Mayor Reed Files Forms for Statewide ‘Pension Reform Act of 2014’

San Jose Mayor Chuck Reed on Tuesday filed to put a polarizing state constitutional amendment on the November 2014 ballot that would allow government agencies to dial down public pension benefits.

If voters OK the Pension Reform Act of 2014, it would change the state constitution to empower government agencies to negotiate existing employees’ pension and retiree healthcare going forward. The measure would eliminate what’s called the “vested rights” doctrine, a precedent established through decades of court decisions that prevents agencies from slashing pension benefits. Retirement benefits already earned would be protected.

The flexibility in negotiating labor contracts would apply to benefits earned from future years of service. Reed filed for the initiative jointly with mayors of San Bernardino, Santa Ana, Anaheim and Pacific Grove. The ballot initiative language can be found at http://www.reformpensions2014.com.

“Skyrocketing retirement costs are crowding out funding for essential public services and pushing cities, counties and other government agencies closer to insolvency,” said Reed, whose citywide Measure B pension reforms remain tied up in court pending opposing union-backed litigation. “This initiative gives government leaders the flexibility to solve their pension problems so they can both provide critical services to the public and make sure that our employees and retirees are paid the benefits that they have earned.”

Reed has already behested $300,000 to sponsor the measure. The bulk of the cash—$200,000—came from an organization sponsored by Texas billionaire John Arnold, which stirred up a fair bit of controversy since Arnold is a scandal-plagued former Enron exec.

The Arnold Foundation released a study about public retirement benefits that found states had been under-contributing to pension funds for years. But rather than recommending states fix that shortcoming, the study prescribes another solution: stop promising defined benefits, according to a Rolling Stone expose on pension reform scams.

Reed said during a keynote address at the California Public Pension Solutions Conference at the Hoover Institution last week that he would file for the initiative as soon as possible—“the sooner, the better”—to get it on next year’s ballot.

“Many of California’s public employee retirement plans are simply unsustainable and it’s in everyone’s interest to provide the tools to fix the problem now before even tougher actions are necessary,” Reed said. “During tough economic times, we believe employees would much rather adjust their future expectations than risk seeing their accrued benefits slashed in bankruptcy.”

He noted Stockton and Central Falls, Rhode Island, where the cities slashed retiree pension checks in half because there’s not enough money in the bank to issue the full amount.

“Our teachers, police officers, firefighters and other dedicated public servants deserve to know that the pensions they’ve earned will be there when they need it–not just the day they retire, but also when they’re 85 or 90,” Reed said.

The tentative pension reform bill would prevent the state, pension plan administrators and other public boards from meddling with the ability of elected leaders or voters to change public employee benefits for future years of service. It would protect existing labor agreements by requiring government employers wait until those contracts expire before negotiating any changes. And it would require any public agency with a pension plan less than 80 percent funded to come up with a report about how it will achieve full funding in 15 years.

San Jose has about $3 billion in unfunded pension and healthcare liabilities, and pension payouts eat up one-fifth of the General Fund budget. Under the status quo, Reed said, pension funds don’t earn enough revenue to pay liabilities, workers don’t contribute enough to cover the cost and too many employees retire early for the city to pay for the program.

Measure B sought to even out the equation by getting city workers, including firefighters and police, to contribute 16 percent more of their take-home salary toward their own pensions to help pay down some of that city debt. It also pushed down pensions for new hires and gave existing workers the choice of switching to a lesser benefit tier for the rest of their employment.

Critics have called the San Jose measure illegal and the state initiative an effort to fleece public workers from the benefits promised them.

Salon’s David Sirota called the statewide plan “a craven plot to abuse workers.”

“Of course, the word ‘reform’ is now the preferred euphemism for ‘rip-off scheme,’” he wrote in an Oct. 7 article. “In the context of pensions, it means pleading poverty to justify cuts to public employees guaranteed retirement income, all while preserving massive corporate welfare and, in many cases, funneling pension cash to Wall Street hedge fund managers.”

