Contra Costa Taxpayers Association

Former San Jose Mayor Chuck Reed acknowledged at a recent taxpayer forum that his latest proposed pension reform initiatives won’t solve California’s $350 billion unfunded retirement benefit liability problem. But he thinks they’ll help.

“Sometimes you have to eat the elephant one bite at a time,” Reed told the Contra Costa Taxpayers Association at an Oct. 30 luncheon. “So these are bites out of this elephant that’s $350 billion big.”

Reed and former San Diego City Councilman Carl DeMaio have submitted two initiatives that would limit pension plan benefits for government employees hired after Dec. 31, 2018.

Third Time the Charm?

Reed and DeMaio are hoping the third time is the charm. Previous pension reform efforts last year and in June were canceled due to concerns about ballot descriptions by Attorney General Kamala Harris.

The first initiative, The Voter Empowerment Act of 2016, requires voter approval before governmental agencies can enroll new employees in pension plans and increase their pension benefits. Voters also must approve if an agency wants to pay more than half of the total cost of retirement benefits for new hires.

In addition, the initiative would prevent retirement boards from imposing fees or other punishments on governments that don’t allow new employees to participate in a pension plan. The California Public Employees Retirement System requires its member agencies to pay three-to-five times the cost of their unfunded liability in order to opt out of the system, according to Reed.

These changes are needed, according to the initiative, because “state and local governments face elimination or reduction of essential services because of costly, unsustainable retirement benefits granted to government employees. Almost all of these benefits were granted without the consent of voters.”

The other initiative, “The Government Pension Cap Act of 2016,” limits government contributions for new employees at 11 percent of base compensation; 13 percent for new safety employees. It also requires voter approval before an agency can pay more than half of the total cost of retirement benefits for new employees.

“We are trying to empower the voters,” said Reed. “Either of these two initiatives would have a significant impact on the cost of new employees.”

Those costs are increasing rapidly, according to Reed. In the next five years, state and local governments will need to increase contributions by 50 percent to CalPERS. This is resulting in less state funding for universities, courts, roads, social services, parks and recreation, Reed said.

Price of Pensions

School districts have it even worse. Their contributions to the California State Teachers Retirement System will more than double in five years.

“Where the money goes determines the priorities of the state,” Reed said. “And we are putting our money, I believe, into the wrong priorities.”

Failure to correct those priorities will result in more jurisdictions going bankrupt like Stockton, Vallejo and San Bernardino, he said.

“The people in those cities suffered; the employees working in those cities suffered,” he said. “And we need to avoid that. And so, giving local governments some things they can do to deal with their problems has been the focus of the initiatives.”

A successful pension reform initiative campaign will require $25 million, in addition to the $2-3 million for signature gathering, Reed said. He anticipates raising much of it from Silicon Valley executives wanting to avoid future tax hikes as well as from pension reform advocates around the country.

If they are successful, California will begin making a dent in its unfunded retirement benefits liability, he said.

“Although we acknowledge this will not solve the $350 billion problem,” he said, “if these initiatives were passed, we could save money on new employees that will allow us to help pay down that $350 billion of unfunded liabilities. This is not a solution to those unfunded liabilities, but it would be helpful.”

Potential Savings

The savings could be significant, according to a state Legislative Analyst’s Office analysis of Reed’s June initiative, which also was called the Voter Empowerment Act of 2016. It’s similar to the current VEA, but also allows voters to decide compensation for current employees.

“It is likely that [pension] benefits would be reduced or eliminated in many jurisdictions,” the LAO said. “These changes would reduce governmental employer costs significantly in the future.”

Critics of Initiatives Speak Out

Naturally, the public employee unions are opposed to benefit reductions for their current and future members. Three people handed out leaflets outside of the luncheon at Back Forty Texas BBQ in Pleasant Hill that were critical of Reed, DeMaio and their initiatives.

“These two former politicians are currently championing a State-wide initiative approach to destroy retirement security for all new employees that would chose [sic] to work in the public sector, including law enforcement, firefighters and teachers,” said Mike DeBord, a committee co-chairman of the California Retired County Employees Association, in an essay titled “Pension Reformers Continue Their Long List of Failures.”

