(Note: This is a corrected version of an earlier version of this article in which I mistakenly attributed a comment by Justice Hobbs to Justice Hood.)
For five years now, truly shameless Colorado PERA officials have employed deception in their attempt to take money from elderly pensioners in our state. In my opinion, the deception continued this week in the chambers of the Colorado Supreme Court.
Why do Colorado PERA administrators, trustees and lawyers feel that they must deceive in order to make their case in Justus v. State? (A case, it should be noted, that has never gone before a jury for fact-finding.) Is this a normal and expected appellate strategy? As a layman, I find it extremely disturbing.
Is it appropriate that Colorado state employees engage in deception in the course of their official duties? Do we really want Colorado state government to rest on a foundation of deception?
If Colorado politicians and PERA administrators are successful in their efforts to force Colorado PERA pensioners to payoff accrued state debts will honest Colorado taxpayers be satisfied with the result? How many Coloradans actually want the State of Colorado to break its contracts?
Whether or not the 2010 Colorado PERA contract breach is ultimately successful, a record of Colorado PERA's attempts at deception must be readily available to the public for posterity. Colorado voters and future elected officials must have easy access to the record of the SB10-001 taking. In my opinion, the moral underpinnings of Colorado state government are being written in this bill, SB10-001. If the State of Colorado can freely abrogate its contracts, all parties contracting with Colorado state government in the future should be fully informed of the fact.
I write this article to set the record straight, and to expose the deception of Colorado PERA officials and certain Colorado politicians. In the article, I highlight statements made during the June 4, 2014 oral arguments before the Colorado Supreme Court in the Colorado PERA retiree COLA lawsuit, Justus v. State.
If the State of Colorado (one of the wealthiest states in the nation) is indeed facing a financial "crisis" that would justify breach of state contracts, why would the Colorado Supreme Court allow the Executive and Legislative branches of Colorado state government to redress that financial "crisis" by asking retired public sector workers to relinquish their earned benefits, their deferred compensation? Earned benefits, I might add, that replace Social Security for these retirees.
Why would the Colorado Supreme Court agree to take money from retired workers, yet fail to ask corporations to relinquish any of the billions of dollars worth of unearned, non-contracted tax exemptions and subsidies they regularly receive from the Colorado Legislature?
Why would the Colorado Supreme Court allow the state agency Colorado PERA to avoid paying its contracted annuity COLA payments, but require private sector insurance companies to continue to pay contracted annuity COLA payments?
Here is a link to the June 4, 2014 Colorado Supreme Court Oral Arguments in the Colorado PERA retiree lawsuit, Justus v. State:
An earlier article addressing Colorado PERA's attempts to deceive the Colorado Supreme Court:
Three attorneys who participated in the Colorado Supreme Court oral arguments on June 4, 2014:
Richard Rosenblatt, represented Colorado PERA retirees. Sean Connelly, represented Colorado PERA, and Colorado Solicitor General Dan Domenico, represented the State of Colorado. Rosenblatt was up first at the one-hour hearing, followed by Connelly and Domenico. Richard Rosenblatt concluded the oral arguments with a brief rebuttal.
MY VIEW: COLORADO PERA'S DECEPTION AT THE COLORADO SUPREME COURT ORAL ARGUMENTS . . . A RED HERRING.
At 31 minutes into the June 4, 2014 oral arguments Attorney Sean Connelly, representing Colorado PERA, throws what I see as a new PERA deception at the wall to see if it will stick, Sean Connelly's comments:
"If you look at the language of the PERA statute, in 801.1, Section 801.1, of the PERA statutes, says that the monthly benefit is payable for the lifetime of the beneficiary."
"COLAs are instated in Part 10 of the PERA statutes, specifically in Sections 1001, 1002, 1003 and those were the parts that were amended in SB10-001 in 2010."
(My comment: Contrary to Sean Connelly's argument, the statutory language creating the PERA COLA contract and the PERA base benefit is identical . . . both benefits "SHALL" be paid to annuitants. Colorado PERA's attorneys agree that the PERA statutes create a contract for the PERA base benefit.
