CA Pension Reform — A Rigged Game

January 24, 2016 By Steven Greenhut 5 Comments

public employee union pension“Certainly the game is rigged,” science fiction author Robert Heinlein once wrote. “Don’t let that stop you; if you don’t bet you can’t win.” The quip should be the new rallying cry of California’s indefatigable band of pension reformers, who continue to fight to rein in the state’s pension debt. It’s always been a tough battle — but the latest setback shows that the system is rigged at practically every level. Last month, California’s Public Employment Relations Board, the quasi-judicial body that oversees the implementation of the state’s collective-bargaining statutes, invalidated the results of a three-year-old referendum —Proposition B — that passed in November 2012 with 66 percent of the vote and would have reduced pension benefits for most new hires in San Diego and moved them to a 401(k)-style, defined-contribution system. Other reforms have also fallen by the wayside. In June 2012, heavily Democratic San Jose approved with nearly 70 percent of the vote a measure that would have trimmed benefits for current employees. A Santa Clara County judge in 2014 eviscerated the measure, invoking the so-called “California Rule,” a 70-year-old court interpretation of the state constitution that has made it impossible for overburdened cities to trim employee costs.

San Diego’s reform initiative was qualitatively different from San Jose’s. Its authors were careful to craft language that avoided running afoul of the California Rule by focusing on new hires and placing caps on pensionable pay. Prop. B was touted as a model for the rest of the state to follow, and the state needs one. The union-controlled Legislature remains hostile to reform, beyond the expedient passage in 2012 of a pension-reform bill that mainly served as a bait-and-switch to convince voters to hike taxes.

PERB is not an impartial agency. Before the 2012 city vote, PERB had tried to keep the proposition off the ballot altogether. Most of the board’s members have worked for one of two big unions — either the California Teachers Association or the Service Employees International Union. Its administrative law judges aren’t real judges but officials employed by the agency. Nearly two years ago, one of those biased adjudicators issued a lengthy ruling demanding that San Diego return to the 2012 status quo. The full board affirmed the ruling, maintaining that officials were required to bargain the terms of the initiative with the city’s unions before placing the measure on the ballot. But the city didn’t place the measure before voters — voters did it themselves, signing petitions to place it on the ballot. The board elided this vital distinction by pointing to the participation of San Diego’s former mayor, Jerry Sanders, and other officials in the initiative’s campaign. Never mind that Sanders said he was involved as a private citizen.

On Tuesday, the City Council voted unanimously to appeal the measure, even though a leading Democrat said he voted for the appeal simply to get legal clarity. “The people’s right to initiative is guaranteed by the California Constitution,” City Attorney Jan Goldsmith told the Union-Tribune. “This right cannot be bargained away in a back room, or stolen from the people by a government agency.” The appeal will send the matter to the courts.

Goldsmith, a strong backer of Prop. B, wrote in a July 2012 San Diego Union-Tribune column that the issue boiled down to constitutional rights. “[N]ever before has any initiative that qualified for the ballot through petition signatures been deemed a ‘sham’ citizen initiative,” he wrote. “Since 1911, the right to place citizen initiatives on the ballot through voter petitions has been a constitutional right in California reserved by the people to bypass politicians and special interests. This right is not conditioned upon the approval of those special interests and is not something to be bargained over.”

PERB isn’t the only agency to try to kill citizen initiatives. Recently, the union-friendly Agricultural Labor Relations Board invalidated an election by Fresno farm laborers who voted against representation by the United Farm Workers. For more than a year, the board refused even to count the ballots before deciding to destroy them. Former San Diego councilman Carl DeMaio, a leader in the city’s pension reform fight, and Chuck Reed, San Jose’s former mayor and a leader in that city’s pension reform efforts, have been working on a statewide initiative for either the November 2016 or 2018 ballots. They’ve faced lots of resistance from entrenched power, and they’re preparing to meet other legal obstacles from unions and their political backers. Yes, the game is rigged, but reformers soldier on. At least they understand that California’s fiscal future is at stake.

Steven Greenhut is the California columnist for the San Diego Union-Tribune.

This piece was originally published by City Journal online.

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Pension reform initiative abandoned for 2016

January 22, 2016 By James Poulos 2 Comments

Unions pension public sectorThe landmark effort to take public pension reform straight to the people of California has been withdrawn from ballot consideration.

“Beleaguered by fundraising doubts and attacks from organized labor, two former California officials said Monday they are backing off plans to place a measure on the November ballot intended to curb public pension benefits,” the Sacramento Bee reported. “Instead, former San Jose Mayor Chuck Reed and former San Diego Councilman Carl DeMaio said in a joint announcement, ‘We have decided to re-file at least one of our pension reform measures later this year for the November 2018 ballot.’”

Staying solvent

The news marked a sharp reversal for critics of the state’s pension spending, which has ballooned apace with California’s freshly flush balance sheet. The price tag for guaranteed health coverage alone has put Sacramento on notice of the size and scale of the problem. “The state has promised an estimated $72 billion in health care benefits for its current and future retirees, an amount that will increase to more than $300 billion over the next three decades, according to the governor’s Department of Finance,” according to the Associated Press.

