Pension Hotspots: Ventura County pension reformers see first offensive from unions
By Josh Altic
- The Pension Hotspots Report is a monthly publication about local pension reform efforts.
As pension reform initiatives are scheduled for the November ballot in Phoenix, Arizona, Ventura County, California, and Pacific Grove, California, proponents weather the first wave of attacks from unions and other reform opponents. Meanwhile, bankrupt cities maneuver around the unassailable CalPERS, seeking to survive as the state pension fund superpower insists that pension debt is impervious to chapter nine.
As of June 27, 2014, seven pension-related measures have been proposed. Three of these were approved, one was defeated, and the remaining three are pending. A court decision on June 26, 2014, removed one initiative from the ballot in Pacific Grove, leaving two measures scheduled for voter decisions.
Unions waste no time in suing to keep Ventura County pension reform initiative off ballot:
Aware of the track record in California of powerful resistance to pension reform, the Ventura County Committee for Pension Fairness expected a tough battle to pass its proposed initiative seeking to move county employees to a defined contribution plan. After sailing through signature collection, submitting nearly twice the requisite number of signatures, the pension reformers suffered their first offensive blow from labor unions before the county supervisors could even respond to the certified petition.
Shortly after the county clerk announced that the initiative petition had far more valid signatures than the 26,000 required to force the county supervisors to enact the initiative ordinance or put it before voters, Sacramento-based law firm Olson, Hagel and Fishburn, which represents a coalition of initiative opponents, including the Ventura County Professional Firefighters Association and the Ventura County Deputy Sheriff’s Association, accused the initiative proponents of putting forward illegal pension reform. The firm alleged in its letter to the supervisors that the proposed initiative violates state laws governing public pensions and threatened to file a lawsuit against the county if the board proceeded with the initiative.
The county supervisors, forced by election law, voted to put the initiative on the November ballot. Immediately, the Citizens for Retirement Security filed a lawsuit against the county. Now the legality of the initiative will be decided by a judge before county electors even get a chance to cast their votes.
Deborah Caplan, a lawyer representing initiative opponents, said, “The most significant defect in the initiative is that once the county has opted into the state’s county retirement program, as Ventura County has, it’s subject to continued regulation by the state. Changes require state authorization."
County Counsel Leroy Smith wrote a 21-page memo announcing that he agreed with opponents of the initiative and did not believe it would pass legal muster. This leaves the county forced to defend an initiative in court even though the county's attorney does not believe the initiative is legal. The Committee for Pension Fairness, however, is confident in its initiative and will be eager to defend it. Jonathan Wilcox, a spokesman for the committee, said, "Their legal challenge is not going to be awarded. They’ve given up trying to persuade people; now they’re going to try to persuade a judge. I think it’s pitiful.” He also stated that the committee was dedicated to proving the legality of its initiative in court and putting it before voters. Wilcox said, “They can throw their lawyers at us, and it’s not going to stop it. This is going to go on the ballot. And it’s going to go to the people.”
Phoenix council mulls over competing ballot measure to divert votes from defined contribution initiative:
On April 25, 2014, the Phoenix city clerk verified that an initiative seeking to transform the city's pension system from a defined benefit plan to a 401(k)-style defined contribution plan, as well as end the practice of pension spiking, garnered more than enough signatures to qualify it for the ballot. Some city council members were less than enthused and proposed a competing ballot measure for the same ballot.
In 2013, the city was faced with a bloated pension payment of $253 million. Moreover, the city's unfunded pension liabilities have swollen to over $1.5 billion. Despite these alarming numbers, some members of the city council are leery of the huge change proposed by the citizen initiative, putting their trust in more modest changes such as the reform approved in 2013 in Prop 201 and 202. Some city officials, citing a report from the city's Pension Reform Task Force, said that, if this initiative goes on the ballot and is approved, the taxpayers would not see savings for years and that, in the short term, it would cost them large sums because the city would have to pay off the $5 billion dollar pension fund in an expedited time frame and without contributions from future employees, who would be part of the new system. Several city council members floated the idea of referring their own pension reform measure to the November ballot to compete with the proposed initiative. The council measure would keep the current system in place, making smaller changes to scale back pension costs.
Some, including supporters of the initiative, are critical of this proposed move by the council. They argue that the council members should just state their opinion in a straightforward manner and let voters decide, instead of confusing the electorate with a competing measure. Concerning the possibility of a competing measure, Robert Robb, a columnist for AZ Central, wrote:
This would be transparently disingenuous. Phoenix Mayor Greg Stanton and city staff flatly declared that the defined benefit changes approved by voters in 2013 completely fixed the problem. They are wrong, but that's been the claim.
