The Pension Reform Act of 2014 as Applied to Glendale CA – Reform Initiative that Empower Cities
The pension reform pushed through the Legislature by Gov. Brown in 2012, AB 340, failed to address the pensions of current workers. It was designed to create a two-tiered pension systems where newer employees get considerably less in pensions and benefits than current employees. The reform did little to reduce the “unfunded liability” of the California Public Employees Retirement System. It primarily impacted new hires that will not have any real significance until several decades later.
I’ve written extensively in the past about real pension reform, not the city’s council’s version that only affects new hires after 2011 and 2012. Last week I wrote about Glendale’s employer’s rates to CalPERs likely to be going up by 27 percent over the next six years, due to its unfunded pension debt obligation, estimated at $1.423 billion and CalPERS intent to take a bigger bite out of state and local government budgets by reducing their growing unfunded debt and to head off future government bankruptcies. By doing so, CalPERS pension system moves toward full funding with year-to-year jumps in employer rates that is more likely in the foreseeable future.
The question is how will Glendale be able to sustain these higher employer rate contributions to CalPERS while giving wage increases to employees and at the same time maintaining current levels of community services. The problem is that it can’t. It’s very unlikely that the additional property and sales tax revenue generated from the new mixed used developments in the downtown specific plan do it. It’s more likely that the city council will continue to reduce essential public services, raise utility taxes and fees until residents say “enough, I can’t take it anymore”, and unify into a coalition to ouster these self serving council members who continue to capitulate to Union demands so they will support their re-election and they can continue to stay in power.
I always maintained that although the city cannot take away City employees’ benefits already earned from prior years of service, it should have the right reduce current employees’ pension formula pertaining to all remaining “future years of service”, if it hampers the city’s ability to provide basic essential services to the community it serves and put the City’s solvency at risk. It is incomprehensible that the City Council would continue to reduce essential public services to the community, so that it can continue to pay unsustainable salaries, pensions and benefits.
If the City Council is foolish enough to create an untenable situation by spending more than it takes in while offering city employees the moon, in the form of salary perks, overtime, and pension spiking over and above their current base salary, city employees cannot be faulted for accepting these perks. This has nothing to do with the rank and file employees whom are dedicated employees and have done a good job overall in keeping Glendale safe. The blame is squarely on the City Council, the City Manager and management.
Few, if any pension reformers want to take away anyone’s retirement security. But as a nation, we are currently on track to pay more money each year in pensions to retired government workers than we pay in Social Security to everyone else. Government workers are no longer required to endure the economic challenges and hardships facing the taxpayers they serve. The average pension for a recently retired government worker in California who logged at least 30 years of full-time service is about $65,000 per year. The average Social Security benefit for a private sector retiree who logged 40 years or more of full-time work is $15,000 per year. (1)
In Glendale’s case, the city had 153 retirees’ earning over $100,000; 121 employees earning between $80,000 and $100,000; 164 employees earning between $60,000 and $80,000. Glendale had 1,073 employees earning between 20,000 and $238,686, totaling $65.3 million, averaging $60,882 per retiree. (Note Randy Adams, was not included)
Soaring retirement costs are eating up available funds needed for basic programs, because past court decisions have protected current workers retirement costs, making it difficult to reduce pension obligations without waiting decades for a shift to a workforce with lower benefits.(2)
On October 15, 2013, Mayor Reed announced that he and a coalition of local leaders across the state will pursue qualifying a statewide pension reform initiative for the November 2014 election. The proposed initiative number 13-0026, entitled Pension Reform Act of 2014, would amend the state constitution to give local government agencies clear authority to negotiate changes to existing employees’ pension or retiree healthcare benefits on a strictly going-forward basis. This will provide state and local governments with the tools necessary to fix California’s unsustainable public employee retirement plans, that will allow cities to curb pension obligations going forward into the future while protecting current employees earned benefits accrued from prior years of service. (3)(4) The coalition of local leaders believes that employees would much rather adjust their future expectations than risk seeing their accrued benefits slashed in bankruptcy. They said that, “Teachers, police officers, firefighters and other dedicated public servants deserve to know that the pensions they’ve earned will be there when they need it – not just the day they retire. (4) (5)
“Federal law allows private pension plans to prospectively change employee retirement benefits. At least 18 states have the flexibility to do so for public employees as well. However, in California, a series of judicial decisions has made it extremely difficult for government employers to make any changes to retirement benefits for existing employees, Given California’s skyrocketing retirement costs and huge unfunded liabilities for pension and retiree healthcare benefits, numerous independent experts have argued that prospectively modifying current employees’ benefits is the only way to solve the problem, (4)
It’s unrealistic to expect pension funds are going to continue to deliver 7% returns, 4% real returns after inflation over the next three decades. In addition, employer and employee contributions have been sporadic over the past two decades. Glendale didn’t even start employee contributions until the late 1990’s. When they did, employees were given a wage increase equal in percentage to the mandatory contribution so that they did not incur any out of pocket expense.
