(2003) 105 Cal. App. 4th 1095
Court of Appeal, Third District, California.
Steve WESTLY, as Controller, etc., Plaintiff and Appellant,
v.
CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM BOARD OF ADMINISTRATION et al.,
Defendants and Appellants.
No. C039686.
Jan. 30, 2003.
As Modified on Denial of Rehearing Feb. 25, 2003.
Review Denied April 23, 2003.
Kennard, J., and Moreno, J., dissented.
The trial court granted the Controller's motion for judgment on the
pleadings on all but the sixth cause of action, which challenges the Board's
authority to exempt its portfolio managers from the civil service provisions
of the California Constitution.
We will affirm the judgment with the exception that, unlike the trial court,
we find the Controller has standing to raise the sixth cause of action
because the Controller has the right to issue warrants and audit payments
to ensure an expenditure is authorized by law.
The primary purposes of Art. XVI, ß 17 are to grant retirement boards
the sole and exclusive power over the management and investment of public
pension funds and to ensure that the assets of public pension systems
are used to provide benefits and services to participants efficiently
and promptly. The authority claimed by the Board is not within these purposes. [FN4]
FN4. We have no occasion to consider the application of Art. XVI, ß
17 to any other issue.
We conclude the Board does not have plenary authority to evade the law
that limits the pay of the Board and its employees, that specifies the
employees exempt from civil service, and that authorizes the Controller
to issue warrants and audit their legality.
FACTUAL AND PROCEDURAL BACKGROUND
The voters enacted the challenged provision as an amendment to Article
XVI, section 17, in 1992. The backdrop against which the amendment was
enacted involved actions by the Governor and Legislature to balance the
state budget by limiting or delaying the state's employer contributions
to CalPERS.
For example, in 1982 legislation was enacted to bar the state from making
a contribution for a portion of that year and to require the shortfall
to be made up from the CalPERS reserve against deficiencies. (Claypool
v. Wilson (1992) 4 Cal.App.4th 646, 655, 6 Cal.Rptr.2d 77.) Until 1990,
the state paid employer contributions on a monthly basis. (Board of Administration
v. Wilson (1997) 52 Cal.App.4th 1109, 1119, 61 Cal.Rptr.2d 207.) In 1990,
the Legislature changed the payment schedule from monthly to quarterly.
In 1991, the Legislature temporarily changed the payment schedule from
quarterly to semiannually. In 1992 legislation "changed the schedule
to 'semiannually, six months in arrears.' Legislation in 1993
changed the schedule to 'annually, 12 months in arrears.' "
(Id. at p. 1117, 61 Cal.Rptr.2d 207.) In 1991, legislation was passed
to repeal statutes providing for cost of living benefits to retirees,
and to use these funds to meet the state's employer contribution requirement.
(Claypool v. Wilson, supra, at pp. 657-658, 6 Cal.Rptr.2d 77.) Also in
1991, legislation was passed transferring the actuarial function to the
Governor. (Id. at p. 658, 6 Cal.Rptr.2d 77.)
Under the "California Pension Protection Act of 1992 (enacted by passage
of Proposition 162)," Art. XVI, ß 17, was amended to grant
retirement boards [FN5] "plenary authority and fiduciary responsibility
for investment of moneys and administration of the system...." [FN6]
The amendment is subject to the subdivisions which follow and the law,
as enacted, to a statement of "Purpose and Intent" [FN7] and
to "Findings and Declarations." [FN8]
FN5. Art. XVI, ß 17 applies not only to the Board but also to other
retirement boards in the state.
FN6. The amendment adds in pertinent part, in italics, as follows:
"Notwithstanding any other provisions of law or this Constitution
to the contrary, the retirement board of a public pension or retirement
system shall have plenary authority and fiduciary responsibility for investment
of moneys and administration of the system, subject to all of the following:
(a) The retirement board of a public pension or retirement system shall
have the sole and exclusive fiduciary responsibility over the assets of
the public pension or retirement system. The retirement board shall also
have sole and exclusive responsibility to administer the system in a manner
that will assure prompt delivery of benefits and related services to the
participants and their beneficiaries. The assets of a public pension or
retirement system are trust funds and shall be held for the exclusive
purposes of providing benefits to participants in the pension or retirement
system and their beneficiaries and defraying reasonable expenses of administering
the system.
(b) The members of the retirement board of a public pension or retirement
system shall discharge their duties with respect to the system solely
in the interest of, and for the exclusive purposes of providing benefits
to, participants and their beneficiaries, minimizing employer contributions
thereto, and defraying reasonable expenses of administering the system.
A retirement board's duty to its participants and their beneficiaries
shall take precedence over any other duty.
(c) The members of the retirement board of a public pension or retirement
system shall discharge their duties with respect to the system with the
care, skill, prudence, and diligence under the circumstances then prevailing
that a prudent person acting in a like capacity and familiar with these
matters would use in the conduct of an enterprise of a like character
and with like aims.
(d) The members of the retirement board of a public pension or retirement
system shall diversify the investments of the system so as to minimize
the risk of loss and to maximize the rate of return, unless under the
circumstances it is clearly not prudent to do so.
(e) The retirement board of a public pension or retirement system, consistent
with the exclusive fiduciary responsibilities vested in it, shall have
the sole and exclusive power to provide for actuarial services in order
to assure the competency of the assets of the public pension or retirement system.
(f) With regard to the retirement board of a public pension or retirement
system which includes in its composition elected employee members, the
number, terms, and method of selection or removal of members of the retirement
board which were required by law or otherwise in effect on July 1, 1991,
shall not be changed, amended, or modified by the Legislature unless the
change, amendment, or modification enacted by the Legislature is ratified
by a majority vote of the electors of the jurisdiction in which the participants
of the system are or were, prior to retirement, employed.
(g) The Legislature may by statute continue to prohibit certain investments
by a retirement board where it is in the public interest to do so, and
provided that the prohibition satisfies the standards of fiduciary care
and loyalty required of a retirement board pursuant to this section.