Articles of Colorado law are divided into "parts" and "sections." As plaintiff's attorney Richard Rosenblatt points out in his concluding remarks at the June 4, 2014 oral arguments, Part 8 of the PERA statutes is not the portion of the PERA statutes that creates the contract for the PERA base benefit. The contract for the base benefit is created in Section 24-51-602, located in Part 6 of the PERA statutes, a Part that is titled "Service Retirement." Section 602 is titled "Service retirement eligibility," it addresses eligibility for service retirement benefits in the PERA pension plan that are a contractual obligation of PERA and PERA-affiliated employers. Section 602 provides that: "Members . . . SHALL, upon written application and approval of the board, receive service retirement benefits pursuant to the benefit formula . . ."
This Colorado PERA statutory language creating the PERA "base benefit" contract is identical to the PERA statutory language creating the PERA COLA benefit contract. Colorado PERA's lawyers would have us and the Colorado Supreme Court believe otherwise.
Part 8 of the PERA statutes (which PERA's lawyers would have the Supreme Court believe creates the PERA base benefit contract) simply implements Part 6 of the PERA statutes. Part 8 of the PERA statutes addresses "Benefit Options" for payment of the service retirement benefit offered under the PERA pension contract. The Part 8 payment options for this PERA annuity are: single life, joint life with one-half payable to a cobeneficiary at death of the retiree, and joint life with the same benefit payable to a cobeneficiary at death of the retiree.
Under the PERA statutory construction, Part 8 addressing PERA annuity payout options rightly follows Part 6 which addresses eligibility for the PERA retirement benefit itself. Section 602 provides that the qualified PERA retiree SHALL receive the base benefit. Part 8 provides choices for the payout of the benefit.
Why would PERA's lawyers state or imply that the contract for the PERA base pension benefit is created in the section of PERA law that addresses retiree choices for the method of payout of the total contracted PERA benefit, rather than in the section that addresses PERA member eligibility for the PERA annuity itself? In my opinion, deception.
The provision in Colorado PERA law providing 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.”)
In oral arguments, PERA's lawyers imply that the PERA base benefit contract is formed in Part 8 of the PERA statutes, a Part that addresses options for payment of the PERA base benefit, rather than in Part 6 that establishes the base benefit itself. I see this as a weak attempt to persuade the Justices that the language creating the PERA base benefit somehow differs from the language creating the COLA contract. It doesn't, both "shall" be paid under the PERA statutes.
Note that the Defendants in this case agree with Judge Hyatt's ruling (before his retirement) at the District Court. Note also that Judge Hyatt found that the PERA base benefit contract was formed in Sections 602 and 603 of the PERA statutes rather than in Part 8 as the Defendants now choose to argue before the Supreme Court. Note that Judge Hyatt made no mention of Part 8 of the PERA statutes relating to annuity payment options when he identified the PERA base benefit as a contractual obligation in his Decision.
Judge Hyatt found that the PERA base benefit contract exists based on the identical language, "shall," that creates the PERA COLA benefit. Judge Hyatt's position conflicts with the Defendant's latest claim.
From Judge Hyatt's Decision, June 29, 2011, page 2:
"When a member retires, their monthly base benefit is calculated using the member’s age at retirement, years of service, and their highest average salary (which also has its own calculation). C.R.S. § 24-51-602-603 (2010)."
At approximately 46 minutes into the June 4, 2014 oral arguments, Colorado Solicitor General Dan Domenico repeats what I see as Sean Connelly's earlier attempt to mislead the Colorado Supreme Court to believe that the statutory language creating the PERA base benefit contract differs from the statutory language creating the PERA COLA benefit, Dan Domenico:
"If you compare the language of the base benefit . . . in Parts 6, 7, ad 8 of the PERA statutes, that includes language of entitlement, durational language, this is what you get for life."
"The COLA statutes in Part 10 simply don't. That language is conspicuously absent from the COLA statutes."
(My comment: Apparently Domenico is not troubled by the fact that this durational language is also "conspicuously absent" from the statute creating the PERA base benefit contract.)
"So, as a matter of statutory interpretation it's simply a different treatment by the Legislature of the cost-of-living benefit versus the base benefit."
(My comment: In my opinion, this statement is glaring, shameless deception of the Colorado Supreme Court. The language is identical.)
"The base benefit is an individualized assessment . . . it's about you and what you have put in, you should get it back." "The cost-of-living formula is not about you, it's about external economic factors, including inflation and the health of PERA."
