Only Voters Can Solve California’s Pension Crisis

Chuck Reed and Carl DeMaio
Chuck Reed, a former Mayor of San Jose, is a Democrat. Carl DeMaio, a former Councilmember of San Diego, is a Republican

Despite its growing economy and higher tax revenue, California still faces fiscal ruin from unsustainable government pension programs.

In these good times, the state, local governments, public schools and our universities are raising taxes, boosting tuition and cutting services to pay rising employee retirement costs.  Between 2003 and 2013, combined annual pension costs have nearly tripled, from $6.43 billion to $17.5 billion.

The State Controller also reports nearly $200 billion in unfunded liabilities for state and local pension obligations.  California Common Sense calculates another $150 billion of unfunded liabilities for state and local retiree healthcare obligations.  That’s $350 billion in unfunded legacy liabilities that are driving massive cost increases, again:

  • CalPERS has told its agencies to be prepared for increases in their contributions for 50% over 5 years.
  • CalSTRS has told school districts to prepare for increases of more than 100% over the next few years.

And those warnings are for optimistic scenarios that still assume investments will earn 7.5% annually during the next 30 years.

From a purely financial perspective, retirement promises and their debts are driving California’s fiscal crisis – but politicians are the real problem, unable to say “no” to the powerful government labor union bosses that fund their campaigns and then make expensive demands at the bargaining table.

Without immediate reform, California faces a future of even higher taxes and fewer services.  Some local governments already face service delivery insolvency and bankruptcy.

Our bipartisan coalition believes voters must be given a voice in important government employee compensation and benefits decisions and politicians should ask voters before making expensive, life-long retirement promises to new employees.  That is why we are placing a statewide initiative on the ballot in 2016.

The initiative provides a “check” on state and local politicians who too often cave into union bosses’ expensive, unsustainable demands.

Our initiative prohibits the enhancement of existing pension benefits or the granting of lifetime pension benefits to new employees without voter approval.  The measure prohibits taxpayers from paying more than 50% of new employee retirement benefit costs – unless voters authorize a higher contribution.

Recent efforts by some California communities to reform government compensation and benefits have been thwarted.  In San Jose and San Diego, state agencies tried to keep pension reform measures off the ballot and have obstructed voter-approved reforms.  In Ventura County, a state law was used to stop voters from even considering a reform package.

That’s why our statewide initiative prohibits politicians and government agencies from delaying, impeding, or challenging any voter-approved public compensation and benefits reform ballot measure.

Our moderate initiative also prohibits government pension boards from penalizing public agencies that close their pension plans to new members, a common tactic to maintain the status quo.

CalPERS did that in the Stockton bankruptcy by claiming a $1.6 billion fee when the unfunded liabilities were only $400 million. When San Jose wanted to stop putting elected officials into a small CalPERS pension plan, CalPERS demanded $5 million for a $900,000 liability.  Other cities across the state have received similar CalPERS demands, making it too expensive to put new employees into defined contribution plans.

Our initiative proponents are a bipartisan group of current and former elected officials who understand the devastating impacts that skyrocketing costs have on essential services.  We know the brutal budget math grows worse if California continues down this unsustainable path.  Cities all over the state need the power to control the cost of retirement benefits for new employees to offset the skyrocketing costs for current employees and protect essential services.

Of course, public employee union operatives have already launched personal attacks and Wall Street conspiracy theories to confuse the voters. Despite union rhetoric, this modest measure will not end defined benefit plans; it simply requires voters to approve adding new members.

This week the Legislative Analyst confirmed that our measure puts voters in the driver seat – and that the mandatory requirements of the measure would produce “significant savings.”

Even better, in addition to what is specifically mandated by the measure, the LAO confirmed that voters would have new powers to add to the savings.

Government union bosses are desperate to protect their gravy train at taxpayers’ expense.  That’s why they are spinning a web of lies about the measure.

Astonishingly, the government union bosses even going so far as to claim voters will opt to spend MORE money than the politicians if given the new powers our initiative grants the people.

At the core of their argument, the unions, along with the politicians, are arguing that voters might make bad decisions with the new powers our initiative grants them.  Telling voters they cannot be trusted to make good decisions is not exactly a winning message.

How much worse can we get beyond the disastrous decisions already made by the politicians who have been bought and sold by the labor unions?  That’s a debate we are looking forward to having in 2016!

Fortunately, no amount of misinformation can change the plain English requirements of the Voter Empowerment Act.

Ultimately, we trust the voters to chart a responsible financial future.  And that’s why our initiative is an important step on the long path to fixing California’s unsustainable public employee retirement benefits.

Chuck Reed, a former Mayor of San Jose, is a Democrat. Carl DeMaio, a former Councilmember of San Diego, is a Republican

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