Gullixson: A pension fix voters may never see on ballot
Published: Sunday, January 12, 2014 at 3:00 a.m.
Last Modified: Sunday, January 12, 2014 at 8:49 a.m.
Most would agree that when people fall on hard times — lose a job, suffer a medical setback, etc. — they should have every opportunity to cut their spending to get back on their feet.
Our common belief in the value of second chances is so strong it even led to relief efforts in recent years that allowed some homeowners to walk away from the only contractual obligation that was considered unassailable for individuals — their home mortgage.
But what if individuals were prevented by law from scaling back on how much they pay their tax preparer, for example, or gardener, even in bankruptcy?
That's the situation where many cities and counties in California find themselves.
Under prevailing court opinion, public agencies in California cannot — even in the worst of economic times — scale back on one of their biggest expenses, what they are to pay for future pensions.
And given the generous giveaways that occurred 15 years ago when California lawmakers, supported by public-employee unions, significantly bolstered retirement benefits with little regard for the potential long-term impacts, that's a heavy burden.
It was the elephant in the room as the governor announced a new budget on Thursday that calls for $155 billion in spending. Meanwhile, the state's retirement benefits for public employees are underfunded by $218 billion, and the governor has offered no real solution.
The same is true at the local level. Although the economy is rebounding, the pension problem is not going away. Santa Rosa, at last check, was $127 million behind in meeting its pension obligations, an amount equal to more than the city's annual general fund spending. Meanwhile, Sonoma County is some $527 million behind.
But relief could be in sight.
On Monday, Attorney General Kamala Harris issued the formal ballot title and summary for a constitutional amendment that would allow public employers in California — cities, counties, schools, the state — to renegotiate future pension and retirement benefits for public workers. In certain situations, such as in a financial emergency, it would allow employers to reduce future retirement benefits.
All other reform efforts to date — including spiking prevention and the creation of two-tier systems — pale in comparison to this. A change like this offers the best chance cities and counties have to free up funds needed to fill potholes, turn streetlights back on and restore public services.
With the title and summary issued, San Jose Mayor Chuck Reed, the primary supporter of the measure, and his people are now free to begin trying to collect signatures to get the initiative, known as the Pension Reform Act, on the November ballot.
Reed told The Press Democrat Editorial Board recently that they planned to do some polling and make a decision by the end of the month on whether to try to put it on the ballot this fall or wait until November 2016.
But just getting it before voters is going to be a major battle. Public employee unions are already lining up in opposition, claiming that the measure would “eliminate” retirement benefits.
Let's be clear. We are not talking about cities having the right to cut benefits that have already been earned. No one questions the obligation of public agencies to pay all of the benefits, say, a 15-year employee has accrued up to today. He has earned that pension just as he has earned a paycheck.
What's up for debate is the prohibition on reducing the retirement benefits that employees expect to acquire in the years to come — for years not yet worked. This is presently considered a vested right. Even the city of Vallejo, which went through bankruptcy, not only was unable to reduce benefits, it did not miss a payment to the California Public Employees Retirement System. And now, two years after emerging from bankruptcy, Vallejo, with a general fund of $85 million, faces a $5.2 million deficit, one that's expected to grow to $8.9 million next year.
This is crazy. And the courts are starting to see it that way as well. The presumption that public pensions cannot be reduced suffered a setback late last year when a federal judge in Detroit's bankruptcy case rejected claims that public employee pensions are untouchable. If that ruling is upheld on appeal, it could be a game-changer.
Approval of the California ballot measure could be, too.
But the pressure is on to kill it before it gets on the ballot. Some officials, including four from Sonoma County — Supervisor Mike McGuire, Santa Rosa Mayor Scott Bartley and Vice Mayor Erin Carlstrom and Healdsburg Vice Mayor Jim Wood — inexplicably signed a Nov. 26 letter urging Reed to drop his pension-relief measure.
Although these electeds have yet to offer their own viable long-term solutions to this dilemma, the letter said they were “extremely concerned about several specific provisions of (Reed's) measure that will likely increase costs to California's cities by hundreds of millions of dollars.”
This closely echoes the contentions of opposition groups such as Californians for Retirement Security, which represents more 1.6 million retired and active public employees.
In fact, the state Legislative Analyst's Office acknowledges that new paperwork requirements contained in the Reed measure would increase costs for public agencies. But what opposition groups fail to acknowledge is what LAO Mac Taylor says is the bottom line: “Over the longer term, benefit reductions could result in savings in the billions of dollars annually.”
And although Kamala Harris was less than generous in how she described Reed's measure in the title, the summary makes clear that the measure offers “potential net reduction of hundreds of millions to billions of dollars per year in state and local government costs.”
All the same, given the history of this issue and how much is likely to be spent in this battle, I have my doubts about whether that will be clearly explained to voters — or whether they will even get the chance to decide this for themselves.
Paul Gullixson is editorial director for The Press Democrat. Email him at email@example.com or call him at 707-521-5282.
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