Public pension plans — from bad to a whole lot worse –

The Government Accounting Standards Board doesn’t have as much throw-weight in Sacramento as the public employee unions when it comes to pension reform. But the new rules the board approved Monday should make Democrats in the Legislature a lot more receptive to Gov. Jerry Brown’s reform proposals than they have been.

The rules overhaul how public pension funds report on their financial health, requiring employers (i.e., local governments) to recognize costs earlier and, in certain cases, make more conservative projections of future fund earnings. The changes will make it easier for the public to see when a pension plan is underfunded, and by how much. Another goal is to reveal the assumptions that employers use when making projections about a fund’s growth, so the public can tell who’s being realistic and who isn’t.

The GASB can’t tell governments what benefits to pay or how much to contribute to their plans. Instead, all it can do is tell cities, counties and states how to account for their pension plans in the financial disclosures that the bond market and investors demand. Nevertheless, barring a sharp improvement on Wall Street, those disclosures are likely to be unnerving.

According to a Boston College study, the California public employee pension fund (CalPERS) was 83% funded in 2010 under the old accounting rules, but only 65% funded under the new rules. The state retirement fund for teachers (CalSTRS), which was 71% funded in 2010, would have dropped to 60% or, possibly, 41% if the new rules had been in place.

The new standards go into effect in two years. Brown’s pension reform plan, meanwhile, will die in two months unless the Legislature acts on it before adjourning. Democratic leaders have shunted the issue to a conference committee, which held months of public hearings but has not offered any formal proposals. Republicans, who have embraced Brown’s plan, tried to force a vote in the Senate last week on the proposals, only to be blocked by Democrats.

The majority party may shrug off the GASB’s move, considering how long it will take for the new standards to kick in. Besides, the courts have tied the hands of pension reformers, barring major changes to the plans for workers who’ve already been hired. So Brown’s plan wouldn’t save much money for the state in the short run.

Nevertheless, the GASB has raised the stakes for Democrats, if not now, then two years down the road. Unless the funds improve dramatically with the help of a sustained bull market, their financial picture is likely to be noticeably bleaker under the new standards than it is now. You’d think Democrats would want to be able to tell voters that they’ve taken real steps to make things better.

via Public pension plans — from bad to a whole lot worse –

Wisconsin Gov. Scott Walker has pension-reform advice for Illinois – Blogs On Politics – Crain’s Chicago Business

The man who just survived his recall as Wisconsin governor said he’d probably be a bit more inclusive in going after labor rights if he had it to do again — and urged Illinois to do the same in fixing its cash-short pension funds.

In a press conference after addressing a Commercial Club of Chicago luncheon, Gov. Scott Walker said a certain amount of pain is inevitable in addressing public-sector pensions, as he did in part in Wisconsin and as Illinois now is pondering, too.

But things like “involving the public” via dialogue are important, too, he said — sounding less GOP firebrand than a consensus-builder.

“If I had it do do again, I’d do both: talk about it (first) and fix it,” Mr. Walker said.

“A certain amount of push-back is inevitable” when dealing with powerful workers unions, he said. But as both Wisconsin and officials in Democrat-controlled Rhode Island learned in mandating pension cutbacks, the “more the public is involved, the better.”

In Wisconsin, Mr. Walker — along with limiting labor’s rights overall — got cuts in minimum annual cost-of-living allowances in pensions and an increase in how much workers had to contribute themselves. Those helped close a big state budget gap and avoid painful cuts in Medicaid spending, he said.

Illinois’ solution “probably will have to be a combination of things” but the COLA stuff is particularly significant in times of slow economic growth, Mr. Walker said. “If you don’t tackle this problem, it eventually will eat up your budget.”

COLAs absolutely are on the table in ongoing pension talks among legislative leaders and Gov. Pat Quinn here. But the initial Crain’s/Ipsos poll, released over the weekend, found that specific pension reforms are a difficult sell with the public.

At last check, Illinois’ state government alone had $83 billion in unfunded pension liabilities and, according to a report released last week by the Pew Center for the States, ranked 50th of the 50 states in setting aside assets to pay promised retirement costs.

Mr. Walker sought to downplay recent friction with Mr. Quinn, which arose after the two governors battled over who would be home to specific companies and plants.

“I’m not here to poach businesses,” Mr. Walker said. In fact, “it’s in our best interests to have a strong Illinois and particularly Chicago.”

The reason is that Chicago’s international stature helps lure companies to the region that otherwise never would have considered locating in Wisconsin, Mr. Walker said. If they come to Chicago, they may expand north of the border.

via Wisconsin Gov. Scott Walker has pension-reform advice for Illinois – Blogs On Politics – Crain’s Chicago Business.

Capitol Weekly: Communities of color will feel brunt of impact from pension ‘reform’

Now that ballot initiatives targeting public employees’ pensions have passed in San Diego and San Jose, state legislators and politicians in other cities may be contemplating similar efforts. But new data released this month should give them pause.

