When Pension Reform Goes Bipartisan

Eventually the mathematical results of under-funding ever more generous pension benefits for state and local employees becomes a problem for Democrats too.  Illinois legislators are expected to vote this week on pension reform that would pare back pension benefits in three important ways.

• Reducing cost of living increases.
• Increases retirement age.
• Capping the salary amount available for pension calculations.

There are few other means short of bankruptcy that can be used to reduce pension obligations.  However, Illinois has rejected attempts at pension reform before, so the path to success in the legislature is not certain.  Of course, the state employee unions are waiting to sue if a pension reform measure passes.  This is one of the most important long term issues for state and local government.  Without pension reform here in California and San Diego, the state and city governments will eventually have no money for basic services.  Rahm Emmanuel, not known for his tea party rhetoric, made the same point.

The [state] agreement also is expected to provide a template for Chicago Mayor Rahm Emanuel to follow for his city, which for years has paid far less into its retirement system than needed to keep it solvent. City payments to local pension funds are set to more than double to nearly $1.1 billion starting in 2015. Mr. Emanuel has warned that if changes aren't made, the city will face a combination of property-tax increases and cuts in services, equating the scheduled increase to the cost of having 4,300 police officers on the street.

It is important to note how a deal was reached among Illinois legislative leaders.

Labor officials excluded from the talks found out about the eventual Wednesday breakthrough from reporters. 

. . .   

“I think it’s going to be difficult,” said Sen. Linda Holmes, D-Aurora, a member of the pension conference committee and supporter of labor’s arguments in pension talks. “I’m uncomfortable they didn’t have a seat at the table when they’re the people who’ll be impacted by this.”

If Democratic politicians feel the need to exclude labor from pension reform talks, then the situation must certainly be dire.  Illinois is paying a 2% premium on its bonds while pension reform remains unresolved. (California and Michigan are paying about a half-percent premium, source: WSJ.)  

This is one of the key issues of our day, because the proper functioning of government is being put at risk by the expense of public employee pensions.  I support Kevin Faulconer for mayor of San Diego, primarily because I am convinced he can be trusted to continue the fight to reform pensions that was approved by voters under Proposition B.  Alvarez' response on this issue does not "inspire confidence" as a U-T editorial put it.  I would prefer to deal with our pension problems before they become a crisis like Illinois' and Chicago's.

What You Should Be Reading

• Victor Davis Hanson provides the most complete compendium of Obama-fail I have seen assembled in one column.  
• In the same vain, Charles Krauthammer outlines the utter lawlessness of this administration and its Democratic allies in the Congress.  The destruction of the rule of law under Obama is frightening, it troubles me greatly that this doesn't get more attention, we are on the path to dictatorship; our long history has made us believe we are immune, we are not.
• Local blogger KTCat reminds us of the real spirit of Thanksgiving in light of the President's request that we "talk about healthcare" at Thanksgiving dinner.  After the ACA fully crashes and burns, what will you do? Great question. 

Key Issues in the Mayor's Race

With a week to go before the November 19th special election to replace Bob Filner, a number of distracting issues, such as attendance, have made for idiotic campaign commercials.  In reality, the city is facing a number of issues that require resolution.

Continuing Pension Reform

The new mayor will need to vigorously defend Proposition B, which was a step towards reforming pensions and limiting the future liability of San Diego's taxpayers.  As we have seen on the state and federal level, the failure of the government to defend its position in the courts can nullify the will of the vote of the people or legislature.  Mike Aguirre and Kevin Faulconer are committed to reforming San Diego's pensions, Aguirre certainly more so.  Unfortunately, the former city attorney doesn't stand much of a chance.  David Alvarez has opposed a 401(k) style pension reform for city workers, proposing a cap on benefits instead.  Nathan Fletcher's position is to howl that Faulconer wants to deprive widows of public safety officers of their pensions.

Continuing Managed Competition

City workers have won a number of managed competitions with private industry, so why bother with the process?  Because the competition forces the government to look at its costs and produce savings.  Despite some flaws each round of managed competition resulted in the city government coming up with ways to reduce costs.  Further oversight and revisions of the process to ensure that the savings materialize are needed, but only Kevin Faulconer whole-heartedly supports the process.  Fletcher and Alvarez both oppose the process.  We need a mayor who will do the hard work to ensure this process saves the taxpayers' dollars and only Faulconer is committed to the process' success.

City Streets

For better or worse, the city government is responsible for the condition of most public roadways in the city.  Our streets are in horrible shape.  Faulconer correctly ties the ability to fund street repairs to the budget woes caused by pension underfunding.  He proposes some reasonable steps to make streets better, including using capital funding for maintenance; but the money still has to come from somewhere.  Fletcher and Alvarez both pledge street repair, but have little specific to say on their respective web sites.  Alvarez also supports more capital funding for street maintenance, but his over 20 page blueprint has surprisingly little to say on a topic I consider of high importance.

