentions or reasonable expectations of the affected individuals; and (3) whether the statute surprises individuals who have relied on a contrary law." DeWitt, 54 P.3d at 855."

"A determination that retroactive application of a law impairs a vested right is not dispositive of the retrospectivity inquiry because such a finding 'may be balanced against public health and safety concerns, the state’s police powers to regulate certain practices, as well as other public policy considerations.'"

"Retroactive application of a law that implicates a vested right is only permissible, however, if the law bears a rational relationship to a legitimate government interest."

"In past cases, we have 'appl[ied] a balancing test that weighs public interest and statutory objectives against reasonable expectations and substantial reliance.'"

(My comment: Does a government have a "legitimate interest" in arbitrarily breaking its own contracts?  The taking of the Colorado PERA COLA benefit in perspective:

• [54.5% to 105.2%] – 40-year range of the Colorado PERA actuarial funding ratio [AFR], [source, Colorado PERA.]
• 78% – average PERA AFR over the 40-year period.
• 68.9% – PERA AFR at time of the taking of the contracted 3.5 % COLA benefit.
• 9.1% – difference between the PERA AFR at time of COLA taking and the 40-year average PERA AFR.
• 11.1% – difference between PERA AFR at the time of the COLA taking and an 80% AFR level considered “well-funded” by Fitch Ratings.
• 72% – average AFR at the end of 2009 for 57 state retirement systems reporting to Wilshire Associates.
• 3.1% – difference between the Colorado PERA AFR and Wilshire Associates average AFR for 57 state retirement systems at time of PERA COLA taking.
• 2.16 – percent of Colorado state and local government spending dedicated to public pension support in 2008 [Census Bureau/NASRA.]
• 2.89 – average percent of state and local government spending dedicated to public pension support among the states in 2008.
• 5.55 – highest percent of state and local government spending dedicated to public pension support among the states in 2008 [Nevada.]
• #32 – Colorado 2008 rank among the states in taxpayer support for public pensions.
• [For the entire decade of the 1970s the PERA AFR was lower than it was at the time of the taking of the contracted COLA, yet there was no campaign to breach retiree pension contracts.]
• 90 – percent of the financial burden of SB01-001 attributable to the taking of the contracted COLA benefit [according to Prime SB 10-001 bill sponsor, Senator Penry.]
• 3 – number of “No” votes that could have stopped the breach of retiree contracts from squeaking through in the Colorado House [would have died on a tie.]
• 27 – number of registered lobbyists [PERA staff, PERA hired lobbyists, public sector union lobbyists] engaged in taking the fully-vested, contracted retiree PERA COLA benefit.
• 5 – number of minutes after a PERA member retires that their PERA retirement benefits become “legally immune from any changes that would reduce their current, or future benefits,” according to Colorado PERA [Ewegen article].
• 17 – number of years during which the State of Colorado mistakenly adhered to financial restrictions [Arveschough-Bird] artificially limiting its available resources.
• 87% – level of Colorado PERA AFR that Colorado legislators contended was “too well-funded” in 1985 [Silver and Gold Record article.]
• 2 – number of times the Colorado PERA AFR has exceeded a 100% funding level in the 83-year history of Colorado PERA.
• 3.75% – Colorado PERA Board inflation assumption.
• $100 million – amount of discretionary tax relief grants by the Colorado General Assembly at recent legislative sessions.
• $700 million – amount of revenue the General Assembly has appropriated to pay for pension obligations that are not its legal responsibility (Old Hire Fire and Police Pension Obligations).
• 13 – Colorado’s rank among the states in per capita income in 2009.
• 9 – Colorado’s rank among the states in per capita income in 2013.
• 10 – Colorado’s rank among the state’s in GDP per capita in 2013.

In 1977, the U.S. Supreme Court [in U.S. Trust Co, 431 U.S.] clarified that state attempts to impair their own contracts, ESPECIALLY FINANCIAL OBLIGATIONS, were subject to greater scrutiny and very little deference because the STATE'S SELF-INTEREST IS AT STAKE. As the court bluntly stated:

“A governmental entity can always find a use for extra money, especially when taxes do not have to be raised.  If a state could reduce its financial obligations whenever it wanted to spend the money for what it regarded as an important public purpose, the Contract Clause would provide no protection at all . . . Thus, a state cannot refuse to meet its legitimate financial obligations simply because it would prefer to spend the money to promote the public good rather than the private welfare of its creditors.")

Colorado Supreme Court:

" . . . we have prohibited retrospective application of a statute when the reasonable expectations and substantial reliance of a party vested prior to the enactment of the statute."