(h) As used in this section, the term 'retirement board' shall
mean the board of administration, board of trustees, board of directors,
or other governing body or board of a public employees' pension or
retirement system; provided, however, that the term 'retirement board'
shall not be interpreted to mean or include a governing body or board
created after July 1, 1991 which does not administer pension or retirement
benefits, or the elected legislative body of a jurisdiction which employs
participants in a public employees' pension or retirement system."
(Cal. Const., art. XVI, ß 17; see also Ballot Pamp., Gen. Elec.
(Nov. 3, 1992) text of Prop. 162, pp. 70-71 (Ballot Pamphlet).)
FN7. In pertinent part, the declaration of purpose is as follows:
"Section Three. Purpose and Intent. The People of the State of California
hereby declare that their purpose and intent in enacting this measure
is as follows:
(a) To protect pension funds so that retirees and employees will continue
to be able to enjoy a basic level of dignity and security in their retirement years.
(b) To give voters the right to approve changes in the composition of
retirement boards containing elected retirees or employee members.
(c) To protect the taxpayers of this state against future tax increases
which will be required if state and local politicians are permitted to
divert public pension funds to other uses.
(d) To ensure that the assets of public pension systems are used exclusively
for the purpose of efficiently and promptly providing benefits and services
to participants of these systems, and not for other purposes.
(e) To give the sole and exclusive power over the management and investment
of public pension funds to the retirement boards elected or appointed
for that purpose, to strictly limit the Legislature's power over such
funds, and to prohibit the Governor or any executive or legislative body
of any political subdivision of this state from tampering with public
pension funds.
(f) To ensure that all actuarial determinations necessary to safeguard
the competency of public pension funds are made under the sole and exclusive
direction of the responsible retirement boards.
(g) To affirm the legal principle that a retirement board's duty to
its participants and their beneficiaries takes precedence over any other
duty." (See Historical Notes, 3 West's Ann. Const. (1996 ed.)
foll. art. XVI, ß 17, p. 114.)
FN8. In pertinent part, the findings provide:
"Section Two. Findings and Declarations. The People of the State
of California hereby find and declare as follows:
(c) "Politicians have undermined the dignity and security of all
citizens who depend on pension benefits for their retirement by repeatedly
raiding their pension funds.
(d) Political meddling has driven the federal Social Security system to
the brink of bankruptcy. To protect the financial security of retired
Californians, politicians must be prevented from meddling in or looting
pension funds.
(e) Raids by politicians on public pension funds will burden taxpayers
with massive tax increases in the future.
(f) To protect pension systems, retirement board trustees must be free
from political meddling and intimidation.
(g) The integrity of our public pension systems demands that safeguards
be instituted to prevent political 'packing' of retirement boards,
and encroachment upon the sole and exclusive fiduciary powers or infringement
upon the actuarial duties of those retirement boards.
(h) In order to protect pension benefits and to avoid the prospect of
higher taxes the People must act now to shield the pension funds of this
state from abuse, plunder and political corruption." (See Historical
Notes, 3 West's Ann. Const. (1996 ed.) foll. art. XVI, ß 17, p. 114.)
Claiming plenary authority under Art. XVI, ß 17, the Board engaged
in a series of administrative actions that conflict with constitutional
and statutory authority.
Contrary to article VII, section 4 of the California Constitution, which
limits the employees exempt from civil service to one deputy or employee
selected by the Board, and contrary to section 20208, which classifies
personnel with investment expertise as civil service employees, the Board
exempted at least 10 portfolio managers from civil service. Contrary to
article XVI, section 7, and the uniform payroll provisions of section
12470, the Board issued its own warrants for the pay of its portfolio
managers. Contrary to section 20091, which limits the compensation of
Board members for attendance at Board meetings to $100, the Board increased
the compensation to $400 per meeting. Contrary to section 19820, subdivision
(a), which limits travel reimbursements for Board members and employees,
as determined by the Department of Personnel Administration (DPA), the
Board adopted an expense reimbursement policy that exceeded its amounts.
Contrary to section 20092, which limits the amount the Board may reimburse
a member's employing agency (known as "release time" reimbursements)
to 25 percent of the member's annual compensation, the Board increased
the reimbursement rates beyond 25 percent.
Article VII, section 1 of the California Constitution provides that every
employee of the state is a civil service employee, unless exempted. Section
4 exempts one deputy or employee selected by each board or commission.
Contrary to these provisions, and section 20208, the Board classified
at least 10 portfolio managers as exempt from the civil service system.
Contrary to section 19826, which directs the DPA to establish salary ranges
for civil service classifications, the Board set the salaries for its
portfolio managers at an amount in excess of that approved by the DPA.
Finally, in order to pay its portfolio managers increased salaries in the
face of the DPA's and the Controller's refusals to process the
increases, the Board developed its own payroll system by which it paid
the managers directly from the retirement system trust funds. This action
was contrary to article XVI, section 7 of the California Constitution,
which provides the Controller must issue all warrants for money drawn
from the state treasury, and section 12470, which directs the Controller
to operate a uniform payroll system for all state agencies.
The Controller filed this declaratory and injunctive relief action. The
Board demurred to the sixth cause of action which challenged the Board's
exemption of its portfolio managers from civil service on the ground the
Controller has no standing to raise the issue. The trial court sustained
the Board's demurrer to the sixth cause of action without leave to
amend. The Controller cross-appeals from the judgment of the trial court
that dismisses this cause of action.
The Controller moved for judgment on the pleadings on the remaining causes
of action. The trial court granted the motion and entered judgment in
the Controller's favor. The trial court's ruling states in part
that "the existing case law and the background materials, particularly
the ballot arguments, clearly indicate that the voters had intended to
stop the raiding of the pension funds, not to grant the defendants unlimited
authority to ignore state laws governing state employees."
This appeal followed. [FN9]
FN9. Appellants filed a petition for writ of supersedeas which we treated
as a motion for stay pending appeal, and on that basis granted the motion.