It turns out that so-called pension “reforms” will disproportionately affect Hispanic and non-white Californians, as well as women. In the long run, pension changes may cause these future retirees to be disadvantaged to such a degree that they require more government assistance in their old age, draining far more dollars from public coffers than can be saved today.

The data comes from the Federal Reserve, which this month released its annual Survey of Consumer Finances, for the 2010 calendar year. It shows that the current recession has hit various ethnicities far harder than whites. For example, while white families saw their wealth fall by 10 percent between 2007 and 2010, Hispanic families experienced a 26.8 percent plunge. That is something policymakers ought to consider, and answer for, when they contemplate additional reductions and changes to public employee retirement accounts.

Nearly 40 percent of Californians identify themselves as Hispanic. And already, they are far less likely to have access to employer-sponsored pension plans. There are about 3 million Latino Californians stuck in low-wage jobs that do not offer retirement benefits, according to UC Berkeley’s Center for Labor Research and Education. These are Californians who, in their retirement, will be forced to rely on government services for everything from health care to food assistance.

The same is true with government-sponsored pension plans. If the police officers, teachers, social workers and road maintenance crews who make up the government workforce in California are required to migrate from defined-benefit pensions into accounts that look more like stock-market based 401(k)s, it means the state will be asking average working families to also serve as their own actuaries. Instead of protecting their retirement accounts in the CalPERS’ system that has yielded 8.4 percent annual interest over the past two decades, they will be pushed into the kinds of risky accounts that suffered $2.8 trillion in losses nationwide between 2007 and 2008.

It’s important to remember that teachers do not earn Social Security benefits, so they rely almost entirely  on pensions through the California State Teachers’ Retirement System (CalSTRS) when they retire. And because California’s teachers are mostly female, it means that women have more to lose if CalSTRS is pushed toward 401(k) style investments. Also, because women, on average, earn less than men and also outlive them, they are further disadvantaged by pension reforms that reduce the size of retirement accounts.

In the end, these workers will not have adequate retirement funds and in their older age will turn to the state for assistance.

The crux of the pension “reform” issue comes down to the economy and its ability to generate revenues to support government services. And here’s the problem: in 2010 alone, retirement checks paid out by the California Public Employees Retirement System (CalPERS) were responsible for generating $26 billion in economic activity in our state and more than 90,000 jobs, according to research by CalPERS and the California State University.

That means, therefore, any structural changes to public employee pensions at the state level threaten a significant economic engine in our state, threaten jobs, and threaten to further reduce the revenues that flow into the state. For a state General Fund that is perpetually in deficit, reductions in pension payouts will only exacerbate the chronic imbalance.

Government pensions did not create the budget problems municipalities and states are  currently experiencing. That’s why the pension reform debate is not actually about budgets, rather it is about the working families who earn modest wages and retire on limited retirements. It is about the law enforcement officers, school employees, and municipal workers who not only keep our communities safe and our roads running smoothly, but whose wages stimulate our economy.

Lawmakers considering pension system “reforms” must think critically about the Latinos, the women, and the other average working Californians who will be disproportionately affected by changes to government retirement systems. When and if they do propose changes, they must also be prepared to answer to those constituencies.

Ed’s Note: Mary Rose Ortega is a third-grade teacher at First Street Elementary in the Los Angeles Unified School District, and a member of the board of directors of the California Teachers Association.

via Capitol Weekly: Communities of color will feel brunt of impact from pension ‘reform’.

Quincy, IL News – – Poll: Illinoisans want pension reform


Illinois residents strongly back an overhaul of the state’s crumbling public employee pension plans, but they are divided on how best to fix them.

And, in a bit of a surprise, they support a proposal to allow slot machines at horse tracks.

These are among the findings of the first-ever Crain’s/Ipsos Illinois Poll, conducted for Crain’s by Ipsos Public Affairs, the polling unit of the world’s largest public-opinion research company, based in Paris. Ipsos, which also partners with Reuters news service nationally, will be surveying Illinois adults exclusively for Crain’s on major public policy, fiscal and economic issues, as well as the upcoming elections.

The Illinois poll reveals that 57 percent of people think the state should revamp pension plans covering state employees and teachers “because it does not have the money to meet its existing and future pension obligations.” That’s more than twice the 26 percent who say the state should honor the current pension plan.

But the poll may explain why the Legislature ended its spring session without taking action on pension reform: Any fix will offend a sizable number of would-be voters.

via Quincy, IL News – – Poll: Illinoisans want pension reform.

How the Supreme Court’s ‘Knox v. SEIU’ Decision Could Dismantle Union Security Around the Country | News & Politics | AlterNet

The Supreme Court struck at the rights of workers with the blade of the First Amendment on June 21, when it made a decision that will restrict unions’ ability to spend on elections, and could open the way for passage and court approval of a national, union-weakening, so-called “right to work” law.