Gov. Jerry Brown has sought to bring those costs under control in a way that won’t spur a revolt within his own party or hand too much power to Republican legislators. “Brown proposes prefunding benefits similar to the way the state pays for pensions — by paying into a trust fund that accrues investment returns over time, reducing the amount of money that taxpayers must contribute in the future,” the AP noted. “In negotiations with public employee unions, he’s asking state workers to pay into a fund through a deduction on their paychecks. The state would pay an equal amount.”

A firmer approach

The Reed/DeMaio proposals would have tackled unions in a much different way.  “Reed and DeMaio had filed two proposals for the November 2016 ballot, planning to choose one,” as the AP reported separately. “One would have put employees who first join a public pension system on or after January 2019, into 401(k)-style retirement savings plans that guarantee fixed contributions from employers instead of fixed returns. The second measure would have capped how much employers could pay for new hires’ retirement benefits to a certain percentage of their salary.”

Public opinion studies produced conflicting portraits of how much support for the initiatives Reed and DeMaio could count on. “Apparently the measure to force new employees into 401(k) style ballot initiatives did not poll well (even though a 2015 poll by Reason-Rupe showed majority support for such a shift),” as Reason observed. “The measure to cap the amount employers could contribute to pensions fared better in polls, but according to Reed, they weren’t able to raise enough money to collect signatures and prep for an expensive battle with California’s public unions.”

Finding funding

That difficulty struck at the heart of the year’s complex political landscape. “The stark reality is that within the state, there are no deep pockets to finance such a campaign,” Dan Walters noted at the Bee. “However large they may be, fast-growing pension and health care liabilities don’t discomfit any major interest groups, since their greatest impacts are on local governments, especially cities, rather than on state government.” That would have likely pushed the initiative’s supporters into a scramble for cash.

The necessity to look far and wide for money fostered its own kind of political optics problem. “Any reform campaign would be dependent on money from one or more wealthy individuals, probably from out of state, and it hasn’t materialized,” as Walters observed. “Conversely, any broad retiree benefit reform effort would draw implacable, high-dollar opposition from unions.” So even if the reform effort gained an adequate sponsor, Golden State unions would be able to portray their high-dollar spending as more of an in-state groundswell than their opposition — a potentially substantial advantage in a populist election season.

Originally posted on CalWatchdog.com

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Stockton’s Pension Struggles Offer Lessons for California

October 4, 2015 By Steven Greenhut 4 Comments

StocktonIt was an official document, circulated by former Republican Assemblyman and Board of Equalization member Dean Andal, who is well respected for his understanding of fiscal matters. The city pooh-poohed the suggestion, and provided its own economic analysis, although it refused to share the detailed data with the media or the public.

The bad news was easy to believe. Stockton’s bankruptcy exit plan didn’t address the fiscal elephant in City Hall (unfunded pension liabilities). The city was following the basic route taken by the Bay Area city of Vallejo, which also went bankrupt and soon again faced deep fiscal problems.

The crux of Stockton’s plan was a voter-approved tax and spending plan. Measure A raised the city’s sales tax by three-quarters of a cent. Measure B was an advisory vote for how the money would be spent. The tax-hike campaign promised significant new spending on popular programs, especially law enforcement in that crime-plagued city. Voters approved the measures.

Now, after collecting the tax for 15 months, the data seems to confirm what Andal had been saying. “After only one full budget year, the city has already broken three fundamental promises and is destined to return to insolvency within four years,” wrote Andal in a letter this month to supporters and opponents of the 2013 ballot measures.

First, the city promised to hire 120 net new police officers over three years, with 40 new officers hired by last July. The city hired only 13 new officers so far. Second, the city promised the new sales-tax measure would raise $29.5 million by July, but fell $1.4 million short. Third, the “plan of adjustment” expected its pension payments to the California Public Employees’ Retirement System to be nearly $23 million – but the actual costs were $23.7 million higher.

The Stockton situation is of statewide importance because it’s clear the state’s unfunded pension liability crisis has not gone away even in relatively good economic times. “All these budget problems show up at the service level,” Andal told me. He says Stockton faces “service insolvency,”  i.e., a budget so troubled the city cannot provide adequate levels of public services.

Stockton spent $38 million in legal fees in a nationally watched bankruptcy proceeding. Judge Christopher Klein ruled that cities could cut pension benefits in bankruptcy. Stockton officials chose not to do so, relying instead on other cuts and sales-tax increase. Now that their numbers might not be adding up, it puts the city in a difficult position, Andal argues, given it already has the highest sales tax allowed by law, the highest utility tax in the Central Valley and some of the highest developer fees.

Other cities will likewise find limited ability to raise new revenues as CalPERS continues its plan to ramp up its bill for cities that participate in its pension plan. Yet Sacramento officials act as if the pension problem is gone. There’s hardly an issue legislators didn’t try to address in the recently concluded legislative session, yet nothing of substance to deal with growing pension debts. The good-government group California Common Sense confirms that the state’s unfunded pension liabilities continue to show a pattern of steady increases.

