This past month saw verdicts rendered on San Jose Mayor Chuck Reed. The first verdict came from the City of San Jose, where after reeling from two years of real life consequences of Reed’s 2012 pension measure, the City’s Mayor announced a settlement with police and fire unions that eliminated the substantive changes Reed had enacted.
The second verdict came in the form of an analysis by the nonpartisan Legislative Analyst’s Office (LAO) of the initiative Reed wants to place on the 2016 ballot. Reed’s proposed initiative would impose pension, compensation and retiree health care changes on all public employees in California. Reed’s changes in San Jose proved to be disastrous, but the future changes he proposes for California would be catastrophic
In 2012, Reed pushed through Measure B in San Jose, as he waged a full scale war on public employees through derisive name calling, lying about the scope of pension deficits, and a refusing to consider real pension savings of $467 million at the bargaining table.
Reed’s Measure B was draconian, cutting pension benefits for future employees, imposing crippling costs on current employees who wished to stay in the pension system, and in practice ending disability benefits for all employees. For example, San Jose police officers who wish to keep their current pensions would have to pay nearly 41% of their pay into the pension system.
The “disability reform” in the measure was even more drastic. Normally an officer who is injured in the line of duty and unable to return to police work receives a disability retirement. Reed’s measure prohibited an officer from receiving disability retirement if the officer could perform any other function in the police department (dispatcher, evidence technician, etc.) — even if there was not an opening for the other position!
Needless to say, the City of San Jose became the “place to be from” for public employees, not the place to work. A once proud police department of 1,350 officers was reduced to 850 officers, as officers retired or left for other police agencies. Recruitment fell off the cliff-Academy classes authorized for 60 cadets averaged less than 15, with many cadets leaving upon graduation for other departments.
Community public safety suffered immediately. With a shortage of patrol officers and detectives, the crime rate soared above the national average, as murders increased 33 percent and robberies increased 37 percent over 2004 rates. Sex crimes detectives who remain carry caseloads approaching 60 cases. There is one property crimes detective for the entire city. Vehicle theft increased 61%, and with motorcycle officers cut from 36 to 10, vehicle fatalities increased 61% over 2010 numbers. The fire department was so short staffed it could not meet their minimum response times.
In addition to the exodus of employees, the City spent millions in court in an unsuccessful attempt to uphold Reed’s initiative. A Superior Court ruled that the imposition of pension costs on employees violated the California Constitution, but did uphold the measure’s 16% pay cut if the pension increases were struck down in court. However, rather than impose the cuts, the San Jose City Council was forced to give large raises to employees in an attempt to retain them; as an example – 10% for police officers, 14% for fighters.
Reed’s real life experiment in the City of San Jose has been an unmitigated disaster. Unable to admit defeat, and in a statement reminiscent of the infamous “It became necessary to destroy the town to save it,” Reed claimed the settlement “protected much of the savings” in Measure B. That statement ignores reality-any “savings” that occurred in the two year period came about because of the enormous number of vacant city positions. As employees left, replacements could not be hired and public safety suffered as a result.
Reed’s 2016 ballot measure makes his Measure B look like a minor tweak. The 2016 initiative is a full scale assault on every aspect of public employee benefits and compensation, NOT just a “pension initiative concerning future employees,” as he claims.
Current employees will see their vested pension rights, known as the “California rule”, eliminated. This means that for future years of work the formula under which current employees accrue service credit for pensions could be decreased—or eliminated. The same would apply for retiree healthcare benefits. However, the initiative goes beyond pensions and retiree healthcare. It eviscerates collective bargaining, allowing initiatives to direct the county as to what to offer in negotiations and referendums to overturn any collective bargaining agreement that may be reached.
Future employees fare worse because the initiative forbids new employees from joining the pension plan or even enrolling in a 401k plan unless specifically approved by voters. Any plan they do join will be subject to modification or elimination by voter initiative at any point in their career. Disability retirements for all employees, including police, firefighters and lifeguards, will be eliminated as those benefits are provided through defined benefit plans which the new employees cannot join. And, the new employees will see their salaries subject to change at any time by initiative or referendum.
The initiative affects retired employees as well, as it threatens the ability of every pension system in the state to accrue the funds needed to pay benefits. The initiative prohibits pension funds from using commonly accepted financial techniques to close any funding gaps that may arise as a result of plan changes imposed by the initiative. An internal analysis by CALSTRS released this week confirmed the fund would be put at risk should this initiative pass.
If that were not enough, local or state initiatives would be allowed to change current pension plans: those changes could include overriding state restrictions or regulations, making it highly likely plans would be destabilized or bankrupted, as well as possibly being in violation of federal or state tax requirements.
The detailed LAO analysis, the first official view of Reed’s initiative, confirms that Reed’s measure goes far beyond whether future employees may be enrolled in defined benefit plans. The LAO, after noting the initiative’s effect on current employees, disability benefits and collective bargaining, concluded that, “There is significant uncertainty as to the magnitude, timing, and direction of the fiscal effects of this measure and its effects on current and future governmental employees’ compensation,” with lengthy court battles predicted should the measure pass.
The next step before circulation of the initiative is a “Title and summary” by the Attorney General. This, in contrast to the LAO report, will be a detailed legal analysis of the initiative. In 2014, an accurate Attorney General analysis of a Reed pension initiative that was upheld in court prompted Reed withdraw the initiative. We will see what he does after his latest scheme undergoes legal scrutiny by the Attorney General.
Please read our previous pension blogs Attention Shoppers: Don’t Sign that Misleading Pension Petition!, Your Pension is Under Attack and Fuzzy Math Continues To Drive Public Pension Hysteria. If you want to learn more about pensions, we encourage you to visit Let’s Talk Pensions.
The Association of Deputy District Attorneys (ADDA) is the collective bargaining agent and represents nearly 1,000 Deputy District Attorneys who work for the County of Los Angeles.