California Pension Reform Initiative (2014)

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A California Pension Reform Initiative (#13-0043) was approved for circulation in California as a contender for the November 4, 2014, ballot as an initiated constitutional amendment.[1][2]

The initiative would have added language to the California Constitution that, according to the initiative's supporters, would "enable the people of California to take those actions necessary to attain fiscal sustainability and provide fiscally responsible and adequately funded pension and retiree healthcare benefits for all-government employees and retirees."

Supporters of the initiative referred to it as "The Pension Reform Act of 2014."

Two versions of the Pension Reform Initiative were submitted by supporters to state election officials. An earlier version, #13-0026, was submitted in October 2013 and then withdrawn in favor of Version #13-0043, which was submitted in mid-November 2013.

Chuck Reed and supporters abandoned their campaign on March 14, 2014. He cited the court's decision in dismissing his challenge to the initiative's ballot title and summary as the reason for the abandonment. He said he will try again in 2016.[3]


Text of measure

See also: The full text of the Pension Reform Act of 2014

Ballot title:

Public Employees. Pension and Retiree Healthcare Benefits. Initiative Constitutional Amendment.

Official summary:

"Eliminates constitutional protections for vested pension and retiree healthcare benefits for current public employees, including teachers, nurses, and peace officers, for future work performed. Permits government employers to reduce employee benefits and increase employee contributions for future work if retirement plans are substantially underfunded or government employer declares fiscal emergency. Requires government employers whose pension or retiree healthcare plans are less than 80 percent funded to prepare a stabilization report specifying non-binding actions designed to achieve 100 percent funding within 15 years."

Fiscal impact statement:

(Note: The fiscal impact statement for a California ballot initiative authorized for circulation is jointly prepared by the state's Legislative Analyst and its Director of Finance.)

"Potential net reduction of hundreds of millions to billions of dollars per year in state and local government costs. Net savings-emerging over time-would depend on how much governments reduce retirement benefits and increase salary and other benefits. Increased annual costs-potentially in the hundreds of millions to billions of dollars-over the next two decades for those state and local governments choosing to increase contributions for unfunded liabilities, more than offset by retirement cost savings in future decades. Increased annual costs to state and local governments to develop retirement system funding reports and to modify procedures and information technology. Costs could exceed tens of millions of dollars initially, but would decline in future years."

Constitutional changes

The Pension Reform Act of 2014 sought to add a section 12 to Article VII of the California Constitution and add a second sentence to Section 9 or Article I of the California Constitution so that it read:

A bill of attainder, ex post facto law, or law impairing the obligation of contracts may not be passed. Section 12 of Article VII of the Constitution is deemed not to impair the obligation of contracts.[4][5]

The proposed Section 12 explicitly establishes the following:

  • defines an employee's "vested rights" to "be earned and vested incrementally, only as the recipient employee actually performs work, and only in proportion to the work performed, subject to the vesting periods established by the applicable plan."
  • allows cities and other government employers to change pension and healthcare benefits earned by public employees going forward
  • allows cities and other government employers to reduce pension payments, increase employee contributions, decrease cost of living adjustments and increase the retirement age of employees when the city's pension and healthcare retirement funds are substantially underfunded and are impeding the government agency from providing essential government services.

The full text of the proposed Section 12 of Article VII of the California constitution is available here.

Kamala Harris and the ballot title

Kamala Harris, the Attorney General of California, is tasked with writing the ballot title and ballot summary for California's statewide ballot initiatives prior to their circulation. In 2012, she came under fire from editorial boards around the state for the ballot title she wrote for a statewide pension reform measure whose supporters withdrew it from consideration after seeing her title.[6][7][8][9]

In advance of the expected title from Harris on January 6, 2014, the editorial board of the Los Angeles Times called on Harris to play fair this time, writing, "It shouldn't be necessary to urge Harris or any California attorney general to be impartial...the attorney general should do her best to give a fair and unbiased assessment. She should leave the politicking to the advocates."[10]

Neither the measure's supporters nor the unions were satisfied with the title and summary released by Harris on January 6, which states, among other things, that the measure "eliminates constitutional protections for vested pension and retiree healthcare benefits for current public employees, including teachers, nurses, and peace officers, for future work performed."[11]