Pension reformers led by former San Jose Mayor Chuck Reed and former San Diego city councilman Carl DeMaio have proposed a statewide measure that would subject most local pension increases to voter approval. They say the title and summary Attorney General Kamala Harris offered for that measure includes the same union-backed poison pill (claiming the initiative undermines constitutional benefit protections) she used for previous pension reform measures. They plan take the matter to court.

So nothing much has changed at the statewide level, with the state political establishment squelching reform. Sadly, it might take another economic downturn to get Sacramento officials to check out the problems in a city just 50 miles from the Capitol.

Originally published by Reason.com

Steven Greenhut is the California columnist for U-T San Diego.

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San Jose City Council Capitulates to Police Union Power

August 20, 2015 By Ed Ring 1 Comment

“He told the class to take advantage of the academy, and then find jobs elsewhere. The police union tries to get us to leave the department.”

–  Anonymous source to NBC Bay Area, television report “Another San Jose Police Recruit Says Union Tried to Get Cadets to ‘Find Jobs Elsewhere’,” Oct. 28, 2014 (excerpt begins at 1:38 in report).

San Jose Police DepartmentA precedent setting new development in San Jose last week provides abundant evidence of just how powerful local government unions really are in California. As reported Monday in San Jose Inside and elsewhere, an embattled City Council has tentatively approved a new contract with San Jose’s police union that awards them “a 5 percent ‘retention’ bonus and an 8 percent raise over the next 16 months. In addition, former officers who return to the force in the next year can claim a 5 percent signing bonus.”

More significantly, at the same time, the San Jose City Council has tentatively agreed to drop their appeal of a court ruling that overturned a key part of a San Jose pension reform, a re-examination of the so-called “California Rule.” As pension expert Ed Mendel reported in PublicCEO, “The ‘California rule’ is a series of state court decisions widely believed to mean that the pension offered on the date of hire becomes a vested right, protected by contract law, that can only be cut if offset by a new benefit of comparable value.”

In practical terms, this means that pension benefit formulas, according to the California Rule, cannot even be trimmed for future work performed by existing employees. San Jose’s pension reform Measure B, passed by 70 percent of voters in 2012, presented city employees with a choice – they could either contribute an additional 16 percent towards their pension benefits via payroll withholding, or they could accept lower pension benefit accruals from then on. Nothing they had earned to-date would have been taken away from them.

Despite legal opinions that claim the California Rule is not well established law, and despite that the California Rule is contrary to the law governing public sector pensions in most states, and contrary to all law governing private sector pensions everywhere, San Jose’s local elected officials have capitulated.

THE INHERENT HYPOCRISY OF THE ‘CALIFORNIA RULE’

It is difficult to overstate just how hypocritical the union’s position is on the issue of modifying pension benefit formulas. Because the problems with pensions began back in 1999, when Senate Bill 400 raised pension benefit accruals per year for the California Highway Patrol. Within a few years, most every agency in California followed suit. And these pension benefit enhancements were applied retroactively to the date of the employees’ hire.

That is, starting in 1999, agencies changed the pension benefit formula so that, for example, police and fire pension accruals were not just increasing from 2 percent to 3 percent per year from then on, but retroactively to the day each employee was hired. So someone who would have earned a pension equivalent to 2 percent of their final salary times the years they worked would now earn a pension equivalent to 3 percent of their salary times the years they worked, even if they were going to retire within the next year or two.

What San Jose Measure B tried to do was not roll back pension benefits from 3 percent per year to 2 percent per year for years already worked. It only tried to reduce the benefit accrual, prospectively, for years still to be worked. And even that was too much for these unions.

THE DEVASTATING COSTS OF SAN JOSE’S POLICE/FIRE RETIREMENT BENEFITS

If taxpayers could afford to pay these pension benefits, there might be a stronger argument to preserve them. But San Jose’s independent Police and Fire Department Retirement Plan, according to their most recent financial report, is not in great shape financially. Keeping it afloat requires staggering sums of money from taxpayers that are only going to increase each year. Here are highlights:

(1) The plan as of June 30, 2014 (most recent data available) was 77.5 percent funded (page 114). This means that instead of earning their officially projected annual return on investment of 7.125 percent per year, just to avoid becoming more underfunded, they will have to earn 9.2 percent per year. Just to stay even. That is their so-called “risk free” rate of return.

(2) The fund truly is “risk free” to participants, because the taxpayers pay most of the expense and cover the losses when the market fails. In FYE 6-30-2014, police and fire employees contributed $21.1 million into their retirement fund, and taxpayers (the city of San Jose) contributed $123.6 million (page 69), nearly six times as much. How many “six to one” matching contributions are out there for corporate 401(k) plans?

(3) The unfunded liability for the San Jose Police and Fire Retirement Plan was $806 million (page 114) as of June 30, 2013 (most recent actuarial data), equal to 436 percent of payroll. Or looking at this another way, the city’s pension contribution was $123.6 million, whereas their “covered payroll” was $184.6 million. That is, for every dollar San Jose pays to put police and firefighters on the street, they have to pay 67 cents to the pension fund.