(My comment: From the Denver Post, November 30, 2008, Colorado PERA's Executive Director, Greg Smith: “The attorney general’s opinion seems clear that fully vested employees — those retired or with enough years of service to retire — cannot see any benefits reduced, including cost-of-living adjustments.”

http://www.denverpost.com/news/ci_11105271#ixzz0eEZGoxly

At the time of this statement, Greg Smith was Colorado PERA's General Counsel.  It appears that Colorado PERA's General Counsel, prior to the attempt to break PERA pension contracts, held the reasonable expectation that PERA pensioner COLA benefits cannot be retroactively diminished by the Colorado Legislature.

Colorado PERA's attorneys have recorded their expectation that Colorado PERA pension COLA benefits are contractual obligations that will be honored "absent actuarial necessity": “The General Assembly cannot decrease the COLA [absent actuarial necessity] because it is part of the contractual obligations that accrue under a pension plan protected under the Colorado Constitution Article II, Section 11 and the United States Constitution Article 1, Section 10 for vested contractual rights.”  If Colorado PERA’s attorneys have an expectation that the contracted 3.5 percent PERA COLA cannot be taken by the General Assembly short of “actuarial necessity,” then why should relatively unsophisticated Colorado PERA retirees [who possess fully-vested pension rights] not also have this expectation?)

Colorado Supreme Court:

"The Petitioners did not submit any evidence of legislative intent."

(My comment: Of course, the Colorado PERA retiree COLA lawsuit has not yet been before a jury, but evidence of legislative intent surrounding the General Assembly's adoption of the "automatic" PERA COLA in 1993 is available:

March 24, 1993 (1:32 PM – 2:28 PM)

Rob Gray, Director of Government Relations, Colorado PERA testifying to the Legislature's House Finance Committee in regard to the "automatic" PERA COLA benefit under consideration [in House Bill 93-1324]: “The PERA Board does support this bill.”  “We felt like it is something that is good pension policy . . . that it makes sense . . . THAT IT IS MAKING PERMANENT CHANGES, and also that it does help employers which is one of the goals of the bill.”  Rob Gray states that the proposed COLA “adds predictability for current and future retirees, people looking at leaving might look at this and say now I know how my future increases are going to be determined . . .”.  Rob Gray characterizes the “automatic” PERA COLA benefit as a Colorado PERA liability: “when a change in benefits is added, like this bill, it extends out the period for paying off that unfunded liability.” If you listen to the recording of this meeting, you will also hear a member of the House Finance Committee refer to the Colorado PERA COLA provision under consideration as a pension benefit that is “guaranteed,” “now and in the future.”  [Note that the contracted PERA COLA benefit adopted by the committee was in later years improved by the Colorado General Assembly to flat 3.5 percent level, constitutionally permissible as this “improvement” did not impair PERA pension contracts.])

Duty of Good Faith and Fair Dealing.

Colorado Supreme Court:

"Under Colorado law, every contract contains an implied duty of good faith and fair dealing. § 4-1-203, C.R.S. (2005); Amoco Oil Co. v. Ervin, 908 P.2d 493, 498 (Colo. 1995).  A violation of the duty of good faith and fair dealing gives rise to a claim for breach of contract.  Cary v. United of Omaha Life Ins., 68 P.3d 462, 466 (Colo. 2003)."

"The good faith performance doctrine attaches to contracts 'to effectuate the intentions of the parties or to honor their reasonable expectations.' Amoco Oil Co., 908 P.2d at 498. The duty of good faith and fair dealing may be relied upon 'when the manner of performance under a specific contract term allows for discretion on the part of either party.'"

(My comment: The payment of the PERA COLA "automatic" pension benefit is not discretionary.  Colorado law provides that the PERA COLA benefit SHALL be provided.  Former "ad hoc" language relating to the PERA COLA benefit has been removed from Colorado law.

The provision in Colorado law requiring payment of the contracted Colorado PERA 3.5 percent COLA benefit [prior to its retroactive alteration by SB10-001] read:

Colorado Law – Section 24-51-1002 (1), Colorado Revised Statutes, “ . . .the cumulative increase applied to benefits paid SHALL be recalculated annually as of March 1 and SHALL be the total percent derived by multiplying three and one-half percent, compounded annually, times the number of years such benefit has been effective . . .”

Under Colorado law, members of Colorado PERA who purchase PERA service credit SHALL receive Colorado PERA pension benefits in effect at the time of the purchase:

Colorado Law – Section 24-51-502 (3), Colorado Revised Statutes, “Service credit purchased by members . . . SHALL be subject to the benefit provisions in effect for the existing member contribution account.”

