A drive to place a statewide public pension reform initiative on the November ballot ended last week, lacking funding like previous attempts. But major local pension reforms are expected to be on the June ballot in San Diego and San Jose.
Gov. Brown is urging the Legislature to place much of his 12-point pension reform plan on the November ballot, despite opposition by public employee unions to key parts. He suggests the cost control could boost support for his tax measure.
The widely watched local ballot measures propose more sweeping changes than the governor’s plan — switching new hires in San Diego to 401(k)-style plans, requiring current San Jose workers to pay more for future pension credits or get lower benefits.
San Diego Mayor Jerry Sanders is scheduled to discuss pension reform today (Feb. 13) at the National Press Club in Washington., D.C. Supporters think the local measure, a potential trendsetter, will draw well-funded opposition from national unions.
The initiative would switch all new city hires except police to 401(k)-style retirement plans and freeze pay used to calculate pensions for five years. Unions are trying to block a vote on the measure, contending bargaining laws have been violated.
Sanders and others led a drive that spent $1 million gathering signatures to qualify the initiative. New hires would get a tax-deferred plan that shifts investment risk from the employer to the employee, like pension-replacing plans in the private sector.
By a vote of nearly two-to-one in November 2010, San Diego voters rejected a half-cent sales tax increase backed by Sanders that was linked to more modest pension changes and other cost-cutting reforms.
San Diego has an estimated $2 billion long-term pension debt. Two disastrous deals in 1996 and 2002 raised pensions and lowered city payments to the pension fund, resulting in lawsuits, a federal moratorium on city bond sales and painful budget cuts.
San Jose Mayor Chuck Reed began looking into pensions when San Diego’s problem erupted, he told Michael Lewis, author of “Moneyball,” in the November issue of Vanity Fair.
Drawing international attention this month, San Jose and formerly bankrupt Vallejo were featured in a Canadian Broadcasting Corporation television news segment titled: “California pension woes a warning to Canada.”
A divided San Jose City Council voted 6-to-5 in December to place a measure on the June ballot that would do what the watchdog Little Hoover Commission said last year is needed to control pension expenses: cut costs for current workers.
Most pension reforms only apply to new hires, taking decades to yield savings. Public pensions are widely regarded to be vested rights, protected by contract law, that can only be cut if the employee is given another benefit of equal value.
The dwindling number of private-sector pensions can control costs by reducing the pensions current workers earn in the future, while preserving pension amounts already earned by service on the job.
One thing expected to allow the San Jose measure to cut pensions earned by current workers in the future was a fiscal emergency, not yet declared. A more recent rationale is based on the city charter only specifying minimum benefits.
The measure would allow workers to continue earning pensions at current amounts, if they agree to help pay off half the pension system’s huge debt. Their contributions could increase up to 5 percent of pay per year, capped at 25 percent.
Or current workers could choose to earn lower pensions in the future, keeping amounts already earned, working longer for full retirement and possibly paying less for pensions than they do now.
These and other provisions of the measure are presumably on the table in mediation with 11 unions. The city is attempting to reach an agreement before March 1, the deadline for changing the June ballot measure.
Although located in wealthy Silicon Valley, budget problems have prevented San Jose from opening four new libraries and a police substation built with voter-approved bond funds. The city workforce has dropped from 7,400 to 5,400 in the last decade.
Dozens of police and firefighters have been laid off, workers given a 10 percent pay cut and $400 million in road repairs delayed. In a state of the city address last week, Reed said pensions have been the biggest single cost driver.
The mayor said retirement costs increased from $73 million a decade ago to $245 million this year and are now more than 50 percent of the base payroll and more than 20 percent of the general fund.
Unions filed a complaint last week accusing Reed of inflating pension cost projections to get concessions in bargaining. A television news team reported that Reed said costs could reach $650 million by 2015, when officials projected $400 million.
Reed said actual costs, not projections, were used in negotiations with unions. He said the $650 million estimate, cited along with the $400 million projection, was an example of what could happen if conditions worsened.
Last week Dan Pellissier announced that California Pension Reform is suspending an initiative drive “after determining the attorney general’s false and misleading title and summary makes it nearly impossible to pass.”
He said if the Legislature fails to reform the “broken” pension system, the group will push another initiative in 2014. Attracting funding for a pension reform initiative has been difficult in recent years, despite favorable public polls on the issue.
Republicans and taxpayer groups are putting money into other measures: overturning state Senate districts, prohibiting government paycheck deductions of union dues used for political purposes, a state spending limit and a part-time Legislature.
A Republican candidate for governor, Meg Whitman, who spent $144 million of her own money on the campaign and finished nearly 13 percentage points behind Brown, rejected a request from a pension reform group in 2010 to fund an initiative.
A Legislature controlled by Democrats, traditional labor allies, is expected to approve a pension package that contains parts of Brown’s 12-point plan. Democrats had already introduced bills covering several of the points.
Among them are curbs on abuses such as “spiking” or manipulating final pay to boost pensions, “double dipping” or collecting a government paycheck and pension and giving pensions to convicted felon.
But whether key parts of Brown’s plan are watered down or blocked remains to be seen.
Unions have criticized or opposed some of the governor’s cost-cutting structural changes: a 50-50 split of normal costs with employers and giving new hires a “hybrid” pension and 401(k)-style plan while also extending the age for full pension payment.
“Current benefits, contributions and retirement ages don’t reflect the changing demographic realities we face and are not sustainable,” Brown said in a letter to legislative leaders on Feb. 2.
“Continuing these plans in their current form will put taxpayers on the hook for substantial costs now and in the future,” he said. “Urgent and decisive action is imperative.”
Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at https://calpensions.com/ Posted 13 Feb 12