In City of San José v. Howard Jarvis Taxpayers Association, the Supreme Court today holds that local governments can issue bonds to finance pension liabilities without voter approval.
Article XVI, section 18 of the state Constitution prohibits those governments from “incur[ring] any indebtedness or liability in any manner or for any purpose exceeding in any year the income and revenue provided for such year, without the assent of two-thirds of the voters of the public entity.” But the court’s unanimous opinion by Justice Kelli Evans finds applicable the “long understood” exception to the constitutional rule “that ‘[a]n obligation imposed by law upon a city or county is not an indebtedness or liability within the meaning of the debt limitation provision.’ ” The exception applies, the court says, “even if [the pension obligation bonds are] deemed to create a new debt.”
Opponents of the no-vote bonds claimed an exception to the exception applied “because the City’s legal obligation to fund its retirement system was a product of ‘its voluntary choice to offer pensions.’ ” The court, however, concludes, “Because the City’s obligation to fund its pension in an actuarially sound manner was imposed by state law, the council’s efforts to grapple with that obligation do not qualify as voluntary for purposes of the local debt limitation.”
The court affirms the Sixth District Court of Appeal’s published opinion.
