Pension Hotspots: Pre-election review
By Josh Altic
The Pension Hotspots Report is a monthly publication about local pension reform efforts.
The October edition of the Pension Hotspots report will take the opportunity, as the November election draws closer, to review all of the pension related local ballot measures that will be or were going to be voted on in 2013, as well as any measure proposed for 2014. The report will also highlight Ballotpedia's new original case study on pension reform initiatives in San Jose and San Diego, authored by Brittany Clingen, director of the Ballot Measures Project.
There were 11 measures proposed in 2013. Four have already been voted on and three did not reach the ballot or were removed from the ballot through a lawsuit. One measure is planned for 2014, leaving three measures to be voted on in the November election.
Of the three measures being decided on November 5, the measure in Cincinnati is the only measure on the ballot through initiative petition and is the only measure seeking to change the pension plan from a defined benefit plan to a defined contribution plan. The other two measures, one in Hialeah and the other in San Francisco, were referred to the ballot by the city council.
Cincinnati features the only pension reform measure on the ballot through petition initiative. It is also the only measure seeking to change the city pension plan of new hires from a defined benefit plan, in which employees are guaranteed a monthly pension payout regardless of the health of the pension fund and the performance of the fund's investments, to a 401(k)-style, defined contribution plan, in which the employees have an individual account and their pension depends on their own contributions, the city's contributions and the rate of investment returns throughout the life of the account. The amendment would also implement contribution caps for the city and make cost of living adjustments compatible with actual increases in the consumer price index, with a cap at 3% annually. Several other rules would also be established by the amendment, such as a stipulation that no city employee can simultaneously earn income from a city or government job and receive retirement benefits.
Proponents argue that a measure such as this is necessary since, under the current plan, benefits are being promised that can not be provided for by the pension fund, leaving taxpayers to foot the bill for these guaranteed pensions. The city of Cincinnati currently has $862 million in unfunded pension liabilities and the city pours more money into the pension fund from the general budget every year.
Opponents argue that this measure is simply unfeasible, as it would require the city to pay off its pension debt in an expedited manner without the help of pension contributions from new employees, who would be employed under the new plan.
Ohio local pension reform measures:
California, which is the battle field for fascinating local ballot measure races every year, had two proposed measures that related to pensions and retirement benefits, but only one will be voted on.
One, an initiative that would have rolled back a 2002 increase in benefits for city public safety employees in Pacific Grove, was refused a place on the ballot by the city council despite having reach the required threshold of valid signatures. When the valid initiative petition was presented to the City council for adoption or referral to the voters, the council voted 6-0, with one absentee, to seek judicial declaratory relief for a preemptive investigation into the legality of the initiative, thus preventing the initiative from immediately going to the ballot. While we may see this initiative again next year, depending on what the courts have to say, it is off the table for the November election.
The other California measure that the Pension Hotspots election report is covering, which will be on the ballot in San Francisco, actually concerns the Retiree Healthcare Fund of city employees instead of the fund that provides for their pensions. Proposition A was authored by supervisor Mark Farrell and was designed to help eliminate the $4.4 billion shortfall in the city's retiree health care fund, without adding to employee or taxpayer contributions. Proposition A seeks to change the health care fund, which was approved by voters in 2008 and implemented by the city in 2009, from a pay-as-you-go model to a fully funded, solvent account by 2045, with retiree health care funds coming from the fund's investment returns instead of from the city's general budget. According to Farrell, the retiree health care payments cost the city's general fund $150 million in 2013 and this amount would have grown to $500 million per year over the next 20 years if steps were not taken to reform the way the fund is used.
Although 74.05% of city voters approved Proposition B, an increase in city and employee contributions to retirement pension and health care funds, in 2008, Farrell said Proposition B had a flaw: "The problem is, it [Prop. B] allowed the trust fund to be raided in 2020, which negates the long-term vision of what the retiree health care trust fund is set up to do. Prop. A is a simple solution to a complex problem," said Farrell.
Opponents of Proposition A believe that it will not be adequate to deal with the unfunded liabilities of the health care fund and that the language of the measure opens up the fund to potential withdrawals by the city council under the duress of an ever tighter budget. They argue that the restrictions on taking money out of the fund are too lenient and will not result in the self sufficient and solvent fund proponents are showcasing.
California local pension reform measures:
According to the 2012 U.S. Census estimate, Hialeah is the 88th largest city in the nation and the 6th largest city in Florida with a population of 231,941. Although this measure has not received much media attention, there is pension reform being voted on by the electors of the city of Hialeah on the November 5, 2013 election ballot. Hialeah is in Miami-Dade County.
Currently in Hialeah, elected council members are given a pension after they reach the age of 55 and if they have completed 12 years or more of service on the city council. The charter amendment, which was referred to the ballot by the city council and is facing voters in November, would do away with these pension benefits for future city officials, beginning in January of 2014. Moreover, if approved, this measure would require any changes to the pension plans of elected officials to be approved by a city-wide vote. The referendum would do nothing to change the payments being made to mayors and city councilors who have already retired.
This measure has fueled contention in the city's mayoral and council seat elections. It has even been passed off by some city officials and candidates as simply an electoral trick, aiming to give a boost to a mayoral candidate or council seat candidate at the polls in the November election. Those that have this view bolster it by citing the fact that in 2011 the city council attached a similar referendum measure to the general election ballot.