DISCUSSION
I
Standing to Raise the Sixth Cause of Action
We first consider the Controller's standing to raise the issues tendered
in the sixth cause of action.
A. The Issues
In the sixth cause of action the Controller alleges the Board's classification
of 10 portfolio managers as employees exempt from civil service, violates
article VII, section 4 of the Constitution and the state civil service
laws (ß 18500 et seq.).
The complaint requests a declaration of the Controller's rights and
duties without being subject to liability. The Controller asserts liability
could attach for failing to superintend the fiscal concerns of the state,
failing to audit disbursements from the treasury for correctness and legality
(ß 12410), failing to ensure warrants for payment are authorized
by law (art. XVI, ß 7, ß 12470), failing to audit all claims
before drawing a warrant (ß 925.6, subd. (a)), failing to abolish
vacant civil service positions (ß 12439), and failing to verify
that payments of salary to civil servants are proper (ß 19764).
The trial court ruled the Controller had no standing to assert the sixth
cause of action because the Controller's authority is limited to the
fiscal governance of the state and no facts were alleged sufficient to
establish authority over the civil service classification of the Board's
employees. We disagree.
B. Allegations of Fact
The Controller alleged the Board voted to reclassify its portfolio managers
as employees exempt from civil service, increase their salaries in excess
of the salary range set by the DPA, and pay them directly from the retirement
fund in the state treasury without approval by the DPA or the Controller. [FN10]
FN10. DPA establishes salary ranges for each class of civil service positions
and administers salaries of exempt employees. (Respectively ß ß
19826, 19816.) In Lowe v. California Resources Agency (1991) 1 Cal.App.4th
1140, 1146, 2 Cal.Rptr.2d 558, (Lowe) this court said the DPA has "exclusive
jurisdiction to classify positions in the state civil service." CalPERS
argues this prevents the Controller from challenging its expenditures
because the Controller has no authority to classify employees as civil
service. We disagree.
Lowe concerns the classification of positions within the civil service,
not the right to a determination whether positions are civil service positions.
(See Stockton v. Department of Employment (1944) 25 Cal.2d 264, 272, [153
P.2d 741], upon which Lowe relies.)
The Board's action arose in the following way. The DPA refused to approve
the Board's increase in salaries and refused to issue a pay letter
to the Controller. In response CalPERS delivered its own pay letter to
the Controller, requesting an increase in the salary range for the portfolio
managers on the basis it had plenary authority under Art. XVI, ß
17 to take this action. The Controller refused to honor the pay letter
because it was not approved by the DPA. CalPERS then informed the Controller
it had developed its own payroll system and would directly pay the salaries
of portfolio managers from the retirement fund in excess of those authorized
by their civil service classification.
C. The Controller's Litigation Authority
Section 11180 provides, "The head of each department may ... prosecute
actions concerning: (a) All matters relating to the business activities
and subjects under the jurisdiction of the department [and] (b) Violations
of any law or rule or order of the department."
The Office of State Controller is a state department and the Controller
is the head of the department. (ß 12405.) The thrust of the present
action, including the sixth cause of action, concerns the Controller's
authority to issue warrants for the pay of state employees, to audit and
determine the legality of any claim regarding such pay, including exemption
from the civil service laws, and to oversee the uniform payroll system
established pursuant to section 12470.
The Constitution provides: "Money may be drawn from the Treasury only
through an appropriation made by law and upon a Controller's duly
drawn warrant." (Cal. Const., art. XVI, ß 7.) The state treasury
contains the Public Employees' Retirement Fund to which state public
retirement money must be credited. (ß 20170.) Accordingly, money
may be drawn on the retirement fund only by a warrant issued by the Controller.
The statutory jurisdiction of the Controller is set forth in Articles 2
through 5 of Title 2, Division 3, Part 2, Chapter 5 of the Government
Code (ß 12410 et seq.). These articles vest the Controller with
the responsibility to audit and make payments from the state treasury
and to operate a uniform state payroll system for all state agencies.
The Controller is required to audit all claims against the state and all
claims for the disbursement of any state money for their correctness,
and to determine whether the law supports payment. (ß 12410.) [FN11]
The Controller must abolish civil service positions that are vacant for
six consecutive months. (ß 12439.) The Controller must operate a
uniform state payroll system for all state agencies, except the University
of California and the California State Fair. (ß 12470.) [FN12] The
Public Retirement System is an agency of the state and subject to section
12470 because it is a unit of the State and Consumer Services Agency.
(ß ß 20002, 12800, 12804.)
FN11. Section 12410 provides in pertinent part: "The Controller shall
superintend the fiscal concerns of the state. The Controller shall audit
all claims against the state, and may audit the disbursement of any state
money, for correctness, legality, and for sufficient provisions of law
for payment."
In Part V of the Discussion we consider the Board's claim the retirement
fund is not "state money."
FN12. Section 12470 provides in pertinent part that "the Controller
shall install and operate a uniform state payroll system for all state
agencies except the California Exposition and State Fair and the University
of California."
"That the Controller has the power, indeed the duty, to ensure that
the decisions of an agency that affect expenditures are within the fundamental
jurisdiction of the agency is clear." (Tirapelle v. Davis (1993)
20 Cal.App.4th 1317, 1335, 26 Cal.Rptr.2d 666.) "[W]ith respect to
the Controller's duties the Legislature has specifically provided
that 'a warrant shall not be drawn unless authorized by law....'
(ß 12440.) An attempt by an administrative agency to exercise control
over matters which the Legislature has not seen fit to delegate to it
is not authorized by law and in such case the agency's actions can
have no force or effect." (Ibid.)
There is no question the Controller has authority to prevent the payment
of persons employed by state agencies in violation of the civil service
system. In both Stockburger v. Riley (1937) 21 Cal.App.2d 165, 68 P.2d
741, [FN13] and State Compensation Insurance Fund v. Riley (1937) 9 Cal.2d
126, 69 P.2d 985, the courts upheld the Controller's refusal to pay
independent contractors because they were not within the civil service.
