Pension Hotspots: Tucson, AZ, and Pacific Grove, CA
By Josh Altic
The monthly Pension Hotspots Report covers all aspects of local pension reform ballot measures in the recent past, the present and the near future. It is your one-stop location for comprehensive coverage of efforts to reform local public pensions. The Hotspots report will cover:
- the pension reform measures that are on the ballot
- how these measures were put on the ballot
- the states in which these measures are ocurring
- the number of pension reform ballot measures that have been approved or defeated
- contextual information about the role of local ballot measures in pension reform
- information about which organizations are supporting pension reform and which are opposing it.
This month's edition features an initiative in Tucson, Arizona, seeking to completely overhaul the pension plans of new non-public-safety city employees and an initiative to rollback an allegedly illegal city employee pension increase from a decade ago in the city of Pacific Grove, California. This edition will also discuss a group of influential pension reformers that met in Sacramento in May and the possibility of a 2014 pension-related initiated constitutional amendment in California.
Pension reformers work to qualify an initiative overhauling the Tucson employee retirement plan for the November ballot:
The city of Tucson has a $940 million retirement fund, which is underfunded by 37%. On May 30, petitioners filed a pension reform initiative in Tucson, leaving them a little over one month to collect the required 12,730 valid signatures before the July 5 deadline in order to qualify the initiative for the November 5, 2013 ballot. Initiative proponents say that the proposed pension reform will protect the pensions of current employees while providing a sustainable plan for new hires and protecting tax payers against ballooning pension costs. This initiative, referred to by supporters as the "Sustainable Retirement Benefits Act," seeks to amend chapter XXIII of the Tucson City Charter. The city currently operates on a defined benefit plan system in which employees contribute a portion of their income and are guaranteed a fixed retirement check. If the city's investments do not earn enough to provide these benefits, the city taxpayers make up the difference. Under the plan proposed by this initiative measure, new non-public-safety employees would have a defined contribution plan, in which they would still put money into their retirement funds, but their benefits would depend on how much they contribute and how successful the city's investments are.
The proposed pension reform initiative is sponsored by a group called "The Committee for Sustainable Retirement." Some of the signatures required to qualify the measure for the ballot are being collected by Zimmerman and Associates, which is a paid petition drive management company.Peter Zimmerman of Zimmerman and Associates said that, although there is a tight deadline, he believes the petition will be successful since there have been 12 paid circulators collecting signatures since June 1. Petitioners plan on turning in signatures on July 2.
Initiative proponents argue that Tuscon's current defined benefit plan is not sustainable. They say that in order to make up the 37% shortfall in the current plan without pension reform, the city will either have to hike taxes on residents or cut city services. Supporters also argue that their proposed initiative will provide a sustainable option for the city - one similar to many found in the private sector - that will provide benefits to city employees without putting taxpayers or the city in financial danger. Zimmerman said: "In our mind, everybody wins on this thing. The employees will still have their pensions and it will save taxpayer money in the long run and we won't have to cut city services if people don't want to raise taxes."
2013 Arizona pension reform measures:
- City of Tucson Pension Reform Initiative: This initiative seeking to overhaul the Tucson City employee pension plan is currently in the signature gathering stage.
Proposition 201: City of Phoenix Pension Reform Proposition: This measure was put on the ballot through unanimous city council referral and won overwhelming approval at the polls.
Proposition 202: City of Phoenix Pension Reform Proposition: This measure was also put on the ballot through unanimous city council referral and was overwhelmingly approved.
Pacific Grove city council members sidestep direct democracy by seeking declaratory relief from the court on controversial pension reform initiative:
In late 2012, petitioners filed an initiative with 1,195 valid signatures in Pacific Grove, attempting to rollback a police pension increase made by 2002 Ordinance 02-18. This increase gave police officers a "3% at 50" plan, in which employees can retire at age 50 and annually receive a percentage of their highest salary, with the percentage equal to three times the number of years they were employed. The initiative filed in 2012 argues that the pension increase of 2002 was approved because a California Public Employees Retirement System (CalPERS) actuarial forecast of the costs of this increase was illegally withheld from city council members. Instead, they were provided with a 17-page CalPERS report that estimated state costs would remain the same. This is in contrast to the projected potential increase in state costs to $3.9 billion by 2010 - the statistics listed in the withheld actuarial forecast. The Pacific Grove city council had two chances to either enact this initiative ordinance into law or send it to a vote of the people, and both times they found loopholes to avoid doing either.
