In the matter of Rhode Island Council 94 et al v. Donald L. Carcieri et al, Superior Court Associate Justice Sarah Taft-Carter today issued a decision on a central question of the pension debate.
In her analysis and decision, the judge found that there is an implied contractual relationship between the Employees Retirement System of Rhode Island and participating employees. That was the only issue the Court was asked to decide in this particular case.
Update #1: No reaction yet from Governor Chafee’s or Treasurer Raimondo’s offices.
Update #2: “For the reasons stated herein, the Court denies Defendants’ Motion for Summary Judgment and finds that the ERSRI does give rise to an implied contract and the rights and obligations incident thereto,” Taft-Carter writes on page 2. The defendants are the state (specifically, the governor); the plaintiffs are the unions.
I’m not a legal expert, but so far this sounds like a victory for organized labor, and it could throw a monkey-wrench into the pension overhaul Raimondo is pushing.
Update #3: It seems highly likely Taft-Carter’s decision will be appealed to the Rhode Island Supreme Court, which has never explicitly ruled on whether or not employees have a contractual right to their promised pensions.
Update #4: Union leaders George Nee of the AFL-CIO and Robert Walsh of NEARI tell my colleague Tim White they’re happy with the decision, but it’s far from the end of the road on this. As they explain it, Taft-Carter’s decision sets the stage for further litigation on this question, which the state had sought to preclude as unnecessary by asking for a summary judgment.
“We’re very pleased that Judge Taft-Carter saw that there was indeed an implied contract with teachers and state employees regarding their retirement security,” Walsh, a member of the pension advisory group, told Tim a few minutes ago.
Walsh also called for the General Assembly to postpone its pension session. “I think the state needs to take a step back,” he said. “It would not be prudent to make further changes to the pension system without knowing whether the changes they make are legal. And there is time: the next round wouldn’t be in effect until July 1 of next year.”
Still no official reaction from the governor or treasurer.
Update #5: Here’s a key section from the end of Taft-Carter’s decision that must be causing heartburn on Smith Hill this morning – note that she includes a contractual right to COLAs as well as base benefits (emphasis mine):
Defendants envision an ERSRI [the Employees Retirement System of Rhode Island] under which the State may, with or without justification, significantly alter or completely terminate a public employee’s pension benefits at any time – even just one day – before retirement. In light of the major purposes underlying public pensions, as recognized by our own Supreme Court, such a construction of the ERSRI is untenable. …
The case law does not preclude but rather supports this Court’s holding that Plaintiffs, as ten-year veterans of the State, possess a contractual relationship with the State pertaining to retirement allowances and COLA benefits which are not subject to collective bargaining.
Update #6: The Projo’s Mike Stanton, who’s followed the case closely, explains:
Lawyers for the state had asked the judge to dismiss the case, arguing that past court decisions have said there is no contract right. But Taft-Carter says that there is an implied contractual relationship ….
That means that the lawsuit can proceed, even as state officials are wrestling with much larger pension reform.
Update #7: Taft-Carter does not take the unions’ side on every point in her decision.
The judge says use of the words “vest” and “vesting” in state law do not indicate lawmakers intended to create a contractual right to pensions, contrary to what the unions argued. And she writes that she “is not convinced” by labor’s argument that the state law guarantee of annual appropriations to fund the pension system is a sign of a contractual right.
But Taft-Carter also turned aside an argument by the state that there isn’t a contract right because pensions are excluded from collective bargaining at the state level. “The Court finds Defendants’ argument no more convincing than Plaintiffs’,” she writes. (“Defendants” means the state, “plaintiffs” means the unions.)
Update #8: As union leaders noted in Update #4, this case is pivotal – but this specific ruling is only one piece of it. Taft-Carter herself makes the point that today’s ruling doesn’t necessarily mean the 2009 and 2010 pension changes were unconstitutional:
Defendants maintain that this Court’s holding would “cement” the law and forever bind future legislatures. This is simply untrue. … Whether the 2009 and 2010 Acts have substantially impaired the contract as it exists between Plaintiffs and Defendants is not the issue before this Court. Nor does this Court make any findings as to whether the Acts were, nevertheless, “reasonable and necessary to carry out a legitimate public purpose” such that they have not violated Plaintiffs’ rights under the Contract and Takings Clauses.
Update #9: The NEARI’s Bob Walsh explained to Tim White that there are four hurdles the unions need to clear to win a constitutional contract clause case like this one.
First, is there a contract? (Taft-Carter says yes.) Second, does the law impair an obligation under the contract? (Again, she says yes.) Third, is the impairment substantial? (No ruling on that today.) Fourth, was the contract impaired to achieve some important public purpose. (Again, no ruling on that today.)
The last of those may be part of the state’s endgame legal strategy – that the pensions as promised are simply unaffordable, even if the retirees do possess a contractual right to them, and the General Assembly has to cut them because of its responsibility for the state’s fiscal health. That may be a tall order, though.
Update #10: House Speaker Gordon Fox and other legislative leaders are in talks with Treasurer Gina Raimondo on how to proceed now in light of Taft-Carter’s ruling today, spokesman Larry Berman tells Tim White. The House and Senate finance committees are scheduled to begin joint pension hearings Wednesday afternoon and the full chambers are expected to return after Columbus Day.
Update #11: No word from Raimondo’s or Chafee’s offices yet, nearly an hour and a half after the decision came down. The governor has been expressing concern all year about whether a ruling like this one could upend the treasurer’s strategy for altering the pension system. Raimondo downplayed the potential consequences of the Taft-Carter decision just yesterday, WRNI’s Ian Donnis reports.
