Spinning the public pension reform initiative

California’s nonpartisan Legislative Analyst’s Office this week released its review of the public pension reform initiative proposed by former San Jose Mayor Chuck Reed and former San Diego Councilman Carl DeMaio – and what that review says seems to depend on your point of view.

The 11-page document ends with a summary of fiscal effects predicting “significant effects—savings and costs—on state and local governments relating to compensation for governmental employees. The magnitude and timing of these effects would depend heavily on future decisions made by voters, governmental employers, and the courts.”

Opponents were hot out of the gate Tuesday morning with a statement noting the LAO found there’s “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.”

“This measure is a Trojan horse that will undermine the retirement security of millions of California families with unknown costs to taxpayers under the guise of giving them more power,” Dave Low, Chairman of Californians for Retirement Security, said in Tuesday’s statement. “Voters have consistently said they will reject proposals that threaten the death and disability benefits of public safety workers, undermine collective bargaining, and eliminate retirement security for teachers, bus drivers, and other public servants. This measure would be dead on arrival to voters, just like previously over-reaching measures.”

But DeMaio and Reed issued a statement Wednesday morning saying the LAO had confirmed “that the mandatory requirements of the measure would produce ‘significant savings.’ Even better, in addition to what is specifically mandated by the measure, the LAO confirmed that voters would have new powers to add to the savings.”

“Government union bosses are desperate to protect their gravy train at taxpayers’ expense. That’s why they are spinning a web of lies about the measure,” they said. “Astonishingly, the government union bosses even going so far as to claim voters will opt to spend MORE money than the politicians if given the new powers our initiative grants the people. At the core of their argument, the unions, along with the politicians, are arguing that voters might make bad decisions with the new powers our initiative grants them. Telling voters they cannot be trusted to make good decisions is not exactly a winning message.”


Lockyer quits pension study panel, blasts report

State Treasurer Bill Lockyer today resigned from a pension advisory panel of the Stanford Institute for Economic Policy Research, questioning the methodology and conclusions in the think-tank’s new public pension study.

The SIEPR study, released today and authored by former Assemblyman Joe Nation, D-San Rafael, estimates the state’s unfunded public worker pension liability at almost $500 billion and calls for pension reforms including benefit reductions for current employees.

“When it comes to public pensions, maybe SIEPR should stand for ‘Stanford Institute to Eviscerate People’s Retirement,.’” Lockyer spokesman Joe DeAnda said today. “Nation approached Lockyer to join the advisory panel after Lockyer strongly criticized SIEPR’s April 2010 report on public pensions. Lockyer agreed to join the advisory panel because he believed SIEPR was interested in producing more thoughtful, evidence-based reports. Unfortunately, that turned out not to be the case.

“While Nation may have listened selectively to certain advisors, Lockyer certainly wasn’t one of them, and his concerns about methodology and other issues were ignored. SIEPR clearly has a public pension agenda, and it doesn’t include legitimate research.”

UPDATE @ 4:40 P.M.: This just in from Joe Nation (you’ll need to read Lockyer’s criticisms of the report after the jump in order for this to make sense, but I didn’t want to bury Nation’s reply) —

I am disappointed that Treasurer Lockyer has decided to withdraw from our effort to reform California’s public employee pension systems. I do not recall any specific suggestions from him (since he was unable to attend any meetings) or from his staff on methodology, but his statement suggests that he believes that we should have considered only one discount and investment rate, 7.75 percent. In direct response to his statement:

Table 8 of the report is correct. The “roughly 6 percent” rate noted is indeed the discount rate used by most corporations for reporting the present value of pension fund liabilities. As the Treasurer no doubt knows, corporations are required to use a different discount rate for reporting liabilities than the rate they use as an assumption for returns on assets set aside to meet those liabilities.
Regarding investment return assumptions, I share the Treasurer’s concern about corporations that — like California’s pension funds — are employing unrealistic assumptions such as the 7.8 percent figure he refers to in his statement. I reference Warren Buffett’s letter on this very point. As he points out, when it comes to dangerously inflated assumptions of returns on pension fund assets, both corporations and governments are guilty.

Our report assesses pension financial health using discount rates from 4.5 percent to 9.5 percent. Even in the 9.5 percent scenario, which is very unlikely based on either historical performance or current projections, CalPERS and CalSTRS are unable to meet their obligations. Lockyer’s fixation on a 7.75 percent rate is precisely the reason that pension systems find themselves in poor conditions. And repeating private sector mistakes doesn’t help us. Just as we saw with Lehman, AGI, Bear Sterns, and others, understating debt and betting our financial future on unrealistic assumptions will only make the problem worse. In fact, each day that we ignore the public pension crisis costs California $3.4 million that could be better spent on education, social services, and protecting our environment.