In Treu v. Kirkwood (1954) 42 Cal.2d 602, 268 P.2d 482, the court upheld
the Controller's refusal to pay overtime to an employee exempt from
civil service.
FN13. Overruled on other grounds in California State Employees' Assn.
v. State of California (1988) 199 Cal.App.3d 840, 851, 245 Cal.Rptr. 232.
Normally, the Controller asserts authority over the civil service system
by refusing to authorize payment to the person employed in violation of
the civil service laws. The Controller's authority to enforce these
laws is no less, however, when a state agency attempts to do indirectly
what it cannot do directly.
The issue tendered is whether a state agency may bypass the Controller's
authority to issue warrants and audit and pay the employees of the state
through a uniform payroll system by claiming the employees are not civil
service employees and by setting up its own payroll system. The Controller
asks the courts to determine the responsibilities intrinsic to his authority
to issue and audit employee payments.
By bringing this action in declaratory relief, the Controller seeks not
to infringe on the jurisdiction of the DPA to enforce the civil service
statutes, but to enforce the Controller's authority to audit the disbursement
of any state money for its legality and correctness.
The Board cites Tirapelle v. Davis, supra, as authority for the argument
the Controller has no standing to challenge the classification of a state
employee as a civil service employee. The Board misreads Tirapelle.
Tirapelle concerned a mandate proceeding to review the Controller's
refusal to implement salary reductions established by the DPA for employees
exempt from civil service. As appropriate to a mandate proceeding, the
court held the Controller has both ministerial and discretionary authority.
The Controller has ministerial authority when the amount of an expenditure
is set by law or entrusted to the discretion of another agency. (20 Cal.App.4th
at p. 1329, 26 Cal.Rptr.2d 666.) The Controller has discretionary authority
when the facts must be determined as necessary to establish the validity
of a claim. (Ibid.)
Tirapelle held the Controller had ministerial authority over an award of
salary because the "power of approval and the administration of salaries
of exempt employees" was vested in the DPA. (Id. at p. 1339, 26 Cal.Rptr.2d
666.) Since the Controller could point to no law authorizing the payment
of higher salaries, it was not authorized to fix those salaries at a higher
level. (Id. at p. 1332, 26 Cal.Rptr.2d 666.)
However, Tirapelle also said, "Our decision is without prejudice to
the right of the Controller, in the exercise of his statutory duties ...
to determine whether the DPA lacked fundamental authority with respect
to any specific salary claim." (20 Cal.App.4th at p. 1341, 26 Cal.Rptr.2d
666.) The court thus recognized the Controller's right to determine
whether the DPA has authority to set the salary ranges for civil service
employees and, incident to that determination, the right to determine
whether the Board may exempt its employees from the civil service provisions
of the state constitution. (ß 19826.)
In the present case, there is no law that grants the Board the right to
set the salaries of its portfolio managers except for its interpretation
of Art. XVI, ß 17, the very provision at issue in this case. Rather,
the Board is directed by statute to classify its employees who possess
investment expertise as civil service employees. It may contract outside
of state service only for "necessary investment expertise" upon
the approval of the DPA, if the expertise "is not available within
existing civil service classifications...." (ß 20208.) The
portfolio managers are employees who possess investment expertise and
for that reason are within the civil service.
This action, including the sixth cause of action, is fundamentally about
the Controller's right to determine whether the Board's actions
comply with the law. Just as there was no question the Controller would
have had standing to litigate the Controller's authority and the DPA's
authority in Tirapelle, had it initiated the action, there is no question
the Controller has standing to litigate the authority of the Board to
exempt its employees from civil service, to bypass the Controller's
authority to issue warrants and otherwise to exempt its actions from the
Controller's review of the legality of any payment from the Treasury.
The complaint sought declaratory relief to resolve the disputed issue whether
the CalPERS employees are within the civil service. A declaratory judgment
properly may be sought as a prophylactic measure to resolve a dispute.
(Mycogen Corp. v. Monsanto Co. (2002) 28 Cal.4th 888, 898, 123 Cal.Rptr.2d
432, 51 P.3d 297.) That includes the civil service status of the Board's
portfolio managers.
The trial court erred in sustaining the Board's demurrer to the Controller's
sixth cause of action.
II
The Plenary Authority of the Board
The Board claims the "plenary authority" that Art. XVI, ß
17 grants it over the "administration of the system" includes
the exclusive power to set the salaries of its employees, to determine
their civil service status, to determine the amount to reimburse its members
and its members' employers, and to pay its employees without a warrant
from or the review of the Controller. We disagree.
A.
Conflict with Statutes
The Board claims Art. XVI, ß 17 conflicts with and, as the paramount
law, supercedes statutes that inter alia authorize the DPA to adopt classes
and salary ranges for each position within state civil service (ß
18800), that limit the pay of the Board's members for attending meetings
(ß 20091), and that limit the amount a Board member's employing
agency may be reimbursed for the time each member spends carrying out
his or her duties as a Board member (ß 20092). The claim presents
a question of constitutional law involving the construction of Art. XVI,
ß 17.
The rules of statutory construction are the same for initiative enactments
as for legislative enactments. (Williams v. Superior Court (2001) 92 Cal.App.4th
612, 622, 111 Cal.Rptr.2d 918.) The goal is to determine and effectuate
voter intent. (Ibid.) To do this we interpret the phrase "administration
of the system" in Art. XVI, ß 17, within the context of the
subsequent conditions and the statement of purposes and intent and findings
which are a part of its enactment.
We are directed to look to the language of the enactment first, giving
the words their usual and ordinary meaning. (Williams v. Superior Court,
supra, at p. 623, 111 Cal.Rptr.2d 918.) Only if the statutory language
is susceptible of more than one reasonable interpretation do we resort
to extrinsic evidence to determine the intent of the voters. (Ibid.) We
start with the language of Art. XVI, ß 17. The Board is granted
"plenary authority" over the "administration of the system"
in the initial paragraph of the amendments to Art. XVI, ß 17. (See
fn. 6, ante.) The paragraph is made "subject to all" of the
subdivisions that follow. The subdivisions serve to limit and define the
authority and responsibility granted in the initial paragraph.
