Florida High Court to Weigh $1 Billion State Pension Case

Photographer: Alex Wong/Getty Images

As part of a pension-reform effort that Florida governor Rick Scott Scott pushed last year to close a $3.6 billion budget shortfall, legislators changed the way pensions were funded. The measure required Close

As part of a pension-reform effort that Florida governor Rick Scott Scott pushed last... Read More

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Photographer: Alex Wong/Getty Images

As part of a pension-reform effort that Florida governor Rick Scott Scott pushed last year to close a $3.6 billion budget shortfall, legislators changed the way pensions were funded. The measure required

Florida lawmakers who backed Republican-led changes to the state’s public-employee pension system didn’t violate workers’ constitutional rights, a lawyer told the Florida Supreme Court.

The legislature relied on earlier high court rulings when it changed future benefits to save $1 billion in pension expenses and deal with a financial crisis, Raoul Cantero, a lawyer for Republican Governor Rick Scott, argued. He asked the court to throw out a trial judge’s ruling that the reform law was unconstitutional.

“The legislature has relied on that bright line not just in 2011 when they were making the plans, but all throughout,” Cantero said today in Tallahassee.

As part of a pension-reform effort that Scott pushed last year to close a $3.6 billion budget shortfall, legislators changed the way pensions were funded. The measure required workers to contribute 3 percent of their pay and eliminated the system’s cost-of-living adjustment for employees retiring after the law took effect.

The savings were shifted to the Florida Retirement System, which covers more than 650,000 state employees, saving general fund money for use in other programs. The change saved the state an estimated $1 billion for the 2011 budget year and saved local governments $600 million.

Workers contend the pension-reform measure amounted to an illegal salary cut and a violation of collective-bargaining rights under existing union contracts.

Game Changer

“You can’t change the game in the middle of the game,” Ronald Meyer, a lawyer for some of the workers challenging the pension-reform law, told the seven-member court.

Eleven public employees covered by the $120 billion pension system sued Scott and other Florida officials last year over the changes to their retirement plan. The employees include members of AFSCME Florida, the Florida Police Benevolent Association and the Florida Education Association.

Florida Circuit Judge Jackie Fulford in Tallahassee concluded in March the pension law violated the state’s agreements with government employees and ordered contributions returned with interest.

The law amounted to an “unconstitutional taking of private property without full compensation and an abridgment of the rights of public employees to collectively bargain over conditions of employment,” Fulford ruled.

The state’s highest court agreed to hear the case on an expedited basis because it presented “issues of great public importance.”

‘Huge Budgetary Hole’

If the Supreme Court declines to overrule Fulford’s ruling, state officials will be “forced to find ways fill a huge budgetary hole,” Lane Wright, a spokesman for Scott, said in an interview earlier this week.

To rule for employees, the court would have to “throw out 30 years’ worth of law that says the legislature has the power to change the pension system,” he added.

Jesse Panuccio, Scott’s general counsel, told reporters outside the courtroom today that the changes were nothing more than “common-sense pension reform” and that the “law is on our side.”

Senate Minority Leader Nan Rich, a Democrat, countered in an interview earlier this week that Republican lawmakers didn’t exhaust other possible ways of covering the budget shortfall before moving to violate existing union contracts.

“The Republican leadership sells itself as friends of the middle class while paring down their ability to have decent wages and benefits to support their families,” Rich said in an interview. “Their focus has been on cutting and not a balance between cutting and looking at new revenues.”

Poverty Concerns

AFSCME Legislative Director Doug Martin said the change in pension law will affect employees’ financial security in the future.

“This is about keeping future public employees out of poverty when they retire,” Martin said.

The high-profile pension fight has drawn the attention of lobbying groups, including Florida Tax Watch and the National Conference on Public Employee Retirement Systems, or NCPERS, which filed so-called friend-of-the-court briefs in the case.

If the pension-reform measure is overturned, it would add to the state’s budget shortfall and could adversely affect Florida’s credit rating, the anti-tax group claimed.

“Should Florida’s credit rating be downgraded, it would cost the state more money to finance its borrowing to the detriment of the taxpayer, who would shoulder the burden of paying more for the same set of services for several years to come,” lawyers for the group said.

‘Reasonable Alternatives’

Florida’s pension had assets of $136.4 billion to meet projected retiree obligations of $153.5 billion as of June 30, 2011, according to data compiled by Bloomberg.

Attorneys for Washington-based NCPERS argued that Scott and Florida lawmakers didn’t show that the pension-reform measure was the only way to close the budget gap.

They contend the U.S. Supreme Court has found that, for states to change existing pension contracts, officials must show such reforms were “reasonable and necessary.”

Fulford, the lower court judge, properly concluded “other reasonable alternatives existed to preserve the state’s contract” with employees, NCPERS’s lawyers said.

Mark Wilson, president of the pro-business Florida Chamber of Commerce, said in a statement this week that public employee benefits exceed their private-sector counterparts.

“With Florida continuing to have a higher unemployment rate than the national average and many Floridians underemployed and barely making ends meet, it’s only fair to ask for public employees to help pay some of their own retirement costs,” Wilson said.

‘Class Warfare’

Florida PBA Executive Director Matt Puckett, whose association represents 24,000 police officers across the state, said the pension initiative is a form of “class warfare.”

The legislature, with both houses controlled by Republicans, “did it to the public employees for the very reason because they could,” Puckett said.

The case is Scott v. Williams, SC122-520, Florida Supreme Court (Tallahassee).

To contact the reporters on this story: Jef Feeley in Wilmington, Delaware, at jfeeley@bloomberg.net; Christine Jordan Sexton in the Florida Supreme Court in Tallahassee at christinesextonwork@hotmail.com.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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