Government has a responsibility to provide essential services that protect the safety, health, welfare, and quality of life enjoyed by all Californians. Government also has an obligation to be fair to its employees and ensure that its retirement benefit plans are sustainable, fiscally sound, and able to meet the commitments made to its employees and retirees. The cost of California’s current government employee retirement benefits is threatening the government’s ability to achieve these goals. (6)
Under the constitutional amendment, cuts in the pensions earned by current workers in the future could be bargained with unions or placed on ballots through initiatives. “It’s all about empowering cities to solve their own problems,” Per the bipartisan Little Hoover Commission in a 2011 report, it said that “California’s pension plans are dangerously underfunded, the result of overly generous benefit promises, wishful thinking and an unwillingness to plan prudently.” The Commission concluded that pension costs are impairing the government’s ability to provide essential services, and without aggressive reforms. “The Legislature should give state and local governments the authority to alter the future. (2)
Reed’s initiative will get well-funded opposition from public employee unions. Steve Maviglio, a consultant, said defeating the initiative would be labor’s “top priority” if enough signatures are gathered to place it on the ballot. (1) The union political pundits are already at work electioneering. SEIU just emailed their members the following; Alert: Retirement Security under Attack. This is a direct threat to the retirement security of millions of working families, including Local 1000 members. “Instead of encouraging solutions that allow all working people to retire with dignity and economic security, the backers of this initiative are working to undermine what little retirement security remains by scapegoating middle-class families with modest pensions. In an era when nearly half of all working households face the threat of retiring into poverty, we can hardly afford an attack on the retirement security of any hard-working middle-class people.
This is typical Union rhetoric. There is no validity to these charges. The verbage is designed to stir up anger among its members. The Pension Reform Act of 2014is intended to give the cities options, in lieu of bankruptcy, in dealing with employees who are expected to retire with pensions from $75,000 to well in excess of $100,000. There is no intention to make changes to the pensions or undermine middle-class families with modest pensions.
Union Power Prevents Public-Sector Union Reform –Public employees unions have a private interest in taking more and more of the taxpayer-generated revenue for its members. They have a conflict of interest in diverting public funds from public services to their wages and pensions. In this sense, the increasing numbers of public employees and their increasing wages and benefits threaten to hollow out public services in our country. (7)
The employer/ employee contributions over the years are just a fraction of the Glendale’s unfunded pension and benefit liability. How can the city achieve full funding over the next fifteen years under CalPERS plan when they don’t even know what each employees retirement is until they actually retire due to pension spiking. The City doesn’t even collect contributions for retirement health benefits. These are the unintended consequence of the irresponsible actions taken the City Council over the past twelve years. The huge unfunded liabilities in our state’s pension funds pose significant risk to local governments’ ability to meet its obligations to retired employees.
Failure is not an option. Many cities have already begun to layoff and outsource services when unions are unwilling to renegotiate unsustainable pension formulas for current employees that include salary perks, and pension spiking
The Glendale City Council should be renegotiating on the City’s terms that puts the city back on a path to solvency and sustainability, while eliminating any threat of further reduction in essential services compounded with higher utility rates.
We elect legislators to make policy decisions and enact laws on our behalf. If the Glendale City Council fails to uphold the rule of law, not abide by the charter, and continues with its reckless spending and abandonment of the principles they were elected to uphold, then the community should seek their ouster from the Dias.