California Cities Pass Pension Reform

Wednesday, 06 Jun 2012 03:27 PM

 

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Voters in San Jose and San Diego, two of California's biggest cities, have backed sweeping pension reform plans, passing both measures by two-to-one margins on Tuesday.

Voters in San Diego, second in population in the state to Los Angeles, agreed to move new employees to plans similar to private-sector 401(k) plans instead of pensions with guaranteed benefits.

Voters in San Jose, California's third-largest city, also passed changes. San Jose, considered the capital of Silicon Valley, will now force employees to choose between reduced benefits or sharply higher employee contributions to maintain current benefits, which now cost the city about a quarter of its budget.

San Diego's measure sailed to victory by a 66 percent to 34 percent margin. San Jose's measure won 70 percent to 30 percent.

"A big win here gives mayors across the country confidence that if they bring this to their voters, the voters will get it," said San Jose Mayor Chuck Reed, a Democrat.

Union representatives said the cities should have worked harder at the bargaining table with them. "These results will mean broken promises and less retirement security for working families and seniors," Dave Low, chairman of the union group Californians for Retirement Security, said in a statement.

California's budget gap, currently near $16 billion, pales in comparison to a state pension shortfall estimated as high as a half trillion dollars. That bill does not come due at once, but payments are approaching crisis levels for some local governments, such as San Jose.

Stanford economist Joe Nation estimates that the largest state pension plan, the California Public Employees' Retirement System, Calpers, and two plans for school and state university employees, are underfunded by a total of nearly $500 billion.

Major cities such as San Jose and San Diego, which are not part of the big state plans, are billions of dollars more in the hole.

Nation said huge victory margins would catch the eyes of politicians across the country, if not necessarily in the state capital Sacramento. Governor Jerry Brown has pushed for pension reform, but his efforts have stalled.

"Anyone in the political business understands what a two-to-one margin means. It means that voters get it and you better get it," Nation said.

California dramatically raised pension promises in the aftermath of a 1990s stock market boom, predicting that stock returns would pay for increases.

A 1999 law, adopted overwhelmingly by Democratic and Republican legislators, knocked five years off the retirement age for many workers, bumped up payments - or both. Every career government worker could quit at 50 or 55 with a solid, and sometimes generous, pension.

Cities eager to keep workers followed suit.

Unions are not likely to accept the changes without a fight. San Diego Municipal Employees Association General Manager Mike Zucchet said his group had already launched one court challenge and was ready with more.

© 2014 Thomson/Reuters. All rights reserved.

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