A superior court judge this month upheld a voter-approved initiative giving lower pensions to all city of Menlo Park new hires except police, the first court ruling as unions challenge similar measures in Pacific Grove and Bakersfield.
Voters in the three cities approved cost-cutting pension reforms in November 2010 that bypassed bargaining with unions. California is one of only several states where public employee retirement benefits are set by labor negotiations.
The measures in the small cities of Menlo Park and Pacific Grove, with relatively wealthy and well-educated residents, were overwhelmingly approved by more than 70 percent of voters.
In the much larger and more diverse Bakersfield, a measure that sharply cuts the pensions of new police and firefighters, not other non-sworn city employees, was approved by 56 percent of voters.
(A twist on ballot-box pension reform: Riverside County deputy sheriffs put a measure on the November 2010 ballot requiring voter approval to cut the pensions of new officers and firefighters, receiving 53 percent of the vote.
(But a counter measure backed by county supervisors allowing pension cuts for new hires and requiring voter approval of pension increases received 61 percent of the vote, becoming the new law because it received more votes.)
The measures in the three cities, which are in the giant California Public Employees Retirement System, set the stage for widely watched votes next month on pension reforms in the state’s second and third largest cities.
Voters in San Diego and San Jose, charter cities with “home rule” power under the state constitution and their own pensions systems, are being asked by their mayors and others to cut pensions earned by current workers in the future.
Unions oppose the measures that have become an issue in the San Diego mayor’s race and an open seat on the San Jose city council.The San Jose measure was placed on the ballot by a narrowly divided city council.
Pension reformers, unable to get a majority of city council votes, gathered voter signatures for initiatives in San Diego and Menlo Park. After signatures were gathered in Pacific Grove, the council enacted the measure confirmed later by voters.
Being able to bypass a city council, where members may rely on union support, is one argument for ballot-box pension reform. Critics say setting pensions through local bargaining, rather than statewide legislation, tends to drive up employer pension costs.
If one local employer raises pensions, unions ask other employers to match the benefit to remain competitive. A CalPERS-sponsored bill, SB 400 in 1999, gave state workers a major retroactive pension increase.
A report last year by a nonpartisan watchdog, the Little Hoover Commission, said SB 400 started “a chain reaction of retroactive pension increases granted to public employees up and down the state” and is regarded as “pivotal” in the pension crisis.
Some union leaders contend there is little hard evidence for the alleged “ratcheting up” effect of bargaining. Unions also say that pensions are a form of compensation, and therefore an important part of collective bargaining.
The Pacific Grove measure was an early attempt to cut current-worker pension costs. Reformers say employer savings from cutting new-hire pensions can take decades, and bargaining higher worker pension contributions often requires offsetting pay raises.
Pacific Grove’s Measure R caps the city contribution to pensions at 10 percent of pay, requiring employees to pay the rest or choose a low-cost option like a 401(k)-style individual investment plan.
In addition to filing a lawsuit, a police union also persuaded the state Public Employment Relations Board to issue a complaintcharging the city with violating labor laws.
The labor-friendly board attempted earlier this year to get a court to block the San Diego pension measure from the ballot, unsuccessfully arguing that union negotiations were required first and then a vote of the city council.
A report to the Pacific Grove city council this month said agreements reflecting Measure R have been made with general employees and management. The city is using part-time employees when possible to reduce pension enrollment.
“Other elements of the strategy — including successful resolution of both the PERB claim and lawsuit initiated by the POA, as well as either withdrawing from CalPERS or working with CalPERS to implement additional plans, including one or more hybrid plans that feature defined contributions — are well underway but will take many years to fully realize,” said the report.
In Bakersfield, Measure D gave new police and firefighters the pension used before the SB 400 increase set off a wave of increases. The new hires also must make the full employee contribution, 9 percent of pay, paid in the past by the city.
The Measure D sponsor, Zack Scrivner, a former city councilman now a Kern County supervisor, said the measure is being implemented. But a police union has asked state Attorney General Kamala Harris for a legal opinion.
“Did the city of Bakersfield usurp the rights of BPOA (Bakersfield Police Officers Association) by placing Measure D on the Nov. 2, 2010, general election ballot?” is the request for a “quo warranto” ruling listed on the attorney general’s website.
A drive to place a statewide pension reform initiative on the ballot was suspended in February because the “attorney general’s false and misleading title and summary makes it nearly impossible to pass,” said Dan Pellissier, president of California Pension Reform.
The Menlo Park initiative, Measure L, lowers the pension for new hires, except police, from 2.7 percent of final pay for each year served at age 55 to “2 at 60,” extends the full retirement age from 55 to 60 and requires employees to pay their contribution.
“We did not have a city council that was supportive of Measure L,” said Henry Riggs, one of the initiative leaders. “I think we had two who were supportive and three who were not.”
The decision upholding Measure L issued by San Mateo County Superior Court Judge George Miram on May 4 said state law allows retirement systems to be established by a majority vote of the people or a two-thirds vote of the city council.
The judge said Measure L is regarded as establishing a new system for new hires, not a change in the system for current workers. He said Measure L is therefore “not an invalid use of the local initiative power.”
A union attorney, Teague Patterson, said a decision about an appeal has not been made. Among the concerns, he said, is a “slippery slope” toward inadequate retirement benefits and undermining the employer-employee “balance” intended by state law.
If ballot-box pension reform continues to pass court tests, unions may seek legislation to curb the trend.
When the bankruptcy of Vallejo raised concern the process might overturn labor contracts and cut pensions, unions backed legislation requiring cities to get the approval of a labor-friendly state commission before declaring bankruptcy.
r version requiring mediation or a fiscal emergency is being used as Stockton tries to avoid bankruptcy. Reportedly unhappy with the process, unions are backing a bill, AB 1692, opponents say could strengthen the mediator and allow delays.
Ed’s Note: Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at http://calpensions.com/