(4) It’s not just pensions. The San Jose Police and Fire Retirement Plan includes city funded retirement health insurance benefits. How’s that fund doing? As of June 30, 2013 (most recent data), that plan was 11 percent funded, with an unfunded liability of $625.5 million (page 65).

(5) If you consolidate the financial data for San Jose’s Police and Fire Retirement Plan’s pension and healthcare (OPEB) plans, the most recent statements indicate they are 67 percent funded, with a total unfunded liability of $1.4 billion. If San Jose were to responsibly reduce their total unfunded liability for public safety retirement benefits, they would be paying far more than 67 cents for every dollar of payroll.

THE MISLEADING EMPHASIS ON AN EXODUS OF OFFICERS

Throughout this battle between fiscal realists and the police union in San Jose, the police have maintained that officers were leaving the city to work elsewhere or to retire. There’s no question that their ranks have thinned, perhaps alarmingly. According to SJ Inside, “the agency [currently has] 943 sworn officers out of a budgeted 1,109 positions.” And historically San Jose’s police department has had as many as 1,400 officers. But is the union thwarting efforts to fill the ranks?

Several news reports suggest that could be the case – starting with the local NBC television affiliate’s report quoted earlier. That anonymous source corroborated what another person stated publicly. According to the San Jose Mercury guest column entitled “San Jose police recruit: Union told class to quit right away for good of the department,” former police academy cadet Elyse Rivas writes:

“On the first day of the academy, our orientation included the opportunity to meet Jim Unland, the Police Officers Association’s president. In no uncertain terms, he blamed Measure B for the departure of hundreds of officers — and he told us that it would be better for the department and for us if we would just quit, right then and there. He said that our employment with the department did not help the POA’s cause in proving Measure B was killing the department’s recruitment capabilities. He urged us to find jobs elsewhere.”

Reached for comment earlier today regarding developments in San Jose, former Mayor Chuck Reed agreed with the substance of these allegations. Not only did he confirm reports of union representatives discouraging academy recruits from taking jobs with the department, but he also described other ways they thwarted recruitment:

“There were reports of recruiting events held in the San Jose police union offices where they invited police recruiters in from other cities to encourage active San Jose police officers to take these jobs in other cities.”

Reed also said, “When we were trying to hire officers, we wanted to bring in retired police officers in to do the background checks so we could keep our active officers on the beat – but the union urged retirees to refuse to accept the work.”

In any case, Reed pointed out that the city had determined to reduce the size of the police force back in 2010, well before voters approved Measure B, saying “the police department headcount went down from 1,400 to 1,100 before there was any pension reform.” Reed believes that an ideal headcount for the San Jose police department would not require returning to 1,400, and that getting to the budgeted 1,109 positions would be a good first step.

SO HOW MUCH DO SAN JOSE’S ‘UNDERPAID’ POLICE OFFICERS MAKE?

Getting timely and accurate information on public pay is difficult because financial reports from public entities take a long time to produce and often omit important data. The most recent payroll records publicly available for the city of San Jose are for 2013. According to a search on Transparent California of San Jose city employees with “Police” in their job title, in 2013 there were 260 of them who made over $250,000 in pay and benefits, and an astonishing 806 who made over $200,000 in pay and benefits. Here’s the link:  San Jose city employees, 2013, with “Police” in their job title.

Pension information for San Jose’s retired police officers is complicated by the fact that the data includes firefighters along with police officers. Moreover, the average full-career pension estimates are understated because a significant percentage of the current participants retired before pension benefits were enhanced in San Jose – a process of “continual enhancement” that continued up until 2008. Using 2014 data acquired by Transparent California, the estimated average full career pension for a San Jose police/fire retiree is $99,116 – with guaranteed 3 percent per year cost-of-living increases. The number for recent, post-2008, full-career retirees is undoubtedly much higher. Here is a 2014 roster of all of San Jose’s police/fire retirees – note that individual retirement health benefits (unfunded liability of $625 million) were not provided – certainly adding a value of at least another $10,000 per year.

Are San Jose’s police officers underpaid? The average veteran officer makes pay and benefits worth well over $200,000 per year. Add to that the likely 5 percent “retention bonus, and the 8 percent raise over the next 16 months per the tentative new agreement. You decide.

The personal attacks and confrontational tactics employed by the San Jose police officers union against their political opponents do not reflect well on the fine men and women who staff that department, who perform work of vital importance to society. Whether or not they intentionally urged officers to quit (or never join) the San Jose police force is almost irrelevant, despite abundant evidence that suggests they did. Because their real transgression against the people of San Jose, the taxpayers, the elected officials, and public safety itself, is to insist on levels of pay and benefits for their officers that are far more than the city can afford.

*   *   *

Ed Ring is the executive director of the California Policy Center.

