Court Rejects State Pension Bonds Because Voters Were Ignored
Victors Call Ruling “a Fourth of July Gift to Californians”
Contact: Harold Johnson
Attorney
Pacific Legal Foundation
(916) 419-7111
hej@pacificlegal.org
www.pacificlegal.org
SACRAMENTO, July 3, 2007: A California appellate court today rejected the State’s bid to float $560 million in bonds for government pensions without approval of the State electorate. The Third District Court of Appeal affirmed a lower court’s ruling that the State’s proposed “pension obligation bonds” are illegal because they were not submitted to voters as the California Constitution (Article 16, Section 1) requires for state debt in excess of $300,000.
“This is a great Fourth of July gift to Californians,” said Pacific Legal Foundation Attorney Harold Johnson, who represented the Fullerton Association of Concerned Taxpayers (FACT) in challenging the bonds. “The court upheld the basic right of the people of California to chart their fiscal destiny and have the ultimate say over major state borrowing. The court affirmed that the Legislature can’t saddle the people of California with major debt without first getting their permission. This ruling should also be a warning to spendthrifts in government. They can’t spend like tipsy sailors and automatically borrow their way out of the mess they make.”
“This is a great victory for the California Constitution and against the State’s out-of-control spending,” said businessman Thom Babcock, president of FACT. “The members of FACT are gratified that we were able to stand up for the rights of the people and deliver a historic defeat to arrogance and irresponsibility in government.”
Authorized by the Legislature and the governor in August, 2004, the bonds were designed to pay a portion of the State’s contribution to the public employee retirement system for a single year. Represented by PLF attorneys, FACT was the only challenger to the bonds in a “validation” action brought by the State. In late 2005, Sacramento County Superior Court Judge Raymond M. Cadei ruled the bonds invalid under Article 16, Section 1. The State appealed, argument was held by the Third District on June 25, and today’s ruling is the result.
“The amount of the bonds … exceeds the threshold of article XVI, section 1,” a three-justice panel of the court observed in a unanimous opinion written by Justice Harry Hull. “However, those bonds were not approved by a two-thirds vote of the Legislature or a majority vote of the people, as required by that constitutional provision.” The court also rejected the State’s contention that the constitution’s voter-approval requirement didn’t apply because paying for pensions is a state duty “imposed by law.” “We have concluded that, to the extent such an exception applies generally to article XVI, section 1, it does not apply here, because the State’s obligation to fund PERS is one the Legislature voluntarily imposed upon itself,” the court said.
The case is Pension Obligation Bond Committee v. All Persons Interested in the Matter of the Validity of the State of California’s Pension Obligation, Appellate Court No. CO51749.
The ruling is available at: http://www.courtinfo.ca.gov/opinions/documents/C051749.DOC
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