On May 1, unwilling to risk this initiative going the route of 2010 Measure R, which was approved by voters and then overturned in court after expensive litigation, they avoided pursuing either route and, instead, commissioned an independent report on the initiative. Councilman Ken Cuneo said the council needed the report to see if this measure "is going to be a turkey or if it will fly." Councilman Robert Huitt, the only member who was also on the council for the 2002 pension increase decision, admitted that Ordinance 02-18 may have been enacted illegally. However, he questioned whether this citizen initiative was the proper way to remedy the decade-old problem. He expressed doubt about whether the proposed measure is a "legitimate exercise of legislative powers" or a judicial action, as it merely tries to overturn previous legislation. Huitt said, "As far as I can tell, it's silent on legislative intent."
The report, which was presented at the May 15 council meeting, concluded that the initiative was likely to be illegal, and would subsequently trigger firefighters, police officers and possibly CalPERS itself to sue, resulting in the probable judicial overruling of the measure. Michael G. Colantuono, Esq., one of the attorneys who analyzed the initiative, presented the independent report during the May 15 council meeting and personally encouraged the council to seek declaratory relief from the courts. Colantuono pointed to the three year statute of limitations as one reason that this initiative, seeking to overturn an agreement made over a decade ago, would be found illegal. He also said that since this measure seeks to take back pension money that was promised to current employees and retirees, it would not pass legal muster. Referring to the city's current pension cost problems, he said that "a quick fix is an illusion." Colantuono wrapped up his presentation by asking the council this question: "Does it sound like fundamental fairness to you to say to a retiree: sorry that you made life-planning decisions based on this pension but the city manager in 2002 or who ever it was didn't make public a report that the law required to be made public and because of that screw up we have to take your pension back and you gotta figure out how to plan your retirement and take care of your dependents?" He then said that if it did seem unfair, the law would probably deem it so, as well. David Henderson, a proponent of the initiative who spoke at the council meeting, had this to say in response to Colantuono: "It's also unfair to the taxpayers to have us pay forever for this big mistake."
The city council voted 6-0, with one absentee, to seek a court ruling instead of placing the initiative on the ballot or enacting it into law. Colantuono estimated that this type of court decision would be complete in six to nine months, after which time the council will consider the initiative again in the light of the judicial ruling.
2013 California pension reform measures
City of Pacific Grove Pension Increase Rollback Initiative: Pacific Grove council members are currently awaiting a court decision on the legality of this initiative.
City of Lost Angeles Pension Reform Initiative: This measure never reached the ballot since petitioners did not acquire the required number of signatures.
Measure LA-B: City of Los Angeles Fire and Police Pension Plan: This measure was put on the ballot and approved by 58% of voters.
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Influential reform advocates gather to plan the revitalization of the pension reform movement, while others plan a 2014 California-wide amendment to further their cause:
On May 22, a bi-partisan group of around 70 pension reform supporters met at a gathering held by former San Diego Councilman Carl DeMaio to plan the next steps toward pension reform efforts. Meanwhile, other reform advocates are beginning to plan a 2014 initiated constitutional amendment that could possibly focus on explicitly authorizing cities to change the benefit plans of existing employees, which is the issue at the center of the court case over the 2012 San Jose pension reform measure. In an article on Watchdog.com, Steven Greenhut, vice president of journalism at the Franklin Center, reports initiative drafters are also considering many other strategies for cutting down on pension costs, including requiring voter approval for any defined benefit pension plans - which tend to build public debt - increasing employee contributions, limiting pension spiking, reforming the death-and-disability system or putting a cap on “pensionable pay” that employees in troubled systems can receive. According to Greenhut, reform advocates may even look towards changing the California Public Employees' Retirement System governing board. Greenhut went on to propose that the reform movement will soon be on the rise, writing, "As governments find it tougher to fulfill pension promises to retired employees, the reform movement will become re-energized."
