The Trials of Chuck Reed

Photo of Chuck Reed by Dan Pulcrano/San Jose Inside

Photo of Chuck Reed by Dan Pulcrano/San Jose Inside

Originally posted at Public Sector Inc.
By Steve Eide.

San Jose Mayor Chuck Reed has had a tough go of it since unveiling his “Pension Reform Act of 2014” in October. Reed wants to allow state and local governments to adjust pension benefits on a going forward basis, instead of only being able to make changes that apply to future employees. This authority exists in many other states, and it has long been accepted practice for private pensions.

Unions have set out to characterize the measure as tantamount to the imposition of feudalism in California:

California’s pension ‘crisis’ hype whipped up by billionaires with agenda.

[T]his poorly crafted measure will not only add to the retirement crisis in our state by eliminating vested retirement benefits for teachers, nurses, firefighters, school bus drivers and other public employees, but also cost our communities and state billions of dollars…This measure would be a financial disaster for taxpayers and retirees alike.

Unions’ indisposition to take the high road on this one was to be expected. But it’s genuinely troubling, even at this early stage, how much has been breaking for them and against Reed.

First, unions attacked the proposed ballot measure’s wording. Reed nodded, and tweaked the proposals’ wording to make clear that “We’re not trying to change the collective bargaining system here.” This accommodation encouraged the unions, who saw evidence of “wheels coming off the wagon of Reed’s pension scheme.”

Second, “more than two dozen” local officials formally sided with the unions against Reed. Some have even gone beyond simply registering their disapproval to contributing enthusiastically to the union-sponsored misinformation campaign about Reed’s proposal.

Let’s be clear about how bizarre these anti-reformers’ posture is. Under current law, mayors and managers can lay off employees, impose furloughs, reduce pay, but can’t modify COLAs, multipliers, full retirement age targets or any other core feature of current workers’ benefit structure. Reed thinks they should have this power. His local foes are outraged that he wants to grant it to them.

How rich! Across the nation, local politicians complain about unfunded mandates and other wrongheaded restrictions placed on them by state governments. So here is Chuck Reed, seeking to increase cities and counties’ flexibility over pensions, and they rebuff him. Reed’s local opponents demonstrate that, in the debate over local autonomy, sometimes both sides get it wrong. When more power means more responsibility, not all local politicians want to take that deal, and relinquish their ability to pass the buck. An unfortunate flaw, in democracies, of divided authority.

Third, in mid-December, unions released a poll claiming that only a third of voters back the types of reforms Reed advocates. (Reed has claimed that other polling has shown stronger support.)

Fourth, a superior court judge just struck down “Measure B,” the local initiative led by Reed that elevated him into the first rank of pension reformers. Winning the support of an impressive 70 percent of San Jose voters in June 2012, Measure B required workers to either contribute more for their pensions, or accept a lower benefit. (An Op-Ed in yesterday’s LA Times recommends that California governments adopt something like Measure B, as a compromise between liberals and conservatives, while oddly failing to mention it or Reed.) The judge found that Measure B’s core provision “impairs vested rights and is invalid.” Reed, looking from the bright side, said that this result “highlights the fact that current California law provides cities, counties and other government agencies with very little flexibility in controlling their retirement costs. That’s why I believe that we need a constitutional amendment that will empower government leaders to tackle their massive pension problems and negotiate fair and reasonable changes to employees’ future pension benefits.” Unions claimed another victory, and more momentum for their cause.

Looking ahead, concerns abound for Reed’s measure, such as will California’s liberal Attorney General give it a clear and impartial title and summary? (Last year, a pension reform initiative was withdrawn because sponsors believed the AG’s wording was biased.)

Can Reed raise enough money? He fully expects to be outspent, but he needs to raise enough to ensure his message gets out. A growing perception, early on, that California unions can’t be outmaneuvered on the pension issue could cause potential funders to stay on the sidelines as they have in the pastEveryone prefers to back a winner.

How will California’s improving fiscal and economic climate affect voters’ opinion of pension reform? Pensions are a debt problem. State and local governments have many safeguards in place restricting how much bonded debt they can pile up. For pension debt, no statutory limits exist, and it accrues automatically. With each passing year that workers remain on the payroll, their government employer promises them additional retirement benefits, to be paid up decades hence. The need for pension reform stems from governments’ inability to keep pension debt under control.

Economic growth bolsters operating budgets, but there’s no reason to assume that it will reduce debt or induce more responsible debt management practices.

Will Detroit matter? Reed’s initiative would place pensions on a more sustainable footing, thus reducing the chance of seeing pension benefits cut in bankruptcy. But unions and CalPERS will seek to conflate the activities of Reed and Detroit Emergency Manager Kevyn Orr, while at the same time insisting, implausibly, that Judge Steven Rhodes’ reasoning about why state law can’t prevent pension cuts in federal bankruptcy is totally irrelevant in California.

Reed can rely on the basic reasonableness of his plan, expressed as follows in a legal memorandum prepared for the Commercial Club of Chicago “It makes no sense to suggest that an employee who works for the state for a single day has acquired a right to have future pension benefits calculated for the next 20 to 40 years under whatever method was in effect on that single first day of service.”

But this is California, where reason more often than not comes up short in policy debates. To be sure, it is early yet. But Reed will need more than reason on his side to prevail in 2014.

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