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Pension reformers regroup to launch new fight

By   /   June 24, 2013  /   No Comments

Carl DeMaio

Carl DeMaio

By Steven Greenhut

The same union spokespeople who have always claimed there is no public-employee pension crisis have now declared the crisis over. But, despite some modest good financial news from the pension funds, the pension-debt problem is more pernicious than ever. Predictions of the reform movement’s death are greatly exaggerated.

“[I]t’s no surprise that the attack on retirement security fueled by right-wing interests is losing steam,” wrote Steven Maviglio, a prominent Democratic political operative, in a May 21 article in the California Majority Report. Maviglio is right that the public-sector unions have been pushing back in the courts and at the polls, but he misreads the condition of the pension-reform movement, which is regrouping for a new fight.

The day after Maviglio published his piece, former San Diego Councilman Carl DeMaio held an off-the-record Sacramento confab that assembled around 70 influential pension-reform advocates. This was no right-wing affair, either. This was a bipartisan group of officials and activists rightly concerned that cascading pension costs are threatening taxpayers and public services. They were plotting a new reform strategy.

Beyond the meeting, some influential pension reformers are crafting a 2014 statewide constitutional initiative. It’s still in the early planning stages, but the measure is likely to center on the issue at the heart of the court battle over San Jose’s pension-reform measure, approved by nearly 70 percent of voters in the June 2012 election.

Most pension reforms reduce pension benefits for new hires only, but that does too little, too late to fix the fiscal problem agencies currently face. San Jose, for instance, saw its pension costs soar 350 percent in a decade. If it had changed the formula for new hires only, the city would see few benefits until the new group is ready to enjoy its golden years. The city instead did what many private companies have done — reduced benefits from the day of the reform going forward.

Democratic San Jose Mayor Chuck Reed, writing for “Fixing California” in the U-T today, has argued that, as a charter city, it had legal authority to do this. The statewide measure could attempt to place that provision in the state constitution — i.e., allowing city and state officials, and voters to change vested rights going forward. That would then enable localities to take necessary steps to rein in costs.

Initiative drafters might also require voters to approve any defined-benefit pension plan that their locality offers public employees. Because these plans accumulate unfunded liabilities, or public debt, initiative advocates say that the public needs to give the OK. Those 401(k)-style “defined-contribution” plans would not be affected by such a measure.

Pension reformers might also increase the pension contributions employees must provide, limit pension spiking, reform the often-abused death-and-disability system, or put a cap on “pensionable pay” that employees in troubled systems can receive, which is what San Diego voters adopted.

Reformers also are eyeing changes to the California Public Employees’ Retirement System governing board. CalPERS has not only been plagued by scandals, but has long been dominated by the unions that benefit from unsustainably generous benefit packages. As such, it has consistently tried to hide the size of the state’s pension problems.

In a recent Bloomberg column, Stanford lecturer David Crane recalled, “In 1999, California legislators enacted a huge retroactive increase in pensions without voter approval and based upon an assertion by [CalPERS] that there would be no cost from the increase. Not surprisingly, that prediction — which implicitly forecast the Dow Jones industrial average to reach 30,000 by now — didn’t come true, with the result that the pension increase has already cost the state more than $20 billion, with tens of billions more to come.”

Instead of keeping CalPERS in the hands of union activists, possible reforms would require board members to be independent from such conflicts-of-interest, and be experts in specific subject areas.

We’re a long way from specifics, but expect a serious statewide initiative effort and a bipartisan coalition advancing it. As governments find it tougher to fulfill pension promises to retired employees, the reform movement will become re-energized. Don’t believe the wishful thinking of union activists who don’t understand simple math.

Greenhut is vice president of journalism at the Franklin Center for Government and Public Integrity.