(My comment: This Domenico statement is, in my opinion, manufactured from whole cloth. PERA member contributions support the PERA COLA benefit AND the base benefit. Colorado PERA's actuaries have incorporated the 3.5 percent COLA into actuarial reporting on the plan. PERA-affiliated employers do not make a separate contribution to support the PERA COLA benefit.)
DOMENICO GETS IT WRONG ON THE EXISTENCE OF "TIERS" OF THE PERA COLA.
Next Dan Domenico makes a statement that betrays either ignorance of PERA's legislative history or more deception in my opinion:
"It would be a very strange system if we had a system that said, well this group of people's cost-of-living should be adjusted differently than this other."
(My comment: As I listened to this Domenico statement my first thought was that he is ignorant of the legislative history of Colorado PERA pension benefits. The "very strange system" he objects to is indeed present reality. It is in current Colorado PERA law.
Thankfully, the PERA retiree's attorney recognized the lack of knowledge of PERA's legislative history [or deception] and corrected it at the end of the June 4, 2014 oral arguments.
From the Colorado PERA Publication "History of Colorado PERA Legislation":
SB04-132 – new members hired effective 7/1/05, eligible for early retirement [not unreduced retirement] at age 50 with 30 years of service, and the COLA would equal the lesser of 3% annually, or the actual CPI change."
For new PERA members, SB04-132 created a new PERA COLA of the lesser of 3% or inflation, from the 2004 Digest of Bills:
“For any person who becomes a member of the association on or after July 1, 2005, specifies: . . . That the annual increase applied to benefits shall be the lesser of 3% or the increase in the consumer price index.”
From Section 9 of SB 04-132:
24-51-1002. Annual percentages to be used. (1) (a.5) (I) NOTWITHSTANDING SUBSECTION (1) OF THIS SECTION, THE INCREASE APPLIED TO BENEFITS OF PERSONS WHO BECOME MEMBERS ON OR AFTER JULY 1, 2005, AND WERE NOT MEMBERS, INACTIVE MEMBERS, OR RETIREES ON JULY 1, 2005, SHALL BE THE LESSER OF THREE PERCENT OR THE ACTUAL INCREASE, AS CALCULATED BY THE UNITED STATES DEPARTMENT OF LABOR, IN THE NATIONAL CONSUMER PRICE INDEX FOR URBAN WAGE EARNERS AND CLERICAL WORKERS DURING THE CALENDAR YEAR PRECEDING THE INCREASE IN THE BENEFIT.
[Note that the language “THE INCREASE SHALL BE” is used in the bill by the bill’s drafter to indicate an “automatic” COLA. Some years ago the Legislature struck the “ad hoc” language relating to the PERA COLA from Colorado law.]
From the SB04-132 Fiscal Note:
“for any person, except a state trooper, who becomes a PERA member after July 1, 2005 . . . specifies that the annual increase in benefits shall be the lesser of 3.0% or the actual increase in the National Consumer Index for Urban Wage Earners and Clerical Workers during the calendar year preceding the benefit increase.”
Discussion of SB04-132 [from the Minutes of the PERA Board of Trustees, March 19, 2004]:
"Mr. Gray then updated the Board regarding SB04-132. Mr. Gray stated that Senator Ken Arnold would like to get SB04-132 moving again to ensure that it is can be [sic] considered in a timely enough manner by the full Senate and the House of Representatives. Mr. Gray then requested direction from the Board regarding their view on including additional legislative proposals approved by the Board including, for members hired on or after July 1, 2005, no full retirement benefits at age 50 with 30 years of service, and annual post-retirement benefits of 3 percent or the actual change in the consumer price index, whichever is lower, as well as the reallocation of 0.08 percent of salary of future employer contributions to the PERA pension trust fund rather than to the PERA Health Care Trust Fund. Board discussion ensued regarding the consequences of including these elements in SB04-132.
At the conclusion of the discussion, James Casebolt, Board Chair, expressed that consensus among the Board was for staff to continue negotiations with the Governor's Office regarding the defined contribution legislation. Mr. Casebolt also stated that the Board would provide staff with the latitude to include the three aforementioned provisions in SB04-132, if necessary.")
Back to excerpts from the oral arguments, Dan Domenico:
"I think the plaintiffs concede that saving PERA, trying to get it back to being actuarially sound, is in fact a legitimate public purpose."