Colorado Legislative Drafting Manual, Revised 9/29/2010:

Drafting Manual, page 5-15 – “In the statutes, ‘shall’ should be used to indicate a command.”
Drafting Manual, page 5-18 – “Use the word ‘shall’ in statutory directions or requirements.”
Drafting Manual, page 5-19 – “‘Shall’ indicates a command.”
Drafting Manual, page 5-19 – “Use ‘may’ to grant discretion.”)

The DeWitt Standards.

Colorado Supreme Court:

"We now turn to the DeWitt factors to determine whether application of the Charter Amendment to the Agreements implicates a vested right of the Developers."

"First, we consider whether the public interest is advanced or retarded by retroactive application of the Charter Amendment. DeWitt, 54 P.3d at 855.  Golden’s economic incentives program was enacted to advance the public interest in business 'development, expansion, and upgrade, for purposes of the economic revitalization of the community.' G.M.C. § 18.60.010 (2005)."

(My comment: Compensation [salary, benefits, and deferred pension compensation] is offered by public employers to prospective public employees to attract a talented workforce.  Colorado PERA pension benefits [including PERA COLA benefits] have been offered to prospective employees of Colorado PERA-affiliated employers to develop a skilled, valuable workforce.  Colorado PERA-affiliated employers and Colorado residents have benefited from this workforce for decades.  By attracting a qualified workforce, the PERA pension incentive advances the public interest.

The Colorado General Assembly has opted to deliver the total contracted PERA COLA benefit by means of a pension escalator [COLA] in retirement.  The General Assembly might just as well have offered a larger monthly pension benefit and no COLA to PERA members.)

Colorado Supreme Court:

"A countervailing consideration is the voters’ interest in limiting public expenditures, which likely motivated the passage of the Charter Amendment.  The Amendment ensures that the majority of Golden’s electorate supports any city expenditure of more than $25,000 to promote business development. However, application of the Amendment to contracts made prior to its enactment retards the public interest by preventing the city from honoring its commitments."

"Because Golden entered into the Agreements for the advancement of the public interest and because the public interest is best served by honoring the city’s contractual commitments, we find that the public interest would be retarded by retroactive application of the Charter Amendment to the Agreements."

(My comment: Clearly, the proponents of SB10-001 were motivated by the prospect of limiting public expenditures in support of accrued pension obligations.  Only ten percent of the SB10-001 "solution" came from those who actually owe the debt, Colorado governments in the PERA pension system.

July 14, 2009 –

Rep. Frank McNulty (R-Highlands Ranch) said he did not want to ask for higher contributions from governments, which are supported by taxpayers:

"I don't think at this point we can expect employer contributions to be part of the solution . . ."

http://www.9news.com/rss/story.aspx?storyid=119465

May 29, 2011

Colorado PERA Executive Director Meredith Williams, Pueblo Chieftain:

“In fact, about 90 percent of the changes enacted by Senate Bill 1 are falling on the shoulders of current and future PERA members and retirees — not other taxpayers.”

http://www.chieftain.com/opinion/ideas/legislative-changes-have-put-pera-fund-on-a-solid-footing/article_3080a01c-88cd-11e0-ad01-001cc4c03286.html

In my opinion, the retrospective application of the provisions of SB10-001 to long-standing Colorado PERA pension contracts retards the public interest by preventing Colorado PERA employers from honoring their commitments.)

Colorado Supreme Court:

"Second, we look to whether the Charter Amendment gives effect to or defeats the bona fide intentions or reasonable expectations of the parties. DeWitt, 54 P.3d at 855."

(My comment: Here is an example of a Colorado PERA member explaining to Colorado PERA officials in 2009 [prior to the PERA COLA contract breach] exactly how PERA's idea to take accrued COLA benefits defeats her expectations, Sue Ellen Quam: "I was a legislative liaison for many, many years.  I sat in the Joint Budget Committee for many, many years, and I remember legislators saying ‘You know, you don’t get very good salary increases and your benefits really stink, but you’re gonna get a really good retirement and so just hang in there.”  “So, I find it to be discouraging that the Legislature may be considering saying, ‘We got you on your salary, we got you on your benefits, and now we’re going to get you on your retirement.”  “I’ve heard rumors that the 3.5 percent increase may be reduced or eliminated and that it’s OK with PERA members. It’s not OK with this PERA member.”

http://www.copera.org/pera/about/listeningtour.htm

Colorado Supreme Court:

"Third, we examine whether the Charter Amendment surprises the Petitioners due to their reliance on contrary law."