In Article XVI, section 17, subdivision (a), the analogous phrase "administer
the system" appears. It provides the board "shall ... have sole
and exclusive responsibility to administer the system in a manner that
will assure prompt delivery of benefits and related services to the participants
and their beneficiaries." (Italics added.) It is preceded by a provision
granting to the Board "the sole and exclusive fiduciary responsibility
over the assets of the public pension or retirement system...." In
this context, the "plenary authority" that is granted over the
"administration of the system" goes to the management of the
assets and their delivery to members and beneficiaries of the system,
not the remuneration of those who administer it.
By contrast, Article XVI, section 17, subdivision (f) concerns the powers
of the Board. It provides the Legislature may not modify the "number,
terms, and method of selection or removal of members of the retirement
board...." It says nothing about the remuneration of the Board or
its employees. The retirement board also is given exclusive power over
actuarial services in subdivision (e). "The retirement board of a
public pension or retirement system ... shall have the sole and exclusive
power to provide for actuarial services...." The remaining subdivisions
concern the Board's discharge of its duty to efficiently manage its
assets and to provide benefits to its members.
Thus, with regard to administration of the system, the Board's authority
is limited to actuarial services and to the protection and delivery of
the assets, benefits, and services for which the Board has a fiduciary
responsibility. No such power is given over the administration of the
matters at issue here.
The initiative by which the amendments to Art. XVI, ß 17 were enacted
contains a statement of purpose and intent and declarations and findings.
(See fns. 6, 7 & 8, ante.)
The express "purpose and intent" of the amendments to Art. XVI,
ß 17, as set forth in Section 3 of the initiative (fn. 7, ante ),
is to "give the sole and exclusive power over the management and
investment of public pension funds to the retirement board's selected
or appointed for that purpose, to strictly limit the Legislature's
power over such funds, and to prohibit the Governor or any executive or
legislative body of any political subdivision of this state from tampering
with public pension funds." (Italics added.) (See fn. 7, ante.)
The remaining declarations of purpose reinforce the intent of the measure
to protect pension funds by giving pension boards the authority to administer
the funds without interference. Thus, the measure expresses the intent
to "protect pension funds," to protect against tax increases
that would result "if state and local politicians are permitted to
divert public pension funds" and to "ensure that the assets
of public pension systems are used exclusively for the purpose of ...
providing benefits and services to the participants of these systems...."
(See fn. 7, ante.)
Similarly, five of the eight "[f]indings and [d]eclarations,"
set forth in Section Two of the initiative fn. 8, ante ), are concerned
with the specter of the political looting of pension funds. (See fn. 8,
ante.) The three remaining findings concern the selection of a retirement
board encroachment on the fiduciary powers, and infringement on the actuarial
function. Art. XVI, ß 17 specifically addresses two of the these
matters. (Art. XVI, ß 17, subds.(e) and (f).)
In keeping with the foregoing, the thrust of the ballot arguments in favor
of Art. XVI, ß 17 is to prevent the Legislature from "raiding"
pension funds. The ballot pamphlet summary states the measure grants the
"boards of public employee retirement systems sole authority over
investments and administration, including actuarial services." (Ballot
Pamp., Gen. Elec., supra, Summary of Prop. 162, p. 6.) The summary argument
in favor states that Art. XVI, ß 17 would "stop politicians
from raiding the pensions of ... public employees." (Ballot Pamp.,
Gen. Elec., supra, argument in favor of Prop. 162, p. 6.) The claims address
the means by which the Legislature on previous occasions had altered its
contributions to the retirement system.
The full argument in favor of the initiative warns that politicians would
continue to raid the pension funds of retirees unless Art. XVI, ß
17 was passed. It complains it was "not right" to allow politicians
to "balance their budgets on the backs of seniors and retirees."
The argument makes no mention of the scope of a retirement board's
administrative authority.
The ballot argument against Art. XVI, ß 17 claims the Controller
has blocked the pay increase of a "bureaucrat," but would not
have the authority to "stop other outrageous salary hikes if Proposition
162 [became] law." The rebuttal argument states the proposition's
opponents are "trying to mislead the voters." "The central
purpose of this measure is to STOP POLITICIANS FROM USING PUBLIC PENSION
FUNDS TO BAIL THEM OUT WHEN THEY FAIL TO KEEP GOVERNMENT SPENDING UNDER
CONTROL." (Orig.emphasis.)
The legislative analyst gives slightly more attention to the issue of a
retirement board's administrative authority under Art. XVI, ß
17. It recognizes that prior to Art. XVI, ß 17, the Constitution
specified the general authority of the Board over public pension systems
and that within these limits the Legislature could change the administrative
functions of public pension systems. Two examples which are given are
legislation removing the actuarial function from the Board and placing
it under a state actuary appointed by the Governor and confirmed by the
Legislature, and legislation allowing the use of CalPERS assets to offset
employer contribution costs. Both of these examples relate to administration
of the CalPERS assets, not to the administration of personnel matters.
The analyst also states that Art. XVI, ß 17 would give "the
board of each public pension system complete authority for administration
of the system's assets and for the actuarial function." (Emphasis
added.) The analysis also states Art. XVI, ß 17 could have some
fiscal impact because it would reduce oversight of the administration
of assets. The analysis makes no mention of the administration of anything else.
Thus, the voter intent, evidenced by the published ballot materials, is
that Art. XVI, ß 17 would give the Board the authority to administer
the investments, payments, and other services of CalPERS, but not the
compensation of the Board or the Board's employees.
Corcoran v. Contra Costa County Employees Retirement Bd. (1997) 60 Cal.App.4th
89, 70 Cal.Rptr.2d 385 (Corcoran), cited by the Board, is inapposite.