In another piece, “Proponents Still Trying to Undermine Retirement Security,” DeBord said that the “initiatives would amend the state constitution and erode retirement security for public employees, targeting new hires. If any are approved by the voters, they would likely be subject to many costly and lengthy legal challenges.”

Vested Rights

But the luncheon’s other speaker, Contra Costa Times columnist Dan Borenstein, believes Reed’s initiatives don’t take a large enough bite out of the $350 billion elephant. He wants Reed to challenge state judicial rulings specifying that pension benefits for current employees can be increased but not decreased.

“It’s a one-way ratchet,” said Borenstein. “Someone likened it to a mouse trap.”

Pension reforms would not affect benefits that have already been accrued; only accrual rates for future work would be affected, he said. Borenstein said he’s aware of the political headwinds that an initiative challenging vested rights would face, but he asked Reed to take on that more substantial fight.

“Aside from politics, why not challenge the vested rights question?” Borenstein asked. “And if you don’t, how much are you really accomplishing?”

But given California’s political climate, Reed said the focus has been on getting an easily understandable and supportable initiative on the ballot.

“Something that’s hard to misconstrue,” Reed said. “Although this is a political campaign – truth is never really a limitation of any political campaign in California. So we know they’ll be misconstrued. But we want people to be able to pick it up and decide for themselves.”

The legislative analyst will begin a financial analysis of the initiatives probably on Nov. 9, according to Reed, with the attorney general filing titles and summaries by the end of the month.

After that, “we’ll do some polling, try to decide what to do,” said Reed. “And hopefully we’ll be in a position where we’ll actually have these in front of the voters in November of 2016.”

• Howard Jarvis Taxpayers Association (HJTA) believes that the use of a benefit assessment, rather then a special tax, to fund fire suppression services constitutes a violation of article XIII D of the California Constitution (Proposition 218).
  
• The California Supreme Court has explained “An assessment can be imposed only for a ‘special benefit’ conferred on a particular property.” i.e. not a general benefit.
  
• The California Supreme Court has further explained “No assessment shall be imposed on any parcel which exceeds the reasonable cost of the proportional special benefit conferred on that parcel.”
  
• During the Proposition 218 election the Legislative Analyst’s Office wrote in the Official Voter Guide “Typical assessments that provide general benefits include fire, park, ambulance, and mosquito control assessments.”
  
• HJTA says as drafters of Proposition 218 they agree that fire suppression services for assessment financing but must be funded through property taxes or other general and special taxes.
  

*Reference: Howard Jarvis Taxpayer Association letter, June 10, 2015 to Chief Dale Skiles and Board of Directors, Salida Fire Protection District

15-0077 Arndt.# I

Government Pension Cap Act of 2016

SECTION 1. TITLE.

This measure shall be known and may be cited as "Government Pension Cap

Act of 2016."

SECTION 2. STATEMENT OF FINDINGS AND PURPOSE.

(a) Government has an obligation to provide essential services that protect the

safety, health, welfare, and quality of life enjoyed by all Californians. State and

local governments face reduction or elimination of essential services because of

costly, unsustainable retirement benefits granted to government employees.

(b) Almost all of these benefits were granted without the consent of voters.

Consequently, the need to empower voters to reform retirement benefits for

new government employees is a matter of statewide concern.

(c) Therefore, the people hereby amend the Constitution to limit the cost of

retirement benefits granted to new government employees and to empower

voters to approve or reject any proposed increases in those limits.

SECTION 3. Section 23 of Article XVI of the California State Constitution is

added to read as follows:

Sec. 23 (a) Government employers shall not contribute more than 11 percent of

base compensation for a new employee's retirement benefits. Government

employers shall not contribute more than 13 percent of base compensation for

a new safety employee's retirement benefits. All other costs, including

unfunded liability costs, of a new employee's retirement benefits shall be the

responsibility of the employee, unless the voters of that jurisdiction establish a

new limitation.

(b) Government employers shall not pay more than one-half of the total cost

of retirement benefits for new government employees unless the voters of

that jurisdiction have approved paying that higher proportion.

(c) Challenges to the actions of a government employer or retirement board

to comply with requirements of this section may only be brought in the

courts of California exercising judicial power as provided in Article VI or in

the courts of the United States.

