California high court delays decision on POB case review request

The California Supreme Court has extended to Sept. 6 its decision to deny or grant review in a case challenging San Jose’s pension obligation bond validation.

The high court has at least 60 days to make a decision after a request for review is filed, and that deadline was drawing near in the San Jose case. It had the case on its list for weekly review last week, but filed a notice Friday it was postponing review.

San Jose filed a lawsuit asking a court to validate the legality of its proposed pension obligation bonds before it moved forward with plans to issue.

In 2021, the Howard Jarvis Taxpayers Association began challenging validation lawsuits. Most cities scrapped plans to issue POBs after their validation was challenged. But San Jose, and later Escondido, both decided to respond to the challenge, and prevailed in the lower courts and on appeals.

Pension obligation bonds are taxable bonds issued by a state or local government to pay down obligations to the public agency’s retirement system.

The bonds are fundamentally a calculation that the issuer can borrow at a lower interest rate than that money would earn in the pension fund through investment returns. Higher bond interest rates up front make that harder to achieve.

The volume of pension bonds issued has nearly dried up since interest rates have risen.

Laura Dougherty, director of legal affairs for the taxpayers’ association, decided to take the issue to the state supreme court, and filed a petition for review of the San Jose case on June 10 and a second petition in the Escondido case on Thursday.

“We filed our petition for review in the Escondido pension obligation bond case Thursday,” said Laura Dougherty, director of legal affairs for the Howard Jarvis Taxpayers Association. “It’s possible that they considered it forthcoming and wanted to consider the two petitions together. It’s also possible that a justice asked for further time to study.”

The taxpayers’ association has argued the bonds invoke the constitutional debt limit provision, which means they have to be approved by voters.

But the lower courts found that pension bonds involve existing debt and are not creating new debt, so the constitutional debt limit does not apply.

The Supreme Court’s “primary ground for granting a petition in a particular case is if review is necessary to secure uniformity of decision among the appellate courts or to settle an important question of law,” according to the high court’s website.

Once it receives a petition for review, the high court has at least 60 days to make a decision. The case is assigned to legal staff to draft a conference memorandum, which summarizes the case facts, outlines the issues, and makes a recommendation to the court.

“A decision to review is made at the court’s weekly conference — at which over 250 petitions are usually considered — if at least four justices vote to accept a particular case for review,” according to the website.