At issue was whether the Contra Costa County Employees Retirement Board
was an agency governed by the county board of supervisors. It arose because
the board of supervisors adopted a resolution applying a multiple-tier
retirement scheme to " 'all officers and employees of all agencies
of which this Board [the county board of supervisors] is the governing
body.' " (Id. at p. 91, 70 Cal.Rptr.2d 385.) The court held the
county board of supervisors was not the "governing body" of
the retirement board, but expressly recognized the employees of the retirement
board were part of the civil service system. (Id. at p. 94, 70 Cal.Rptr.2d
385.) The court found the employees' civil service status was immaterial
to the resolution of the issue before it because the retirement board
appointed, promoted, and discharged its employees and officers. (Id. at
pp. 94-95, 70 Cal.Rptr.2d 385.)
The issue here is not whether some other entity is the governing body of
the Board but whether the Board's authority over the administration
of the system is in conflict with the laws governing state civil service
and payment of expenses. Corcoran, supra, did not address this issue.
(See Ginns v. Savage (1964) 61 Cal.2d 520, 524, fn. 2, 39 Cal.Rptr. 377,
393 P.2d 689, ["an opinion is not authority for a proposition not
therein considered"].)
Nor are we persuaded by the Board's argument that Art. XVI, ß
17's prefatory phrase "[n]otwithstanding any other provisions
of law or this Constitution to the contrary" expresses the voters'
intented to have Art. XVI, ß 17 control over the other provisions
of law at issue in this case. The phrase applies only to laws that are
"to the contrary." We have concluded the powers the voters intend
to give the Board do not include the exclusive and unfettered authority
over payments made to and on behalf of its members and employees.
B.
Civil Service
As noted, Article VII, section 1 of the California Constitution provides
that every officer and employee of the state is included in the civil
service system, unless exempted. Section 4 exempts one deputy or employee
for each board or commission.
The Board claims it has plenary authority under Art. XVI, ß 17 to
classify its portfolio managers as exempt from civil service. If we accept
the Board's position that the civil service law does not apply to
it, there is no logical reason why the Board would not have plenary authority
over the classification and salary of all of its employees who are not
otherwise exempt. It does not.
As discussed above, the purpose of the amendments to Article XVI, ß
17 is to protect pension funds from interference by the Governor or the
Legislature and there is nothing in it from which it could be inferred
that it reaches civil service classifications. [FN14]
FN14. In a petition for rehearing, the Board argues that we improperly
decided the merits of the Controller's sixth cause of action because
we decided an issue that had not been addressed by the trial court and
had not been proposed or briefed by any party to the appeal in violation
of Government Code section 68081. We disagree.
As to the Board's first argument, this court has the power pursuant
to Code of Civil Procedure section 43 to "determine all the questions
of law involved in the case, presented upon such appeal, and necessary
to the final determination of the case." Pursuant to this section
we may direct the trial court to enter judgment where the facts are undisputed,
as here, and the proper judgment is apparent from the record as a matter
of law. (Conley v. Matthes (1997) 56 Cal.App.4th 1453, 1459, fn. 7, 66
Cal.Rptr.2d 518; Continental Cas. Co. v. Phoenix Constr. Co. (1956) 46
Cal.2d 423, 440, 296 P.2d 801.)
As to the second argument, Government Code section 68081 directs that
before we may render a decision "based upon an issue which was not
proposed or briefed by any party to the proceeding" we must afford
the parties an opportunity for supplemental briefing. There is no need
to do so in this case because the sixth cause of action is based upon
an issue thoroughly briefed by both parties, the nature and scope of the
"plenary authority" over the "administration of the system"
granted the Board by Article XVI, section 17. Implicit in our determination
that such authority is limited to the investments, payments to beneficiaries,
and similar services of CalPERS, is the determination that Article XVI,
section 17 does not overrule the state's civil service laws, including
article VII, section 1.
III
Judgment on the Pleadings
The Board argues it was entitled to make a factual showing in the trial
court that it was impossible to comply with its fiduciary duties under
Art. XVI, ß 17, if it followed the constitutional and statutory
provisions and regulations at issue.
As noted, subdivision (a), provides the assets of the retirement system
are trust funds that shall be used for providing benefits to participants
and for defraying the reasonable expenses of administering the system.
This provision predated and is not a part of the amendments to Art. XVI,
ß 17. Prior to this case it had not been thought that this provision
limited the powers of the Legislature to set the terms of reasonableness.
Notwithstanding, the Board claims the provision as a limitation upon the
Legislature's authority to adopt rules which limit the pay of the
Board and its employees. Accordingly, the Board reasons the trial court
should have considered evidence in order to evaluate the reasonableness
of the Board's administrative expenditures for itself and its employees.
The Board claims that "as a factual matter, limiting the expenditures
at issue to the levels prescribed by statute or regulation would have
made it impossible for the Board to comply with its fiduciary duties under
Section 17." It presents its challenge as an "as applied"
challenge requiring the trial court to consider the specific factual circumstances involved.
The Board's analysis is incorrect. It has confused the measure of its
power with the reasonableness of its exercise of the power. The rule is
first, the application of the rule is second. While Art. XVI, ß
17 imposes fiduciary duties upon the Board to provide benefits to participants
and their beneficiaries and to minimize the risk of loss and maximize
the rate of return, it is obvious these duties must be performed by the
Board and its employees within the applicable law. There was no need for
the Board to present evidence of the reasonableness of its decisions with
respect to the exercise of a power it does not have.
A motion for judgment on the pleadings is analogous to a general demurrer.
(Lance Camper Manufacturing Corp. v. Republic Indemnity Co. (1996) 44
Cal.App.4th 194, 198, 51 Cal.Rptr.2d 622.) To this end we assume the Board
could have proven all of the allegations in its answer. (Ibid; Pacific
Union Club v. Commercial Union Assur. Co. (1910) 12 Cal.App. 503, 506,
107 P. 728.) The trial court assumed the Board concluded it was obligated
to make the decisions it made in order to comply with its constitutional
mandate, just as we assume these facts for purposes of appeal.
