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Public-employee pensions face a rollback in California

By Elliot Spagat

Associated Press


SAN DIEGO >> For years, companies have been chipping away at workers' pensions. Now, two California cities may help pave the way for governments to follow suit.

Voters in San Diego and San Jose, the nation's eighth- and 10th-largest cities, overwhelmingly approved ballot measures last week to roll back municipal retirement benefits — and not just for future hires but for current employees.

From coast to coast, the pensions of current public employees have long been generally considered untouchable. But now, some politicians are saying those obligations are trumped by the need to provide for the public's health and safety.

The two California cases could put that argument to the test in a legal battle that could resonate in cash-strapped state capitols and city halls across the country. Lawsuits have already been filed in both cities.

"Other states are going to have to pay attention," said Amy Monahan, a law professor at University of Minnesota.

The court battles are playing out as lawmakers across the U.S. grapple with ballooning pension obligations that increasingly threaten schools, police, health clinics and other basic services.

State and local governments may have $3 trillion in unfunded pension liabilities, and seven states and six large cities will be unable to cover their obligations beyond 2020, Northwestern University finance professor Joshua Rauh estimated last year.

In San Jose, current employees face salary cuts of up to 16 percent to fund the city's pension plan. If they choose, they can instead accept a lower benefit and see the current retirement age of 55 raised to 57 for police officers and firefighters, and to 62 for other employees.

The voter-approved measure in San Diego imposes a six-year freeze on the pay levels used to determine pension benefits for current employees, a move that is expected to save nearly $1 billion over 30 years. Public employee unions have sued to block the measure, saying City Hall failed to negotiate the ballot's wording as required by state law.

Legal experts expect the cities to argue that their obligations to provide basic services such as police protection and garbage removal override promises made to employees.

In San Diego, the city's payments to its retirement fund soared from $43 million in 1999 to $231.2 million this year, equal to 20 percent of the operating budget. At the same time, the 1.3 million residents saw roads deteriorate and libraries cut hours. For a while, fire stations had to share engines and trucks. The city has cut its workforce 14 percent since 2005.

San Jose's pension payments jumped from $73 million in 2001 to $245 million this year, or 27 percent of its operating budget. Four libraries and a police station that were built over the past decade have never even opened because the city cannot afford to operate them. The city of 960,000 cut its workforce 27 percent over the past 10 years.

"It's a problem that threatens our ability to remain a city and provide services to our people," said Mayor Chuck Reed. "It's huge dollar amounts and has a huge impact on services."

Unions representing police officers and firefighters in San Jose claimed in lawsuits filed last week in state court that the measure violates their vested rights.

"What they've done in San Jose is patently unlawful under existing court precedent," said Steve Kreisberg, national collective bargaining director for the American Federation of State, County and Municipal Employees. "We know of no other places where this has survived legal scrutiny. ... There is no justification for essentially seizing the property of employees."

Michael Lotito, a San Francisco labor lawyer who has represented governments, predicted that dire fiscal straits may carry weight with judges.

"It's a horrible, horrible story for the taxpayer. But worse off the city is, the more they have to lay off, the stronger legal argument they have," he said.

The cities are also expected to argue that they are not stripping workers of anything they already earned, only changing what they will earn in the future.

"You don't have a vested right to keep having your salary increased," said San Diego City Attorney Jan Goldsmith.

The University of Minnesota's Monahan said some state courts have recognized that distinction, but not in California, where she said the state courts have held since the 1940s that benefits granted on the first day of employment are protected.

Private companies, whose pensions are governed by federal law, have been whittling away at current employees' retirement benefits for years. Pensions for state and local government workers are covered by state laws, and those benefits have been left alone for the most part.

Rhode Island has gone further than any other state to cut pensions for current workers under legislation approved last year, and opponents have vowed to challenge it in court, said David Draine, senior researcher at the Pew Center on the States. Other states have fended off legal challenges to the relatively modest step of eliminating pension increases for inflation.

"This is an area that remains legally unsettled," Draine said.

City Councilman Carl DeMaio, a chief backer of the San Diego measure who is staking his mayoral bid on a pension overhaul, said he has fielded scores of calls from government officials nationwide interested in copycat measures. He predicted the legal challenges in San Diego will fail.

"We're showing the way," he said. "We're offering a model — at least one model."