Barrio Logan Zoning and the Shipbuilding and Repair Industry

I covered this issue earlier.  Yesterday, I signed a petition to put the re-zoning up for a vote.  I think this industry is extremely important for good jobs in San Diego.  Removing the support services to shipbuilding in the buffer zone is a first step towards killing off this industry.  I don't trust the motives of the Democrats involved in this plan.  I find Faulconer arguing to save jobs in this industry.  Fletcher's attacks on Alvarez on this subject are disingenuous as Fletcher has no real plan.

There are certainly other subjects, like medical marijuana, but I don't think the candidates differ significantly or the subjects are as important.

What You Should Be Reading

• The U-T has a nice feature that allows you to match your views with those of the four top candidates and get a score.  My scores were Faulconer 62%, Aguirre 50%, Fletcher 29%, Alvarez 27%.

Bankruptcy - No Pension Panacea

In the 2010 San Diego City Council race, and in previous mayoral campaigns, the idea of bankruptcy for San Diego has been proffered. However, neither Vallejo, which survived bankruptcy, nor Stockton, now going through bankruptcy have demonstrated that public employee pensions can be discharged in bankruptcy court, at least in California. In California, after the Vallejo experience, the state passed laws requiring that cities contemplating bankruptcy enter into a mediation process. This requires that the city negotiate in good faith with creditors prior to entering bankruptcy proceedings. One group for whom there is no negotiation are the labor unions pensions. From Reuters:

Calpers and unions around the country have made it clear they see a pension as an iron-clad right, one that's legally protected even in a bankruptcy.

Whether pensions are contract rights, which can be changed, or property rights, which are protected under the U.S. Constitution, has never been tested in court.

My question is what happens when the pension costs exceed all other sources of revenue? Who pays then? In Providence, RI, the answer seems to be that if the money is really gone, then the city will have to go to court. From the New York Times:

. . . the Providence City Council signed off on a plan to end, for now, annual cost-of-living increases for about 3,000 retired police officers, firefighters and other employees getting city pensions. The change would save about $16 million in the 2013 fiscal year, the mayor said; cost-of-living increases would be reinstated once the retirement system is 70 percent financed, which could take well over a decade. The change would also apply to current city workers once they retire.

In an interview at City Hall last week, Mr. Taveras, a first-term Democrat, said he “absolutely” expected a lawsuit to delay the freeze on cost-of-living increases for pensioners. But he said he saw no alternative for the city of 178,000 short of receivership, which would allow for a bankruptcy filing.

“It could drag out,” the mayor said of the expected legal battle. “But if we can’t reform our pensions, I don’t see how we can move this city forward. You could raise taxes, but I don’t think you can raise taxes enough to cover the cost of this.”

This case might make it to the Supreme Court on the theory that the city, as an extension of the state is violating the 10th amendment of the constitution:

No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.

I quoted the entire amendment, bu the key passage is "Law impairing the Obligation of Contracts." There are a number of counter-arguments, but I expect this to hit the Supreme Court sooner or later.

The Left Blames Messaging, Money,

. . . anyone but themselves. I'm not going to waste time searching out all of the left wing excuses for yesterday's taxpayer victories in Wisconsin, San Diego and San Jose. The tried and true playbook will be to turn to the courts to defeat the will of the voters in the California elections and to blame money and a bad message in Wisconsin. I watched the President of the San Diego firefighters union, Frank De Clercq, on KUSI on election night telling the voters that he would be heading to court to thwart their will. His basic argument is that the taxpayers were only allowed to change his benefits through negotiation. My answer is, tough, your unions have helped elect patsies who have promised pension benefits that were unaffordable. Those promises were made on my behalf, but not in my best interests as a taxpayer. For me this is personal, to De Clercq and Michael Zucchet, my message is that you were work for us, we don't work for you. As your employer we should have the absolute right to change the conditions of employment when economic circumstances require. There is no inherent right of government employees to be allowed to bargain for wages and benefits. As I have pointed out before:

I am an employee for the federal government. Much of my expected pension benefit comes from a 401 style plan. I'm not in a union. Even if I was, the union couldn't bargain for my pay and benefits, only work place rules. But I have significant protections against unjust firings and am afforded excellent work place accommodations. Why isn't this good enough for state and local workers?

In Wisconsin, Walker's victory was by a significant amount, not a landslide, but the 7% margin left no doubt as to the significant strength of his position. I have seen headlines that I refuse to link calling the election close. I have also seen headlines that this is the "death of democracy." Normally, when we elect politicians, we complain that they don't keep their campaign promises. How ironic that Scott Walker was recalled for keeping his.

