Judge, No “Persuasive Reason” Given that Colorado PERA COLA Benefit is Not a State Contract.

"Joshua Sharf is a fiscal policy analyst for the Independence Institute, a free market think tank in Denver."

From the Greeley Tribune article, October 29, 2014: "Sharf: Good and bad news for PERA in Colorado Supreme Court’s decision:

"The Colorado Supreme Court granted some good news to the state’s troubled public pensions last week by upholding a key part of an important 2010 reform law. In the process, though, the court may have made it more difficult to enact more meaningful reform down the road."

(See: http://coloradopols.com/diary/64487/the-colorado-supreme-court-politicians-in-black-robes-as-it-turns-out)

"Four years ago the Colorado Legislature adopted Senate Bill 1 to reform the state’s Public Employees Retirement Association. Among other changes, the bill lowered the cap on retirees’ annual cost-of-living adjustments from 3.5 percent to 2 percent. The court upheld this particular provision, which was designed to help reduce PERA’s future financial shortfall."

(Joshua, for the record the current long-term inflation assumption of the Colorado PERA pension system is 3.5%. Also, why is it surprising that when states break governmental contracts, this breach of contract improves a state's financial condition?)

"SB 1’s changes applied to current as well as future retirees. A group of current retirees, unhappy with having their cost of living capped, sued."

(Joshua, the Colorado PERA COLA benefit of the retiree plaintiffs in this case, Justus v. State, was already "capped" prior to the litigation of the case, Justus v. State. The COLA was "capped" in Colorado law at 3.5%. In this case, the Colorado Supreme Court ignored the existing evidence, ignored the findings of the Colorado Court of Appeals, and rendered judgment in the case without trial or discovery. This, in spite of an obligation of US courts to give "heightened scrutiny" to state attempts to escape their own financial obligations under the US Supreme Court case, US Trust.

Joshua, just as your mortgage rate might be "capped" at a fixed rate, perhaps 4%, the PERA COLA is a provision in a contract, here a Colorado statutory contract. As an organization that supports the US Constitution, I find it odd that the Independence Institute is so eager to see Colorado state contracts abrogated. The State of Colorado also contracts with corporations.)

"The plaintiffs had some reason for optimism. While it has long been held that states cannot create contractual obligations through Legislation, the Colorado Supreme Court had carved out an exception for public pensions in two decisions: McPhail (1959) and Bills (1961)."

(Joshua, I am happy that the Independence Institute acknowledges Colorado's long-standing on-point public pension case law. This reveals a level of sophistication that exceeds that of the Denver District Court's Judge Hyatt [recently retired] who conveniently failed to even mention Colorado's on-point public pension case law [Bills and McPhail] in the Denver District Court Decision in this case. For the record, this Denver District Court Decision was embraced by the Colorado Supreme Court in its political decision to take the contracted PERA COLA benefit.)

"The Justices drew a distinction between those cases and the current one, known by its lead plaintiff, Justus. The court decided that cost-of-living adjustments were not part of the core formula for determining benefits. They also recognized that the Legislature had changed the adjustments formula a number of times in the past. As a result, the majority ruled that the retirees had no reasonable expectation that a contract had been created."

(Joshua, you don't seem to be bothered by the fact that, in this Colorado Supreme Court Decision, one branch of Colorado state government has excused the debt of another branch of state government. As was noted in the Colorado Court of Appeals Decision in this case, the plaintiffs contested the diminishment of the value of their contracts, rather than a "change" in the contractual terms. "Changes" to the COLA that improve the benefit do not impair the contract. If your mortgage company unilaterally lowered your mortgage rate, you would suffer no harm.

Did the Colorado Supreme Court justices even bother to read the Decision of the Colorado Court of Appeals? The Colorado Court of Appeals noted in its Decision that “plaintiffs contend that they have a reasonable expectation of an IRREDUCIBLE [not, as defendants asserted, an UNCHANGEABLE] COLA benefit.  Colorado Court of Appeals: “Therefore, we direct the district court to consider whether there has been a substantial impairment with that in mind.”