(My comment: Note that the funding ratio [AFR] of the Colorado PERA pension system was 69 percent at the time of the PERA COLA taking. The PERA system was actuarially sound at the time of the taking. In the 1970s, many public pension systems in the United State operated on a "pay-as-you-go" basis, that is, the systems had zero percent funded ratios, yet they continued to meet their contractual obligations. Further, it is not the responsibility of Colorado PERA members and retirees to bail out Colorado state government, to pay for the state's decade-long failure to meet its ARC obligations, and its past mismanagement of the PERA pension system, such as the Bill Owens "service credit fire sale.")
Question from a Colorado Supreme Court Justice at 56 minutes into the oral arguments:
"Mr. Domenico, tell me, just very quickly again why you think, what the principal difference is between why the PERA benefits themselves are contractual, and the COLA is not contractual."
"The key difference is the statutory construction difference. Part 10 does not include the durational language that says you're entitled to this for life."
"It simply says, while this statute is in effect, here's how we calculate the benefit."
"The base in Part 8, especially 801, says you're entitled to this benefit for life."
(My comment: Of course, I see this as further deception of the Colorado Supreme Court. The language creating the base benefit contract and the COLA contract is the same, "SHALL." I cannot believe that Colorado PERA's lawyers have embraced such a transparent deception.)
PERA retiree attorney Rosenblatt comments in rebuttal at the conclusion of the oral arguments (57 minutes into the oral arguments):
"First of all, I want to disagree with my colleagues as to what creates the base contract, the base pension contract, it is 24-51-602, which reads, that members . . . SHALL upon written application and approval of the board, receive service retirement benefits pursuant to a benefit formula . . ."
"So, it's 'SHALL RECEIVE' is the language that creates the contract for the base pension, which they (defendant's attorneys) agree is a contract."
"And, the COLA statute says "SHALL," uses the same mandatory language."
"The durational language that they speak of is under a section that sets forth options for payment of lesser amounts if the retiree wants the benefit to cover the life of a spouse."
"The actual creation of the (base benefit) contract is based on the mandatory language 'SHALL RECEIVE" in 24-51-602 and I would submit that the mandatory language is the same as the mandatory language in the COLA."
Attorney Rosenblatt continues:
"As far as Justice Boatright's question concerning . . . have there been any changes to the detriment, since 1994, which is when the class that we have begins, there's been no change to the detriment of any current retiree."
"In 2005, contrary to what the Solicitor General said, they decided to change treating everyone identically with the COLA."
"In 2005, and it was based on a recommendation from the (Treasurer's PERA) Commission, and in our belief, based on the McPhail/Bills analysis that Attorney General Salazar had followed, they said in 2005, for future retirees, not for current retirees, but for future retirees, it's going to be a different COLA formula."
"So, already they had created a different COLA formula, for post-2005, people fully-vested after 2005, than for people fully-vested before."
"So, the idea that it was identical is just not correct."
"We believe that this court should continue as it did in Peterson to follow McPhail and Bills and apply the fully-vested COLA right."
On June 4, the periodical Chalkbeat covered the Colorado Supreme Court oral arguments in Justus v. State:
"The size of future checks for thousands of retired teachers and other civil servants is now in the hands of five Colorado Supreme Court justices."
"The court heard an hour of oral arguments Wednesday morning in the case of Justus v. State, a lawsuit that challenges reductions in retiree cost-of-living payments by the Public Employees’ Retirement Association (PERA)."
"A 2010 law (Senate Bill 10-001), eliminated payments associated with cost of living that year and cut retirees’ annual benefit increases from 3.5 percent to 2 percent starting in 2011. Future increases could drop below 2 percent under certain conditions. (While the increases are commonly referred to as cost of living raises, they aren’t pegged to inflation or consumer prices.)"
"When the lawsuit was filed, plaintiffs estimated the COLA reduction could cost the typical retiree more than $165,000 over 20 years."
"The legal issue before the supreme court is whether retirees have a contractual right to the 3.5 percent COLA."
"Lawyers for each side presented starkly opposing views to the high court on Wednesday."
"The COLA 'is part and parcel of the pension,' said Richard Rosenblatt, who represents the retirees who filed the original suit. A retiree’s main pension benefit together with the COLA 'clearly is a contract.'”
"But Sean Connelly, representing PERA, argued, 'There is no contractual right to a COLA fixed at a certain point.' He urged the justices to overturn the Court of Appeals and accept the trial court’s dismissal of the case."
