Pension Initiative Will Remove Roadblocks to Reform

Mayor Chuck Reed & Mayor Bill Kampe
San Jose Mayor Chuck Reed & Pacific Grove Mayor Bill Kampe

During the last decade, the annual cost of public employee retirement benefits in California has skyrocketed from $3 billion to $17 billion per year. In too many cities, retirement costs are approaching or exceeding 20 percent of the entire General Fund. And the costs keep rising.

As a result, governments across the state are struggling to provide essential services.  Money is being sucked out of the classroom, public safety and critical infrastructure projects to pay for retirement benefits. There is constant pressure to raise taxes and borrow money.  In addition, government employees are suffering layoffs and furloughs, contributing more into their benefits, and enduring wage freezes and pay cuts.

Even as growing pension costs push more cities towards crisis, government leaders have had their hands tied by the “California Rule” on vested rights. This doctrine is constraining government’s ability to generate the immediate savings they desperately need. And when cities, such as ours, have taken difficult steps to preserve services and avoid layoffs, the courts have been quick to rule that even common-sense reforms violate an employee’s “vested rights.”

  • In Pacific Grove, the courts voided a 2010 ballot measure clarifying that city employees do not hold rights to future pension benefits and a related initiative establishing limits on the amount that the City can contribute towards retirement benefits.
  • In San Jose, a trial court recently invalidated portions of a pension reform measure approved by 70% of the voters, even though San Jose’s city charter specifically allows changes to the pension plans at any time. The city will still be able to achieve most of its targeted savings – however, the struck-down provisions would have generated those savings in ways that are more advantageous for the employees.
  • The courts are also weighing a decision on whether existing employees in four counties have a vested right to spike their pensions with unused vacation and sick leave, even though that practice has been illegal since 1937.

To eliminate these roadblocks to reform, we have authored a ballot initiative that would empower state and local leaders to negotiate changes to employees’ future retirement benefit accruals, while protecting the benefits they have earned.

This is the same flexibility afforded to private sector pension plans, federal employee pension plans and public pension plans in at least 18 other states. It is also what California’s independent government watchdog says is needed to prevent pension costs from “crushing” governments.

In fact, the LAO recently declared that providing this tool to California governments could save billions of dollars each year.

Unfortunately, our opponents ignore these facts and continue to mischaracterize our initiative. So, we’d like to explain exactly what our initiative does and does not do:

  • Our initiative explicitly protects benefits that employees have earned for work already performed. It does NOT alter benefits that are “in the bank”. It does NOT eliminate any rights related to employees’ earned benefits.
  • Our initiative allows each government agency to negotiate with their employees over the specific changes that may be needed in their jurisdictions. It does NOT eliminate pensions in California. It does NOT dictate a one-size-fits-all solution for the entire state. And it does NOT require any government agency to modify its pension benefits.
  • Our initiative requires that benefit changes comply with applicable collective bargaining laws. It does NOT allow unilateral changes. It does NOT allow leaders to break current labor agreements.

Let’s be clear: We don’t blame government employees for our pension problems and we understand that some changes may affect their future expectations. But the current system is simply unsustainable and risks pushing even more cities, counties and government agencies into insolvency. The last thing we want is to see another bankruptcy court slash the accrued benefits of government employees who have already retired. That’s what has happened in Stockton and Central Falls, RI (and may happen in Detroit).

It’s time we remove the roadblocks to reform and provide all levels of governments with the ability to negotiate changes to employees’ future benefit earnings. It will help preserve essential services and protect the long-term health of our pension plans. And by implementing fair and reasonable solutions now, we will be able to control our retirement costs and avoid the need for more painful actions later.

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