—Robert Robb, a columnist for AZ Central
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Judge scraps a pension initiative in Pacific Grove, CA, seeking pension benefit roll back:
Critics of a substantial benefits boost given to Pacific Grove public safety employees in 2002 collected the requisite signatures to put an initiative on the ballot that sought to roll back the 2002 retirement improvement. Police and fire safety employees, responding as expected, were vehemently opposed to the city taking back their benefits. Proponents of the initiative, however, argued that the increase was illegally enacted in the first place and threatened the economic viability of the entire city. Fully aware that the initiative would be challenged in court if enacted, the city council sought legal advice about whether it had a fighting chance in California court, where unions and pro-pension attorneys have a significantly dominant record. Once advised that the initiative would likely not pass legal muster, the city decided to let the courts decide the issue before paying for an expensive election.
In January, 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, however, filed a cross-complaint focused on the 2002 pension increase, rather than the initiative itself. In his final decision on June 26, 2014, Judge Wills overruled his own decision, saying that the 2002 pension increase was legally enacted, invalidating the proposed pension initiative to roll back the council vote from a decade earlier.
In response to the decision, Pacific Grove City Manager Tim Frutchey said, “This ruling benefits the City by avoiding a costly election, and litigation."
Mayor Bill Kampe, who recently announced his candidacy for re-election, said, "I'm hoping we can put the past of 12 years ago behind us. I thank the citizens for putting the focus on pension reform, but now's the time to look forward, and look at the additional changes we need at the state level to give us the flexibility we need to manage pension costs."
San Bernardino makes settlement with CalPERS, leery of being bullied in court:
As Stockton residents wait for a decision from U.S. Bankruptcy Court Judge Christopher Klein on whether the city will be allowed skip out on its pension debt because of its 2010 bankruptcy, San Bernardino, another city that filed for bankruptcy after falling victim to huge pension debt, has opted to avoid gambling in court. Instead, the city has worked with CalPERS to arrive at a settlement and adjusted payment plan. Lawyers from the city and the state pension fund superpower submitted an outline of the compromise to Federal Bankruptcy Judge Meredith Jury earlier this month. Details of the compromise are confidential until Judge Jury decides on the legality of the settlement.
Some, including the editorial board of the Press Enterprise, are skeptical of the compromise, saying that the settlement can be nothing but one-sided considering the city has almost no bargaining chips. The situation in San Bernardino and Stockton is similar. Both cities owe CalPERS huge sums of money and the gigantic state pension fund is arguing that the bankruptcies filed by the cities do not apply to pension debt because pensions are constitutionally protected. Other creditors, forced to absorb the massive city debt at a huge loss, are understandably upset. In Stockton's case, the pressure from this situation inevitably led to federal court, where city attorneys tried to argue their way out from under crushing pension debt. Their position is far from comfortable, however, because CalPERS has threatened to simply terminate the city's pension plan if the city manages to win the court decision, leaving city employees disgruntled and with little left to motivate them to continue working for the city. Fearful of employees leaving in droves, the city has very little wiggle room when dealing with the powerful Public Employee Retirement System.
San Bernardino, which owes CalPERS minimum payments of $24 million a year, is faced with the same decisions. Officials opted to agree to what could be a disadvantageous settlement, hoping this will at least allow the city to retain employees and avoid an expensive and lengthy court case.
The following two pension-related measures were approved on June 3, 2014:
- Measure Y, approved with a three percent margin on June 3, 2014, reaffirmed that Porterville City employee retirement, pension and disability/death benefits cannot be terminated except as permitted by the California Constitution and other applicable state laws. It also formally clarified that the city of Porterville has full power of the creation, modification and elimination of its pension and retiree benefits. Measure Y was put on the ballot as part of comprehensive charter reform recommended by the city's charter review committee.
- Measure A was overwhelmingly approved in Orange County during the state primary on June 3, 2014. Orange County employees, including elected and appointed officials, are required to contribute towards their pensions. Prior to Measure A, the county was allowed to pay these required contributions on behalf of the employee as part of an employment benefit. Measure A did away with this perk by prohibiting the county from paying these employee contributions for any elected or appointed members of the board of supervisors or any other elected officials in the county who start their term of office after the Measure A election on June 3, 2014.
List of 2014 local pension measures
- 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
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- Moorpark Acorn, "Will pension measure appear on the ballot?" June 26, 2014
- Azcentral.com, "Phoenix ballot initiative would overhaul pension system," September 16, 2013
- Azcentral.com, "Phoenix pension ‘spiking’ rules vary for city employees," September 14, 2013
- AZ Central, "Don't muddle Phoenix pension vote," June 13, 2014
- Note: This text is quoted verbatim from the original source. Any inconsistencies are attributed to the original source.
- 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
- Monterey County Weekly, "Judge rejects Pacific Grove ballot initiative to roll back public-safety pensions," June 26, 2014
- The Press Enterprise, "Editorial: San Bernardino's pension capitulation," June 20, 2014
- Reuters, "Stockton bankruptcy judge to decide if pensions should share losses," May 13, 2014
- Tulare County Elections Office website, "June 3, 2014 election sample ballot," archived May 21, 2014
- Porterville City Government website, "Charter Review Committee information," accessed May 21, 2014
- Orange County Elections Office website, "Impartial Analysis of Measure A," archived May 9, 2014