"You read this and you don’t know what we’re trying to do," Reed said following the announcement. He also said that the summary focuses on the proposition's "pension takeaways," as opposed to the positive aspects of the initiative.[11] The unions declared their disapproval within minutes of Harris' announcement, saying, "While the title and summary describes the repeal of Constitutionally vested rights to pensions and retiree health care, teachers, nurses, and firefighters – by far the largest groups of municipal public employees – deserve to have voters know exactly how their retirement security will be put at risk with this measure."[11]

Support

Supporters

The initial public sponsors of the pension reform initiative were five mayors of California cities:

Arguments in favor

  • According to sponsor Chuck Reed, "Skyrocketing retirement costs are crowding out funding for essential public services and pushing cities, counties and other government agencies closer to insolvency."[12]
  • In an article originally posted on Fox & Hounds Daily, Joe Mathews argued that the proposed pension initiative is good because it allows more flexibility on the issue and allows the political and democratic process to account for changes in the economy. He wrote:

The simplest response to all this [critiques of the initiative] is: those who oppose flexibility are really advocates for the dead. They argue that the decisions made by the politicians and voters and courts of decades ago should carry more weight than those of today’s politicians and voters. They want to use the dead to obligate the future, and California is already too much governed by ghosts. And those who would oppose flexibility do so by telling us that we are not as worthy of self-government as our ancestors. We should shout back: we deserve democracy too.[13][5]

Purpose and intent

The language below about the initiative's purpose and intent was submitted by proponents when the initiative was filed with election officials.

Section 3. Purpose and intent.

The People hereby enact this measure:

(a) To amend the Constitution of the State of California to enable the people of California to take those actions necessary to attain fiscal sustainability and provide fiscally responsible and adequately funded pension and retiree healthcare benefits for all-government employees and retirees. · (b) To create an explicit constitutional amendment to Article I, Section 9 of the California Constitution.

(c) To prevail and control over any conflicting provisions in the California Constitution, California Government Code or-other provision of California law.

(d) To supersede the portions of the California Supreme Court decisions in Kern v. City of Long Beach (i 94 7) 29 Cal. 2d 848, Miller v. California (1977) 18 Cal. 3d 808, and their progeny which have been construed as limiting the ability to prospectively modify pension and retiree healthcare benefits for work not yet performed by government employees. -

(e) To authorize state and local governments to exercise their authority, including the exercise of their inherent police powers, to provide and protect essential - government services, consistent with the United States Constitution.

(f) To provide clear and reasonable guidelines to all California courts, government employers and retirement plan administrators to address these serious pension and retiree healthcare benefit cost and underfunding problems in a manner consistent with the United States Constitution's contract, takings, equal protection and due process provisions. (g) To protect pension and retiree healthcare benefits based on work already performed, while allowing reasonable modifications to such benefits for future services.[4][5]

Opposition

Opponents

Arguments against

Al Jazeera America examined the city’s pension funds and suggested that pension problems are due to city’s pension investment strategy. San Jose’s pension investments are in “high risk, low-transparency “alternative investments” such as private equity, hedge funds and real estate…” The following are critiques of the pension reform initiative found in their article:[17]

  • Edward Siedle, President of Benchmark Financial Services and a former attorney with the Securities and Exchange Commission, said, “The missing link in debates about pension reform is poor investment performance. San Jose’s officially reported 2012 and 2013 performance was absolutely atrocious. Any discussion about the unsustainability of benefits must come after discussion of radical market underperformance.”
  • The Federated City Employees Retirement System, one of two of the city’s pension funds, is invested in real estate, securities and derivatives and hedge-funds. It returned -3.2% at the end of fiscal year 2012 and 8% at the end of 2013.
  • San Jose’s investment in “alternative investments” came at the same time as the funds’ management changed. In 2010, Mayor Reed replaced half the elected officials on the board that oversees the pension funds’ investments with appointees from the financial sector. Edward Siedle said that Meketa, the consulting firm that advises San Jose Federated City Employees Retirement System, has a “conflict of interest because the company both recommended money managers to its clients and was itself a money manager. The financial sector has far more conflicts of interest than your average public employee ever could. If trustees fail to disclose substantive information about their business interests, there’s no telling if they are materially benefiting from their position as a trustee.” Although California requires people overseeing pension investments to disclose their personal financial holdings, they are not required to disclose the holdings of the private firms they own or oversee.

