Pension Hotspots: Pacific Grove, CA, Ventura County, CA, and Phoenix, AZ
By Josh Altic
- The Pension Hotspots Report is a monthly publication about local pension reform efforts.
As of March 28, 2014, five pension related measures have been proposed. One of these has been approved, and the remaining four are pending.
This edition of the Pension Hotspots report contains the latest information on pension initiatives in Phoenix, AZ, and Ventura County, CA. It also covers the resurgence of an initiative in Pacific Grove, CA, that was originally planned for the November election in 2013.
On March 11, 2014, just three days before the deadline, the Phoenix group Citizens for Pension Reform submitted over 54,000 signatures; more than double the required 25,480 to qualify its initiative for the ballot. This means that even if only half of the submitted signatures are found to be valid, the proposed pension reform initiative will still go before voters. Moreover, the committee double checked the signatures with the city of Phoenix's own voter lists to help ensure the validity of the submitted signatures. The city clerk has until April 15, 2014, to certify the petitions.
Pacific Grove, CA
A 2013 initiative petition that sought to rollback generous pension increases enacted in 2002 has resurfaced this year and could appear on the November election ballot. This measure was originally proposed for the November 5, 2013 election ballot but was put off through legal and judicial delays due to action by the Pacific Grove City Council.
The Pacific Grove City Council has fought from the beginning to keep the measure off the ballot, arguing that it is irresponsible, unfair and illegal. In January, however, Monterey County Superior Court Judge Thomas Wills ruled in an initial decision that the initiative had sufficient legal compliance to go before voters. The city filed a cross-complaint, scheduled for June 26, 2014, and was also considering an appeal of the ruling by Wills. The Pacific Grove City Council met on March 12, 2014, to decide whether to abandon its legal efforts against the measure, put it on the ballot and deal with expected litigation if approved or continue working to keep the initiative off the ballot. The council voted five against two to continue with the cross-complaint and await a second judicial ruling after the scheduled June hearing.
This initiative proposed the reversal of an allegedly illegal 3% at 50 pension benefit increase given to public safety employees of Pacific Grove in 2002. Proponents of this measure said that the increase was approved based on false information and understated fiscal impact. Specifically, they refer to the CalPERS actuarial forecast, which showed that state costs for pensions could rise to as much as $3.9 billion in 2010 under the new SB 400 pension increase of 2002. This report was withheld from legislators, who instead were shown a 17-page CalPERS brochure saying that SB 400 would not increase state costs. The lawmakers were not shown the CalPERS actuarial forecast that accurately predicted how much costs would soar if investment earnings faltered. Opponents of the initiative, while admitting that lawmakers were not given important information, say that it would be unfair to take pension benefits away from employees who did not do anything wrong and who planned their retirement on certain promises.
Ventura County, CA
The Committee for Pension Fairness, which is behind the Ventura County initiative to overhaul the public pension system, commissioned a report on the fiscal impact of the initiative from Reason Foundation, a Los Angeles-based libertarian research organization. The report claimed that the initiative, if approved, would save county taxpayers $460 million over 15 years. David Grau, a spokesman for the committee, said, "It's a very strong argument for reform." He also announced that, while the measure is not officially on the ballot yet, the petitioners are on track to collect the required number of signatures by the May 16 deadline to put their initiative on the ballot.
Steve Bennett, chairman of the Ventura County Board of Supervisors, was skeptical of the report because it was commissioned by the committee behind the initiative and authored by initiative supporters. Speaking about Reason Foundation on March 27, 2014, he said, “They have a point of view. I wouldn’t call it unbiased or even extremely credible in many instances.” He also said that, while the foundation was perfectly justified in giving their opinion on the initiative, he was waiting for the official analysis of the financial impact of the initiative commissioned by the county from Segal Consulting. This report is several weeks away from being finished and submitted to the county board of supervisors.
The proposed initiative, if approved, would change the pension plan of newly elected officials and newly hired employees from the current defined benefit plan to a 401(k)-style, defined contribution plan. The initiative would guarantee county contributions to employee retirement funds, which would be under the control of the individual employee and entirely portable. The measure would not require any "matching" contribution from the workers, but would allow employee contributions as desired. The proposed plan would also limit pension-based salary increases for five years, seeking to reduce allegedly immoderate pension payouts. If approved, the new system would apply to all county employees hired on or after July 1, 2015.
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Cities continue to scrape in order to pay pension costs and make ends meet:
As reported in last month's edition of the Pension Hotspots Report, CalPERS recently demanded increased annual payments from cities, counties and other public employers. This has only added to the problem of ballooning pension costs faced by cities in California and across the nation.
