SAN FRANCISCO —The California Supreme Court sounded sympathetic to Orange County on Monday in its attempt to roll back health benefits for retirees — a case being closely followed by local governments waiting to see how far they can go in cutting benefits for their employees.

The justices seemed sensitive to the financial troubles local governments face as they try to walk back promises made in better times.

The Retired Employees Association of Orange County sued the county in 2007 after the Board of Supervisors — faced with budget problems — passed a resolution that made health care premiums more expensive for the retirees.

Rosen, Bien & Galvan partner Ernest Galvan, who represents the retirees, argued that the county broke its implicit promise to maintain benefit levels for vested retirees.

What law, Justice Kathryn Mickle Werdegar asked Galvan, supports the position that a county can bind itself in perpetuity to the promise of health care benefits "no matter what a budget may look like in the future?"

"The 'perpetuity' is not as scary as it sounds," Galvan answered, explaining that the county could decide to reduce future benefits for current employees, but can't do so retroactively.

Orange County's lawyer, Meyers Nave Riback Silver & Wilson partner Arthur Hartinger, argued there was never a vested right to low premiums, and that the changes had to be made because the unfunded liability the county faced threatened to sink the plan altogether.

Justice Ming Chin seized on that idea, using it to press Galvan on the notion that the changes were unfair to the retirees.

"What about the argument about the plan being on the verge of bankruptcy and the solution being to eliminate the plan?" Chin asked.

Galvan replied that there was no evidence in the record that the plan was facing bankruptcy.

Both sides said local governments around the state are watching the case closely.

Other counties such as Los Angeles, Galvan said after oral argument, are waiting for the court's decision to see if they, too, can cut retirees' health benefits.

"Our concern is that if the Supreme Court gives Orange County what it wants, it's going to be open season on retirees," he said.

Renne Sloan Holtzman Sakai partner Jonathan Holtzman, who represented amici curiae the League of California Cities and the California State Association of Counties, said after the oral argument that most public agencies are facing "catastrophic liabilities" for such benefits.

"You have to decide at some point: Do you want libraries or do you want this?" Holtzman said. "That's not theoretical anymore.

"I would say this is one of the most important cases in years for public agencies."

The case is Retired Employees v. County of Orange, S184059.