California voters may soon be facing the issue of a Constitutional Amendment on PENSION REFORM. Here are two differing viewpoints on the need to reform civil service pensions in California.
Argument In Favor
Pension Reforms Are Desperately Needed to Protect Public Services and Save Jobs
by Chuck Reed, Mayor of San Jose
All across California, cities and other government agencies are struggling to pay for basic services. Police, fire protection, libraries, community centers, programs to feed seniors and services that help keep kids out of gangs have all suffered painful cuts. Our roads and critical infrastructure are crumbling.
Even as the California economy continues to recover and tax revenues grow, our state and local governments are struggling to keep up. And that’s because skyrocketing retirement costs are crowding out funding for anything else.
According to the State Controller’s Public Retirement Systems Annual Reports, taxpayer contributions into California’s public employee pension plans have jumped from $3.4 billion in FY 2000-01 to $17 billion in FY 2010-11.
In addition, the state’s largest pension system (CalPERS) has projected that annual contributions will rise by another 50% over the next seven years, and the state teachers fund (CalSTRS) has said that it needs another $4.5 billion annually to reach full-funding in 30 years.
That’s why, four years ago, then-CalPERS Chief Actuary Ron Seeling declared that the cost of public employee retirement benefits is “unsustainable.”
This is a problem that all Californians should care about. It is draining money away from core public services. It is increasing pressure for new taxes. It is preventing much-needed investments in infrastructure. And it threatens to leave our children and grandchildren with an enormous debt that they can’t afford.
This problem should also be a serious concern for government employees. Many have already faced layoffs and pay cuts due to rising retirement costs. In addition, huge unfunded liabilities threaten the government’s ability to pay out the benefits that our public servants will be counting on in retirement.
We’ve already seen this nightmare happen in the bankrupt cities of Stockton, which had to eliminate healthcare coverage for all of its retirees, and in Central Falls, RI, which was forced to slash retirees’ pensions by up to 50%.
I’m also deeply concerned about our dedicated teachers. CalSTRS recently reported that it is projected to run out of money in 30 years (that’s within the lifetime of many of our recently-retired teachers).
We desperately need reforms that: 1) protect our ability to provide essential services to the public, and 2) will help ensure that our employees and retirees receive the benefits they have earned.
While the 2012 state reforms were a step in the right direction, they only amounted to a 5% to 10% solution, and like many local pension reforms, focused primarily on new employees. As a result, most of these savings won’t be realized for many years.
The only way to generate the immediate savings necessary to help cope with the huge cost increases coming in the next few years is to include existing employees in pension reform. Yet, because of the so-called “California Rule” of vested rights, it is extremely difficult for any government agency to adopt even the most modest of pension reforms for any employee that has been on the job for just a single day.
That’s why I have joined a group of California Mayors in proposing a statewide initiative that gives government agencies clear authority to modify retirement benefits for an existing employee’s future years of service.This initiative mirrors the same rules in place for private sector pension plans and government plans in at least 18 others states. And it is exactly what the state’s independent government watchdog, the Little Hoover Commission, determined was needed in its 2011 report:
“Public agencies must have the flexibility and authority to freeze accrued pension benefits for current workers, and make changes to pension formulas going forward to protect state and local public employees and the public good.”
It’s also important to note that this initiative:
- Explicitly protects all benefits that employees have already earned and accrued for work performed. Government agencies would NOT be allowed to retroactively modify any benefits that are already “in the bank”.
- Allows each government agency to negotiate with its employees over what specific changes (if any) are necessary to address its particular circumstances. It does NOT prescribe a one-size-fits-all solution for the entire state.
- Requires that any changes to retirement benefits comply with all applicable collective bargaining laws and wait until existing labor contracts expire.
By settling the ongoing dispute over the “vested rights” doctrine, this initiative would empower cities, counties and other government agencies to solve their pension problems without enduring costly and time-consuming lawsuits that have accompanied almost every single attempt at pension reform. Contra Costa County employees have even gone so far to claim they have a “vested right” to use vacation and sick leave payouts to spike their pensions.
Just as importantly, the initiative will provide elected leaders with additional options for dealing with their pension problems. While many government agencies have made their employees contribute more into their pensions, the truth is that neither taxpayers nor employees can afford to pay the true cost of these generous benefits. By allowing changes to future accruals, governments have another way to control costs without affecting an employee’s take-home pay.