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More Consider the Gov. Race in 2018, but Not the Senate in 2016

August 16, 2015 By CPR Editors 5 Comments

The story last week that state Treasurer John Chiang is “contemplating” a run for governor in 2018 potentially expands the field in what could prove to be a very interesting and competitive race. Already announced for the seat is Lt. Gov. Gavin Newsom. Former state controller, Steve Westly is said to be considering another run for the corner office. Other well-known names have been floated as well, including both the current and former mayors of Los Angeles, Eric Garcetti and Antonio Villaraigosa and environmentalist Tom Steyer.

Democrats all.

But don’t count out a credible Republican candidate. As noted here previously, one Republican consultant said he expects a strong contender backed by influential Republican donor Charles Munger. Who might that contender be? Already discussions have focused on San Diego mayor Kevin Faulconer or Fresno mayor Ashley Swearengin as possible candidates. Other possibilities include Assembly Minority leader Kristin Olsen or Pete Peterson who ran a credible race for Secretary of State. There is the perennial talk about a Condoleezza Rice candidacy.

With all this attention on a governor’s race years away, it makes you wonder why there are not more candidates with strong name identification willing to challenge for the United States Senate seat that is opening up next year.

Attorney General Kamala Harris seems to have the field nearly to herself with congresswoman Loretta Sanchez making an effort to challenge. There are some Republican challengers as well, but none that have the name ID or well-established positions from which to launch their campaigns.

Who knows — considering Harris’s official title and summary on the pension reform initiative released this week — once again blasted by the measure’s authors — maybe instead of taking the issue to court the proponents will seek some sort of retribution by taking on the AG herself. Chuck Reed or Carl DeMaio for Senate anyone?

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Ballot Title Won’t Deter Pension Reform

August 12, 2015 By Chuck Reed and Carl DeMaio 1 Comment

pensionCostly government pension deals are devastating our public services – and this simple initiative gives voters the ability to stop sweetheart and unsustainable pension deals that politicians concoct behind closed doors with government union bosses. That’s why the politicians and union bosses oppose this initiative – and why they continue to try to mislead the public on what the initiative does. Despite their attempts to mislead, we are very confident the voters will understand the plain English requirements of this measure and overwhelmingly pass it in November 2016.

The next step in the campaign will be to commission a legal review the ballot measure “Title and Summary” concocted by state politicians. Once that review is completed, we will kick-off their signature drive to qualify the measure. 

The “Plain English” Requirements of the Pension Reform Initiative: 

1) Require voter approval of any defined benefit pensions for new government employees

2) Require voter approval of any increase in pensions for existing government employees

3) Prohibit any taxpayer subsidy of government retirement benefits in excess of 50% of the cost – unless voters expressly approve a higher contribution

4) Prohibit politicians and government agencies from delaying, impeding, or challenging any voter-approved state and local ballot measures regarding government compensation and benefits.

Chuck Reed, a former Mayor of San Jose, is a Democrat. Carl DeMaio, a former Councilmember of San Diego, is a Republican

Originally published by Fox and Hounds Daily

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Pension initiative may empower local reforms

April 14, 2015 By Ed Mendel 1 Comment

The leaders of two local pension reforms, former San Jose Mayor Chuck Reed and former San Diego Councilman Carl DeMaio, are working with a coalition on a statewide initiative to help local governments make cost-cutting pension reforms.

DeMaio called the proposal a “tool kit” for local officials to “fix the problems in a manner that reflects their community’s ability.” Reed said the proposal would enable “measures that people can do to make their own decisions in their own communities.”

During a break at the Reason Foundation’s third annual Pension Summit in Sacramento last week, the two men said they are “on the same page” and working with a coalition on the details of a proposed initiative for the November 2016 state ballot.

DeMaio said the state constitutional amendment would apply to the state, cities, counties, other local governments, and the University of California — all the “instrumentalities” of California government.

DeMaio
“I’m very big on making certain that when we move ahead on reform that it’s unassailable in the courts,” said DeMaio.

The California Public Employees Retirement System, which opposed pension cuts in three recent city bankruptcies, and the state Public Employment Relations, which tried to block the San Diego and San Jose reforms, would be covered by the initiative.

“They will have no ability but to implement faithfully the voter’s initiative,” De Maio said.

A case in point for local empowerment: A drive led by David Grau and others gathered enough signatures to place an initiative on the ballot last fall to switch new Ventura County employees to a 401(k)-style plan.

But a superior court judge removed the initiative from the ballot, ruling that nothing in the 1937 act covering 20 county pension systems allows them to “opt out or terminate” through a countywide initiative or a vote of the county supervisors.

Empowering the reform process is a big change from past statewide proposals for a specific plan, such as former Gov. Arnold Schwarzenegger’s briefly backed 401(k)-style plan in 2005 or Reed’s lower-cost pension option in 2013. None made the ballot.

“One size doesn’t fit all,” said De Maio.

Reed
Reed said a statewide initiative should be “simple and easy to explain.” He said a “big omnibus” pension proposal is difficult to explain and easy for opponents to mischaracterize.

A structural initiative is common ground for a Democrat (Reed) and a Republican (DeMaio) who led the campaigns for two very different local pension reforms overwhelmingly approved by voters in June 2012.

