San Diego Ruling Could Be First Step To Real Public Pension Reform

San Diego Ruling Could Be First Step To Real Public Pension Reform

Sound judgment, which is too rare in the halls of California officialdom, won a round on Tuesday when the state’s Fourth District Court of Appeal ruled that San Diego’s pension cutbacks for city workers were indeed lawful.

The case was the appeal of the state Public Employment Relations Board’s 2015 ruling on San Diego’s Proposition B. At the outset, the board tried to keep the initiative from ever reaching the voters. But it made the 2012 ballot and 66 percent of the voters supported its elimination of “defined benefit pensions for all new city officials and employees, except police officers,” and its provision to replace them with “a defined contribution 401 (k)-type plan.”

But PERB got a second bite at the apple and ruled the changes were illegal because the mayor in office supported it.

Then-Mayor Jerry Sanders indeed supported the measure. But the city argued that he did it on his own time. Either way, he was simply trying to protect the interests of all San Diego residents. That’s in conflict with PERB’s agenda, which is to further unions’ welfare.

Among the many crises in this state is the short-fuse public-employee pension bomb. All governments combined owe nearly $1 trillion in pension obligations, the California Pension Tracker, a website run by former Democratic Assemblyman and current Stanford researcher Joe Nation, reports. According to Pacific Research Institute fellow Wayne Winegarden, when accounting for risk, between $300 billion and $600 billion of those obligations have no funding.

“For years California has not been setting aside enough money to fully fund its state-run defined benefit system,” Winegarden wrote last year in the Pacific Research Institute’s California’s Pension Crowd-out report.

Meanwhile, the “pension debt levels are the equivalent of between 13 percent and 28 percent of total California state GDP in 2014.”

There is no way this arrangement can endure. There is a pension disaster awaiting every government body that has over-promised its workers and the taxpayers who fund it. The economic costs will be high. If nothing is done, Winegarden reckons California’s economy will be 21 percent smaller over the next 30 years compared to its current growth trajectory.

Don’t think the economic pain is out there somewhere in the future. It’s already here. On the day before the court ruling, the California Policy Center reported that “in fiscal year 2015-2016, at least 26 California cities and counties devoted over 10 percent of their total revenue to pension contributions.” Spending 10 percent of annual budgets on pension costs is dangerous territory.

Government-employee unions don’t like defined-contribution plans because employees are expected to pay into them with employers matching contributions. They’re wed to their defined-benefit plans that are largely funded by taxpayers and provide a guaranteed level of pension income. These packages are typically sumptuous. The California Policy Center reported just a few years ago that more than 30,000 government retirees across the state belong to the “$100,000 pension club.”

The public employee unions bagged these gilded retirements through decades of collective bargaining with governments. Except there has been no actual bargaining. Politicians have little reason to keep employee retirement costs down while they have a strong incentive to give favors to unions that will support their re-elections. The parties sitting across the negotiating table don’t represent conflicting interests but are allies working toward the same goal.

What’s needed is a California governor with enough political courage to follow Chris Christie’s lead. When he became New Jersey governor in 2010, one of his first acts was to sign an executive order barring unions from making political contributions. Or that of Scott Walker, who, while Wisconsin governor, moved through 2011 legislation that severely restricted collective bargaining for most public employees.

Winegarden’s suggestions include repealing the “California Rule,” which effectively prevents current public employee pension benefits from ever being trimmed. The rule has already been weakened by a January state Supreme Court ruling, which could open the door for another Winegarden recommendation: freezing defined-benefit programs for current workers. They would be offered a choice between “receiving a payment equal to the present value of their benefits” or remaining “in a reformed defined-benefit program that would include, among other adjustments, appropriate policies to accommodate market risk.”

California also needs more San Diegos. Proposition B is estimated to save municipal taxpayers as much as $1.6 billion over several decades as the new hires retire. That’s significant in a city with a $3.4 billion budget for fiscal 2017.

Winegarden said this week that San Diego’s “reform is a necessary first step along the long road of addressing California’s pension crisis.” If a ballot proposition works where elected officials refuse to, then taxpayers need to take matters into their own hands. Cushy deals for public employees shouldn’t be economy-wreckers.

Read More

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.