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Retirement Planning > Saving for Retirement

California Pension Cuts May Have Ripple Effect

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SAN DIEGO (AP) — Decisive victories for ballot proposals cutting retirement benefits for government workers in two of the largest cities in the U.S. emboldened advocates seeking to curb pensions in state capitols and city halls across the nation.

The voter responses in San Diego and San Jose were stinging setbacks for public employee unions, which also came up short on Republican Gov. Scott Walker’s recall victory in Wisconsin.

“The message is that if elected officials and public employee unions do not responsibly deal with this issue, voters will take things into their own hands,” said Thom Reilly, former chief executive of Clark County, Nev., now a professor of social work at San Diego State University. “We could see more draconian measures from citizens.”

In San Diego, two-thirds of voters favored the pension reduction plan. And the landslide was even greater in San Jose, where 70 percent were in favor.

San Diego Mayor Jerry Sanders, a chief backer, said he was surprised by the margin of victory and considered it a statement that voters won’t tolerate benefits that are more generous than those they receive working at private companies.

“It just shows the frustration people have with pension benefits that are out of control and taking away from city services,” he said in an interview Wednesday.

San Jose Mayor Chuck Reed, a Democrat who called the overhaul his highest priority, said he expects other governments to follow their lead.

“Mayors across the country are very interested. We’re at the leading edge but we’re not alone,” he said.

Opponents say the measures deprive workers of benefits they were counting on when they got hired. Some workers decided against potentially more lucrative jobs with private companies, figuring their retirement was relatively safe.

Henry Bayer, executive director of the American Federation of State, County and Municipal Employees Council 31 in Illinois, said the California referendums reflect a “race to the bottom” to erode government benefits by putting them on par with the private sector.

“This is part of a national effort to reduce retirement security for public employees, and it’s very unfortunate,” said Bayer, who represents about 70,000 government workers in Illinois.

The California votes came as legislators pursuing cuts to balance budgets have increasingly turned their attention to public pensions.

Rhode Island lawmakers last year backed away from promises to state and municipal workers, saying the move would save billions that the state could no longer afford to spend. And New York lawmakers in March approved less generous benefits for new hires.

California Republican leaders seized on this week’s votes to try to revive Democratic Gov. Jerry Brown’s attempt to reduce retirement benefits for new and current government workers. Brown called the referendums “a powerful wake-up call.”

Labor unions in San Diego and San Jose — the nation’s eighth- and 10th-largest cities — have launched potentially lengthy court challenges. The San Jose Police Officers Association filed a lawsuit in state court Wednesday, saying the measure violates vested rights.

Mike Zucchet, general manager of the San Diego Municipal Employees Association, said the union decided long ago against mounting a vigorous campaign to sway public opinion, instead saving its resources for a court battle. The vote didn’t surprise him.

“It seemed like something of a lost cause, electorally at least,” he said.

The plans are unusual because they address pensions for current employees — not just new hires.

San Diego’s imposes a six-year freeze on pay levels used to determine pension benefits unless a two-thirds majority of the City Council votes to override it. It also puts new hires, except for police officers, into 401(k)-style plans.

Under San Jose’s measure, current workers have to pay up to 16 percent of their salaries to keep their retirement plan or accept more modest benefits. New hires would get less generous benefits.

San Diego’s independent budget analyst estimated savings of nearly $1 billion over 30 years. Reed estimates San Jose’s plan will save up to $180 million a year.

Supporters in both cities relied on a simple pitch: Benefits beyond what most voters receive working at private companies are draining city coffers.

San Diego’s payments to the city’s retirement fund soared from $43 million in 1999 to $231.2 million this year, equal to 20 percent of the city’s general fund budget, which pays for day-to-day operations.

As the pension payments grew, San Diego’s 1.3 million residents saw roads deteriorate and libraries cut hours. For a while, some 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, equal to 27 percent of its general fund budget. Voters there approved construction bonds at the beginning of the last decade, but four new libraries and a police station have never opened because the city cannot afford to operate them. The city of 960,000 cut its workforce 27 percent over the last 10 years.

San Diego Councilman Carl DeMaio staked his mayoral bid on the pension measure, using fiery rhetoric to criticize public employee unions. He advanced to a November runoff in Tuesday’s election.

“San Diego is showing the way,” DeMaio said Wednesday. “The question is whether other jurisdictions have the political backbone to get the job done.”

For more on the public pension debate, see:

NH Senate Orders Study of Public Pension System

Employee Groups Uncertain About Kansas Pension Plan

Public Retirement Ages Come Under Greater Scrutiny


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