The curious case of Knox v. Service Employees International Union (SEIU) Local 1000—in which the high court decided to throw “judicial restraint” to the wind and go beyond the questions posed in the appeals court to rule against the union—portends nothing good for workers. Knox restricts how unions can get money for political uses from public sector workers in a unionized shop who refuse to join the union (Garrett Epps over at the American Prospect has a great description of the particulars in the case.)

Even as unions in the private sector have seen their memberships dwindle to around 6 percent of the workforce, public sector unions (in places where they are still recognized) have remained relatively strong because they have been allowed to collect some money—albeit less than the full union-dues amount—from workers who do not want to belong to the union. The public sector union contract has to cover all the workers in the agency, not just card-carrying members– and all the workers benefit from the resultant pay raises, health benefits, pensions and other goodies. So non-members are expected to contribute something to the direct cost of negotiations. (Workers who don’t support the union shouldn’t get to enjoy the better pay and working conditions that their union colleagues fought for, but employers haven’t historically been willing to pay people less for NOT being union members. They much prefer to bribe, cajole and threaten workers to reject the union.).

Public sector unions have been major political players, too (see: Scott Walker’s targeting of Wisconsin’s public employee unions).This is partly because fundraising for politics has been relatively simple: with everyone’s full knowledge and ample notice given (called “Hudson notices”), a percentage of both members’ and non-members’ funds could go toward political work. Anyone could opt out of this political fund, and their money would be reimbursed.

The Knox decision brings this practice to a screeching halt.

Essentially, the court held two things: one, that SEIU violated those existing rules in 2005 when it forced state workers who aren’t union members to pay, without the usual opt-out chance, for a one-time special political fund; and two, that even giving the money back and letting workers opt out of the political fund was still a violation of the workers’ First Amendment rights. The five conservative justices, led by Justice Samuel Alito, and two concurring liberals, further held that, from now on, non-members have to specifically tell the union to take money out of their paychecks for political purposes; that is, they have to opt in.

In a statement released the day of the decision, Sacramento, CA-based SEIU Local 1000 spokesperson Jim Herron Zamora said, “Unfortunately this decision continues the attack on the right of public sector workers to act collectively to impact their workplace on important issues.” Placed alongside the Supreme Court’s Citizens United ruling that granted corporations unlimited election fundraising superpowers as part of “free speech,” the Knox ruling makes plain whose First Amendment rights the conservative justices favor in electoral politics. The AFL-CIO Thursday released a statement to this effect: “We are disturbed but not surprised,” it said, “that the conservative majority places special burdens on public sector unions in their efforts to represent working people’s economic interests through the legislative process that the Court does not apply to corporations when they spend shareholder money on politics.”  read more…

via How the Supreme Court’s ‘Knox v. SEIU’ Decision Could Dismantle Union Security Around the Country | News & Politics | AlterNet.

Janitors union recruits council support on contract talks | 2012-06-25 | Indianapolis Business Journal |

The first janitors’ union contract in the city will expire soon, and union organizers are looking to the Indianapolis City-County Council to give them a boost in the negotiations.

Council President Maggie Lewis, a Democrat, will introduce a general resolution in support of the janitors Monday night.

Heading into talks with seven cleaning-service companies working in major downtown office buildings, Service Employees International Union Local 1, based in Chicago, is trying to call attention to economic disparities between the janitors, who earn $8.80 per hour, and the corporations that occupy the office space.

“It would encourage the building owners and the contractors to invest in the city,” SEIU spokesman Ivan Moreno said of the council resolution.

The contract, which expires at the end of July, covers about 750 janitors working in some of the largest buildings downtown, including Eli Lilly and Co.’s headquarters, the Chase Tower, One America tower and Capital Center, Moreno said.

SEIU staged protests in front of downtown office buildings in the years leading up to its 2008 contract, its first and only contract in Indianapolis. Since then, Indiana has become a right-to-work state, which means people covered by union contracts can’t be required to pay dues.

The right-to-work law might not affect negotiations, but it could undercut support for the union over time.

“We’re going to negotiate as if the law wasn’t there,” Moreno said. “We haven’t had any company refusing to negotiate.”

The contract is with seven cleaning firms: MMMM, based in St. Louis; ABM Industries, based in San Francisco; Group Services France, based in Paris; Servico Building Maintenance Co. of Glen Ellen, Calif.; Aetna Building Maintenance of Columbus, Ohio; Platinum Cleaning of California; and ISS Facility Services Inc. of San Antonio, Texas.

The contract started out covering five cleaning-service providers but expanded over the four years, Moreno said. Janitors under the contract have seen their wages rise from an average of $6.70 per hour in 2008. They also receive paid vacation and health insurance, he said.

