This morning, reversing lower court rulings, the state Supreme Court held that the Legislature was within its rights to repeal the uniform cost-of-living adjustment (UCOLA) and gain-sharing programs for public employees. By doing so, the court has finally given budget writers some good news: The state actuary had estimated that if the UCOLA and gain sharing were reinstated, the state would have had to increase spending by $766 million and local governments would have had to increase spending by $570 million in the 2015-17 biennium.

Both gain sharing and the UCOLA were public pension sweeteners added in better days, and the legislation enacting each program included a clause reserving the right of the Legislature to amend or repeal them, as well as specifying that they were not contractual rights. The Legislature repealed gain sharing in 2007 and the UCOLA in 2011. Superior courts subsequently found that the Legislature could not do so, and the Supreme Court heard arguments in the cases in October.

The Supreme Court’s decision in the UCOLA case finds that “the legislature reserved its right to repeal the pension rights at issue and the original enactment of UCOLA did not impair any existing contract rights of state employees.”

. . . the authority to repeal the UCOLA was contained in the 1995 UCOLA legislation. Merely acting upon that authority did not alter any contract that was formed by the 1995 UCOLA legislation. Moreover, the respondents’ argument is circular. Striking down the repeal legislation would reinstate the 1995 UCOLA statute, which includes a provision expressly reserving the right to repeal. The respondents’ contract rights are defined by the language of the statute creating those rights. Here, that language includes a right to amend or repeal.

Further,

Whereas a basic pension plan is deferred compensation and induces long and faithful service over time, a COLA merely enhances the value of the basic pension payment by adjusting for inflation and cost of living increases. Surely the legislature can make the addition of such a bonus subject to its right to amend or repeal the program in the future. To say otherwise would strongly disincentivize the legislature from providing additional benefits beyond a basic pension.

(Emphasis added.)

Finally,

In this case, neither the 1995 enactment of UCOLA nor its 2011 repeal unconstitutionally impaired the respondents’ contract rights. UCOLA’s reservation clause is enforceable and UCOLA’s replacement of the 1973 COLA did not impair any existing contract rights.

The court’s decision in the gain sharing case similarly finds that “the legislature reserved its right to repeal a benefit in the original enactment of that benefit and the enactment did not impair any preexisting contractual right.”

. . . the repeal of gain-sharing cannot impair any existing contractual right because the express language of the gain-sharing statute provided for its repeal. The parties are in fact arguing over the enforceability of the reservation clause contained in the original gain-sharing legislation. The employees’ contract rights were impaired, if at all, by the legislature’s 1998 enactment of the gain-sharing program and its reservation of the right to amend or repeal the program in the future.

Properly framed, it is obvious that gain sharing did not impair the employees’ preexisting contract rights. . . . The legislature is allowed to condition its grant of pension enhancements using express language in the statutory provision that creates the right. . . .

(Emphasis added.)

Finally,

The repeal of gain sharing did not impair any contract rights of employees because the statute enacting gain sharing made provision for its eventual repeal. Further, the original gain-sharing statute did not impair any preexisting rights because the reservation clause is enforceable and employees impliedly consented to the qualified benefit. . . . The legislature’s repeal of gain sharing must stand.

Certainly the most immediately important thing about these decisions is that state and local governments won’t have to come up with a combined $1.3 billion next biennium. But the decisions also affirm that the Legislature does indeed have the ability to reserve the right to repeal certain programs — even in such a complicated legal area as pensions.

In the long run, this ability to repeal certain pension sweeteners could have the effect of making the Legislature less cautious about enacting them in the first place. Or, it could make such sweeteners less attractive as compensation policy, given that they can be repealed.