California New Public Employee Benefits Reform Act (2010)

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An effort to qualify a California New Public Employee Benefits Reform Act (09-0075, 09-0076) for the November 2, 2010 ballot in California as an initiated constitutional amendment was abandoned, according to its supporters, in late February 2010.[1]

The proposed measure would have scaled back defined-benefit pension plans for new public workers at both the state and local level. Advocates of the plan said that, if enacted, it would have saved California governments $500 billion over 30 years.[2]

The California Foundation for Fiscal Responsibility (CFFR) sponsored the proposal. CFFR was founded by Keith Richman, a former member of the California General Assembly. Marcia Fritz is the president of CFFR. She said, “You’ve got public safety workers retiring with 24 years of service, retired in six-figure pensions for 35 to 40 years. We can’t sustain it. It’s not affordable."[2] Backers had hoped for a financial angel to come on board with the approximately $2 million it would take to qualify for the ballot, but in late February, determined that this was unlikely and said they were throwing in the towel for 2010.[1]

CFFR filed two versions of potential ballot language with the Office of the California Attorney General. Both versions were filed on November 5, 2009.[3]

On January 14, 2010, both versions were given an official ballot title and cleared for circulation. The circulation deadline for both measures was June 14, 2010.

John Romano was sponsoring a third initiative, the Public Pension Limits Act, which had the same theme of cutting down on pension benefits that would go to government employees hired in the future.

Titles and summaries

09-0075

{{Quote} Title: "Reduces Public Pension and Retirement Health-Care Benefits. Initiative Constitutional Amendment.:

Summary: "For peace officers, firefighters, public safety, and other public employees hired after July 1, 2011, this measure: reduces pension and retirement health-care benefits; increases minimum retirement age; restricts early retirement; increases minimum age and years of employment needed for retirement health-care benefits; and limits post-retirement pension increases. For current and new public employees this measure: prohibits retroactive increases in retirement benefits and requires public employers to make annual payments for future benefit costs. Allows public employers to adjust retirement contribution rates for new employees in future labor agreements."

Estimated Fiscal Impact: "Major reductions in annual public sector pension costs—potentially in the range of 50 percent or more-over the long run. Possible increases in other public employee compensation costs, depending on future decisions made by governmental entities and voters. Major near-term increase in annual governmental payments to prefund retiree health benefits, more than offset in the long run by annual reductions in these costs."}}

09-0076

This text is quoted verbatim from the original source. Any inconsistencies are attributed to the original source.

Title: "Reduces Public Pension and Retirement Health-Care Benefits. Initiative Constitutional Amendment."

Summary: "For peace officers, firefighters, public safety, and other public employees hired after July 1, 2011, this measure: reduces pension and retirement health-care benefits; increases minimum retirement age; restricts early retirement; increases minimum age and years of employment needed for retirement health-care benefits; and limits post-retirement pension increases. For current and new public employees this measure: prohibits retroactive increases in retirement benefits and requires public employers to make annual payments for future benefit costs. Allows public employers to adjust retirement contribution rates for new employees in future labor agreements."

Estimated Fiscal Impact: "Major reductions in annual public sector pension costs—potentially in the range of 50 percent or more-over the long run. Possible increases in other public employee compensation costs, depending on future decisions made by governmental entities and voters. Major near-term increase in annual governmental payments to prefund retiree health benefits, more than offset in the long run by annual reductions in these costs."

Declaration of Purpose

The "Declaration of Purpose" filed with the proposed language said:

This text is quoted verbatim from the original source. Any inconsistencies are attributed to the original source.

(a) Government has an obligation to provide adequate and secure retirement benefits to its employees;

(b) Our police, firefighters and other public safety employees, who risk their lives protecting us, deserve special consideration;

(c) At the same time, government has a responsibility to its employees and to taxpayers to ensure that such benefits are reasonable and adequately funded;

(d) Existing public employees have a right to receive the retirement and other similar benefits that were promised them upon employment. Thus, this Act does not eliminate, limit or affect existing defined benefit pension plans, defined contribution plans, vested retiree health care plans, disability benefits, or death benefits for current public employees or retirees and their families;

(e) However, the current system of retirement benefits is too costly, overly generous, and cannot be sustained for new public employees;

(f) Government finance experts have determined that retirement benefits provided public employees are significantly more generous than in other states and private industry. Under the current system, some public employees can actually receive more income in retirement than they earned while working. The current system could result in billions of dollars in new taxes to meet the retirement obligations for public employees. Many local governments may be threatened with bankruptcy if no change is made.

(g) It is responsible and prudent for the people to impose limitations on retirement benefits offered to new public employees hired after the effective date of this Act and make public penSions more affordable for taxpayers.

(h) Therefore, the people of the State of California hereby enact the New Public Employee Benefits Reform Act to provide for fiscally responsible retirement benefits for new public employees hired on or after the effective date of this Act.

Editorial opinion

  • The Petaluma Argus-Courier editorialized in favor of the proposed initiative in December 2009. They wrote, "The unfunded pension liability of cities and counties in California is a fiscal time bomb, and Petaluma may be one of the first to explode given its increasingly precarious financial plight...Like many other cities, Petaluma awards exorbitant retirement benefits to its public safety employees. It’s not uncommon, for example, for a local police officer or firefighter to retire at age 50 and receive up to 90 percent of his final year’s salary as an annual pension payment...Given that public employee unions control most of the elected officials in Sacramento and most cities and counties, the initiative may be the only way for cities like Petaluma to avoid bankruptcy."[4]
  • The Monterey County Herald, on January 19, 2010, said, "If a pension reform initiative qualifies for the ballot later this year, expect the public employee unions to put up the fight of a lifetime, but don't expect them to play it straight. Too much is at stake. Among the steps in their effort to maintain California's unsustainable public pensions is likely to be a counteroffensive featuring a related ballot measure, one that would either nullify the one being pushed by Sacramento pension reformer Marcia Fritz, or one meant to soften the effect of Fritz's plan. With the politicians unwilling to take this issue on themselves, the initiative process becomes the only way California taxpayers can save their government entities from financial disaster, everything from the schools to the cities and counties and on up to state government."[5]

CalPERS

Public employee pension funds in California are managed by CalPERS, a state agency. In years preceding 2010, the investment portfolio managed by CalPERS had experienced losses. As a result, the state and local governments had to contribute additional money to the pension fund from their operating funds. Former CalPERS board member Alfred Villalobos entered into consulting contracts with investment clients while he was on the board and encouraged CalPERS to invest pension funds with his clients. He earned more than $60 million in fees from his investment clients for his services. CalPERS board member Charles Valdes was under investigations for his relationship with Villalobos.[6]

Political chess?

According to Dan Walters, "unions want to strangle two pending measures" headed for the 2010 ballot. The two measures he believed they most want to strangle were the pension reform act and a proposed paycheck protection act.[7]

Walters said that "the groups sponsoring the two are immune to direct retaliation. So unions and their allies may be attempting to choke off their money by filing measures that would repeal $2 billion in state tax breaks for business enacted last February, virtually prohibit corporate political contributions and sharply raise property taxes on business."[7]

According to his analysis, the goal of unions was to send a signal to major business groups in the state that if they "back the campaigns on union political funds or pensions," they would "face measures that would cost them many billions of dollars in new taxes and reduce their political clout."[7]

Path to the ballot

See also: California signature requirements

Measures 09-0075 and 09-0076 were proposed as initiated constitutional amendments, which means they would have needed 694,354 valid signatures to qualify for the ballot. The circulation deadline for each version was June 14, 2010.

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