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On September 17, 2024, the California Court of Appeal, Second Circuit, affirmed a Superior Court judgment in favor of the City of Oxnard in connection with Oxnard’s effort to validate pension obligation bonds. The Second Circuit Court of Appeal reached the same conclusion that the Sixth and Fourth Circuit Courts of Appeal had reached earlier this year with respect to efforts by the Cities of San Jose and Escondido, respectively, to validate pension obligation bonds. (See previously disseminated client alerts with respect to the San Jose and Escondido decisions here.) Although the Oxnard trial court had held that the issuance of pension obligation bonds was permissible without a taxpayer vote under an exception to the California Constitutional debt limit (namely that issuing the bonds would satisfy an “obligation imposed by law”), the Second Circuit Court of Appeal did not even address that exception in its written decision. Instead, the Court was persuaded by the San Jose decision’s reasoning to the effect that the issuance of pension obligation bonds does not create a new indebtedness or liability for Constitutional debt limit purposes, but merely changes the form of an existing indebtedness (pension obligations) from an obligation payable to CalPERS to one payable to bondholders.

In the San Jose, Escondido and Oxnard decisions, the Howard Jarvis Taxpayers’ Association’s challenges to pension obligation bonds were unsuccessful at trial and in three separate appellate circuits.  The San Jose and Escondido decisions have been appealed to the California Supreme Court. It is likely that the HJTA will ask for reconsideration of the Second Circuit Court of Appeal’s decision in the Oxnard case, and if a motion for reconsideration is not granted, seek to appeal the Oxnard decision to the California Supreme Court as well.    

Kutak Rock LLP's public finance group has served on numerous occasions as bond and disclosure counsel to public agencies throughout California and nationwide on pension obligation bond issuances. Please contact Cyrus Torabi in Kutak Rock's Irvine office for further information about the City of Oxnard ruling or pension obligation bonds generally.