Last time around, Chuck Reed seized the third rail of California politics – launching the Hugest! Pension! Battle! Ever! – and suffered the inevitable burn.
This time around, he’s more circumspect, but perhaps no less menacing to the status quo.
Reed, a low-key Democrat and former mayor of San Jose, has joined forces with Republican firebrand Carl DeMaio of San Diego, Republican Mayor Tom Tait of Anaheim and several other local politicians to take another stab at ballot-box pension reform in the Golden State.
That first attempt in 2013 sought to do the unthinkable: Amend California’s constitution so governments could lower retirement formulas for current workers in state and local government. The ballot measure got what Reed considered a kiss-of-death title and summary from the attorney general, and it withered and died without reaching the ballot.
With this latest proposal, aimed at the 2016 ballot, Reed and company profess to more gently shake California’s constitutional tree. The “Voter Empowerment Act,” as they call it, would do something deceptively simple, but perhaps devastating: Require voter approval for guaranteed pensions for new public workers, as well as voter approval for pension increases for current workers, as of 2019. Increases in cost-of-living adjustments for retirees would apparently go to voters as well.
That approval could prove hard to come by. Guaranteed retirements – or “defined benefit plans” in official parlance – can conjure choking envy in the throat of Jo Citizen.
While the overwhelming majority of local and state government workers get guaranteed retirement checks for life – up to 92 percent, according to some researchers – only a fraction of private sector workers are so lucky. Guaranteed pensions are received by only 3 percent to 33 percent of private sector workers, depending on how you count and whom you ask.
“This is all about empowering the voters to be the check and balance on elected officials, who have done a terrible job over the last decades,” Reed said. “It’s shorter, simpler, harder to mischaracterize, and easier to explain to the voters.”
Labor vehemently disagrees, asserting this measure is a Trojan horse.
“The issue of going to the ballot is to me really just sort of a teaser,” said Dave Low of Californians for Retirement Security, a coalition of public labor unions. “It’s a way of saying, ‘All we’re really doing is asking voters to have a say on this.’ But the initiative is written in a way that that’s just peripheral to what they’re really doing: Eliminating defined benefits completely.
“This initiative is every bit as flawed as the previous one,” Low said. “We’ll do everything in our power to defeat it, and we can.”
Reed and DeMaio say that generous hikes in retirement benefits made during the market boom of the late 1990s and early 2000s have siphoned money away from services for Jo Citizen. In California – outside of federal bankruptcy court, anyway – public pension promises are considered legally etched in stone. If investments don’t earn enough to pay what’s been promised, taxpayers must make up the difference.
The new proposed initiative aims to reduce the risk for taxpayers. It would also:
• Cap government contributions at half of a worker’s pension costs, unless voters expressly approve something higher. Governments have often picked up more than 50 percent of the tab, particularly for public safety workers.
• Prohibit politicians and government agencies from challenging voter-approved ballot measures on compensation and pension issues.
• Stop the giant California Public Employees’ Retirement System from charging what some consider outrageous penalties to agencies trying to exit the system. (This leads to wry jokes among egghead-types about Hotel CalPERS: You can check out, but you can never leave.)
Despite California’s improving economy, public pension debt continues to explode – growing from $6.3 billion in 2003, when many agencies took “pension holidays,” to $50.9 billion in 2004, to $198 billion in 2013, according to data from the state controller for state and local retirement systems.
This crowds out funding for services such as police, fire, schools and road repairs, DeMaio said in a statement. Rather than attacking the core problem, politicians have hiked taxes and cut services to pay for “unsustainable and indefensible government pension payouts, which is exactly why we must empower voters with this initiative to get reform done,” DeMaio said.
Gov. Jerry Brown’s pension reforms, which took effect in 2013, were not nearly enough, supporters of the new measure say. Yes, they reduce retirement formulas for new hires, but they still grant guaranteed payouts. Such guarantees heap all the risk on taxpayers – who have no such security themselves – and must go, reform advocates say.
If reformers actually manage to get their measure on the ballot over labor’s opposition, its passage may be a foregone conclusion.
A 2014 poll by the nonpartisan Public Policy Institute of California – headed by former UC Irvine professor Mark Baldassare – found that more than 70 percent of adults favored changing pensions for new public workers from defined benefit/guaranteed payouts to 401(k)-type plans ubiquitous in the private sector. In the 401(k) universe, workers put money into an account, sometimes with an employer match, that’s invested, and what they get in retirement depends on market performance and other factors.
Support for the switch among likely voters was even higher – 73 percent, with strong majorities across both parties. And more than 80 percent said the amount of money government spends on public pensions is a problem.
Reed’s proposal not only threatens the security of millions of Californians in their golden years, opponents of the initiative said, it would eliminate constitutional protections for public workers.
Wages and benefits could be dictated by voters at the ballot box, something that’s now prohibited, and it would toss out the “California Rule,” which prohibits agencies from taking away benefits without providing something of equal value, they said.
“Reed just wants to talk about pensions, but compensation is also in play,” said Lance Olson, an attorney for the labor groups. “Local jurisdictions right now don’t have the right to ignore collective bargaining laws. With this, they would. That’s a huge sea change. This is much broader than just retirement benefits.”
Many public workers are not in the Social Security system, and they depend on their pensions for survival after retirement, opponents said.
“Inadequate financial preparation for retirement is a growing national concern,” said CalPERS in a statement. “Defined benefit plans are the most cost-efficient way to save for retirement and should remain an important tool in retirement planning. All employees – whether in the public or private sectors – should have effective means to pursue retirement security.”
Gov. Brown’s reforms reduce defined benefits for new hires and will save tens of billions of dollars down the road, CalPERS and others said. Current workers are also contributing more toward their pensions than they ever have – up to 20 percent of compensation for Orange County deputy sheriffs and district attorney investigators beginning this month, said Tom Dominguez, president of the Association of Orange County Deputy Sheriffs, by email.
That’s the highest among law enforcement officers in Orange County, and one of the highest in the state.
“Benefits have been capped. Retirement age has increased. We need to let those improvements work,” Dominguez said.
“The voters already play a role in governing public employee benefits by electing members of city councils, county board of supervisors and members of the state legislature. Elected officials are the voters’ representatives at the table when public employee benefits are negotiated.”
That, Reed and DeMaio argue, is exactly the problem.
Politicians have come to depend upon endorsements and contributions from public employee unions to get elected, and say thank-you with hikes to pay and perks once in office. The financial welfare of taxpayers gets lost in the equation, they say.
A lot is riding on this, so expect to hear much vitriol as the measure advances. It’s currently waiting on an official title and summary from the attorney general, which Reed hopes is more evenhanded than last time.The previous summary began: “Eliminates constitutional protections for vested pension and retiree healthcare benefits for current public employees, including teachers, nurses, and peace officers, for future work performed.”
Once that’s done, several million dollars must be raised to gather enough signatures to qualify the measure for the 2016 ballot.
Gathering signatures is a much easier task today than it was just two years ago. The number needed depends on how many people voted in the previous election for governor. Reed would have needed more than 800,000 signatures last time around; but since Jerry Brown’s reelection was a foregone conclusion last year, voter turnout was lighter. This time, Reed needs about 585,000 signatures to qualify this measure for the ballot, which is a 26.9-percent lower burden than in 2013.
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