The pension reform movement in California has also potentially gained a valuable ally in the John and Laura Arnold Foundation. This foundation, run by billionaire John Arnold and his wife, Laura Arnold, seeks to improve outcomes for criminal justice, education, public accountability and research integrity. Pension reform has fallen into the category of public accountability, as the discrepancy between promised pension payments and available funds for these payments in the U.S. has skyrocketed. According to the latest report from the nonpartisan Pew Charitable Trust, these unfunded pension liabilities have reached a sum of more than $1 trillion. The Arnold Foundation website features this statement in its section on areas of focus: "The cost of public employee benefits in most states and communities is unsustainable." The website goes on to say, "The economic and social costs of this looming crisis are potentially crippling to our nation. We seek to remedy this untenable situation by promoting transparency and concrete solutions that address the problem in a manner that is comprehensive, lasting, and fair to all parties." Josh McGee, the foundation's vice president for accountability, attended Carl DeMaio's May 22 meeting in Sacramento and joined the discussion about seeking viable strategies for pension reform in California. McGee stated that the Arnold Foundation had not yet decided to fund pension reform efforts in California, nor how it would go about doing so if the decision were made. "We don't want to do a bunch of one-off efforts," he said. "We want to see if we can build momentum for a sustained reform effort in the state, and nationally." Officials from the foundation did reportedly reach out to two pension reform advocates in California to ask questions concerning ballot initiatives.
Pension reform court cases
Pacific Grove City pension reform overturned in Court despite overwhelming voter approval: The Pacific Grove council's decision to seek declaratory relief from putting the Initiative to Void Ordinance 02-18 on the ballot occurred shortly after a court ruling on another Pacific Grove pension reform measure from three years ago. Measure R, which established city contribution caps on pensions for city employees, was put on the ballot in 2010 and received overwhelming support from the voters, with a nearly 74% approval rate. But on May 17, Judge Thomas Wills, of the Monterey County superior court, ruled that Measure R violated the "vested rights" of employees to receive the pension benefits promised to them when hired, making it unconstitutional.
A lawsuit contesting last year's San Jose pension reform ballot measure has been approved by Attorney General Kamala Harris: Early in May, attorney General Kamala Harris gave the green light to a lawsuit filed by the San Jose Police Officers' Association (SJPOA) against the City of San Jose over Measure B, which gives current city workers "the option of switching to a lower pension or staying in the current plan and paying off pension debt with annual contribution increases of 4 percent of pay, capped at 16 percent or half the debt cost." Measure B won overwhelming voter approval in 2012 with 69% of electors voting for it. But now SJPOA, citing an NBC Bay Area investigation, seeks to overturn the measure on the basis that the city failed in its duty under the Meyers-Milias-Brown Act to bargain with the unions in good faith before putting Measure B on the ballot. The lawsuit also claims that the city exaggerated future pension costs to give a false sense of need for pension reform in order to rally support for the measure.
List of 2013 local pension measures
- LJAF SOLUTION PAPER: Creating a New Public Pension System
- Text of Tucson City Initiative
- Initiative to void ordinance 02-18
- Pacific Grove city council meeting May 15
- Pacific Grove May 15 council meeting agenda
- Pension Litigation Summary
- Lawsuit filed with California Supreme Court against San Jose Measure B
- Arizona Daily Star, "Public vote sought to rein in city pensions," June 6, 2013
- The full text of the Tucson Pension Reform Initiative
- Tucson City Charter
- Full text of the initiative
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- Tucson Weekly, "New Initative Would Scrap Tucson's Pension Program," June 5, 2013
- The Herald, "Pacific Grove wants report on controversial public pension ballot measure," May 2, 2013
- Calpensions.com, "SB400 pension boost: uncanny forecast unheeded," July 27, 2010
- Foxandhoundsdaily.com, "Pension Measure Wave Crests, Court Slog Remains", May 20, 2013
- Pacific Grove city council meeting May 15
- Pacific Grove City Council May 15, 2013, meeting agenda
- Watchdog.org, "Pension reformers regroup to launch new fight," June 24, 2013
- Arnold Foundation Website
- Reuters, "Texas hedge fund billionaire seeks California pension reform," June 25, 2013
- PublicCEO.com,"Will San Jose & Sand Diego 'B' for pension reform?," May 8, 2012
- NBC Bay Area, "AG Approves Measure B Lawsuit Citing NBC Investigation," April 30, 2013