8 thoughts on “Forget Denmark . . . Something is Rotten in the State of Colorado.”

1. Hey Algernon, it appears San Bernardino is a red line for corporate creditors to take a stand who would like to see pensioners take more of a hit … shared sacrifice so to speak. At the present time there is no shared sacrifice in Colorado between PERA retirees and corporate creditors and bond holders.  Is this another possible lawsuit waiting in the wings if the COLA clawback is sustained by the Colorado Supreme Court? 

   San Bernardino Becomes 3rd California City to Get Bankruptcy Protection
   

   http://www.governing.com/blogs/view/gov-judge-awards-san-bernardino-bankruptcy-protection.html

   "San Bernardino on Wednesday became the third California city in recent years to be awarded bankruptcy protection by a judge, setting the stage for a battle between the Southern California city's creditors and its retirees — a fight that could provide a playbook for other cities facing similar financial burdens."

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   1. Colorado Treasurer Stapleton: "Colorado is a low debt state."  So Walker Stapleton, do you not find it odd that Colorado, the 10th wealthiest state in the nation, a "low debt state," is trying to break its contracts?

      Colorado Treasurer Walker Stapleton, Colorado is a "low debt state."

      "Long Term Liabilities.  In addition to assets owned by state and local governments, governments also have financial liabilities – i.e. money owed over a period of time.  Because of various state constitutional requirements, Colorado is considered a low debt state, since it borrows little money compared to other states."

      http://www.colorado.gov/cs/Satellite/Treasury_v2/CBON/1251592046949

      (Note that the Colorado constitutional TABOR amendment recognizes public pension obligations as "debt" of Colorado governments and provides an exception for such debt.)

      Colorado is attempting to break its PERA pension contracts OUTSIDE of bankruptcy.

      It's interesting that municipal bankruptcy doesn't always impact vested pension benefits:

      "The city, about 30 miles northeast of San Francisco, was allowed to terminate its collective bargaining agreements, but it never renegotiated some $128 million of unfunded pension liabilities."

      "And while Vallejo generated about $34 million in savings on some of the liabilities it faced heading into bankruptcy, those have been nearly matched by expenses related to the bankruptcy itself, according to a 2012 study by Standard & Poor's."

      "Now two years after emerging from Chapter 9, it has yet to balance its budget, and the police force is roughly half its previous size. Vallejo remains shut out of the municipal bond market and cannot raise money to address much needed infrastructure repairs."

      http://www.reuters.com/article/2013/07/25/us-usa-detroit-lessons-analysis-idUSBRE96O02R20130725

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2. There are at least 6 likely reasons why the PERA Board and its General Counsel Greg Smith decided to go the way of a contract breach:

   1)  Time test – buy time to allow economy to recover;

   2)  Court test – let courts rule and take the political heat;

   3)  Judge test – hope for a surprise ruling, such as the 2011 ruling by Denver District Court Judge Robert Hyatt.

   4)  Retiree test – resolve and resources for legal challenge;

   5)  PERA membership test – rift between retirees and members, and even a rift between retirees, due to anxiety over the lack of legislative taxing authority (TABOR) to properly fund PERA by making required actuarial contributions (ARC).

   6)  TABOR test – ask voters whether they desire to maintain PERA going into the future.  This would probably result in further contract breaches.   

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3. Hey Algernon, although the Colorado Supreme Court gave a summary of several issues to be decided in the SB10-001 contract breach, I believe at least 90% of the time and effort on the part of both plaintiff and defendant legal teams will be hashing over the applicability of the 2002 In re Estate of DeWitt, which deals with dissolution of marriage, and third-party life insurance claims.  A key distinction is that the DeWitt case is a nuanced contractual relationship between two private parties, whereas, the SB10-001 case is between a public entity and private individuals.  

   From the Colorado Supreme Court:

   "Whether the contracts clause framework articulated in In re Estate of DeWitt, 54 P.3d 849 (Colo. 2002), applies to all contract clause claims under the Colorado Constitution."

   Algernon, what do you think of the legal analysis found on the Leagle web site?  Also, I found the below clipped section interesting … what do you think of this particular portion?