The San Diego Free Press reported that better talking point would be to talk about the billions of dollars a year in state-granted corporate tax breaks.

“The strategy in selling this next batch of pension reform will be to wail about overpaid employees and the certain financial doom facing California tax

Jennifer Wadsworth is a staff writer for San Jose Inside and Metro Newspaper. Email tips to [email protected] or follow her on Twitter at @jennwadsworth.

16 Comments

  1. “Skyrocketing Retirement costs are crowding out funding for essential public services and pushing cities, counties and other government agencies closer to insolvency” Maybe if San Jose hadnt stopped making it payments , we wouldnt be in this situation . Maybe if we stopped wasting monies on the Mayors pet projects , we would be better off. it is amazing to me that this P.O.S. keeps spouting pensions are killing this city, yet doesnt mention that R.D.A. debt is at least 3 times the pension debt, or that “the Airport Debt” is easliy at least 4 times the pension Debt. but it is specifically the Pension Debt bringing this city down. Never mind that the pension Debt is less than 10% of San Jose’s total budget. The Mayoe likes to spew “the General fund” is being destroyed by pensions, but doesnt mention that it is only one of 3-5 funds that make up San Jose’s Total budget. this Mayor is after the pension fund, that is his only goal. Heis trying to act like he is doing this for the benefit of said workers. Workers that he truely holds in contempt! On more than one occasion he has made derogatory remarks(concerning public safety) riding the gravy train. all the while staring at pictures of officers that paid the “ultimate ” price doing their job for this city and extremely ungrateful Mayor. The Mayor can bring up teachers,nurses,firefighters, and Police officers all he wants . Those in the know , know he is a liar and a cheat and will stop at nothing to get his way. He has ignored his own counsel , precedent laws, and common sense. this is a person who is morally bankrupt. Just look at the individuals that he has surrounded himself with.

    “When a Stupid Man is doing something he is Ashamed of,He Always Declares That it is His Duty”

  2. Good for Mayor Reed!
    He’s got a tough battle ahead though with President Hussein against him, in labor’s camp and quite happy to put the U.S. even further in debt throwing money at public employee unions. Not to mention Governor Brown and the entire Democrat/Communist State legislature selling the public out for the benefit of those unions who helped get them elected.
    Takes cajones, Mayor Reed, and you’ll be crucified for it. But it’s the right thing to do.

  3. Would common sense dictate to wait to
    See
    How the courts rule on
    Measure b first?  Already the mayor put San Jose in dump…. Now he wants to do it state wide. 

    More lawsuits coming. Geeeze thanks
    Reed. You a hell of a lawyer

  4. A poll of California voters showed that 67% opposed a measure such as this and would rather have municipalities deal with the issue than a statewide ballot measure.

    Additionally, I don’t trust for one second John Arnold, a bliioniare who helped Enron steal retirement funds from thousands of employees. What interest or right does a Texas resident have in meddling with our state’s affairs anyway?

    • They more that information can be brought out into the open, the more the citizens will understand what is going on. Right now, the majority probably have no idea. I do not think they would be too happy to know who his backers are and where the money is coming from. They may even be a little furious that he went all the way to Texas to bring outsiders into our state’s affairs and to know the backgrounds/history of his funders. Did I read something about Tea Party people? Oh yes, I think the citizens would not be too happy about that.

      • >  They may even be a little furious that he went all the way to Texas to bring outsiders into our state’s affairs . . . .

        So, what’s the problem?  The Democrats routinely go to Mexico and every other third world populist kleptocracy to bring in voters.

        • It’s about bringing in an ultra conservative outsider billionaire who made his money working for a company who absolutely screwed over it’s employees.  That’s how the 1% conservatives operate by keeping the rich rich and working class down.

  5. It appears that this proposal for a statewide initiative petition drive to reduce pensions and retiree health care benefits has another purpose as well.

