Legal challenges continue to pose problems for municipalitiesseeking to cut their pension obligations in California,according to Fitch Ratings, but a voter initiative could present abigger challenge to unions and retirees.

Fitch said that a recent legal settlement in San Jose resultedin most pension reforms being restricted to new hires instead ofbeing imposed on existing employees and retirees, after the cityreached an agreement with police and firefighter unions.

A measure approved earlier by voters that was kicked down the road last year for anadditional year may not have borne much fruit as yet, thanks toagreements to delay or even eliminate certain of its provisions,but Fitch says that a new initiative could fare better and providea means for local governments to change pensionagreements.

Efforts are currently underway to gather signatures to put theVoter Empowerment Act of 2016 on the ballot by November of nextyear. The act, said Fitch, “would amend the state's constitution topermit local voter initiatives to address public employeecompensation and retirement benefits. The measure was sponsored bySan Jose's former mayor, among other proponents, and appearsdesigned to overturn the California Rule.”

The so-called California Rule, Fitch explained, “provides thatpension benefits are a vested contractual right and cannot beimpaired for existing public employees and retirees.” Lower courtshave supported the California Rule in challenges that have so fararisen to existing pension agreements, but the rule has yet to betested in California’s Supreme Court.

While Fitch said that the proposed new measure is by no means asure thing, particularly in the teeth of union opposition — sure tobe strong — one thing is fairly certain: As states andmunicipalities continue to try to reduce their obligations andpension liabilities, there will bemore legal challenges ahead for whichever measures do survive atthe ballot box.