   From Leagle.com:  In re Estate of DeWitt, 54 P.3d 849 (Colo. 2002)

   We base our conclusion on the unique nature of a life insurance policy. More specifically, and importantly, a life insurance contract, as a third-party beneficiary contract, is a mixture of contract and donative transfer.See, e.g., Baekgaard v. Carreiro, 237 F.2d 459, 464 (9th Cir.1956) ("`the beneficiary clause of a life insurance policy in which the insured has reserved the right to change beneficiaries is donative and testamentary in character'")(quoting Beck v. W. Coast Life Ins. Co., 38 Cal.2d 643, 647, 241 P.2d 544(1952)). This distinction was stressed by the Joint Editorial Board (JEB) for the Uniform Probate Code in its criticism of the Whirlpool decision. The JEB stated:

   A life insurance contract is a third party beneficiary contract. As such, it is a mixture of contract and donative transfer. The Contracts Clause of the federal constitution appropriately applies to protect against legislative interference with the contractual component of the policy. In [Whirlpool] and comparable cases, there is never a suggestion that the insurance company can escape paying the policy proceeds that are due under the contract. . . . The divorce statute affects only the donative transfer, the component of the policy that raises no Contracts Clause issue.

   http://www.leagle.com/decision/200290354P3d849_1902

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   1. PERA Contract Breach and DeWitt.  In DeWitt, the change was made to a procedural statute.  In the case of the 2010 PERA COLA taking, the change was to a substantive statute, the amount of the COLA was reduced, the "procedural" mechanism by which the COLA is paid was not altered.  This substantive change generated 90 percent of the cost-shift in SB10-001.  The PERA statutes create vested rights.  Laws creating vested rights are substantive.  Retroactive changes to substantive statutes are not constitutionally permissible.

      As Colorado PERA's Executive Director has informed us, the Colorado Legislature has never reserved the right to make retroactive changes to the PERA statutes.

      The circumstances surrounding the case, Justus v. State, are distinguishable from those in DeWitt.  The PERA COLA contract derives from an employment exchange transaction.  DeWitt addresses an entirely different set of circumstances than does the 2010 PERA COLA taking.  In DeWitt, the court found that there was not a contract clause violation because (1) an insurance contract is not a pure contract, (2) the challenged statute affected only the "donative" aspect of the contract, (3) the change was forseeable, (4) there was an option to keep the beneficiary.

      Colorado PERA pensioners have "vested" contractual pension rights.  PERA retirees could not reasonably expect that up to half of their contracted pension benefit would be taken in retirement, particularly since Colorado PERA officials had assured them that their pension benefits in retirement were safe and "guaranteed."  PERA retirees changed the course of their lives in reliance on their contracts.  No corresponding benefit was offered to PERA retirees to compensate for the taking of a large part of their contracted retirement income.

      Also, Colorado case law makes it clear that beneficiaries to life insurance policies don't have "vested rights" . . . they have an expectancy.  Unlike pensioners, life insurance beneficiaries have not exchanged labor and contributions for their benefit.  The Colorado Supreme Court has found that life insurance policies have a "unique" nature.

      SB10-001 attached the "new disability" of a $165,000 cost on PERA pensioners, their contracts were clearly impaired.  The proponents of SB10-001 intended retrospectivity, and in fact boasted of this retrospectivity,  a "window" of opportunity to take PERA pensioners' property.

      Governmental breach of its contractual obligations in order to:

      – keep taxes low,

      – cut government's accumulated debts,

      – bolster pension funding ratios that have declined due to governmental failure to make actuarially required contributions, or

      – take money from pensioners who have fully-vested contracts in order to minimize future pension contributions from active members and affiliated public sector employers . . .

      this is not a reasonable exercise of the police power of the State of Colorado.  Further, a 100 percent funded ratio for Colorado PERA is not a legitimate governmental interest, it is an unnecessary and quite rare event.  PERA pension debts do not have to be met in their entirety, today.

      Legislative efforts to retroactively cut compensation due, such as deferred public pension compensation, are "invalid exercises of police power."

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4. Thanks, Algernon.  It will be interesting to see how the defendants "spin" DeWitt to make their case.  I do believe they'll continue with their other deceptions which you've explained in previous posts.

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5. Algernon and hawkeye: while I seldom comment, I read most of your discussions and I want to thank you for continuing to keep this subject up front and keep after those who would steal from Colorados' workers. My sister-in-law retired from the Grand Junction Regional Center a couple of years ago. I am grateful for your diligent work on behalf of her and so many others.

   Keep up the good work.

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6. Hey Algernon, if SavePeraCola loses the SB10-001 case, then I expect futher clawbacks will occur, including PERAcare and what's left of our ABI or COLA. These recent headlines will affect more and more PERA retirees.

   Colorado's elderly are facing dire cuts due to the sequester:

   http://blogs.denverpost.com/opinion/2013/08/30/drcog-elderly-cuts/41486/

   Missing the mark on aid for Colorado seniors:

   http://www.denverpost.com/editorials/ci_23984658/missing-mark-aid-colorado-seniors

    

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