(d) Nothing in this section shall alter any provisions of a labor agreement in

effect as of the effective date of this Act, but this Section shall apply to any

successor labor agreement, renewal or extension entered into after the

effective date of this Act. Nothing in this section shall be interpreted to

amend or modify section 9 of Article I.

1

(e) Nothing in this section shall be interpreted to limit the ability of

government employers to offer defined benefit pension plans or defined

contribution plans or a combination of both plans for new employees, subject

to the limitations in this section.

(f) Government employers may provide disability benefits and death

benefits for new employees which are not subject to the limitations of

this section. ·

(g) For the purpose of this section, the following definitions shall be applied:

(1) "New employee" means any of the following:

(A) An individual who becomes a member of any state or local public

retirement system in California for the first time on or after January 1,

2019, and who was not a member of any other state or local public

retirement system in California prior to that date.

(B) An individual who becomes a member of a state or local public

retirement system in California for the first time on or after January 1,

2019, and who was a member of another public retirement system prior

to that date, but who was not subject to reciprocity under subdivision (c)

of California Government Code Section 7522.02 as it existed on

September 1, 2015.

(C) An individual who was an active member in a state or local retirement

system in California and who, after a break in service of more than six

months, returned to active membership in that system with a new

employer. For purposes of this subdivision, a change in employment

between state entities or from one school employer to another shall not

be considered as service with a new employer.

(2) "Government employer" means the state, or a political subdivision of

the state including, but not limited to, counties, cities, charter counties,

charter cities, charter city and counties, school districts, special districts,

boards, commissions, the Regents of the University of California,

California State University, and agencies thereof.

(3) "Retirement benefits" includes defined benefit pension plans, defined

contribution plans, retiree healthcare plans, Medicare, Social Security,

or any form of deferred compensation provided by government

employers. "Retirement benefits" does not include death and disability

benefits.

(4) A "new safety employee" means any new government employee as

defined in (g) ( 1) who is also a police officer or sheriff duly certified in their

2

law enforcement position, any licensed firefighter, any prison guard, or

other classification the government employer finds is a high risk law

enforcement or public safety position.

(5) "Base compensation" means the regular annual base pay of the

individual public employee and reflective of regular base pay of similarly

situated employees of the same group or class of employment for services

rendered on a full-time basis during normal working hours, pursuant to

publicly available pay schedules, and subject to any. exclusions as defined

in California Government Code Section 7422.34 as it existed on

September 1, 2015.

SECTION 4. GENERAL PROVISIONS.

(a) This Act is intended to be comprehensive. It is the intent of the People

that in the event this Act and one or more measures relating to the same

subject shall appear on the same statewide election ballot, the provisions of

the other measure or measures shall be deemed to be in conflict with this

Act. In the event that this Act receives a greater number of affirmative votes,

the provisions of this Act shall prevail in their entirety, and all provisions of

the other measure or measures shall be null and void.

(b) If any provision of this Act, or part thereof, or the applicability of any

provision or part to any person or circumstances, is for any reason held to be

invalid or unconstitutional, the remaining provisions and parts shall not be

affected, but shall remain in full force and effect, and to this end the

provisions and parts of this Act are severable. The voters hereby declare that

this Act, and each portion and part, would have been adopted irrespective of

whether any one or more provisions or parts are found to be invalid or

unconstitutional.

(c) This Act is an exercise of the public power of the people of the State of

California for the protection of the health, safety, and welfare of the people of

the State of California, and shall be liberally construed to effectuate its

purposes.

(d) Notwithstanding any other provision of law, if the State, government

agency, or any of its officials fail to defend the constitutionality of this act,

following its approval by the voters, any other government employer, the

proponent, or in his or her absence, any citizen of this State shall have the

authority to intervene in any court action challenging the constitutionality of

this act for the purpose of defending its constitutionality, whether such

action is in trial court, on appeal, and on discretionary review by the

Supreme Court of California and/ or the Supreme Court of the United States.

The fees and costs of defending the action shall be a charge on funds

appropriated to the Attorney General, which shall be satisfied promptly.

3

1 5 - o o 7 a Arndt.# I

Voter Empowerment Act of 2016

SECTION 1. TITLE.

This measure shall be known and may be cited as "The Voter Empowerment Act of

2016."