"Both Connelly and Solicitor General Dan Domenico, representing the state, noted that COLA payments have fluctuated several times over the last few decades, and that those changes have applied to retirees."
(My comment: "fluctuation" is not the issue, impairment is the issue. An improvement of the PERA contract does not breach the contract, only a retroactive reduction of the COLA impairs the contract.)
"Four of the five justices asked questions during the arguments, but their queries didn’t hint at any clear leanings on the case."
"The case originally was filed within days of SB10-001 becoming law. A district court judge ruled in 2011 that the state and PERA could reduce the payments. But the Colorado Court of Appeals ruled in 2012 that pensioners do have a contractual right to the COLA in effect at the time of retirement but gave the state a possible out. The appeals court concluded the courts 'must still determine whether any impairment of the right is substantial and, if so, whether the reduction was reasonable and necessary to serve a significant and legitimate public purpose.'”
"There are no set deadlines for the court to rule on a case after oral arguments. In a recent big public policy case, the Lobato v. State school funding suit, the court ruled a little less than three months after arguments were held."
"Chief Justice Nancy Rice announced that Justices Allison Eid and Monica Marquez would not be participating in Justus v. State. Justices typically don’t announce why they’re not participating."
(My comment: Justice Hood did not recuse himself in this case, Justus v. State, in spite of his past association with an attorney who worked on the case [Mark Gruseskin,] and although he was recused or removed in Colorado's Moreno "redistricting" case due to his past association with the attorney Grueskin who worked on the Moreno case.)
The Code of Judicial Conduct:
“A judge should disclose on the record information that the judge believes the parties or their lawyers might reasonably consider relevant to a possible motion for disqualification, even if the judge believes there is no basis for disqualification.”
Is the rationale for Justice Hood’s recusal or removal in the Moreno case public information? Why would Justice Hood recuse himself in one case due a former association with case attorney Mark Grueskin, but not in another case due to a former association with case attorney Mark Grueskin?
MORE EXCERPTS FROM THE ORAL ARGUMENTS IN JUSTUS v. STATE:
Attorney Richard Rosenblatt began the oral arguments by noting that the taking of the contracted PERA COLA benefit was "per se" unreasonable. He commented extensively on Colorado's primary on-point public pension case law, Bills, McPhail and Peterson. He said that the Bills case dealt with a "limited vested" pension right and applied a "reasonable and necessary defense." He said that the State of Colorado cannot impair a fully-vested public pension contractual right under the Contract Clause. Rosenblatt stated that the Defendants believe that another case, DeWitt, changed the legal test for acceptable contract breach set forth in Bills and McPhail. He commented on an important U.S. Supreme Court contract case, U.S. Trust (decided in 1977) and he noted that eleven years later, in 1988, the Colorado Supreme Court held that a fully vested public pension contractual right could not be impaired in its own Peterson case.
PERA retiree attorney Rosenblatt said that the State of Colorado must fulfill its end of the PERA pension bargain. He noted that current workers in the Colorado PERA pension system have the right to leave that employment, and that they are not forced to live under the terms of their contracts with PERA. Colorado PERA retirees on the other hand have completed the contribution of money and labor, constituting their consideration under the PERA pension contract.
Richard Rosenblatt noted that an opinion of the Colorado Attorney General, supporting contractual public pension rights, agrees with the analysis in McPhail, Bills and Peterson. He commented on the work of the Colorado Treasurer's Commission, that studied Colorado PERA public pension benefits a decade ago, and that found that the benefits of current PERA retirees could not be impaired.
(For the record, an August 17, 2005, press report of the Colorado Treasurer's Commission to Strengthen and Secure PERA:
Colorado Assistant Attorney General Heidi Dineen, Rocky Mountain News [in a four part series]: "'Everyone agrees you certainly can make changes for people you haven’t even hired yet,' said Heidi Dineen, a state assistant attorney general retained to explore the issue for the Commission to Strengthen and Secure PERA. 'On the other side of the spectrum is pensioners, getting their pension checks, you cannot take that away.'"
"[Colorado PERA General Counsel Greg] Smith said in his opinion that ‘other [non-Colorado] courts have set a high burden to meet the necessity threshold.'"
“His [Colorado PERA General Counsel Greg Smith’s] briefing paper said 'there has never been a finding in Colorado that the state has reserved its power to make changes' in PERA's benefit structure.”
