California Mayors Fight Pension Powers That May Cut Costs

Bloomberg, 3/5/14.

A group of California mayors is opposing a pension-reform referendum that would empower them to reduce expenses while risking their support from unions.

The statewide measure, offered by San Jose Mayor Chuck Reed, would give local officials authority to reduce future pension benefits for municipal employees. Current and former mayors representing 17 California cities are among leaders who oppose his proposal, while three mayors favor it. The measure probably won’t make it onto the ballot this November because Reed is suing the state over the wording of its summary.

“Public-sector unions are very powerful, very influential and generally say ‘no’ to any kind of changes,” Reed, a 65-year-old Democrat, said in a telephone interview. “It’s impossible to get elected to statewide office unless you have union support.”

Surging retirement costs are straining governments from Rhode Island to the Golden State, and contributing to bankruptcies in the California cities of Vallejo, San Bernardino and Stockton. Reed’s plan for easing strains on municipal budgets divides mayors who seek to reduce benefits and those who want to maintain the backing of unions or prefer other methods of controlling costs.

“Our hardworking employees everywhere have a right to a secure retirement, have a right to a good pension,” said Richmond Mayor Gayle McLaughlin, 61, who opposes Reed’s plan. “We shouldn’t cause organized labor to take the brunt of economic problems at the expense of their hard-earned retirement.”

Few Options

California municipalities have few options for boosting revenue. They can’t impose higher sales taxes without going to voters, and the state caps real-estate levies. The collapse of the housing market eroded tax dollars.

In 2012, voters in San Jose, the state’s third-largest city, required new public employees to pay 50 percent of the retirement plan’s total cost. Those already on the payroll could keep existing plans by increasing contributions or keep costs steady by choosing a plan with more modest benefits. Unions sued to block the changes, and the case is pending.

Now, Reed, who’s in his final year as mayor and doesn’t plan to run again, is leading a voter initiative that would let all local governments negotiate changes to existing employees’ pensions or retiree health care, while preserving benefits already earned. A city whose retirement plans are funded below 80 percent would be required to publish an annual report outlining actions that would lead to 100 percent funding.

Description Challenged

Reed has filed a lawsuit against California Secretary of State Debra Bowen and Attorney General Kamala Harris, who is responsible for writing the title and summary for Reed’s measure. He said Harris’s description inaccurately says his plan “eliminates constitutional protections for vested pension and retiree health-care benefits.”

Mayors Pat Morris of San Bernardino, Tom Tait of Anaheim and Bill Kampe of Pacific Grove back Reed’s plan.

“It’s far preferable to have a city have this ability to negotiate with their unions before doing something like declaring bankruptcy,” said Kampe, a 69-year-old Democrat. About 18 percent of his budget goes to retirement costs, he said.

He said some of his colleagues are looking out only for themselves.

‘Self Interest’

“Some of those mayors are from cities that are very, very distressed currently by pension costs and, in my mind, put personal self-interest above the interests of their cities,” Kampe said.

McLaughlin, who is serving her final year as mayor of Richmond and running for a seat on the city council, said she’s not motivated by retaining support from unions, which have clashed with her.

“I still support them having a decent pension,” McLaughlin said.

She was among 25 California mayors, vice mayors and council members who asked Reed to drop his proposal in a November letter drafted by Californians for Retirement Security, a union group.

“Pension matters are best decided locally and addressed at the bargaining table rather than at the ballot box,” they wrote.

The opponents include mayors Jean Quan of Oakland, Aja Brown of Compton and Rusty Bailey of Riverside. They didn’t respond to requests for interviews.

Costs Increase

San Jose, home to Cisco Systems Inc. (CSCO) and EBay Inc. (EBAY), has about $3.7 billion in pension and retiree health-care liabilities, Reed said. Retirement benefits increased $200 million from the fiscal year that began in 2003 through the period that began in 2013, spokesman David Low said.

Reed said he expects legal proceedings to delay his measure past the November election.

“This year, I’d like to get enough signatures to qualify for the ballot,” Reed said. “After I’m out of office, I’ll spend some time building a statewide effort.”

Reed’s initiative could result in mid-career workers having benefits cut or taken away completely, said Dave Low, chairman of Californians for Retirement Security.

Mayors “understand that there’s a whole tool box of options that they have at their disposal now, including going to the bargaining table and asking the employees to pay more for their pensions,” Low said.

Unfunded Liabilities

“There are some tools that when you use them, you don’t improve things, you make things worse,” Low said. “You put your employees in a situation where they don’t want to work there.”

Unfunded liabilities for California’s pension and retiree health plans are “in the range of hundreds of billions of dollars,” according to a December report on Reed’s plan by the nonpartisan Legislative Analyst’s Office.

David Crane, a lecturer at Stanford University and a Democrat who advised former Republican Governor Arnold Schwarzenegger, said mayors opposed to Reed are motivated by self interest.

“The people who signed that letter are all people with elections to worry about,” he said.

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