The San Diego initiative, overcoming a PERB lawsuit to keep it off the ballot, switched all new hires except police from pensions to 401(k)-style individual investment plans now common in the private sector.

In San Jose, the reform gave current workers the option, for pensions earned in the future, of paying more or receiving a lower pension. A superior court blocked the option. Reed said other parts of the initiative have saved $80 million to $100 million so far.

Another thing the two battle-tested reformers have in common is experience in laying the groundwork, moving in steps, and not trying to do everything at once, which seems to be the current strategy of the statewide initiative.

Before the big reform in 2012, Reed changed the San Jose pension boards, adding independence and expertise. He backed two successful ballot measures in 2010 limiting police and firefighter arbitration and allowing switches to lower pension plans.

DeMaio backed a ballot measure in 2006 requiring voter approval of pension increases, city council approval in 2008 of a “hybrid” combining a lower pension and 401(k)-style plan, and a 50-50 employer and employee split of pension costs in 2009.

Union1

Dozens of government employees picketed the appearance of Reed and DeMaio at the Reason pension summit, an early warning from a coalition of public employee unions that a pension initiative may be opposed at every step, including the first one.

Schwarzenegger dropped his 401(k)-style plan in April 2005 after emotional union television ads contended death and disability would be eliminated for police and firefighters and their families, a claim the governor disputed.

After former Assemblyman Roger Niello, D-Sacramento, filed a pension reform initiative in 2011, the union coalition picketed a luxury auto dealership he partly owned, with one sign saying, “Pensions not Porsches.”

Major donors to a new initiative might face the same campaign tactics. The number of voter signatures needed to place a constitutional amendment on the ballot next year is 585,407, down sharply from 807,615 last year due to low voter turnout in November.

But several million dollars probably would be needed for a signature drive, particularly to screen for false signatures (opponents are sometimes accused of providing) and to gather a surplus as a safety cushion.

A news release from the union coalition, Californians for Retirement Security, said the new initiative is expected to be financed by “Texas billionaire John Arnold, a former Enron executive” who contributed to the Reed and Ventura County initiatives.

In San Diego, paid signature gatherers for the pension reform initiative posted at retail stores were often joined by “blockers,” union members and others who urged shoppers not to sign the petition.

Time and money may be needed for court battles after an initiative is filed. Reed dropped his initiative last year contending that Attorney General Kamala Harris gave the measure an “inaccurate and misleading” summary that made voter approval unlikely.

Dan Pellissier of California Pension Reform suspended a pension initiative drive in 2012 “after determining the attorney general’s false and misleading title and summary makes it nearly impossible to pass.”

Pension reform had strong support in a Public Policy Institute of California poll in January last year. Public pensions were “at least somewhat of a problem” for 85 percent of likely voters, and 73 percent supported switching new hires to 401(k)-style plans.

“Without serious pension reform in California, we face a future of cuts to important services and more tax revenues diverted to unsustainable pension payments,” Reed said in a news release last month.

“It is clear that politicians in Sacramento are not serious about reforming unsustainable pension benefits for government employees, so voters must take the matter into their own hands and impose reform at the ballot box,” DeMaio said.

Dave Low, chairman of Californians for Retirement Security, had a different view in a news release issued by the union coalition last week.

“This new effort is likely to eliminate retirement security for millions of more Californians, worsen economic inequality in our state, and undermine the ability to attract and retain quality firefighters, teachers, police and other public servants,” Low said. “We are confident we can defeat it.”

Originally published by Calpensions.com

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Calpensions.com.

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Pension Reform Duo Sets Target on 2016

March 15, 2015 By John Hrabe 3 Comments

The dynamic duo of California pension reform are teaming up in 2016.

Former San Diego City Councilman Carl DeMaio and former San Jose Mayor Chuck Reed, both of whom successfully passed pension reform in their respective cities during their time in office, announced Wednesday their plans to work together on a statewide pension reform measure for the 2016 ballot. Reformers hope to take advantage of easier ballot measure qualifying rules that require the lowest number of signatures in decades.

“Without serious pension reform in California, we face a future of cuts to important services and more tax revenues diverted to unsustainable pension payments,” Reed, a Democrat, said in a press release announcing the effort.

The group points to independent numbers which show the state’s pension liabilities have increased 3,000 percent in a decade. Last November, then-State Controller John Chiang (now state treasurer) pegged the state’s total unfunded pension liability from 130 public pension systems at $198 billion, a dramatic increase from just $6.3 billion in 2003.

Redux of San Diego pension reform fight

Last year, while DeMaio was preoccupied with his campaign for Congress against Rep. Scott Peters, Reed unsuccessfully tried to qualify a similar statewide pension reform measure. However, that effort stalled during the qualification stage over a dispute with Attorney General Kamala Harris over wording for the title and summary. This time around, he’ll benefit from DeMaio’s experience as a grizzled veteran of ballot-measure shenanigans.

“We have done a lot of legal work to make sure this initiative is bulletproof,” DeMaio, a Republican, told Reuters. “Because the unions are going to throw the kitchen sink at us.”