Instead of acknowledging up front that the plaintiffs in the case Justus v. State were contesting the provisions of SB10-001 that REDUCED the PERA retiree COLA benefit, the defendants in the case, Colorado PERA and the State of Colorado, employed a “red herring,” claiming that the plaintiffs were arguing that the COLA benefit could not be legally “adjusted,” that it was UNCHANGEABLE. Colorado PERA’s deception worked on the lower court, the District Court, but the Colorado Court of Appeals, in their Decision saw through this red herring. Perhaps the Colorado Supreme Court would have also seen through the red herring if the court had carefully read the Court of Appeals Decision, or actually sought the truth in this case.

Does the Independence Institute support the Colorado Judicial Branch's use of a red herring in escaping state contractual obligations?

Joshua, are you aware that even Colorado PERA's lawyers have the "reasonable expectation" that the Colorado PERA COLA benefit is contractual? If Colorado PERA's lawyers have this expectation, why should Colorado PERA retirees not also have this expectation?

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.”


"Coates noted that by framing the decision the way it did, the majority bought into the plaintiffs’ logic, and that there were elements of the plan that the Legislature would not be able to change without violating the Contracts Clause."

"Coates also believes the court failed to give a persuasive reason why the adjustments were exempt from the legislative contracting exception. Taken together, these two elements effectively leave areas of the plan concerning current retirees off-limits to the Legislature. Further, the court offers no guidance as to what those areas might be."

(Joshua, thank you for juxtaposing the opinion of Colorado Supreme Court Justice Coats with the opinion of politicians sitting on the Colorado Supreme Court.)

"Without such guidance, future legislatures will be less informed about what reforms will pass constitutional muster. They will be less likely to take on broad reforms unless and until drastic action is needed, and there is little margin for error."

(Joshua, if the Colorado Legislature actually desired information regarding Colorado PERA pension reforms that would pass constitutional muster, the Colorado Legislature would have sent an interrogatory to the Colorado Supreme Court with such queries in 2009. The Colorado PERA Board of Trustees, to their credit, took the position that such an interrogatory should be sent. The Leadership of the Colorado Legislature, inexplicably, opted against sending this interrogatory to the Supreme Court. This decision was, of course, made prior to the defendant's shift in their legal strategy from seeking a one-time breach of the COLA contract through "actuarial necessity," to pursuing elimination of this Colorado PERA contractual obligation in its entirety. The Colorado Legislature did not want guidance from the court in 2009.)

"By failing to lay out clear rules for what is permissible and what isn’t with respect to existing benefits, the Court’s ruling in Justus, celebrated for helping PERA’s finances right now, may end up making such a bleak scenario more likely in the future."

(Joshua, you do not seem so concerned with the "bleak scenario" of Colorado taxpayers paying billions of dollars in corporate welfare each year.  This corporate welfare is provided by the Colorado Legislature. Google "Colorado Tax Expenditure Report." The Colorado Legislature has directed these billions of dollars to corporate welfare in lieu of paying its public pension bills. This has gone on for more than a decade.)


One Community Comment, Facebook Comments

  1. hawkeye says:

    Algernon, you and I both know that the Independence Institute, a so-called libertarian think-tank, represents corporate.  Who do you think financially supports i2i.org?  They will defend the contract rights of private bond holders tooth and nail, but consider public employee contracts subject to whim.

    By the way, a federal US bankruptcy judge considers municipal bondholders and pension beneficiaries as equals in California municipal bankruptcies.  Since the State of Colorado cannot declare bankruptcy, the Colorado Supreme Court was compelled to rule that PERA retirees did not have a contract to their Annual Benefit Increase (ABI) … for the sake of public opinion and for purposes of public relations the ABI is now a Cost of Living "Adjustment" … and by using the term "adjustment" it goes to say that its adjustable.  Go figure.



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