Sovereign Immunity for Public Employers

An important legal right of state and municipal employers was upheld by the U.S. Supreme Court last month. In a 5-4 decision that reaffirmed "sovereign immunity" from certain federal controls over state employment practices, the court voided in part a provision of the 1993 Family and Medical Leave Act. It decided that the federal government has no business telling states how to run their sick leave programs, given evidence that they were making their own provisions.

A deeper legal analysis notes that the decision was actually 4-1-4 and the court split hairs over the employee's rights to sue for damages. Thus, this decision is hardly sweeping in scope, but it strengthens the claims of public employers that Congress would best keep its nose out of the personnel policies of states and localities. This is especially important for the public-sector lobbyists who must constantly battle bills on Capitol Hill that seek to impose federal control over municipal employment policies and pension funds.

In particular, I think it is noteworthy that a constitutionally conservative decision by this court should give pause to conservatives' recent efforts to lobby Congress for legislation to impose federal rules over how state and local pension funds should be operated. As a prominent pension-reform advocate, I am fully in favor of major changes to clean up our sadly underfunded retirement plans, shed more light on the magnitude of the problem, and promote intergenerational equity. However, the Congress would best leave the solutions to these problems to the states, even though I know this federalist path results in piecemeal changes that will take a half-decade to achieve.

Admittedly there is a national interest in how states and localities run their benefits plans. Anti-discrimination employment laws would be one example of individual rights trumping states' rights if reasonably enacted. I can make a solid case for more-universal Social Security coverage to end the FICA free-rider problem I've cited before. Many investors nationwide would say that federal regulation of municipal securities disclosure is warranted when pension and OPEB (retiree medical) liabilities are buried in obscure financial footnotes, and bond investors can't see how much of an issuer's future cash flow will be consumed by the unfunded public retirement plans. But to that point, I think the Governmental Accounting Standards Board will soon push those numbers up onto the financial statements, and the ratings agencies along with the national bond lawyers and the Municipal Securities Rulemaking Board are clearly capable of establishing "overlapping debt" metrics that unveil the hidden future costs of these underwater pension and OPEB plans. So I see nothing there that Congress will ever do better.

It's too bad this court wasn't in place when the 1973 Garcia v. San Antonio MTA case was presented, which opened the door for federal intervention into crazy overtime rules for firefighters and other "fair labor standards" intrusions into the municipal workplace under the commerce clause. This court can't turn back the clock and reverse precedent, but we can at least hope that the federalist system will remain respectful of the needs of states and localities to run their own internal operations. Let's all remember this case the next time somebody proposes a Public Employee Retirement Income Security Act ("PERISA") or something similarly over-reaching.