DeMaio knows full well the extent to which organized labor will go to thwart pension reform. In 2011, he led the effort to qualify San Diego’s Comprehensive Pension Reform measure for the 2012 ballot. The CPR measure forced all new employees into a 401(k)-style plan and capped contribution levels for current employees.

Labor organizers deployed activists to block signature gatherers and frighten potential signatories with misleading claims that signing would put them at risk of identity theft. At the time, longtime San Diego political operative T.J. Zane, who now serves asexecutive director of the San Diego Republican Party, described the San Diego-Imperial Counties Labor Council’s signature-blocking efforts as “unprecedented in its scope and ferocity.”

After the measure qualified for the ballot, San Diego voters overwhelmingly passed Proposition B in June 2012 by a two-to-one margin.

Chuck Reed: Pension reform in San Jose

At the same time DeMaio was reforming pensions in San Diego, Reed, then-mayor of San Jose, was leading a similar effort in Silicon Valley. Reed’s Measure B passed by an even larger margin: 70 percent to 30 percent. The Wall Street Journal praised Reed’s efforts and described him as “that rare creature, a Democrat in a liberal bastion who is nonetheless focused on salvaging government finances while inviting the wrath of public unions and their political allies.”

Ultimately, courts effectively gutted the most important provisions of Reed’s measure.

“San Jose’s was the most far-reaching, in that it challenged the core obstacle to serious pension reform in California,” Steven Greenhut, one of the state’s leading experts on pension reform, wrote at City Journal. “But a Santa Clara County Superior Court judge gutted the reform measure, saying San Jose could cut its employees’ pay, but not their pension benefits.”

Even after the negative court rulings, Reed’s successor has begun to further distance the city from Measure B in a bid to make “peace in the city’s pension wars.”

Broad-based coalition for reform

The proposed statewide pension measure for 2016 already has received some harsh criticism as the work of two washed-up politicians.

“2 out-of-work pols @carldemaio & Chuck Reed plan to attack @CalPERS, retirees with #pension measure in 2016,” tweeted Democratic political consultant Steven Maviglio. CalPERS is the California Public Employees’ Retirement System, America’s largest public-pension system.

In anticipation of push-back from local governments, state pension funds and organized labor, Reed and DeMaio have made it a point to build a broad-based coalition that sets aside their different political parties.  The coalition also will include David Grau of the Ventura County Taxpayers Association. Last year, after collecting thousands of signatures, Ventura County’s pension reform proposal was removed from the ballot, according to CalPensions.com.

“CalPERS has dedicated itself to preserving the status quo and making it difficult for anybody to reform pensions,” Reed recently said of the effort. “This is one way to take on CalPERS, and yes, CalPERS will push back.”

It’s unclear whether the proposed ballot measure will be drafted as a statute, which requires 365,880 valid signatures, or a constitutional amendment, which requires 585,407 valid signatures.

Originally published on CalWatchdog.com

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Pension Reformer Chuck Reed Will Fight On

January 2, 2015 By John Seiler 5 Comments

San Jose is in the center of the world’s economic pulse, Silicon Valley. By all rights, its city treasury ought to be overflowing with digital wealth.

Instead it has flirted with bankruptcy because of its burgeoning pension problem — a problem that already was the major cause of the bankruptcies of Vallejo, San Bernardino and Stockton. The pension problem, as everywhere, was caused by the irresponsible pension spiking of 1999-01.

Enter Mayor Chuck Reed. A Democrat, he valiantly struggled with the problem, passing the Measure B in 2012 with 69 percent of the vote. It is being challenged in court by grasping unions.

Term limits are forcing Reed to leave. But Sam Liccardo, who backs Reed’s reforms, just was elected to succeed him — in the teeth of vicious union opposition.

Reed failed to place a pension reform initiative on the statewide ballot this November after Attorney General Kamala Harris forced on the initiative an incredibly biased title and summary. He says he’s going to keep pushing reform, including a possible 2016 initiative.

It wouldn’t surprise me if he ran for governor in 2018. After all, the problem only is going to get worse. And Harris’ anti-reform stance could come back to haunt her in her own bid for the higher office.

This piece was originally published by CalWatchdog.com

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“Unfinished Business”: Chuck Reed’s Just Getting Started On Pension Reform

November 18, 2014 By Heidi Siegmund Cuda 2 Comments

All Chuck Reed needs is $25 million, and that’s all he needs.

“For me, it’s unfinished business,” says Reed, the outgoing mayor of San Jose, California. “I’m stubborn, persistent, whatever you want to call it.”

He’s talking about his plans for a statewide pension reform initiative in 2016; the $25 million is the cost of taking the message to the streets. While some observers may have thought he’d abandoned reform after his abortive 2014 attempt, Reed says he’s just getting warmed up.

“The fight will continue,” he says. “I’m going to work on fiscal reform issues, on the state and national level.”

For Reed, it’s personal.

“The problem is still threatening my city,” he says. “Retirement costs continue to go up, and this year the costs ate up all my revenue.”

And this was after voters in San Jose passed pension reform.