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Classic_59Chevy wrote:
This comment has been deleted.
on June 9,2012 | 11:54AM
nodaddynotthebelt wrote:
I agree with you. As times get tougher the state should be able to adjust to what it, the taxpayers, can afford.
on June 9,2012 | 01:37PM
Graham wrote:
Government cutting public union benefits...hell is starting to freeze over.
on June 9,2012 | 01:13PM
Changalang wrote:
California is running $15 billion in the hole; hence the demonstrated endpoint of Keynesian Economics. Detroit has half the population currently than it did 5 years ago and the City is bulldozing parts of the City to conglomerate service into like areas. Lucky Hawaii's people can afford the luxury of a $7 Billion Rail to nowhere.
on June 9,2012 | 04:29PM
serious wrote:
It is not the Keynesian Economics----it's the Democrats that ran those states and cites into that situation, they get voted in by the public unions and they give back the benefits. HI needs to get its act together also. We need adult supervision--a Wisconsin type of revolution--somebody with guts to do the right thing!!! Vote in a Republican---I think the silent majority will support the move--or we'll go down the tube just like the other D states and cities.
on June 10,2012 | 04:55AM
Carang_da_buggahz wrote:
With the way the democrats rule this state with an iron fist, don't look for relief anytime soon. As long as the public unions get their way, city, county, and state governments here will slowly bleed to death. Then what? You can bet the spoiled-brat unions will Ska-REEM the loudest and throw their worst tantrums! Unfortunately, NO DEMOCRAT has the "stones" to challenge this long-held feast at the trough.
on June 10,2012 | 06:31AM
Changalang wrote:
Lingle had two terms and eight years to do something as Governor. Instead, she will be retiring after her stunning Senate defeat in November and living off her public provided pension. Isn't Lingle retirement age yet? She sure looks it. The only thing missing is green skin, a black pointed hat, and Dorothy's little dog too.
on June 10,2012 | 07:20AM
Changalang wrote:
It is the economics. California had A "R" nold . Borrowing to spend to stimulate leads to a miserable failure. Bush did it too. Hawaii tried Lingle already. She gambled away $1.09 Billion of OUR hard earned taxpayer money to Citi banksters via Auction Rate Securities and blamed "The Great Recession" for a 20% shortfall in Hawaii operating cash flow. Republicans of the past are responsible for the woes of the present. As for Hawaii, our State Constitution puts We The People on the hook for any unfunded part of the pension and ALL legislators are relying on their pension; particularly the old dust farting retiring Hawaii GOP ones. Time for a reality check. If GOP gets three thirds of gov't, then they will pass a State bankruptcy statute that will will allow any state to use existing bankruptcy statutes for "protection". Structured bankruptcy allows all contracts to be re-negotiated.
on June 10,2012 | 06:38AM
rhs763 wrote:
Government benefits have been too generous for too long. Time to align benefits with costs. Time for a lookback at what was given out, sometimes in error.
on June 9,2012 | 02:40PM
Bothrops wrote:
So what are the benefits in Hawaii for state employees versus in California?
on June 9,2012 | 03:07PM
BRock wrote:
What some people do not understand is that public retirement benefits are protected by the Hawaii state constitution. To diminish the benefits would first require an amendment to the constitution, something that the public employee unions would never allow without a fight. Plus the legislators and judges are beneficiaries of the retirement system as well. Get serious folks, it won't happen soon.
on June 9,2012 | 04:12PM
Changalang wrote:
Reality bites.
on June 9,2012 | 04:29PM
Blueskies wrote:
Bothrops-- I am a Hawaii public employee, and here is my understanding of the situation in California vs. Hawaii based on what friends who work in the public sector in California tell me. In most, but maybe not all, California cities/counties, etc., the employee does not contribute anything to their pension while they are working, It is the government that pays for everything in the pension.. Moreover, employees can retire when they reach the magic number of 80 (years of service and age added together) with 80% of their salary. However, in Hawaii, things are different. Here, each payday, public employees pay 6.5 or 6.6 % of their salary to their pension, in the contributory and hybrid plans, and the State/City/Counties pay an equal amount. In these plans, we multiply the number of years of service by 2% of our three highest years. For firefighters, police officers, and judges, the percentage is higher because of the danger of their jobs. If they are in the non-contributory plan, the percentage is 1.25% times the number of years. Moreover, when we retire, we need to have a minimum of 30 years plus age 55 if we want to retire early. Most public employees, however, wait until their Social Security retirement age, 66 for most of us nowadays. There are different amounts one can take depending on marital status, dependents, etc.,. In about three years, after 33 years of service, I will retire with no dependents and take the maximum amount, about 66% of my highest three years (no overtime allowed in the calculation except for police, fire fighters, and prison guards), about $3800 a month. So this is not luxury, but it is comfortable. What kind of 401K do you have now that the stock market has bounced back? How many more years before you retire?