On March 27, 2014, the Kansas City Council approved a 2014-2015 budget that includes, for the first time in years, a full pension payment. In the 2013-2014 fiscal year, the city paid $63 million towards pension and retiree healthcare benefits. Next year, that amount will be $78 million, ending the cycle of underfunding the city's retirement system. The full payment of pension costs, however, comes at the price of budget cuts for certain city departments, increased taxes and the elimination of 100 city positions - 30 of which are already filled - requiring layoffs.
In Philadelphia, city officials have decided to sell Philadelphia Gas Works (PGW), which is the largest city-owned gas utility in the nation. The city council struck a deal for $1.86 billion with the New Haven-based energy company UIL Holdings Corporation. The city plans to use the money from this sale to pay off the bond obligations and liabilities of PGW, including fully funding the PGW pension plan. Philadelphia Mayor Michael Nutter estimated that there would be $424 to $631 million remaining after paying all PGW obligations. He stated that this entire sum would be paid into the city's ailing pension fund, which is only 50 percent funded, to put a dent in its $4.9 billion in unfunded liabilities.
Mayor Chuck Reed abandons 2014 California pension reform initiative after crushing defeat in court case over ballot title:
Chuck Reed and other supporters of the statewide initiative seeking to give local government agencies the flexibility to alter pension plans and decrease retirement benefits abandoned their campaign on March 14, 2014. Reed pointed towards the unfavorable ballot title and summary issued by Kamala Harris, the Attorney General of California, as a chief reason for abandoning the effort in 2014, especially after the court decision dismissing his challenge of the ballot title and summary. Reed did announce, however, that he would try again in 2016.
In a significant victory for pension reformers, a California superior court judge rules that "spiked pensions" cannot be claimed as vested rights:
One of the most formidable obstacles to pension reform is the constitutional protection of "vested rights." In a judicial decision surrounding a state law concerning county retirees, the court has ruled that pension boosts acquired by cashing saved up vacation time, sick time, education bonuses and other such benefits at the time of retirement are not protected rights of the employees. This potentially opens the door for local governments to regulate, or even put a stop to, pension spiking in their own public employee retirement systems; potentially saving taxpayers huge amounts of money. Pension reform advocates point to cases of highly paid employees who retire with pensions amounting to tens of thousands of dollars more per year than they were ever paid while working. According to Peter Saltzman, a lead attorney in the case, the ruling could, for many relevant retirees, result in the loss of 10 percent of current pension payments.
List of 2014 local pension measures
- City of Springfield Police/Fire Pension Fund Sales Tax Measure, Question 1 (April 2014)
- Ventura County Sustainable Retirement System Pension Reform Initiative (November 2014)
- City of Phoenix Pension Reform Initiative, Proposition 401 (November 2014)
- Pacific Grove City Initiative To Void Ordinance 02-18 Pension Increase (November 2014)
- Morningstar report, "The State of City Pension Plans 2013 (excerpt)," November 12, 2013
- Morningstar report, "The State of City Pension Plans 2013," November 12, 2013
- Morningstar report analyzing public pension debt on a state level, September 16, 2013
- Pew Charitable Trust, "Cities Squeezed by Pension and Retiree Health Care Shortfalls," March, 2013
- Moody's website
- Standard and Poor's credit ratings website
- Governmental Accounting Standards Board website
- Pension Tsunami website
- Pew Charitable Trust, "A Widening Gap in Cities Shortfalls in Funding for Pensions and Retiree Health Care," January 16, 2013
- Ballotpedia Staff Writer Josh Altic interview with Paul Jacob, January 22, 2014
- Ahwatukee Tea Party, "Phoenix Pension Reform Act Files Petition Signatures," March 11, 2014
- The Herald, "Pacific Grove public pension ballot measure subject of another council meeting," March 11, 2014
- The Herald, "Public pension controversy: Pacific Grove decides to wait for another ruling," March 12, 2014
- INITIATIVE TO VOID ORDINANCE 02-18 WHICH ILLEGALLY ENACTED A 3% at 50 PENSION BENEFIT INCREASE TO PUBLIC SAFETY EMPLOYEES CITY OF PACIFIC Grove
- Pension Measure Wave Crests, Court Slog Remains
- Ventura County Star, "Pension study predicts major savings if initiative passes," March 27, 2014
- Thousand Oaks Acorn, "Taxpayer group trying to get reform measure on November ballot," January 23, 2014
- Citizen's Journal, "VCTA Endorses County Committee for Pension Fairness," January 16, 2014
- Kansas City Star, "Kansas City Council approves a new budget that includes pension reform, layoffs," March 27, 2014
- NBC10 Business, "City Wants to Sell PGW for $1.86B, Fund Pensions," March 4, 2014
- Municipal Insider, "Philly Monster: Unfunded Public Pensions," March 28, 2014
- The Sacramento Bee, "California pension ballot measure dead for now, proponents aim for 2016," March 14, 2014
- Public Ceo, "Judge Finds No “Vested Right” to Spiked Pensions," March 10, 2014