William Hutchinson, president of the Palm Springs Police Officers’ Association, argued against the initiative:[18]

  • "California, police officers and firefighters are being scapegoated for the financial challenges facing some California communities – so much so that pension reformers are embracing a proposed ballot measure advanced by San Jose Mayor Chuck Reed that would completely eliminate our vested retirement benefit rights and invalidate existing contracts made in good faith."
  • "This comes despite the fact that the average public employee pension in California’s Public Employees Retirement System (CalPERS) is $31,000 per year, with more than half receiving less than $19,000 annually. And despite the fact that more than 600 new agreements in nearly 400 jurisdictions have been signed where public employees are paying more for their retirement benefits. (Another 175 jurisdictions have reduced pensions for new hires)."
  • "The criticism of our pensions comes with an undercurrent that taxpayers should somehow be offended by the benefits we are receiving. For those of us who are willing to work weekends, work while our friends and family are home asleep, and who are willing to risk our own safety to protect a complete stranger or their property, the suggestion that there is something insidious about public servants being provided with a retirement security is offensive – particularly when the salaries and golden parachutes of corporate executives in our community go without a wiff of criticism."

Other arguments in opposition include:

  • Opponent Maviglio says that the proposed pension reform is a "radical attack on the retirement security of teachers, firefighters, police officers and other public servants."[14]
  • The following was posted on the website of the Long Beach Police Officers Association:[15]

San Jose Mayor Chuck Reed has worked for several years to obilerate the pay, benefits, and pensions of the San Jose employees, including police officers. His 'reform policies' have devastated the police department and other city services. He is now working diligently to try and further his agenda on a statewide basis. He plans to place a proposition on the ballot that will allow municipalities and other government employers to reduce the pensions of CURRENT employees on a go-forward basis. He tends to dance around the fact that this is in violation of both State and Federal law, including the contract clause of the U.S. Constitution.

Unfortunately, Mayor Reed has several highly influential and very rich backers who will most likely help him get this measure to the ballot. If he should succeed, this will undoubtedly become one of the longest and most costly legal fights in the history of the United States.[5]

Related lawsuits

See also: List of ballot measure lawsuits in 2014

Reed vs. Brown

Chuck Reed (D) announced that he will challenge the ballot summary, specifically the first line, as inaccurate and misleading in the Sacramento Superior Court.[19]

Reed argued, “Most people reading [the ballot summary] would believe that we're eliminating vested rights protections and benefits that workers have accrued, and the measure clearly doesn't do that. But using the word 'eliminate,' according to the union polling, apparently is a nice negative term to have in there. It shows a clear bias.” He also described using "nurses, teachers and peace workers" to describe public employees as "loaded and unfair." A statement from the Attorney General’s office disagreed, noting, “The Attorney General has issued an accurate title and summary, and we stand by it.”[20][21]

On March 13, 2014, Judge Allen H. Sumner ruled that Reed failed to provide sufficient evidence that Harris' ballot title and summary were false or misleading.[22] Judge Sumner's ruling can be summarized into the following statements:[23]

  • “Petitioners argue the word “eliminates” implies the initiative is deleting a provision of the Constitution. In fact, the summary states the initiative eliminates “constitutional protections,” not that it eliminates “Constitutional provisions.” There is nothing false or misleading here.” Petitioners also argue the word “eliminates” is likely to create prejudice because it “fosters a visceral negative response from voters.” Petitioners cite a public opinion poll. This poll is irrelevant. The Attorney General is charged with preparing a summary that is true and impartial; not a summary that polls well… Petitioners argue the fact voters have a negative response to the word “eliminates” proves the summary is not impartial. It does not. Voters may have negative responses to many words and phrases, for example “raises taxes” or “sex-offender.”
  • “Petitioners argue the phrase “constitutional protections” is similarly false and misleading. They maintain the California Rule is not constitutionally based, but rather a common law rule created by “language in certain appellate court decisions” suggesting state statutes governing public pensions create a contract between government agencies and their employees. Who are these unnamed appellate courts, with their imprecise language creating misleading suggestions? The California Supreme Court. Petitioners believe the California Rule is flawed and the California Supreme Court got it wrong. Petitioners are free to disagree with the California Supreme Court. They may ask the voters to change the law. The voters may agree. However, Supreme Court has the last word on what California law is. If the California Supreme Court says the California Rule’s protections are constitutionally based, they are. There is nothing false or misleading about the Attorney General’s summary of current California law.”
  • “Petitioners argue the word “vested” is false and misleading. Petitioners use the word to mean only benefits that have already been earned through past service -- not benefits yet to be earned through future service. Petitioners argue the Attorney General’s use of the term “vested” will mislead voters into believing the initiative would interfere with benefits already earned. The Attorney General’s summary does not. The summary twice informs voters the initiative deals with benefits “for future work.” This is accurate.”
  • “Petitioners challenge the Attorney General’s use of the phrase “including teachers, nurses, and peace officers” to describe who the initiative will effect. Petitioners object the description is not impartial because it singles out three very popular groups of public employees. The summary states the initiative applies to “current public employees.” It is certainly true that teachers, nurses and peace officers are public employees. Is it argumentative to cite these professions? The Attorney General responds teachers, nurses and peace officers make up close to half of all public employees. Her summary thus accurately and concisely identifies for the voters the employees affected.”