City Council candidate Marcos Miralles has announced his approval of this measure but criticizes it for not doing enough and ignoring the problem of large pensions being received by current retirees. He also criticized the city council for using this measure for political posturing, when it does not, in fact, solve the pension issues of the city. Despite Miralles saying the measure does not go far enough and is not much more than a political trick, he does acknowledge that the referendum is a good one and encourages a "yes" vote from electors on November 5.
Mayoral candidate Juan Santana believes the referendum is just an excuse, saying, "They don't have money anymore. They're gutting the pension fund because it can't be funded anymore. But they're making it seem as if they were doing something heroic, of their own choice."
Florida local pension reform measures:
Tucson and Phoenix
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In Arizona, the measure to watch in 2013 was the City of Tucson initiative, Proposition 201, which sought to create a long term solution to eliminate the unfunded pension debt of the city by moving new city employees away from a defined benefit plan and towards a defined contribution plan. But due to a court case over the qualifications of signature cirulators and registration technicalities, the measure was blocked from the November ballot by a court ordered injunction from the Arizona Court of Appeals. The city still has a $940 million retirement fund, which is underfunded by 37% and, according to Regina Romera, the vice-mayor of Tucson, the city's pension expenses have increased by about 250 percent since 2003, leaving 1,000 city positions unfilled because of its pension obligations. The Committee for Sustainable Retirement has stated that it believes that this is a pressing issue for the voters and will eventually be resolved at an election.
Although the effort for a ballot measure on the November 5, 2013, ballot was derailed, the committee behind the initiative has promised to continue the effort for reform, potentially putting their measure on a special or general election ballot in 2014 through the appeals process or through another initiative campaign. Meanwhile, pension reformers in the city of Phoenix are also gearing up for an initiative drive for a measure that would not only establish a defined contribution plan but also establish provisions designed to end the practice of pension spiking. Thus these two Arizona cities remain Pension Hotspots to be watched in 2014.
Arizona local pension reform measures:
Original case study
In mid-October, Ballotpedia released an in depth, original case study on San Jose’s Measure B and San Diego's Proposition B, reavling the fiscal difficulties that led to the necessity for pension reform and the struggles faced and processes used to get the measures on the ballot. The report includes exclusive interviews with all of the big movers and shakers involved in San Jose and San Diego pension reform, including city councilmember Pete Constant, mayor Chuck Reed and city councilmember Sam Liccardo in San Jose, and former city council member Carl DeMaio, President of the San Diego Lincoln Club T.J. Zane, former mayor Jerry Sanders and City Attorney Jan Goldsmith in San Diego.
By Brittany Clingen
October 15, 2013
One doesn’t need to know the intricacies of Detroit’s bankruptcy filing – the largest municipal bankruptcy to date – to know the city is in shambles. Over 2,000 miles away in California, San Jose seems a far cry from the country’s formerly prosperous automotive capitol. The darling of Silicon Valley, San Jose is a big city with a small town feel and has become known for its affluence and low crime statistics. Though outward appearances suggest otherwise, these two cities have a lot in common.
Throughout the past several years, San Jose’s soaring pension costs were driving city leaders to cut services and employees. As payments to the pension fund began eating away at San Jose’s budget, the city crept ever closer to bankruptcy. Another of California’s largest cities, San Diego, was experiencing a similar problem. However, both these cities took a significant step on the road to solvency on June 5, 2012 when voters overwhelmingly approved sweeping pension reforms via the local ballot.
These two measures - San Jose’s Measure B and San Diego's Proposition B - were each placed on the ballot in different ways, but their goal was the same: to enact laws that would allow the cities to rein in skyrocketing pension costs and decrease unfunded pension liabilities in order to avoid cutting services, laying off workers and potentially filing for bankruptcy. With countless other cities across the country facing similarly grim pension crises, these two groundbreaking measures may well serve as examples for other cities that will need to choose between reform or bankruptcy.
To read the full report go to Pension reform: San Jose and San Diego voters weigh in.
List of 2013 local pension measures
- Pew Charitable Trust, "Cities Squeezed by Pension and Retiree Healthcare Shortfalls," March, 2013
- Moody's website
- Standard and Poor's credit ratings website
- Governmental Accounting Standards Board website
- Pacific Grove City Council May 15, 2013 meeting agenda report
- SFGate, "Vote on S.F. retiree health care shortfall solution," October 6, 2013
- San Francisco Voter Pamphlet and Sample Ballot for November 5, 2013 election
- San Francisco Retiree Healthcare Trust Fund, Proposition A (November 2013)#Opposition
- US Census, "2012 Population Estimates"
- Marcos For Hialeah campaign website, Blog, Time For Honesty video (timed out)
- Arizona Daily Star, "City pension initiative officially makes ballot," September 3, 2013
- Arizona Daily Star, "Appeals court rules city pension overhaul off ballot," September 13, 2013
- KJZZ, "Tucson faces $15 million budget shortfall," March 18, 2013
- State Budget Solutions, "Municipal Bankruptcy: An Overview for Local Officials," February 26, 2013