Finally, other researchers have concluded that CalPERS and CalSTRS are in worse shape than we describe. Alicia, Munnell, a Democrat member of Clinton’s Council of Economic Advisors, uses methodology that put CalPERS at 56 percent funded and CalSTRS at 39 percent (far lower than our assessments). A consensus is growing that aggressive action is needed to reform our broken pension system. I hope Mr. Lockyer will consider re-joining that effort.

Grant Boyken, Lockyer’s top pension aide, e-mailed Nation today with Lockyer’s resignation. Read the full text of that e-mail, after the jump….
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Field Poll gauges voters on public pension reform

A plurality, but not a majority, of California voters believe pension benefits for most state and local government workers are too generous, and most believe Gov. Jerry Brown is on the right track to reform, according to Field Poll results released today.

But about two in three California voters believe reforms should be made to the benefits of current employees, not just new ones – something legal experts say could be hard to do, as contracts aren’t easily broken.

Two years ago, the Field Poll found 32 percent of voters believed public pension benefits were too generous while 16 percent believed they weren’t generous enough, 40 percent believed they were about right and 12 percent had no opinion. Now, 41 percent say they’re too generous, 14 percent say they’re not generous enough, 35 percent say they’re about right and 10 percent have no opinion.

Dave Low, chairman of Californians for Retirement Security – a coalition of unions representing more than 1.5 million public workers and retirees – said in an e-mailed statement that it’s “very revealing that even after an intensive and sustained political campaign attacking public employees, about half of voters believe that public employee pensions are just right or too little while just four in 10 think they are too high.”

Republicans are far more likely to believe public pension benefits are too generous (58 percent), while 41 percent of Democrats say they’re about right. Independent voters are split, with 37 percent believing they’re about right and 34 percent saying they’re too generous.

Naturally, union households show more support for the status quo – 48 percent believe the benefits are about right, 27 percent say they’re too generous and 22 say they’re not generous enough – compared to non-union households (45 percent too generous, 32 percent about right, 13 percent not generous enough).

When read a summary of pension reform proposals Brown rolled out in October, 51 percent say they strike the right balance; 24 percent think they go too far and 14 percent believe they don’t go far enough. Voter reactions were relatively uniform regardless of party or union affiliation.

“We believe voters have yet to hear meaningful details about the governor’s pension proposals to make an informed decision, and our own polling demonstrates that, given specifics, some of his proposals are very unpopular,” Low said. “Although voters might think it sounds unfair to single out new employees, it is illegal and unconstitutional to impair benefits for current employees. Given all the facts, Californians will not stand for our state government breaking the law and breaking promises to those who have dedicated their careers to serving the public.”

Low said his coalition’s goal remains simple. “We will continue our hard work with the Governor and the Legislature on reasonable, common sense measures to sustain California’s retirement system, rebuild our state’s working class, provide adequate retirement benefits, eliminate abuses and confront fiscal realities.”

The Field Poll numbers are based on a survey of 515 registered voters conducted Nov. 15 through 27, with a 4.4-percentage-point margin of error.


Pensions, OccupyOakland & SF mayor on ‘TWINC’

Last night on KQED’s “This Week in Northern California,” we talked about Gov. Jerry Brown’s public pension reform plan; the Occupy Oakland situation; and San Francisco’s mayoral race.


Gov. Brown signs CC pension bill

A cheaper, third pension tier for Contra Costa sheriffs deputies is now permanent under legislation signed by Gov. Jerry Brown today.

Authored by state Sen. Mark DeSaulnier, D-Concord, SB373 eliminates the Jan. 1, 2012, sunset clause for the less expensive Tier C, which sets the pension formula of employees hired Jan. 1, 2007, or after, at the average salary of the highest three years of wages and establishes a 2 percent annual cost of living increase. The more generous benefit pays based on an employee’s highest single year of salary and a 3 percent annual cost of living adjustment.

The county and Deputy Sheriffs Association negotiated the deal in 2006 but the legislation contained an expiration date.

Both sides wanted time to evaluate the financial impacts. The county wants to lower its pension costs, while deputies have struggled to pay their share of contribution rates.

The Senate and the Assembly voted unanimously in favor the bill.

Read the full bill as signed here.


CoCo grand jury speaks on pension reform

A month before labor contracts with the vast majority of Contra Costa County government employees expire, the civil grand jury issued its pension reform package.

The report came out today. The grand jury recommends the county:

  • Seek concessions in upcoming union talks that will offset rising pension costs.
  • Prioritize employee benefit changes that produce immediate cost savings, while pursing legislative relief in other areas.
  • Move immediately in areas where the board of supervisors has legal authority to act without union authority or legislative change, although there aren’t many and they are disputed.
  • Require employees to pay more toward their pension costs.
  • Seek legislation that would permit the placement of pension cap so that no employee receives a pension payment higher than what he or she earned while on the job.

Read the full report below.