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Topics: Labor Unions

Manhattan Moment: California experience shows obstacles to pension reform

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Opinion,Op-Eds,Labor unions,California,Pensions,Manhattan Moment

San Jose, Calif., Mayor Chuck Reed has had a tough go of it since unveiling his Pension Reform Act of 2014 in October.

Reed wants to allow state and local governments to adjust pension benefits on a going-forward basis instead of only being able to make changes that apply to future employees. Under current law, mayors and managers can lay off employees, impose furloughs and reduce pay, but they can’t modify cost-of-living adjustments, multipliers, full retirement-age targets or any other core feature of the current workers’ benefit structure. Reed thinks they should have this power, which already exists in many other states.

But unions have set out to characterize the measure as tantamount to the imposition of feudalism in California -- and they have already built substantial momentum against Reed and his proposal. “More than two dozen” local officials have formally sided with the unions against Reed. Some have even gone beyond simply registering their disapproval to contributing to the union-sponsored misinformation campaign about Reed's proposal.

In mid-December, unions released a poll claiming that only a third of voters back the types of reforms Reed advocates. (Reed has claimed that other polling has shown stronger support.) A superior court judge just struck down Measure B, the local initiative led by Reed that elevated him into the first rank of pension reformers.

Winning the support of an impressive 70 percent of San Jose voters in June 2012, Measure B required workers to either contribute more for their pensions or accept a lower benefit. (A recent op-ed in the Los Angeles Times recommends that California governments adopt something like Measure B as a compromise between liberals and conservatives, while oddly failing to mention it or Reed.) The judge found Measure B's core provision “impairs vested rights and is invalid.”

Looking on the bright side, Reed said this result “highlights the fact that current California law provides cities, counties and other government agencies with very little flexibility in controlling their retirement costs. That's why I believe that we need a constitutional amendment that will empower government leaders to tackle their massive pension problems and negotiate fair and reasonable changes to employees' future pension benefits.” Unions claimed another victory, and more momentum for their cause.

California's improving fiscal and economic climate may affect voters' opinion of pension reform. Pensions are a debt problem. State and local governments have many safeguards in place restricting how much bonded debt they can pile up. For pension debt, no statutory limits exist and it accrues automatically.

With each passing year that workers remain on the payroll, their government employer promises them additional retirement benefits to be paid up decades hence. The need for pension reform stems from governments’ inability to keep pension debt under control. Economic growth bolsters operating budgets, but there’s no reason to assume that it will reduce debt or induce more responsible debt-management practices.

Reed's predicament is ironic considering how, across the nation, local politicians complain about unfunded mandates and other wrongheaded restrictions placed on them by state governments. So here is Reed, seeking to increase cities and counties' flexibility over pensions, and he meets a wall of resistance. Reed's local opponents demonstrate that, in the debate over local autonomy, sometimes both sides get it wrong. When more power means more responsibility, not all local politicians want to take that deal, thus relinquishing their ability to pass the buck.

Reed can rely on the reasonableness and fairness of his plan, but this is California, where such virtues often come up short in policy debates. To be sure, it is early yet. But Reed will need more than reason and fairness to prevail in 2014.

Stephen Eide is a senior fellow at the Manhattan Institute's Center for State and Local Leadership. A version of this piece originally appeared on PublicSectorInc.org.
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