"The PERA board, however, relying on a legal opinion by General Counsel Greg Smith, thinks benefits cannot be cut for any active PERA member. That means not just current retirees and workers who are eligible to retire but the brand-new employee who has put less than a year of contributions into the plan."
"Smith argued, however, that there is no precedent for declaring an actuarial emergency unless a pension fund has a serious cash liquidity problem."
Greg Smith, Colorado PERA’s General Counsel told us in a Denver Post article from November 30, 2008: “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.”
Back to coverage of the Colorado Supreme Court oral arguments:
Attorney Rosenblatt also noted that Colorado PERA, in a 2008 publication, stated its agreement that the fully-vested pension benefits of PERA retirees could not be legally impaired. Attorney Rosenblatt informed the Colorado Supreme Court that the PERA COLA "is not a free-standing benefit." He said that the COLA is part of the pension benefit, "it's intertwined."
He noted that the COLA is simply a method by which the pension benefit retains its value over time. He said that Colorado PERA retirees have relied on their accrued COLA benefits in planning their retirements and the remainder of their lives.
Transcribed excerpts from the oral arguments;
A question from Colorado Supreme Court Justice (Hobbs):
"To me, you're arguing for a divestment of legislative authority here, there are plenty of people right now who didn't get raises the past ten years because of the economy, that are contracted with by the State of Colorado. Right? When they took those jobs and continue those jobs they would have expected hopefully, a cost-of-living adjustment, there's no guarantee to that, even for present employees, so why should that be with respect to the prospective argument that you're making that the Legislature is somehow divested of the authority to make these decisions, particularly when they have to do with the fiscal integrity of the whole system?"
(My comment: There are many problems with this statement/ question from Justice Hobbs, including its presumptions, and the lack of understanding it betrays. First, there is no proposed divestment of legislative authority. The Legislature does not have the authority to violate the constitutional Contract Clause. Second, obviously, governmental employees have no contractual right to receive a raise each year. Colorado PERA retirees in accordance with on-point Colorado case law, a Colorado Attorney General's opinion, clear Colorado statutes, legislative intent, the report of the Colorado Treasurer's Commission to Strengthen PERA, Colorado PERA's publications, Greg Smith's legal briefs, Greg Smith's statements in the press, and Colorado PERA attorney's testimony to the Colorado Joint Budget Committee, INDEED HAVE a contractual right to their accrued PERA COLA benefits. Third, taking accrued public pension benefits is retroactive and retrospective under the Colorado Constitution, rather than prospective. Fourth, the fiscal integrity of the Colorado PERA pension system is not at issue here. At the time of the PERA COLA contract breach in 2010, PERA's [actuarial funded ratio] stood at 69 percent, approximately the funding ratio of major U.S. public pension systems at the time. 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.]
It is the responsibility of the Colorado Supreme Court to determine if payment of the PERA COLA benefit is a contractual obligation of Colorado PERA, not to use other people's money to pay the labor costs of Colorado state and local governments.
I was surprised at Justice Hobbs' statement in the oral arguments:
"To me, you're arguing for a divestment of legislative authority here . . ." I ask, is it appropriate for an appellate judge to state a position in a case prior to deliberations in the case? [Particularly, in a case where the plaintiffs have had no opportunity to present the facts of the case to a jury? The facts of the case have not yet been discovered.]
From his comments, it sounds like Justice Hobbs has already made up his mind that there is no contract for the PERA COLA benefit. It sounds this way because, if the PERA COLA is a contractual obligation, there is no such claimed "divestment of legislative authority." The Legislature has no authority to violate the Contract Clause.)
Attorney Rosenblatt's response to this question posed by Colorado Supreme Court Justice Hobbs:
"Because, for this particular right, just like the base pension, there is a contract that provides that they will continue it, that they were promised this."
"We're talking about people who have fulfilled their end of the bargain, have left, they're gone, they're retired. They have now completed their career. They did everything they were asked to do under their contract with the state."
"There's nothing in the Legislature that guarantees anyone a pay raise every year during the term of their employment, not even these retirees when they were employed." "But, there is something there that guarantees them a base pension under a certain formula, and a COLA."
(My comment: August 8, 2012, Douglas Greenfield: “The theory behind that is that a pension that has a COLA is the equivalent of a fixed pension . . . that you could just have a higher fixed pension and no COLA . . . and is just a method by which you are providing the benefit.” Greenfield participated in a panel discussion on hosted by the National Conference of State Legislatures. The panel discussion was titled: “How Much Can States Change Existing Retirement Policy?”