SECTION 2. STATEMENT OF FINDINGS AND PURPOSE.

(a) Government has an obligation to provide essential services that protect the

safety, health, welfare, and quality of life enjoyed by all Californians. State and local

governments face elimination or reduction of essential services because of costly,

unsustainable retirement benefits granted to new government employees.

(b) Almost all of these benefits were granted without the consent of voters.

Consequently, the need to empower voters to approve retirement benefits for

government employees is a matter of statewide concern.

(c) Therefore, the people hereby amend the Constitution to reform retirement

benefits granted to new government employees and to require voters to approve or

reject increases in defined benefits proposed for any government employees.

SECTION 3. Section 23 of Article XVI of the California State Constitution is added

to read:

Sec. 23 (a) Government employers shall not provide a benefit enhancement to any

new government employee in a defined benefit pension plan unless the voters of that

jurisdiction approve that enhancement.

(b) Government employers may only enroll new government employees in a defined

benefit pension plan if the voters of that jurisdiction approve enrollment in such a

plan.

(c) Government employers shall not pay more than one-half of the total cost of

retirement benefits for new government employees unless the voters of that

jurisdiction have approved paying that higher proportion.

(d) Retirement ooardsshaltnot impose termina-tt-on fee-s-;-a:cceterate-p-aym-en·-nts,..,.on~--~

existing debt, or impose other financial conditions against a government employer

that proposes to close a defined benefit pension plan to new members, unless voters

of that jurisdiction or the sponsoring government employer approve the fees,

accelerated payment, or financial conditions.

(e) Challenges to the actions of a government employer or a retirement board to

comply with requirements of this section may only be brought in the courts of

California exercising judicial power as provided in Article VI or in the courts of the

United States.

1

(f) Nothing in this section shall alter any provisions of a labor agreement in effect as

of the effective date of this Act, but this Section shall apply to any successor labor

agreement, renewal or extension entered into after the effective date of this Act.

Nothing in this section shall be interpreted to amend or modify section 9 of Article I.

(g) Nothing in this section shall be interpreted to modify or limit any disability

benefits provided for government employees or death benefits for families of

government employees, even if those benefits are provided as part of a retirement

benefits system. Nothing in this section shall be interpreted to require voter

approval for death or disability benefits.

(h) For the purpose of this section, the following definitions shall be applied:

(1) "New employee" means any of the following:

(A) An individual who becomes a member of any state or local public

retirement system in California for the first time on or after January 1, 2019,

and who was not a member of any other state or local public retirement

system in California prior to that date.

(B) An individual who becomes a member of a state or local public retirement

system in California for the first time on or after January 1, 2019, and who

was a member of another public retirement system prior to that date, but who

was not subject to reciprocity under subdivision (c) of California Government

Code Section 7522.02 as it existed on September 1, 2015.

(C) An individual who was an active member in a state or local retirement

system in California and who, after a break in service of more than six

months, returned to active membership in that system with a new employer.

For purposes of this subdivision, a change in employment between state

entities or from one school employer to another shall not be considered as

service with a new employer.

(2) "Government employer" means the state, or a political subdivision of the

state including, but not limited to, counties, cities, charter counties, charter

cities, charter city and counties, school districts, special districts, boards,

commissions, the Regents of the University of California, California State

University, and agencies thereof.

(3) A "defined benefit pension plan" means a plan that provides lifetime

payments to retirees and survivors based upori a formula using factors such as

age, length of service or final compensation.

(4) "Retirement benefits" includes defined benefit pension plans, defined

contribution plans, retiree healthcare plans, or any form of deferred

compensation offered by government employers.

2

(5) A "benefit enhancement" means any change in a defined benefit pension plan

that increases the value of an employee's benefit including, but not limited to,

reducing employee's share of cost, increasing a benefit formula, increasing the

rate of cost of living adjustments, expanding the categories of pay included in

pension calculations, reducing a vesting period, lowering the eligible retirement

age, or otherwise providing an economic advantage for government employees in

a defined benefit plan, except for the disability component of any defined benefit

plan.

SECTION 4. GENERAL PROVISIONS.