Contrast the left's response to what conservatives do when they lose elections. Here is what I wrote in 2008.

Unfortunately, the left is not the only enemy of freedom. One of the reasons for the Obama victory was the failure of Republicans under George Bush to champion limited government, see prescriptions for seniors, “No Child Left Behind” and caving on steel tariffs. This failure was the result of ignorance, lust for power, and corruption. Further, the Republicans became identified as the “party of big government.” I believe that voters are rational; given the choice between two big government parties, the people voted for the party more ideologically committed to making big government work. Dean has more on this in an election post-mortem.

The introspection about our own faults is an important corrective to missteps that we will inevitably make. For reasons not clear to me, the left seems more likely to dwell on the external circumstances that lead to their electoral defeats than libertarians and conservatives.

No Reforms, No Taxes Increases

As a matter of fact, if there was some real pension reform, there wouldn't be any need for tax increases. California is drowning under the burden of employee pension costs. Even the modest reforms offered by Jerry Brown are making no progress in the Democrat union controlled legislature. A couple of key parts of his proposal:

• Equal sharing of pension costs: Require all new and current employees to contribute at least 50 percent of their retirement costs, shifting the burden from public employers, some of whom currently make the entire contribution.
• Hybrid pension plan for future employees: Form a mandatory "hybrid" risk-sharing pension plan for new employees. New plan would include a reduced, guaranteed defined benefit, a defined contribution portion such as a 401(k)-style plan and Social Security.
• Cap for high-income public employees.
• Higher retirement age for future employees.

My personal belief is that this is a bait and switch. Brown knows that the legislature won't pass these reforms or would slowly repeal them in the future; but he wants tax increases. His November ballot initiative calls for:

• Increase the state income tax levied on annual earnings over $250,000 for five years.
• Increase the state's sales and use tax by 1/2 cent for four years.
• Allocate 89% of these temporary tax revenues to K-12 schools, and 11% to community colleges.

But of course this money will actually be funding teacher pension benefits not improving education. Meanwhile the state legislature is barely making a pretext of passing pension reforms proposed by their fellow Democrat, Governor Brown.

"It's not as fast as I would like, but it's complicated," Senate President Pro Tem Darrell Steinberg, D-Sacramento, said this week during an appearance before the Sacramento Press Club.

He said Democrats have an obligation to deliver pension reform, particularly as they will ask voters in November to approve hikes to the income and sales taxes. But he also said they have "a different take" on parts of the governor's plan.

A different take? Really? What take would that be? I'm not holding my breath for anything significant coming out of this legislature. Beating back tax increases is necessary to save California from even more businesses and wealthy individuals from leaving. Despite the Democrat lock on the state legislature, I firmly believe these tax increases will be defeated in November.

Do State Labor Laws Trump Democracy?

That seems to be the position taken in a lawsuit filed by the Municipal Employees Association of San Diego. From the U-T:

The Municipal Employees Association, San Diego’s largest public employee union representing white-collar workers, has accused Mayor Jerry Sanders of violating state labor laws by refusing to negotiate the elements in the initiative while at the same time using the power of his public office to generate public support for it.

If successful, the complaint, filed last week with the state Public Employment Relations Board, could prevent the initiative from appearing on the ballot and essentially nullifies the nearly 116,000 signatures collected to trigger a public vote.

Like that last little bit? 116,000 citizens sign a ballot initiative, but because the mayor used his first amendment rights to support the effort, its invalid, according to the unions. To be clear, the labor law cited does nothing to prohibit citizen initiatives, and they are protected by the state constitution. In most states, I would be unfazed, wondering how fast the lawsuit would be tossed. Unfortunately, we live in California, where the rule of law appears more tenuous.

Political Priorities for 2012 - One SD tea party perspective

My day job has become very challenging lately, and may continue to cause light blogging. When I have little time, it concentrates my mind on what is both important and within my sphere of influence. For example, I love following Presidential politics, but as a Californian I am going to little influence on neither the Republican nominating process nor the electoral vote totals. Here are my priorities for this year and how I am feeling.

1. Defeating Governor Jerry Brown's proposed tax increases; highly confident. Getting his execrable budget killed; not so much.
   
2. Getting pension reform passed in San Diego; highly confident.
3. Getting Carl DeMaio elected Mayor of San Diego; optimistic.*
4. Reaching out to left, right and center on entitlement reform and ending crony capitalism; cautiously optimistic.**

Notes:
* The Southern California Tax Revolt Coalition does not endorse candidates, so this is a personal endorsement.
** Kelly, a liberal commenter, comments on why this is important in the comments section on my Saturday post about Rhode Island's Democrat led pension reform.