Question from a Supreme Court Justice:
"A number of times you've talked about promises, and then sometimes you've talked about fulfilling a bargain." "Do you think for purposes of the Contract Clause, there is a difference between something that in normal contract terms we would distinguish as promissory estoppel, or relying to your detriment on a promise, from actually being a contract in which there is an exchange of promises? And the reason I ask that is because the argument pegs the COLA to the point at which retirement occurs, is that more implicitly an argument that the COLA should not be allowed to be changed after that point, because the employee has relied to his detriment in choosing to retire at that level, rather than promising to give something up in exchange for the promise?"
Attorney Rosenblatt's response:
"Well, we hadn't made the promissory estoppel argument, as a detrimental reliance argument, but I will say that in McPhail and Bills they . . . talked about, as fully-vested, you have fulfilled all of the conditions of the promise, they then found it contractual because of the mandatory language . . . they found a contract, the contract is 'you shall receive this escalator clause.' 'You shall be entitled to it' is the exact language."
(My comment: Colorado has traditionally followed the contractual "California Rule" of public pension jurisprudence.)
Question from a Colorado Supreme Court Justice:
"So, can the worker, the employee, be said to have given something in exchange to the state, in order to receive that retirement benefit?"
"Every contract has consideration, and the consideration that the employee gave was X number of years . . . of service, and X amount of contributions toward the plan, that's their consideration."
(My comment: August 2, 2010, Ritter Administration Letter to GASB on contractual public pension obligations:
“COSC agrees that an obligation exists since the government entity has entered into a duty, contract, or promise to provide compensation in the form of benefit payments during retirement; and furthermore, we agree that this obligation is a present obligation to the extent that the benefits owed have already been earned through past services, and are legally enforceable once vesting provisions have been met.”
“Because the exchange transaction which gave rise to this present obligation was made between the employer and the employee who is also a member of the pension plan, a reduction in member benefits [such as COLAs], or an increase in required employee contributions both serve to change the net economic benefit to the employee that was entered into at the time of the exchange transaction agreement.”
“The criteria suggested as the basis for differentiating these COLAs [automatic] versus ad-hoc COLAs is the statutes that exist as of the date of the employer’s financial statements.”
“The essential difference between an automatic COLA and an ad hoc COLA is the legal requirement; with this core difference there is no way for the two not to be substantively different. The legal difference in this instance is critical to the determination of whether the government is unable to avoid the surrender of resources to meet the obligation.”
Question from a Colorado Supreme Court Justice:
"You haven't talked much about the DeWitt case, and your opponents take the position that DeWitt really is the case that controls. What's your position with respect to that?"
"Let's be clear, DeWitt involved an insurance contract, it wasn't (a case) where the state is a contracting party."
"DeWitt didn't enunciate a new test on the overarching issue, it simply articulated for the first time in this court, what the three parts of determining . . . that applying U.S. Trust."
"DeWitt is not new law. DeWitt is just applying what's been the long-term law of the state and of the United States Supreme Court."
At 27 minutes into the oral arguments Sean Connelly representing Colorado PERA began his commentary. He started with the second question (of three issues) facing the court, whether plaintiffs have their claimed contractual right to the PERA COLA benefit.
Sean Connelly said that the defendants support the finding of a contractual right to the COLA in the Bills and McPhail cases.
"In evaluating whether the contract right exists, the court is to begin with the presumption that Legislatures, in Justice Hobbs words, do not divest themselves of the power to respond to changed circumstances in the future."
(My comment: This statement by Sean Connelly, regarding divesting legislative authority calls to mind a recent Florida court decision in a public pension case: “This court cannot set aside its constitutional obligations because a budget crisis exists in the state of Florida. To do so would be in direct contravention of this court’s oath to follow the law.” “To find otherwise would mean that a contract with our state government has no meaning.” “Courts, though, 'sit to determine questions on stormy as well as calm days,' and the Constitution was upheld during the Great Depression.”)
"Based on the language and surrounding circumstances (in Bills and McPhail) the court properly held that the pension and the right to the escalation there, was a vested right that could not be impaired, absent sufficient justification."
"The vested benefit under PERA is the right to the initial monthly benefit, and not, we submit, the right to the annual increases under a specific formula."
