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Proposals to cut public employee pension costs are on the November ballot in at least eight California cities and one county, led by a measure in San Francisco that is drawing national attention.
The local proposals could be a warm-up for a statewide pension measure backed by Meg Whitman, the Republican candidate for governor, if she is elected and cannot get big state worker unions to agree to switch new hires to 401(k)-style plans.
Talks or action to cut pension benefits were under way in more than 60 local government agencies last summer. A half dozen of the smaller state worker unions agreed to lower benefit for new hires, including the California Highway Patrol.
Pension benefit increases during the past decade, expected to be paid for mainly by investment earnings, are now said by critics to be “unsustainable.” Government pension costs are going up to cover huge investment losses in the stock market crash.
Some forecasts of future costs for pensions and retiree health care promised state and local government employees are alarming, threatening to force deep cuts in police, fire, health and other basic services.
The “pension crisis” is a dilemma for public employee unions. Many are willing to negotiate cost cuts to help struggling government agencies balance budgets. But they worry about giving up too much or being pushed into cuts that can’t be restored.
A ballot measure in San Francisco, Proposition B, is drawing national interestbattle among Democrats, the traditional allies of public employee unions. because in a very liberal city it’s basically a
The initiative drive is led by Public Defender Jeff Adachi, whose office providing attorneys for the poor was hit by budget cuts. Signature-gathering money came from Michael Moritz, an early Google investor, and his novelist wife, Harriet Heyman.
A well-known supporter of the measure is Willie Brown, a former San Francisco mayor and state Assembly Speaker. He has become an outspoken advocate of reining in public employee pension costs.
Proposition B would require city employees to contribute 9 to 10 percent of their pay to help pay for their pensions, up from 0 to 9 percent. Importantly, employees would pay 50 percent of dependent health care costs, up from 25 percent.
The measure says the city’s cost for pensions and health coverage for active and retired employees was $419 million six years ago, jumped to $776 million last fiscal year and is projected to balloon to more than $1.1 billion in 2012.
“These costs will significantly impair the city’s ability to provide basic services to its residents such as police and fire services, street repair and cleaning, park and recreational facilities, and medical care for the indigent,” says the ballot measure.
San Francisco Mayor Gavin Newsom, the Democratic candidate for lieutenant governor, rejects a civil grand jury report in June, “Pension Tsunami,” warning that pension costs alone could reach $1 billion by 2014.
Newsom told the Bay Citizen that a June ballot measure, Proposition D, trimmed pension costs by raising pension contributions for many new hires from 7.5 to 9 percent of pay. It attempts to curb “spikng,” the manipulation of final-year pay to boost pensions.
The mayor said union leaders recognized that the city was in a financial squeeze, agreed to $240 million worth of wage concessions, and deserve recognition because they “took a lot of heat,” presumably from members irate about givebacks.
One of the provisions in Proposition B would require arbitrators in labor disputes to make projections of the cost of increased pension and health benefits and to treat them as pay raises.
At a hearing of the watchdog Little Hoover Commission last week, San Jose Mayor Chuck Reed was sharply critical of binding arbitration, which he said is required in more than 20 cities to resolve deadlocks in labor contract negotiations.
Reed said an arbitrator raised the maximum San Jose firefighter pension from 85 to 90 percent of pay, retroactive to the first day on the job. A $5 million increase became a $30 million unfunded liability, because of the retroactive provision.
“If you were a week away from retiring, your pension immediately increased by 5 percent to 10 percent for the rest of your life – even though those benefiting had never contributed anything to help pay for this enhanced benefit,” he said.
Under Measure V on the San Jose ballot, arbitrators could not impose retroactive benefit increases, increase pay and benefits by more than the rate of revenue growth, or create an unfunded liability that the city is unable to pay.
Reed told the commission San Jose’s general fund revenue grew 21 percent during the last decade, while the average cost per employee went up 87 percent. Retirement costs, $63 million in 2000, are expected to be $177 million this fiscal year.
Reed said a CalPERS-sponsored bill in 1999, SB 400, “dramatically” increased pension benefits for state workers, setting off a “tsunami of pension increases” throughout the state as unions negotiated contracts to keep pace.
“They thought the stock market would keep going up forever,” Reed said of CalPERS projections that earnings would pay for the benefit increase. “It’s the greatest financial blunder in the history of California – ten times worse than Enron,” he said.
Measure W would allow San Jose to provide lower retirement benefits for new hires, creating a “two-tier” system. Pension benefits for current employees, when vested, are protected under contract law by court decisions and cannot be cut.
Ballot measures in Bakersfield and Menlo Park would create “two-tier” systems with specific formulas for the lower benefits received by new hires.
For police and firefighters in Bakersfield, the new tier is two percent of final pay for each year served at age 50, down from the “3 at 50” formula popularized by SB 400. The Menlo Park formula for non-safety employees is “2 at 60,” down from “2.7 at 55.”
In Riverside County, deputy sheriffs placed a measure on the ballot requiring voter approval to cut their retirement benefits. County supervisors countered with a measure guaranteeing current retirement benefits, but allowing a “two-tier” system.
A Pacific Grove measure would limit city pension contributions to 10 percent of pay, which is expected to draw a legal challenge if approved by voters. A Carlsbad measure would require voter approval of pension benefit increases.
Two advisory measures on the Redding ballot ask voters whether employee pension contributions should be increased and retiree health benefits reduced.
In one of the cities already hit by a “pension tsunami,” San Diego, a half-cent sales tax increase is on the ballot. But the tax would only go up if 10 conditions in Proposition D are met, seven of them aimed at reducing pension costs.
The city council in Vallejo, which declared bankruptcy two years ago to overturn unaffordable labor contracts, considered placing a one-cent sales tax increase on the November ballot, but did not do so.
It’s still looking for the road back to solvency.
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