The issue here is not whether the Board makes a facial or as applied challenge
to those statutes it claims are in conflict with Art. XVI, ß 17.
The issue is whether the complaint raises an issue that can be resolved
as a matter of law. (In re Guardianship of Olivia J. (2000) 84 Cal.App.4th
1146, 1155, 101 Cal.Rptr.2d 364; Magna Development Co. v. Reed (1964)
228 Cal.App.2d 230, 234, 39 Cal.Rptr. 284; Estate of Marler (1957) 148
Cal.App.2d 30, 33-34, 306 P.2d 105.)
The trial court was called upon to interpret Art. XVI, ß 17. This
is purely a question of law. (Unnamed Physician v. Board of Trustees (2001)
93 Cal.App.4th 607, 619, 113 Cal.Rptr.2d 309; Clemente v. Amundson (1998)
60 Cal.App.4th 1094, 1102, 70 Cal.Rptr.2d 645.) For reasons stated above,
the trial court properly resolved the matter on the Controller's motion
for judgment on the pleadings.
Citing Hustedt v. Workers' Compensation Appeals Bd. (1981) 30 Cal.3d
329, 343, 178 Cal.Rptr. 801, 636 P.2d 1139, [FN15] the Board argues that
application of the statutes and other provisions at issue would make it
impossible to realize the objectives of Art. XVI, ß 17; thus Art.
XVI, ß 17 repealed those provisions insofar as necessary. The board
does not state precisely what objectives could not be realized if it followed
the constitutional and statutory law, only that it could not then meet
its "fiduciary obligations."
FN15. Hustedt held the objectives of article XIV, section 4 (to enact a
complete package of workers' compensation, to provide for the resolution
of any disputes arising under such legislation by an administrative agency
which exercised all "requisite" governmental functions, and
to resolve disputes arising under such legislation "expeditiously,
inexpensively, and without incumbrance") did not require the Worker's
Compensation Appeals Board to have the power to suspend or remove attorneys
from practice before the board. Therefore, article XIV, section 4 did
not effect an implied repeal of the separation of powers doctrine embodied
in article III, section 3. (Id. at p. 344, 178 Cal.Rptr. 801, 636 P.2d 1139.)
As we read Art. XVI, ß 17, its objectives are to protect the pension
fund and to ensure it is used for providing benefits and services to participants.
The payment of Board staff according to existing civil service laws, the
payment of members under existing reimbursement limits, and payment of
release time reimbursements under existing allowable amounts do not prohibit
the realization of these objectives.
IV
CalPERS Funds are State Funds
The Board claims that even without Art. XVI, ß 17, it has the statutory
authority to pay its portfolio managers whatever salaries it deems appropriate.
It relies upon section 19825, which states in part:
"Notwithstanding any other provision of law, whenever any state agency
is authorized by special or general statute to fix the salary or compensation
of an employee or officer, which salary is payable in whole or in part
out of state funds, the salary is subject only to the approval of the
department [the DPA] before it becomes effective and payable, except as
provided in subdivision (b). The Legislature may expressly provide that
approval of the department is not required."
The Board claims its portfolio managers are not paid from state funds,
but from CalPERS assets. Citing Valdes v. Cory (1983) 139 Cal.App.3d 773,
782, 189 Cal.Rptr. 212, the Board argues these assets are trust funds,
not state funds. It claims that once the state makes contributions to
the CalPERS fund, it gives up any ownership or power of disposition over
the fund for purposes of section 19825.
Whatever else the CalPERS fund may be, section 12320 makes clear it is
also state money. It provides that "[b]onds, and other securities
or investments belonging to the state, except those of the Public Employees'
Retirement System and the State Teachers' Retirement System, shall
be received by the Treasurer and kept in the vaults of the State Treasury...."
If the CalPERS investments are not investments belonging to the state,
there would be no need to except them from the operation of section 12320.
Moreover, as the Controller points out, retirement benefits are contractual
obligations of the state and if the CalPERS fund is insufficient to pay
the benefits owed to state employees, the state is obligated to pay the
money to pensioners from other sources. (Valdes v. Cory, supra, 139 Cal.App.3d
at pp. 783-784, 189 Cal.Rptr. 212.) Therefore, the state has a valid reason
to ensure that payments from the fund to employees meet the requirements
of state law.
The trial court ruled that CalPERS is a part of the state, and because
section 16305.2 provides that "[a]ll money in the possession of or
collected by any state agency or department ... is ... state money,"
the CalPERS fund is a state fund. The Board argues the "state funds"
exception in section 19825 would become meaningless if it included all
"money in the possession of or collected by" a state agency
or department as provided by section 16305.2. We disagree.
The phrase in section 19825, "which salary is payable in whole or
in part out of state funds," is not an exception at all, but simply
a recognition the state has no control over salaries it does not fund.
We can conceive, and the Legislature could no doubt as well, that an employee
could be paid directly from federal or county funds, and that such an
employee's salary would not depend on the approval of the DPA.
However, in this case we have money originating from the state's general
fund and being held as money "belonging to the state." Notwithstanding
the fact the Board has been given plenary authority over the investment
and management of the money, it is state money that is at issue, and DPA's
approval and the Controller's warrant are necessary before it can
be paid out as salaries.
The Board claims the provision of section 20098 that provides in pertinent
part that "[t]he board shall appoint and fix the compensation of
... other necessary employees" gives the Board the ability to fix
the compensation of the portfolio managers. (Italics added.) This argument
fails to recognize the operation of section 19825, which applies in cases
where an employee's compensation is fixed by an agency of the state.
It provides that " whenever any state agency is authorized by special
or general statute to fix the salary or compensation of an employee or
officer," the salary or compensation is subject to the approval of the DPA.
V
Affirmative Defenses
The Board argues we should reverse the judgment as to the issues of reimbursement
for "release time" and travel expenses because it raised affirmative
defenses of laches and waiver that could not properly be disposed of on
the pleadings.