Some argue that all of our pension problems will be solved once the stock market recovers. But it would take double-digit investment returns for many years in a row to eliminate the unfunded liabilities in California’s retirement systems and cover rapidly rising contributions in the year ahead. As Warren Buffett puts it, it’s that kind of overly-optimistic “Alice in Wonderland” thinking that got us in trouble in the first place.
Without fundamental reform, skyrocketing retirement costs and massive unfunded liabilities will push more cities, counties, school districts, and ultimately, the state, towards fiscal disaster. But by providing all levels of government with clear authority to modify the terms of current employees’ future pension benefit accruals, we can preserve public services and ensure our employees get paid what they have earned.
Argument Against
Mayors Should be Fiscally Responsible; Not Renege on Promises to Workers
By Julie Butcher, Service Employees International Union Local 721, Inland Area Regional Director
The prize for most overbeaten dead horse in California ought to be awarded to the anti-pension crowd. The politically motivated argument that the retirement promises made to public workers are somehow responsible for cities’ and counties’ inabilities to balance their budgets has repeatedly been proven false, yet we continue to hear it time and again.
The most recent regurgitation of the imaginary pension crisis came earlier this month when Chuck Reed, the mayor of San Jose, along with San Bernardino Mayor Pat Morris, and three others, filed paperwork signaling their intent to put a measure on a statewide ballot asking to rip retirement benefits away from hard-working firefighters, teachers, police officers, and other public employees who are crucial in keeping our communities going.
Keep in mind that Reed’s attempt to do this in his own city remains tied up in court, unable to be implemented. Also keep in mind that this myth about public pensions was proven untrue in Stockton, where massive borrowing and spending on a waterfront entertainment center and ballpark bears a lot of the blame for that city’s financial problems. It was also proven untrue in San Bernardino, where many years of budget mismanagement — not pensions — created a fiscal hole.
Neither is the sky falling at the state level in Sacramento. The California Public Employees Retirement System (Calpers) is healthy, currently posting earnings that are 167 percent of what was projected. That flies in the face of the argument critics of public pensions repeat most often — that pension systems project unrealistic returns. Calpers forecasted 7.5 percent for 2012, but this summer announced it had earned 12.5 percent.
On top of that, Governor Brown’s pension reforms kicked in this January, representing a reduction of nearly $100 billion to public workers’ retirements and health benefits. Additionally, union leadership in nearly 400 municipalities throughout the state have, without fanfare, sat down at the bargaining table and agreed to additional concessions. That’s where pension changes ought to be made – not on a political stage.
The good news is that California voters aren’t willing to be duped. A recent survey of likely voters conducted by California polling firm FM3 shows that 63 percent of us oppose “allowing public employers to unilaterally cut retirement benefits for current employees.” The opposition to the idea behind Reed’s ballot measure cuts across every demographic, from political party to age to gender. A solid majority of those surveyed — 54 percent – went further to say that they would like to see public employee pension levels maintained or even increased.
Reed remains relatively alone in his crusade. No other major city mayors joined in his announcement – not Los Angeles, San Diego, San Francisco, Fresno, Sacramento – and no statewide elected officials are praising his efforts.
However, Richard Riordan, the Republican former mayor of Los Angeles who made a failed attempt at upending that city’s pension system last year, has put cash toward Reed’s effort. So has John Arnold, a Texas billionaire who once worked as an executive at Enron and later made his fortune trading in natural gas. He was asked to bankroll Reed’s effort. That would make sense, considering that, according to his so-called philanthropic organization, the Arnold Foundation, Arnold spent $7 million over the past two years on anti-public pension campaigns around the country, including those in San Jose and San Diego.
Why does it matter who pays for anti-pension ballot measures? Because it reveals who stands to benefit from them. Taxpayers would not benefit, nor would middle-class working families. Only Wall Street and hedge fund managers would be able to take advantage of increased instability and uncertainty in public workers’ retirements.
Proposing an amendment to our state constitution that would rip away retirement benefits from current public employees is not a bold move. If Reed, Morris and the few other politicians supporting them wanted to be truly bold, they would stop beating this dead horse and instead put in the hard work to be fiscally responsible and balance their budgets without reneging on the promises made to public servants.