L.A. Loses Bid to Cap Fire, Police Pensions : Supreme Court: Its last appeal rejected, the city faces a bill of up to $43 million a year to cover increased benefits for 8,000 workers.

The city of Los Angeles and its voters cannot impose a cost-of-living cap on pension benefits earned by firefighters and police officers hired before 1981, according to a ruling left standing by the Supreme Court on Tuesday.

The high court’s refusal to hear the city’s appeal could cause the municipal pension bill to rise by up to $43 million a year until 2037 to cover increased benefits for more than 8,000 affected employees, Los Angeles city attorneys said.

The action has the effect of partly overturning a 1982 charter amendment designed to rein in the city’s pension costs, which soared during an 11-year period in which benefits were pegged to inflation, with no ceiling on the increases.

However, the cost could be considerably lower, several city officials said Tuesday. The high inflation rates that prompted the charter amendment and were the basis for the $43-million cost estimate have not held up in recent years, they said.

“We think that $43 million is too high,” said Allan Moore, assistant general manager of the city’s Department of Pensions. “I’m fairly confident in saying it’s probably less than $10 million a year.”

Moore said that the inflation rate, in the double digits at the time of the cost estimate, is now about 4% to 4.5% annually. Further, strong financial markets have provided an unexpectedly high return on the pension fund’s investments, he said. The pension fund has a life of 50 years, ending in 2037, he said.

Keith Comrie, the city’s chief administrative officer, said Tuesday that he expects the city’s liability to be somewhat lower than $43 million, but said a new actuarial analysis predicting future inflation rates must be completed.

Charter Amendment H of 1982, approved by 70% of the voters, imposed a 3% annual limit on cost-of-living increases in the pension accounts of city firefighters and police officers, beginning July 1, 1982.

Benefits earned before 1982 were not affected. Nevertheless, union lawyers challenged the new limit as a violation of employees’ contract rights.

In 1971, city voters had removed a previous limit on inflation adjustments for the pensions of police and firefighters. Union lawyers argued that employees already on the job were entitled to maintain the arrangement, despite passage of Charter Amendment H.

A state appellate court agreed last April. The ruling relied on clauses of the state and federal constitutions forbidding “laws impairing the obligation of contracts.” The opinion cited earlier state Supreme Court decisions that “liberally construed” the pension rights of public employees. In July, the state Supreme Court refused to review the judgment.

In an appeal to the high court, Los Angeles City Atty. James K. Hahn urged the justices to reverse the lower court ruling as an extreme example of judicial activism.

“The decision strikes at the heart of the ability of state and local government to regulate the terms and conditions of public employment,” Hahn told the high court.

If the voters were able to remove an inflation cap on pensions in 1971, they also should have been permitted to reimpose a cap in 1982, he said.

Instead, the state court ruling gives police and firefighters an “unearned windfall” while imposing “crippling costs” on the city, he said.

The lower court opinion appeared to rest primarily on an interpretation of state law and the state constitution--neither of which can be overturned by the U.S. Supreme Court. As a result, the appeal was dismissed without comment Tuesday.

More than 8,000 city police and firefighters who were on the job in 1982 were affected by the decision, according to state court records. Those hired after 1981, when a new pension system began, will continue to be limited by the 3% cap on inflation increases.

Police and firefighters who retired before 1982 were not affected. Neither were the other 37,000 city employees, who have a separate pension system.

Approximately 1,300 police officers and firefighters who retired after 1982 can expect some retroactive pension benefits, but the amounts will be relatively small, Moore said Tuesday. He estimated the total retroactive benefits at $1.5 million.

The city has no money set aside in a reserve fund to pay the retroactive benefits now due or to reimburse the pension fund for money that will be due to future retirees, said City Councilman Zev Yaroslavsky, chairman of the Budget and Finance Committee.

“We’ve been anticipating this, and I think it’s going to have to be factored into next year’s budget decisions,” Yaroslavsky said. “It’s going to make it that much more difficult.”

Mayor Tom Bradley said, “Obviously, any time we lose a lawsuit we don’t like that. . . . We’re going to have to provide (for the pension funding) in the next budget.”

Siegfried Hillmer, the assistant city attorney who handled the case, said Tuesday he is skeptical of the vastly reduced cost estimates by city officials because of the difficulty of predicting inflation rates over the life of the 50-year pension fund.

“We had a run of double-digit inflation,” Siegfried said. “There is no reason to believe that between now and 2037 there will not be another run.”

Siegfried said it is unclear whether the city legally would be obligated to make up for the past eight years of under-funding in one fiscal year’s budget. But he said that, as a practical matter, the back payments probably will be spread out until 2037.

Meanwhile, in a second decision involving the city of Los Angeles, the high court let stand a ruling declaring that public employees are not entitled to a hearing before a completely independent, impartial official before they are disciplined or dismissed.

If a city employee is subjected to suspension, dismissal or other disciplinary action by his or her manager, the employee is entitled to a hearing before the Board of Civil Service Commissioners.

But if the board believes the employee should receive a less severe punishment than that recommended by the manager, it must get the “consent” of the manager.

This system was challenged as unconstitutional by the Los Angeles City Employees Union and by Roger Burrell, a rehabilitation department employee facing dismissal for a conflict-of-interest violation.

The Constitution says the government may not deprive a person of his right to property without due process, and a job has been considered a form of property. But the Constitution does not require that the administrative hearing officer be entirely independent and impartial, the court said.