Update #12: A regular reader notes that the big question is what Taft-Carter’s decision (and subsequent rulings) says about future COLAs, and how those are defined. Much of the current discussion about saving money on pensions centers on freezing or reducing the cost-of-living adjustments made for both current retirees and active workers (as well as, obviously, new hires).
Taft-Carter writes that “a COLA and a pension are one and the same,” and cites a Rhode Island Supreme Court decision in Providence that found the city “did not have the authority to reduce plaintiffs’ COLA benefit by subsequent ordinance because their right to receive the COLA provided by Ordinance 1991-5, which constitutes a vital part of their retirement allowance, vested upon their retirement.”
As a layman, I read that as saying you can’t change the COLA formula once someone is retired. Also, the Providence case involved collective bargaining, so it may not carry the same weight at the state level.
This points to how complicated the question of changing pension benefits is going to get. If you’ve worked for the state for 12 years, do you have a contractual right to the pension and COLA formula in place for all those 12 years? Or as of 10 years? Can the state give you the more generous pension benefits offered during your first 12 years, but then give you the less generous overhauled pension benefits for your subsequent years of service? Commenter Gary Morse offered some thoughts on this yesterday.
Update #13: Here’s the core of why Taft-Carter ruled that 10 years is the key threshold for pensions:
The General Assembly, through the ERSRI, offered a retirement allowance and COLA as a form of deferred compensation not subject to collective bargaining. In exchange, the state sought the acceptance of public employment and the “faithful and diligent” completion of that employment over a number of years, defined by years of service and/or reaching a certain retirement age. This “promise for performance” exchange is the hallmark of unilateral contract. Upon full performance, acceptance of the offer is complete, and the offeror loses the power of revocation.
Here, having completed ten years of service, Plaintiffs have partially performed. However, Plaintiffs had not fully performed at the time of the challenged enactments because they had not reached the statutory retirement age. … In the case of pension offers, more than mere part performance may be necessary to render the offer irrevocable; some courts have sought substantial performance. As a matter of law, the Court holds that ten years of contributory service is substantial. The major purpose behind the ERSRI to retain long-term employees supports this conclusion as does the General Assembly’s clear choice to establish ten years as the point at which pension rights vest.
Another key quote pointed out to me on Twitter comes on page 25: “The benefits provided pursuant to the ERSRI are not gratuities that may be taken away at the whim of the State.”
Update #14: WRNI’s Scott MacKay spoke with the lead lawyer for the union side:
“This is step one and we have a lot of steps to go,” said Lynette Labinger, lawyer for the unions representing a wide spectrum of Rhode Island public employees. “We do have one day to appreciate a decision we are very happy with.”
Lawyers for the state had requested that the court throw out case, asserting that the employees have no property or contract rights to pensions. …
“The state was basically saying that we had no right to be heard,” said Labinger.
Update #15: The Projo’s Kathy Gregg has more details on Raimondo’s comments last night and the next move that the unions’ attorney is planning:
Treasurer Gina Raimondo said it would be “foolhardy” to wait until the case works its way through months – if not years – of appeals to tackle the state’s pension crisis.
Asked on Monday after a pension-briefing she led for the state Senate if she intended to wait for the court to rule before proposing a pension-reform package, she said: “We absolutely will not wait.
“We can’t wait,” Democrat Raimondo said. “We have a crisis. We have to move forward…The other important thing is that [ruling] won’t be final. Whoever loses will appeal, so it is foolhardy to think we will have any finality on that issue within the next several months.” …
[Union attorney Lynette] Labinger said that the union plans to resume discovery in the case, seeking detailed financial information from the state retirement system documenting the pension cuts and projected savings. The union will seek to show that the state could have found other ways to save money and that cutting pensions did not achieve a vital public goal.
The latter comment by Labinger shows she’s already preparing to challenge any effort by the state to argue its case based on the fourth hurdle cited by Bob Walsh earlier (see Update #9).
As of 3:30 p.m., we’re still waiting for an official comment on the ruling from Chafee’s or Raimondo’s offices. I’d expect that to come before the afternoon is out, likely as a joint statement.
Update #16: Governor Chafee and Treasurer Raimondo will ask the Rhode Island Supreme Court to review Judge Taft-Carter’s decision, state attorney John Tarantino tells me. Because the case isn’t finished (remember, today’s ruling was only a denial of the request for summary judgment) the court can decide whether to do so. I’ll have more from our conversation shortly.
Separately, House Speaker Gordon Fox and Senate President M. Teresa Paiva Weed issued a statement saying today’s ruling “has no effect” on the joint hearings into pension reform scheduled for this month, which are set to begin Wednesday afternoon, or the special session set for October.
“During the special session we anticipate taking whatever action is reasonable and necessary to address the pension crisis confronting the State of Rhode Island,” Fox and Paiva Weed said.
Update #17: And here’s the full (short) joint statement from Chafee and Raimondo – no surprises there:
Today’s lower court ruling recognized this is only the beginning of what could be a long legal process. We understand that this case will ultimately be decided by the Rhode Island Supreme Court. The state will be seeking immediate Supreme Court review of Judge Taft-Carter’s decision.
While we are disappointed that today’s ruling did not grant immediate dismissal of the plaintiff’s claims to the state at this time, we remain committed to submitting comprehensive pension reform legislation for the General Assembly to consider during their October special session. The state cannot afford its current pension obligations and must enact reform that is fair to the taxpayers and provides retirement security to retirees and active employees that is sustainable and affordable.
Update #18: New post to finish the day – What’s next for the pension fight after today’s court ruling.