(My comment: Below, I provide a few examples of testimony relating to reliance on the PERA statutory contract by PERA members presented to the Colorado PERA Board of Trustees and nine members of the Colorado General Assembly during the 2009 PERA "Listening Tour" meeting in Denver:

David Holme:

“My decision to join the state was based on the PERA program.”

“Any sort of a reduction in benefits today would be a violation of that contract, and bait and switch advertising . . . and so fraud.”

“State employees have never failed to provide their contributions  . . . and in fact we’ve paid more into the system than the employers have over the total of the years, according to PERA reports.”

“The employers, starting in 2002, the last year of 100 percent funding, began providing less than the annual contribution requirement, setting contribution rates for the state of less than required.”

“Today, the State of Colorado PERA employer is past due to the tune of $6.5 billion into the trust fund contributions, not counting any interest — if  you do it at the three percent PERA interest, it would be another $1.1 billion past due over the last 9 years.”

“PERA’s overall funds at the end of last year were about $30 billion, this bad debt constitutes about 25 percent of the PERA assets.  If they were paid with interest to the PERA investment fund it would be at 94 percent funded on the actuarial basis or 76 percent on the market basis.  Most experts believe that a fund at 80 percent is a healthy fund.  We’d be above that.”

“The survey today, that we just talked about, is a good example of this.  If you look at that, 28 of the options on there cost the employees money, and only two cost the employers money.”

“As a state employee, I’m ready to sit down and work on whatever fixes are needed once the deadbeat employer has made arrangements to fully fund its share.”

Mike Morris:

“I just want you to know that our COLA benefit is the only thing that’s been between us and the increased cost of health care and numerous other issues during the last six or eight years.”

Alan Chapman:

“We shouldn’t be weighing things out on the future costs on the backs of those people who have already gone through the program, funded what was required of them, and now they’re in a position that they can’t recover.”

http://www.copera.org/pera/about/listeningtour.htm)

Colorado Supreme Court:

"We find all three of the DeWitt factors for implication of a vested right are met by application of the Charter Amendment to the Agreements here.  Additionally, we find no overriding public policy concerns that would justify retroactive application of the Charter Amendment to agreements entered into by the City of Golden that were already in existence at the time the Amendment was enacted. To the contrary, we find that the application of the Charter Amendment to the Agreement would frustrate the reasonable expectations and substantial reliance of the Developers in this case. See Kuhn, 924 P.2d at 1060."

(My comment: There is no overriding public policy concern that warrants breach of Colorado PERA pension COLA contractual obligations.  Accrued PERA pension benefits will be paid over the next five to seven decades.  There is no need for a radical solution that abrogates existing Colorado PERA pension contracts.  Colorado PERA Board Trustee Casebolt has assured PERA retirees present at the August 11, 2009 Colorado PERA Denver “Listening Tour” meeting that: “PERA faces no immediate danger of being unable to pay benefits, in fact, PERA can pay benefits for many years to come, based on our current funding and our benefit structure coupled with over $30 billion in assets, at present market value.”

http://www.copera.org/pera/about/listeningtour.htm

The Colorado General Assembly has demonstrated [in SB12-149] that it is quite capable of enacting public pension reforms that are "less drastic" than the breach of PERA COLA contractual obligations in SB10-001.  Such reforms, ignored in 2010, may be applied to the Colorado PERA pension system in the future.  Even the current Colorado PERA Executive Director has argued that PERA will experience no "actuarial emergency" while it has billions of dollars in reserve in the PERA trust funds.

February 21, 2004 – Rocky Mountain News, David Milstead:

“PERA general counsel Greg Smith said his research shows that actuarial emergencies occur only when a pension plan does not have the cash to pay current benefits, and that's not the case with PERA, since the plan has $29 billion in assets and a constant stream of investment income that helps cover benefit costs.”)

Colorado Supreme Court:

"For the foregoing reasons, we find that the Court of Appeals erred in its determination that the Developers did not have a vested right that was disturbed by the adoption of the Charter Amendment. We reverse the holding of the Court of Appeals and remand the case with directions to return it to the district court."

(My comment: In 2010, the Colorado General Assembly decided to attempt a "claw back" of compensation [deferred pension compensation] owed to retired workers.  When the taking of Colorado PERA COLA benefits is viewed in light of Colorado case law, McPhail, Bills, or even DeWitt, one thing is clear . . . SB10-001 was not a valid use of the state's police powers.)

Colorado PERA active and retired members, continue to fight for your public pension contractual rights and the rule of law in Colorado.  Contribute at saveperacola.com.  Friend Save Pera Cola on Facebook!