The facts it claims support these affirmative defenses are: (1) the Controller
authorized "release time" payments between 1995 and the initiation
of this suit; and (2) the Controller authorized reimbursement of travel
expenses in excess of the amounts allowed by statute from 1999 to the
initiation of this suit.
The Board's answer alleged merely: "Plaintiff's claims are
barred in whole or in part by the doctrine of waiver," and "Plaintiff's
causes of action, or some of them, are barred by the doctrine of laches
because plaintiff unreasonably delayed bringing suit, causing defendants
to reasonably rely on the status quo."
These affirmative defenses consist of legal conclusions that could survive
neither a demurrer nor a motion for judgment on the pleadings. (Mack v.
State Bar of California (2001) 92 Cal.App.4th 957, 961, 112 Cal.Rptr.2d
341; FPI Development, Inc. v. Nakashima (1991) 231 Cal.App.3d 367, 384,
282 Cal.Rptr. 508; Wienke v. Smith (1918) 179 Cal. 220, 225, 176 P. 42.)
There could be no laches or waiver from the facts the Board asserts in
support of its defenses. Just because the Controller has paid reimbursements
in the past is not a waiver of the right to refuse to do so in the future
if the action is in violation of the law. There can be no laches as to
plaintiff's suit for declaratory and injunctive relief over the claims
for which payment has been refused. The acts complained of here are in
the nature of ongoing wrongs. (See California Trout, Inc., v. State Water
Resources Board (1989) 207 Cal.App.3d 585, 631, 255 Cal.Rptr. 184.) The
Board cannot assert that because the Controller raised no legal objection
to past violations of the law, the office is forever precluded from bringing
an action to prevent future violations of those laws. There can be no
laches or waiver where the claim is that future payments would be unlawful.
Finally, "neither the doctrine of estoppel nor any other equitable
principle may be invoked against a governmental body where it would operate
to defeat the effective operation of a policy adopted to protect the public."
(County of San Diego v. California Water & Tel. Co. (1947) 30 Cal.2d
817, 826, 186 P.2d 124.) The Controller has brought this action in the
official capacity as controller of the State of California, representing
the interests of the citizens of the state. The Controller seeks to enforce
provisions of the civil service laws and the Public Employees Retirement Law.
The civil service laws were passed to limit corruption and to promote efficiency
and economy in state government. (Pacific Legal Foundation v. Brown (1981)
29 Cal.3d 168, 182, 172 Cal.Rptr. 487, 624 P.2d 1215.) The purpose of
the Public Employees Retirement Law is to promote economy and efficiency
in government service. (ß 20001.) Both of these schemes are intended
to protect the public fisc, thereby protecting the interests of the state's
taxpaying citizens.
We will not recognize equitable defenses where the plaintiff in an official
capacity seeks equitable relief on behalf of the citizens of this state.
VI
Modification of Judgment
The Board claims the judgment of the trial court is overbroad and should
be modified by striking paragraphs 2 and 3(f). We shall strike paragraph
3(f) and part of paragraph 2 as unnecessary to the judgment.
The Controller's complaint requested injunctive and declaratory relief.
The trial court declared in paragraph 2 of the judgment that defendants
were subject to Government Code sections 1153, 12470, 19816, 19820, subdivision
(a), 19825, 19826, 20091, and 20092, as well as the restrictions of article
III, section 3.5 of the California Constitution. The trial court also
permanently enjoined defendants from acting in such a manner as to violate
these statutory and constitutional provisions in paragraph 3 of the judgment.
Paragraph 2 of the judgment provides: "The Court FURTHER DECLARES
that defendants are subject to Government Code sections 1153, 12470, 19816,
19820(a), 19825, 19826, 20091 and 20092; and defendants are subject to
the restrictions of article III, section 3.5 of the California Constitution."
The Board claims paragraph 2 is unnecessary because paragraph 3 relies
on the same statutes and provisions to enjoin the Board from acting in
the complained-of manner.
Paragraph 2, with one exception, to be addressed post, is not unnecessary
to the opinion. Paragraph 2 is a direct response to the Controller's
seventh cause of action that requested "a judicial determination
and declaration that defendant's actions to disregard applicable state
law and regulations are not authorized by article XVI, section 17 of the
California Constitution. Such a declaration is necessary and appropriate
at this time so that [the Controller] may ascertain [his] rights and duties
without being subjected to liability for violations of article VII, section
1, and article XVI, section 6 of the California Constitution, Government
Code sections 1153, 12470, 19820(a), 20091, 20092, and title 2, section
599.619 of the California Code of Regulations."
Paragraph 2 is thus a specific determination of the allegations in the
Controller's seventh cause of action. It also provides the reasoning
for the injunction that follows. It is not unnecessary to the judgment.
However, we shall grant the Board's request to strike paragraph 3(f)
of the judgment and that portion of paragraph 2 that states, "and
defendants are subject to the restrictions of article III, section 3.5
of the California Constitution." Article III, section 3.5 provides
that an administrative agency has no power "[t]o declare a statute
unenforceable, or refuse to enforce a statute, on the basis of it being
unconstitutional unless an appellate court has made a determination that
such statute is unconstitutional; [or] ... [t]o declare a statute unconstitutional[.]"
We strike this part of the judgment not because it was unnecessary to the
trial court's judgment. It was in fact a separate and independent
ground for the judgment. However, because we hold the statutes at issue
are not made unconstitutional by Art. XVI, ß 17, we need not decide
whether the Board must obtain an appellate court ruling on the constitutionality
of the statutes at issue. These portions of the judgment are therefore
no longer necessary, as the issue is moot.
DISPOSITION
The parties' requests for judicial notice are denied.
The order sustaining the demurrer is overruled and the trial court is directed
to enter judgment in favor of the Controller on the sixth cause of action.
The judgment is modified by striking paragraph 3(f) and by deleting the
following language from paragraph 2: "; and defendants are subject
to the restrictions of article III, section 3.5 of the California Constitution".
In all other respects the judgment is affirmed and our previously issued
stay is vacated.
We concur: SIMS and ROBIE, JJ.
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