Since 2005, the number of retirees in the California Public Employees’ Retirement System (Calpers) with six-figure pensions has tripled, and pension debt for local governments is expected to increase by as much as fifty percent over the next five years.

Reed says something’s gotta give.

“The legislature is not going to take action,” he says. “So the best approach is working at the local level to create political momentum with a statewide initiative, allowing voters to go over the head of the legislature.”

Although he’s still hashing out what the initiative will look like, he says the main thrust will be to give state and local governments authority to alter future pension formulas for current employees.

“The retirees are the last people who should be impacted because they’re already retired,” he says. “That’s why I focus on current employees, because they still have the capacity to earn. The younger employees understand that it’s something that’s not sustainable, and they are the ones who are going to get hurt.”

Among the members of Reed’s reform posse are Stephanie Gomes, a former vice mayor of Vallejo, who was also a member of its city council while it clawed its way through bankruptcy.

“Our elected officials have to get off their behinds and represent the people who elected them,” says Gomes. “I don’t have faith that’s going to happen, so it’s got to be the will of the people to get our fiscal house in order, to get it right for the taxpayers and the employees, who still deserve a pension. It has to work for both.”

Like Reed, Gomes is a Democrat who says she’s been painted “as a Republican, against working families.”

“The public sector labor unions have become what they were formed to fight,” she says. “It’s about them protecting their own interests and they were lucky enough to get those high pensions and benefits, and they’re not going to let them go without a fight.

“This fight is not about ‘R’ or ‘D,’ it’s about services that we’re not getting any more because of these high pensions.”

“Calpers is raising rates,” she says. “They can just hold our their hand and say ‘give it.’ Cities at some point are going to have to cry uncle. When they can’t pay Calpers, it’s all going to topple down, because cities are in a straightjacket.”

A spokeswoman for Calpers says they won’t speculate on the proposed ballot measure, but in regards to the 2013 initiative, Calpers commented “that any changes to pension benefit levels should be determined by the employer and the employees, and not at the ballot box.”

Gomes believes the only chance for change is at the ballot box. A turning point came for her during an all-time low on her time in city government.

“It was the night the Vallejo city council, in the middle of bankruptcy, still approved a new police contract that had raises for two years and free medical,” she says. “I’m in the minority and watching the lights go up, and it was the most painful moment of my career in public service. They were serving the special interests that paid to get them in office.”

Protecting the status quo is big business in California. Unions spent $85 million in 2012 to support Governor Brown’s tax hike and to defeat a measure that would have prohibited collecting union dues for political campaigns. Since 2002, the California Teachers Association has spent about $170 million on political campaigns, according to the National Institute on Money in State Politics. The CTA just spent $11.2 million on independent expenditures to re-elect State Superintendent of Schools Tom Torlakson against an education reform candidate.

Another California mayor working closely with Reed, Anaheim’s Tom Tait, says it’s about gaining the power to act locally.

“To even begin to fix an unsustainable system, California cities need the ability to locally negotiate future pension earning formulas,” says Tait. “It is clearly in everyone’s best interest to address this problem sooner rather than later. The longer the state delays, the fewer options there are, and none of them easy.”

Marcia Fritz, a pension reform advocate and Democrat who advised Governor Brown on his 2012 pension reform law known as PEPRA, says Reed and his team should be meeting with Brown now. In 2012, she helped convince Brown’s advisors the only way they’d get their Prop 30 tax increase passed is if they enacted pension reform.

Fritz says today, the song remains the same.

“Brown needs to give the voters something in order to get them to agree to extend the Prop 30 tax increase,” she says. “He may ask to make the tax increase permanent to keep teachers’ retirement funds solvent. So, he might just embrace Reed’s measure to get buy-in.”

She says the recent Stockton bankruptcy decision, where a federal judge declared pensions can be cut during bankruptcy, is spooking unions and that Reed can capitalize on this fear.

In a written statement, Calpers CEO Anne Stausball commented that the federal ruling is not legally binding on any of the parties in the Stockton case, and when Stockton got the greenlight to emerge from bankruptcy without cutting pensions, Stausball noted: “The judge recognized that the city’s employees and retirees have already made significant concessions.”

While Reed’s hitting the trail to raise the major funds needed for a statewide initiative, he’s got a few items of business to clear up. He’s waiting for a hearing date on a lawsuit against California Attorney General Kamala Harris over the description of a previous pension initiative. The lawsuit claims the initiative’s wording was fatally biased.

He also initiated a federal corruption probe into the San Jose Police Association, claiming its union president fouled up recruitment efforts. The SJPD counterpunched, initiating an investigation of Reed.

It’s all bare knuckle politics, and it all takes time, something California may be running short on.

Reed says he’s undeterred.

“The pain of doing nothing is worse than the pain of taking on the issue,” he says.

This piece was originally published at Fox and Hounds Daily

Heidi Siegmund Cuda is a Former Investigative Producer for Fox 11 News in Los Angeles and the Creator and Host of the Economic Series, “Saving the California Dream.” She is currently directing a film on the nation’s public pension crisis.

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