Stradling Prevails at California Supreme Court in Pension Obligation Bond Challenge

Stradling prevailed at the California Supreme Court, successfully validating the City of San José’s legal authority to issue up to $3.5 billion in proposed pension obligation bonds to address the unfunded liabilities in its Retirement Systems.  The Court issued a unanimous opinion holding that the City’s unfunded liability represents an obligation imposed by law and that the California Constitutional Debt Limit does not constrain the City’s discretion in deciding whether or not to issue pension obligation bonds to address its obligation to fund the Retirement System. The Court held that because the City’s obligation to fund its pensions in an actuarially sound manner was imposed by state law, the City Council’s efforts to grapple with that obligation do not qualify as voluntary for purpose of the local debt limit. The Court further concluded that whether or not to refinance that obligation by issuing pension obligation bonds at what the City hopes will be a lower interest rate,  in an effort to reduce its total payments, is a matter generally entrusted to the City Council’s discretion. The Court’s decision is a significant victory for the City, after four years of litigation, and for all public agencies in the State as it provides an important precedent that public agencies and  bond counsels can rely on in determining whether or not to issue pension obligation bonds to address budgetary pressures caused by burgeoning pension costs. A copy of the opinion can be found at https://www4.courts.ca.gov/opinions/documents/S285426.PDF

Stradling partners Brian Forbath and Allison Burns, and associate Greg Maestri represented the City of San José against the constitutional challenge by the Howard Jarvis Taxpayers Association at the trial court, Court of Appeal, and Supreme Court.