    The mayor’s circle of volunteers in Berryessa has allowed word to slip out that the mayor hopes this will provide him with a statewide organization that will also support his running for either US senator or state governor at the next opportunity.

    It’s always been a matter of some curiosity as to the mayor’s future plans, and this petition drive may well mark his move to “big city mayor” status with statewide connections that might support a future statewide partisan campaign.

    • I always suspected that his goal was to try and make a name for himself as he terms out. But I cannot understand why he is moving on to make a mess, statewide, when he can’t even clean up his mess here at home. He will have a failed legacy as mayor and if people vote for in someone with that baggage, then shame on them.

  6. As a prerequisite to reducing pensions, each city should be required to:

    1. identify how much of the unfunded liabililty is a result of the “pension holidays” that the cities (not the employees) took in good times which increased the unfunded liability. It is not ok that employees are now being asked to pay for that. Had each city paid its full share, as the employees did, the unfunded liability may be significantly less. For example, in SJ the unfunded liability would be 44% less. http://www.sanjoseca.gov/DocumentCenter/View/13145
    Therefore, any analysis of unfunded liability should be calculated assuming the cities did not spend employees’ retirememnt funds elsewhere and that the city properly contributed to the pension.  Employees should not be on the hook any such portion of the unfunded liability and that portion of the unfuded liability should be allowed to be a basis to reduce pensions.

    2. Each city’s books should be analyzed by an independent third party to see where money is being wasted before taking away an employee’s benefit.  For example, SJ has a $3B budget yet less than 1/3 is spent on the general fund where the pensions are paid from. This means that the health care and pension payouts do not eat up 1/5th of the entire budget (as it is made to seem in the article) but rather is 6% of the city’s entire expenditure of funds. Where are they spending the remaining $2B. A forensic accountant or someone should be charged with examining the books of every fund and project before any employee’s pensions are reduced.

    3. Finally, every item on a city’s audit books that would save money must be completed prior to reducing pensions. SJ has confirmed that it could save millions of dollars if it implemented stated and accepted audit recommendations—some of which have been on the books since the early 2000’s and have yet to be implemented.

    In short, pension reform may be needed but the true extent of it should be solidified before any city is allowed to take action and have employee’s benefits reduced because a city cannot properly manage its other affairs and/or simply does not want to and reducing benefits is easy right now because of the anti-labor climate the politicians have created. Cities’ woes are not solely the result of employee benefits and the other issues must be addressed too and they are not.

    • Citizens for Fiscal Responsibility is attempting conduct such an analysis. See http://www.cfr-sj.org/

      In addition to Auditor Reports, the Civil Grand Jury highlights other savings opportunities.

      For example, switching from 4 to 3 crew firetrucks (like other FDs) would save millions, using SUVs instead of expensive and slow fire trucks for medical emergencies is another.

      Better yet, let the County handle EMS calls. They’re required to by law – cities aren’t. And over 90% of SJFD calls are medical. Typically both County EMS & SJFD respond. Savings are north of $50 million per year.

      The IBM report highlights potential savings.

      Despite abundant out-sourcing opportunities, we do little. $80 million savings seems attainable when benchmarked against other cities.

      Many, many more savings opportunities to improve public safety, our streets, and other priorities.

      • Arhat,

        Other cities do have 3 people on their engines, but they also have many, many more stations per square mile or per capita than we do in San Jose.  Take, for example, Santa Clara City, which has 10 stations to cover 20 square miles versus our 34 stations for over 200 square miles.  In San Jose we have single stations that cover areas equivalent to the entire populations of Santa Clara City.  If you want to make a fair comparison, compare firefighters/1000 citizens, in which case San Jose is far below surrounding cities.  Additionally, our call volume here far exceeds that of surrounding jurisdictions. 

        As to that garbage IBM report;  it was completed and written by IBM, a company that sells software to “manage” emergency responses by trying to guess where and when calls for service will take place.  How about that for a conflict of interest?