[Sasha Volokh] How flexible is the “California Rule” for public-employee pensions?

Readers of this blog may be familiar with my posts about constitutional protection for public-employee pensions, in particular the special California constitutional-law doctrine, called the “California Rule”, that’s very protective of pensions. I wrote a Federalist Society white paper about it (here, also reprinted here by the Reason Foundation), and I’ve blogged about it here, here, here, and here (not a complete list).

Today, I have a blog post on the Reason Foundation web site about Marin Ass’n of Public Employees v. Marin County Employees’ Retirement Ass’n, a recent decision by the California Court of Appeal that upholds a state statute limiting pension spiking. The bottom line is that this state appellate opinion, by upholding a pension-limiting state statute, seems to weaken California’s high level of constitutional protection for pensions and introduce some flexibility into the California Rule. (Or, rather, the Court of Appeal’s argument was that this flexibility was built into the California Rule from the start.) Those who are familiar with my work know that I’m no big fan of the California Rule. I favor strong constitutional protection for contracts, and I favor seeing public-employee pension terms as contractual, but I oppose the California Rule’s prohibition on making purely prospective changes to pension rules. Nonetheless, I think the Court of Appeal’s decision was really iffy as a matter of California law, and I think it’s likely that this opinion will be reversed by the California Supreme Court.

Here’s an excerpt from the blog post, which is called “How Flexible is the California Rule? A Tale of Four Cases“. (Which four cases? I give background for the Marin case by discussing three previous California cases: Lyon v. Flournoy, Betts v. Board of Administration, and Allen v. Board of Administration.)

California is notorious for having a constitutional doctrine that is highly protective—some would say overprotective—of public-employee pensions. The “California Rule,” which has spread to several other states (see this May 2016 post), has stood as an obstacle to public-employee pension reform for over half a century. (See my July 2014 policy study on the California rule.)

Seeking at least some relief from rising pension costs, the California Legislature passed a statute in 2013 limiting the practice of “pension spiking,” by which government bodies allow public employees to artificially inflate their ending compensation in order to increase those employees’ pensions. And this statute was recently upheld in an August 2016 ruling by a California appellate court in Marin Ass’n of Public Employees v. Marin County Employees’ Retirement Ass’n. If the California Supreme Court upholds this decision, it could ease the state’s pension woes to a certain extent. But the Court of Appeal’s reasoning is questionable and rests on a strained reading of past California cases. It wouldn’t be surprising if the Supreme Court eventually reversed this decision.

. . .

After dealing with various nonconstitutional issues, the court came to the Contract Clause argument. First, the court wrote: “There is no absolute requirement that elimination or reduction of an anticipated retirement benefit ‘must’ be counterbalanced by a ‘comparable new benefit.'” This argument proceeded in several steps. First, the court focused on the word “must.” Consult the “comparable new benefit” language in the cases discussed so far, and you’ll see that Allen v. City of Long Beach and Betts say “should,” while the appellate court in Lyon and the Supreme Court in Allen v. Board say “must.” Legal usage often distinguishes between the mandatory “must” and the hortatory “should,” and the court concluded that, since “should” is the Supreme Court’s preferred expression, it’s unlikely that the use of “mus