Chuck Reed ended the initiative campaign because of the ruling.[3]

Polling information

Two polls taken in the late summer/early fall of 2013, one by supporters and one by opponents, gave very different results when they measured the public's opinion toward pensions in California.[24]

  • A poll commissioned from Fairbank, Maslin, Maullin, Metz & Associates by opponents of the measure indicated that 63% of those surveyed do not support "allowing public employers to unilaterally cut retirement benefits for current employees."[24]
  • Supporters of the measure said at a California Public Pension Solutions Conference that their polling indicates that 60% of those surveyed support "pretty much whatever you want to do" to contain pension costs.[24]

Path to the ballot

See also: Signature requirements for ballot measures in California

External links

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Additional reading

References

  1. Sacramento Bee, "Reed files public pension ballot proposal with California AG," October 15, 2013
  2. Fresno Bee, "California attorney general clears pension-change ballot measure for signature-gathering," January 6, 2014
  3. 3.0 3.1 3.2 The Sacramento Bee, "California pension ballot measure dead for now, proponents aim for 2016," March 14, 2014
  4. 4.0 4.1 Office of the Attorney General, "Full text of the Pension Reform Act of 2014," accessed December 9, 2013
  5. 5.0 5.1 5.2 5.3 Note: This text is quoted verbatim from the original source. Any inconsistencies are attributed to the original source.
  6. Orange County Register, "Steven Greenhut: Harris distorts democracy to aid unions," February 17, 2012
  7. Fresno Bee, "It's up to Brown to get pension-reform results," February 15, 2012
  8. San Diego Union Tribune, "Kamala Harris’ dirty trick on California," February 12, 2012
  9. Contra Costa Times, "Ballot measures summaries should be written by neutral party," February 25, 2012
  10. Los Angeles Times, "California voters deserve no-spin ballot measure summaries," December 26, 2014
  11. 11.0 11.1 11.2 The Sacramento Bee, "California attorney general clears pension-change ballot measure for signature-gathering," January 6, 2014
  12. 12.0 12.1 12.2 12.3 12.4 12.5 San Francisco Chronicle, "Mayors sponsor ballot measure on pension benefits," October 16, 2013
  13. PublicCeo.com, "OPINION: WHAT I LIKE ABOUT THE PENSION INITIATIVE IS EXACTLY WHAT WILL DOOM IT," October 25, 2013
  14. 14.0 14.1 14.2 Halfway to Concord, "San Jose Mayor Reed promotes ballot measure to allow public pension rollbacks," September 26, 2013
  15. 15.0 15.1 Long Beach Police Officer's Association website
  16. Hot Air, "California Teachers Association to Spend $3 Million Against High Quality Teachers Act," February 5, 2014
  17. Al Jazeera America, "San Jose’s pension woes: Are bad investments to blame?," March 14, 2014
  18. Public CEO, "Opinion: Blaming Public Employees is Not the Solution to State’s Pension Challenges," March 4, 2014
  19. The Sacramento Bee, “Public pension measure likely off the 2014 ballot,” January 30, 2014
  20. San Jose Mercury News, “California pensions: San Jose mayor's initiative may not make November ballot,” January 30, 2014
  21. Reuters, "Democrats feud over California pension reform measure," February 3, 2014
  22. San Jose Mercury, "San Jose Mayor Chuck Reed loses statewide pension reform ballot challenge," March 14, 2014
  23. Superior Court of California, County of Sacramento, "Charles R. "Chuck" Reed, et al. v. Debra Brown, et al.," accessed March 18, 2014
  24. 24.0 24.1 24.2 San Jose Mercury News, "Mayor Reed's pension measure gets cool response in poll," October 14, 2013

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