(a) This Act is intended to be comprehensive. It is the intent of the People that in

the event this Act and one or more measures relating to the same subject shall

appear on the same statewide election ballot, the provisions of the other measure or

measures shall be deemed to be in conflict with this Act. In the event that this Act

receives a greater number of affirmative votes, the provisions of this Act shall prevail

in their entirety, and all provisions of the other measure or measures shall be null

and void.

(b) If any provision of this Act, or part thereof, or the applicability of any provision or

part to any person or circumstances, is for any reason held to be invalid or

unconstitutional, the remaining provisions and parts shall not be affected, but shall

remain in full force and effect, and to this end the provisions and parts of this Act

are severable. The voters hereby declare that this Act, and each portion and part,

would have been adopted irrespective of whether any one or more provisions or

parts are found to be invalid or unconstitutional.

(c) This Act is an exercise of the public power of the people of the State of California

for the protection of the health, safety, and welfare of the people of the State of

California, and shall be liberally construed to effectuate its purposes.

(d) Notwithstanding any other provision of law, if the State, government agency, or

any of its officials fail to defend the constitutionality of this act, following its

approval by the voters, any other government employer, the proponent, or in his or

her absence, any citizen of this State shall have the authority to intervene in any

court action challenging the constitutionality of this act for the purpose of defending

its constitutionality, whether such action is in trial court, on appeal, and on

discretionary review by the Supreme Court of California and/ or the Supreme Court

of the United States. The fees and costs of defending the action shall be a charge on

funds appropriated to the Attorney General, which shall be satisfied promptly.

3

By working just two and a half more years, retired Vallejo City Manager Joseph Tanner boosted his starting annual pension from $131,500 to $216,000. He wants more, claiming he's entitled to yearly retirement pay of $307,000.

An administrative law judge, the board of the California Public Employees' Retirement System and a Sacramento County judge all rejected his outlandish pension-spiking attempt. Now he is now taking his six-year dispute to the state Court of Appeal. At issue is whether CalPERS must pay benefits on a contract Tanner and the Vallejo City Council concocted to boost his pension or whether the retirement system has the legal right and responsibility to set boundaries. So far the rulings have come down on the side of sanity.

Read more:  http://www.contracostatimes.com/news/ci_29009577/daniel-borenstein:-city-managers-breathtaking-pensionspiking-gambit-seeks-307000-annual-payout

CalPERS officials know they have a serious problem: The nation's largest pension system holds too many risky investments to adequately withstand the next big economic downturn.

Yet the only proposal under consideration to shore up the system would take decades to properly rebalance CalPERS' portfolio. If the next major recession comes before then, the retirement system will have to sock state and local governments with devastating rate increases at a time when they can least afford it.

Read more:  http://www.contracostatimes.com/news/ci_28992152/daniel-borenstein:-calpers-plan-for-reducing-investment-risk-leaves-pension-system-vulnerable

CalPERS officials know they have a serious problem: The nation's largest pension system holds too many risky investments to adequately withstand the next big economic downturn.

Yet the only proposal under consideration to shore up the system would take decades to properly rebalance CalPERS' portfolio. If the next major recession comes before that, the retirement system will have to sock state and local governments with devastating rate increases at a time when they can least afford it.

Read more:  http://www.contracostatimes.com/opinion/ci_28980965/daniel-borenstein:-calpers-protracted-plan-for-reducing-investment-risk-leaves-pension-system-vulnerable

Former San Jose Mayor Chuck Reed has twice rolled out statewide pension reform initiatives. Each time, Attorney General Kamala Harris effectively killed the measures before Reed could start collecting signatures to place them on the ballot.

This time might be different.

Read more:  http://www.contracostatimes.com/opinion/ci_28941163/daniel-borenstein:-latest-chuck-reed-pension-initiatives-address-attorney-generals-past-concerns

CoCoTax continues to advocate for sustainable public employee compensation, including rational and affordable benefits.  The current massive unfunded pension liability has forced a proposal by state initiative to curb such abuses.  Read more at www.ReformCalifornia.org

California regulators have cracked down on hundreds of public officials up and down the state who accepted meals, baseball tickets, brownies and other gifts from a bond-finance company and failed to disclose them.

http://www.utsandiego.com/news/2014/oct/06/stone-youngberg-poway-meals-statewide-probe/