I hope for a groundswell of support for these goals.

Dang, I can't resist, here is one reason I can't stand Santorum (H/T Temple of Mut):

Math not Politics - Fixing Pensions in Rhode Island

Rhode Island has achieved a measure of pension reform, despite being a fairly blue state. From the WSJ:

The plan enacted in November cuts $3 billion of the state's $7 billion unfunded liability by raising the retirement age, suspending cost-of-living increases until the pension system is 80% funded, and even moving workers into a hybrid plan that has a smaller guaranteed annuity along with a 401(k)-style defined-contribution plan.

How did this succes come about? State Treasurer, Gina Raimondo, was able to present the facts to the voters of the state.

"No finger pointing" was her mantra, along with a corollary: "Math, not politics."

I like that last little bit. The state treasurer is a Democrat, but that didn't stop her from recognizing that the state's financial situation was untenable. Perhaps Republicans should de-emphasize blaming the unions, even if we believe they are to blame. The actuarial certainties of our entitlement programs, government pensions, medicare, medicaid and social security, are inexorable. Without change, they will eventually bankrupt us. Democrats can be left to demagogue these issues; but by proposing serious reform, it is actually Republicans, like Paul Ryan, who are doing the work necessary to save the social safety nets in this country.

Pension Reform Qualifies for San Diego Ballot

This is no longer news, but nevertheless important. Carl DeMaio announced that the pension reform initiative had over 145,000 signatures, with 93,346 needed to qualify. It appears likely that the initiative will qualify for the ballot. The furious counterattack by labor on even allowing a vote on the measure has been curious. Clearly they see a huge threat in this initiative. The left of center OBRAG had this to say:

The proposed initiative would eliminate pensions for all new city hires except police officers and replace them with a 401(k)-type plan. It also includes a five-year salary freeze on the pensionable pay of current workers and a cap on future police pensions, among other things. City workers would not be eligible for Social Security under the plan.

The proposal is strongly opposed by organized labor, who characterize the plan as a punitive measure that places the solution to the city’s fiscal crisis unfairly on workers. Labor groups went so far as to send volunteers to popular canvassing locations to argue their point of view after receiving reports of petition gatherers making significant misrepresentations about the petition that they were asking people to sign.

A fair characterization, no doubt. OBRAG also asked a question that perplexed me.

Even though supporters of the ballot measure have known for several weeks that they’d passed the threshold for needed signatures, the campaign has continued using a “we’re desperate” meme. Why? It turns out that signers information was being shared with the DeMaio Mayoral campaign. It’s probably illegal, but unlikely that the consequences will outweigh the benefits.

I'm not sure I believe that, but I'd like to hear from DeMaio and the organizers as to why the tone of desperation. I went so far as to predict rough sailing, based on my reading of DeMaio's Facebook posts.

Meanwhile, the arguments against placing the initiative on the ballot by San Diego City Beat were that it would pass if it got on the ballot. From the comments.

Bob, I think you missed a key part of the article. See the end of the first paragraph. If the measure makes the ballot, it'll pass, because it's a complex issue for the average voter to process. There are a number of misleading statements being made by the pro CPR folks. We think the debate needs to happen now.

Bradley Fikes responded on sdrostra.

The CityBeat interpretation is that that the pension reform measure will pass if it qualifies for the ballot because it’s too complicated for voters to understand. (A nice way of saying the voters are stupid and gullible).

Comments and articles from both sides of the issue make me believe that even if the initiative qualifies, there will be millions more spent by both sides. There will also be some carping about how expensive and unseemly all the spending is. Too quote Dean, "Democracy is, like, hard."

Ultimately, the question is whether 401(k) pensions are fair. The left's argument is that just because you as a private sector worker have a pension subject to the vagaries of the stock market, it doesn't mean you should make government employees suffer that injustice. Some flaws in this thinking:

• 401(k) plans don't have to invest in the stock market. My own plan is only in the market 65%.
• The new generation entering the work force will learn out how to handle this, in fact they already are. My 22 year old son has a 401(k) as well. We have discussed dollar cost averaging and sector averaging and balancing a portfolio. I have faith in their ability and intelligence. I wish I had thought to start investing at that age.
• Workers will own their own pensions, and won't be dependent on politicians and union bosses to ensure that they receive pensions promised.
• Over the course of twenty years, investing in a broad basket of stocks will produce safety and high yield. The market performance of the last few years is part of the normal up and downs.

Look at this graph from visualizingeconomics.com


Most 401(k) plans have the investor re-invest dividends. There isn't a 20 year period when you would lose money when re-investing dividends.

So why do the unions and left oppose? They fear the loss of power, because the average employee won't need them anymore.