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