(My comment: 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.”
Question from a Colorado Supreme Court Justice at 30 minutes into the oral arguments:
"Is DeWitt consistent or inconsistent with Bills and McPhail?"
"I think that it's consistent with the result. It's consistent with the result of everything else. In our view, under Bills and McPhail the result would be exactly the same that there was a protected benefit and there was no overriding justification that could have justified that impairment."
"Where there might be some tension with it, is when can that right be impaired?"
(My comment: Sean Connelly notes that the position of the City of Denver in Bills/McPhail was that the pension was a mere "gratuity." The Colorado Constitution includes an anti-gratuity clause, therefore the PERA COLA cannot be a gratuity.)
Question from a Colorado Supreme Court Justice:
"Do you think that tension exists or has to be resolved in this case?"
"I don't think it has to be resolved." "I think the dispositive issue here can be 'is there a contract right to a COLA fixed in formula.'"
"I'd like to argue further why there is no contract right."
Sean Connelly at 34 minutes into the oral arguments:
"DeWitt, as Mr. Rosenblatt points out, was a private contract, but it cited U.S. Trust which was a public contract, and the Supreme Court and this court historically have not distinguished between private and public contracts."
(My comment: 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.")
"This is economic legislation and there is no basis . . . for straightjacketing the Legislature from changing to, changed circumstances."
"These are specifically the kinds of decisions that must be left to a Legislature if they can make the showing of reasonableness and necessity as to the need for impairing any contract."
(My comment: The Legislature, the state, and PERA have not made any showing of reasonableness and necessity due to the fact that this case has never gone to trial. I hasten to add that Colorado PERA's attorneys have expressed their desire that the case not go to trial.)
Question from a Colorado Supreme Court Justice to Sean Connelly:
"So your position is that it's the rate increase that is not a contract, not whether the COLA is a contract?"
"Yes, that is my position, that's my position if that's the only question presented here."
(My comment: Pause for a moment and consider just how ludicrous this statement is. Sean Connelly argues that the PERA COLA benefit is a contractual obligation, yet it may legally be reduced to ZERO. In accordance with his view of contractual obligations Connelly should have no problem with Colorado PERA paying him one dollar for his legal services under his employment contract. If Connelly's contract requires that he be paid $50,000 for his legal services, the fact that the contract specifies this amount of compensation is apparently of no relevance to Sean Connelly. He would be happy with one dollar, and consider himself to have been provided "compensation" under his contract.)
Question from a Colorado Supreme Court Justice at 40 minutes:
"The contract here includes an adjustable COLA that the Legislature sets, it can go down or up, but when that is done for that particular increment of a monthly paycheck then it becomes part of a contract."
"Certainly current workers are contributing more, working longer, and retiring ultimately with less than any of these current plaintiffs."
"Even when there is a state contract being impaired, this is still economic legislation."
"In this case, the state was acting to respond to a crisis and at the end of the day the PERA fund is more healthy now because more money is being put into it."
(My comment: Sean Connelly's statement that current workers are working longer for their PERA benefits, in my opinion, misleads the Supreme Court. In 2010, SB10-001 did not increase the years of service needed by current workers to qualify for a PERA pension benefit. How can he possibly not know this?
Also, we have seen that the Colorado Legislature is the author of the downturn in Colorado PERA's financial condition, due to a failure to pay the pension system's ARC for a decade, and the preference of politicians to use state resources for discretionary purposes such as corporate welfare. Finally, it is obvious that when the State of Colorado escapes its contractual financial obligations, it has more money.)
Colorado Solicitor General Dan Domenico representing Governor Hickenlooper and the State of Colorado began his comments at 44 minutes into the oral arguments:
"The plaintiff's case is wrong . . . as a matter of the purposes and functions of a COLA, a cost-of-living adjustment."
(My comment: Dan Domenico apparently lacks an understanding of the history of the PERA COLA benefit. When the PERA COLA benefit was created, PERA officials took the position that the 3.5 percent COLA rate would approximate PERA's long-term expectations of inflation.
March 24, 1993 (1:32 PM – 2:28 PM)
Rob Gray, Director of Government Relations, Colorado PERA:
“The (CPI up to) 3.5 percent increase is a reasonable level.” “It will probably come close to what the long-term inflation rate is.”
Rob Gray, 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.])
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