on June 9,2012 | 04:12PM
false wrote:
Can u also draw Social Security?
on June 9,2012 | 04:44PM
Blueskies wrote:
Yes, because I have paid into it since starting to work in 1965. Hawaii is one of the states where public employees are required to pay into Social Security in order to save money, unlike California, which does not require this and, therefore, gives their employees larger pensions, to make up for the difference.
on June 9,2012 | 06:16PM
false wrote:
I started work in 1973, at a job that paid only $2 per hour, lol.
on June 9,2012 | 06:42PM
hawaiikone wrote:
1962, McDonalds. 90 cents an hour. Food was free though. 10 cent burgers
on June 9,2012 | 08:05PM
matsuyama wrote:
Oh yeah? When I was a kid, I had to get up and walk to the TV to change channels! Man, life was rough!
on June 9,2012 | 08:54PM
Oye_Como_Va wrote:
Wow, you had a TV?
on June 9,2012 | 11:08PM
saywhatyouthink wrote:
OMG ...$3800 a month for life..... a prime example of why we need to reform the benefits of public employees. It's no wonder we have a 6 billion unfunded pension liability for state workers. Show me a private sector company that offeres it's workers that type of gravy deal. Change is coming........ whether you union people like it or not.
on June 9,2012 | 11:50PM
mrluke wrote:
So, you're one of those who believe that public employees should take a vow of poverty.
on June 10,2012 | 08:02AM
what wrote:
Vow of poverty? Are you saying that a pensioner making less than $3800 would be living in poverty?
on June 10,2012 | 01:58PM
st1d wrote:
"Machida says these assumptions aren’t the main reason the state’s unfunded liability has grown so dramatically. He ascribes most of the increase to an old rule that allowed legislators to seize any annual earnings over 8 percent and apply them to the state’s ARC." . . . from hawaii business feb.2011 . . . machida explains that the main cause of the unfunded ers liability is the legislators' skimming of ers investment profits to pay for entitlements and increased spending. if the ers retained profits during the good years the $8 Billion liability would not exist.
on June 9,2012 | 05:00PM
Blueskies wrote:
Yes, that's true. It is the leg which has created this problem, not the Employees Retirement System nor the public employees.
on June 9,2012 | 06:17PM
Bothrops wrote:
So Hawaii and California are night and day. Here government workers kick in 6.5% and the government matches. In California workers pay zero. Here unless you work log enough you may not even see the return on your 6.5% you might have gotten with a 401? And here the fund was doing ok until the Leg skimmed it off in good years? Everyone with any sense of budgeting knows that good or bad yu keep your money in. Guess the Leg didn't get the message. What is their pension plan like??
on June 9,2012 | 08:32PM
saywhatyouthink wrote:
The political winds are shifting, I wonder how long they'll take to reach Hawaii? Simple common sense, billions in unfunded pension liabilities? That's just crazy..... public employees should be happy to just have the job. Don't expect to get medical and 50% of your pay for the rest of your life upon retirement, that day is gone, sign up for the 401K and hope the taxpayer matches alittle of what you put in. Government benefits should be no more generous than what is typically offered in the private sector, if that. In these hard economic times we cannot afford to continue the status quo anymore.
on June 9,2012 | 11:41PM
serious wrote:
Saywhatyouthink: I don't think the winds will be strong enough. Look at our present situation: collectively the two most senior senators in the USA and what have they done for HI? I am not making this up: we are the worst state for doing and starting businesses, the worst traffic congestion, the highest housing prices, next to the highest state gasoline taxes, education?---we are next to Mississippi--ever been there? We have always voted Democratic. Look at the Republican states--three of them turned down Federal $$$ for rail because they found the upkeep was too expensive. We need adult supervision. Our problems can be solved--it's called leadership--look at Governor's Walker and Christie!!!!! Then look at--ours--never had a job in his life other than on the govenment dole!!!
on June 10,2012 | 05:20AM
roughandtough wrote:
Hope Hawaii dosen't follow the path of California! Thay have so many things wrong with their state its not funny. Goverment workers in Hawaii work hard for thier money, we took pay cuts, furloughs, no step movements for so many years,and more. (Still have not received back the step movements) Now to get a decent retirement check when you have to wait till your 65 or more, be on a disability and then still pay for your medical benefits (percentage). What about the Feds.? Do you hear any one complaining about them ? They still have COLA and where are their funds cut ?
on June 10,2012 | 05:56AM
serious wrote:
You make a good point. The Feds are also running off the same cliff. I have to laugh when Our President tells the southern european countries that they have to stop excessive spending and entitlement programs. I think he has been out in the HNL sun too long!!!
on June 10,2012 | 07:32AM
Changalang wrote:
Look closely at debtclock.org . Look at the bottom boxes of unfunded liabilities. Notice how large the one is since enacted that is the drug benefit? All Bush. Compare it to Social Security and Medicare keeping in mind how long THOSE programs have been solvent vs. Bush's. Miserable failures are self defining from an objective point of view.
on June 10,2012 | 09:19AM
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