Local Government Employees on Local Government Pension Boards - An Important Court Case in California

It's been over three years since <a href="http://www.cityethics.org/node/124&quot; target="”_blank”">I wrote</a> about the
conflict situation of San Diego's pension board. Its members were
selected by the city government labor unions and by the city, and they
worked for the city. When an increase in their retirement benefits was
explicitly tied to their approval of a reduction in contributions to
the pension plan, the pension board members acted in their personal
interest and against the interest of the city's taxpayers in the responsible handling of the pension system. That is, the pension
board members voted for a deal that directly benefited them. And state
prosecutors brought an action against them for criminal conflict of
interest.<br>
<br>
The wheels of justice move slowly, and the matter (which has not yet been tried) has made its
way to the state supreme court, which will hear the case Wednesday,
November 4. The briefs can be found <a href="http://www.courtinfo.ca.gov/courts/supreme/oralarg-briefs.htm&quot; target="”_blank”">here</a>
(Lexin v. S.C.), at least until Wednesday.<br>
<br>

A state court of appeals, in <a href="http://caselaw.lp.findlaw.com/ca/caapp4th/154.html&quot; target="”_blank”">Lexin et al.
v. Superior Court</a> 154 Cal.App.4th 1425 (2007), rejected a motion to dismiss, concluding that 'a
reasonable person could harbor a strong suspicion of [petitioners']
guilt' ... under section 1090 based upon their actions in considering,
discussing,
negotiating and ultimately voting to approve MP2 [the pension deal]
because the increase
in pension benefits was, under the evidence presented, arguably
conditioned on that approval."<br>
<br>
There are other issues involved in the case, but for our purposes this
is the most important one, because it brings to life the underlying
conflict of having union and city representatives on a pension board,
who are themselves city employees. If the pension board members lose
this case, it might affect pension boards throughout California and,
possibly, across the country.<br>
<br>
According to <a href="http://www.signonsandiego.com/news/2009/nov/02/high-court-hear-sd-pensi…; target="”_blank”">an
article in today's San Diego <i>Union-Tribune</i></a>, seventeen state and
local California public pension systems have filed briefs urging the
court to dismiss the case. This says something about the biases of
public pension boards. They don't want things to change, despite the horrible mess that occurred in San Diego.<br>
<br>
Another important issue here is whether the pension board members do
not have a conflict because they benefit no more than any other
employee. This issue arises frequently on school boards, where
teachers' spouses often vote on teacher contracts or other benefits to
teachers, thereby benefiting their households. Although the law on this
differs, there is always at least an appearance of impropriety when this occurs.<br>
<br>
Yes, pension board members do not benefit more than other employees,
but this is hardly a class of citizens worthy of exception from
conflict rules. There has to be an exception when a board member
benefits (or is harmed) along with all other citizens, as with tax decisions,
or even when a large group benefits, such as senior citizens. The one
group in a locality that should never be included in this exception is
local government employees, because conflict of interest laws are
explicitly intended to protect citizens from local government employees
acting in their personal interest. They are not just any group, but one of the two principal groups covered by the ethics code.<br>
<br>
No matter what the decision, the question should be asked by good
government organizations, elected officials, and local government
managers whether a pension board that determines the expenditure of
large sums of public money should be any different from other boards
that spend or oversee the expenditure of public money. That is, why shouldn't they too be made up of
independent individuals who have no interests in conflict with their
obligations to the public? Should city employee union representatives
sit on councils, police officers on police commissions, finance
directors on financial oversight boards, developer representatives on
zoning boards and, yes, teachers or their spouses on school boards?<br>
<br>
Many local government pension funds are in trouble. Unfunded pension
benefits were high before the stock market went down, and now they are
even higher. One reason is that those with a personal interest in
higher benefits were the ones in charge of the decisions. Elected
officials know that they can keep taxes down by promising employees
higher benefits, especially if those benefits go unfunded. Employees believe that, come their retirement,
the money will be found somehow.<br>
<br>
In San Diego, political and economic
self-interest trumped fiduciary obligations to create a serious mess in
the present. In many other cities, the mess will occur after the
politicians are gone and the employees have retired. Will even one of
them stand up and say, We shouldn't have accepted anything the city was not
willing to pay for at the time of the decision?<br>
<br>
Robert Wechsler<br>
Director of Research-Retired, City Ethics<br>
<br>
---