David Bego, founder of Indianapolis-based Executive Management Services Inc., did not join the SEIU contract, and refused to sign a neutrality agreement for non-union contractors in which they agree to eliminate secret ballots in future elections and give the union employees’ home addresses.

Bego thinks SEIU faces a tough negotiation since Indiana passed right-to-work legislation.

“I think they’ve got a hard time renegotiating, keeping people in,” he said.

Bego added that his company has offered health and vacation benefits since the mid-1990s, and his starting pay ranges from $8.50 per hour to $9 per hour, depending on the building.

SEIU protested the owner of 101 W. Ohio St. in 2008 after it replaced a union contractor with Bego’s firm.

via Janitors union recruits council support on contract talks | 2012-06-25 | Indianapolis Business Journal |

Teachers Union Begins Voting On Tentative Contract With SDUSD – San Diego News Story – KGTV San Diego

SAN DIEGO — Some 7,000 members of the San Diego Education Association began three days of walk-in voting on Sunday to decide whether to approve a tentative contract with the San Diego Unified School District.

The voting at the union offices began at 7 a.m. Sunday and will continue through 7:30 p.m. Tuesday. Several teachers gathered outside the offices holding signs urging a “no” vote on the deal.

The deal, reached last Tuesday, calls for teachers to defer scheduled pay raises in order to save the jobs of nearly 1,500 district employees given layoff notices to close a budget gap of about $120 million for fiscal year starting July 1.

“This was a tough decision,” said San Diego Education Association President Bill Freeman. “It was a decision that we felt was the right decision to save educators.”

Middle school teacher Kim Oliver-Vacha said the proposed contract is bad because it asks the teachers to give up everything and asks the district to give up nothing.

“The district has not come to meet us even part way with this,” she told 10News. “We’re taking all the onus. So, they’re trying to balance the budget on the backs of all the teachers, nurses and counselors in the district.”

Under the proposed contract, teachers will take five furlough days in each of the next two academic years and the district would offer a substantial retirement incentive.

Freeman said the tentative agreement is the best that can be expected in these tough economic times.

“We sat down with the district,” he said. “We looked at their budget. We know what they can and cannot do. We’ve always said we wouldn’t let them go off a cliff. We all lose should that happen.”

The tentative agreement is contingent upon whether voters in November approve Gov. Jerry Brown’s proposal to raise taxes. If those increases are not approved, teachers in the district would have to take an additional 14 furlough days on top of the five.

If that occurs, it would drop the school year to 161 days. The state standard is 180 days.

Oliver-Vacha said the district should be looking at making cuts in administration rather than teachers.

“Where are they cutting at the top?” she asked. “What about area superintendents? What about the superintendent himself?”

SDUSD officials said the union concession was worth $68 million, the amount taxpayers would have saved via the layoffs. School board members promised to grant scheduled raises when funding is available.

Union representatives told 10News the results of the vote should be known by Thursday.

via Teachers Union Begins Voting On Tentative Contract With SDUSD – San Diego News Story – KGTV San Diego.

Pension Reform a Must for City of Los Angeles | PublicCEO

Originally posted at

Two weeks ago, the voters in San Diego and San Jose, the second and third largest cities in California, overwhelmingly passed measures to reform their pension plans for city employees.

On the heels of these two votes, Mayor Antonio Villaraigosa directed Chief Administrative Officer Miguel Santana to immediately begin discussions with the City Council on a series of pension reforms that the mayor proposed in April. Last week, at the U.S. Conference of Mayors in Orlando, Mayor Villaraigosa continued his push for pension reform, telling his fellow mayors that he was prepared to take his reform measures directly to the voters in spring 2013 during elections for mayor and City Council.

We enthusiastically support Mayor Villaraigosa’s leadership and encourage the L.A. City Council to immediately begin working with CAO Santana on the proposal by the mayor. We also suggest that the private sector be invited to engage in these conversations. Discussions in the past on pension reform have not included the private sector, i.e. the taxpayers of the City. That should change.

From the results of the elections in San Diego and San Jose, it is clear that the public understands that the more money tax payers pay for pensions and health care for retirees, the less money remains available for police, fire, parks and libraries. In the Resolution declaring a Fiscal Emergency in the City of Los Angeles, passed by the L.A. City Council on June 5 and approved by Mayor Villaraigosa on June 11, it was acknowledged that 32 percent of the City’s General Fund is currently being earmarked for pension contributions and health care expenditures. One dollar out of every three dollars collected from the taxpayers!

The City has made progress in pensions and health care expenditures over the last two years, but much more needs to be done. As Mayor Villaraigosa suggests in his proposal, the long-term cost of benefits for retirees is still unsustainable. Revenue is on the increase but expenditures are growing faster.

The choices are clear; catastrophic reductions in day-to-day services or insolvency. The citizens and taxpayers of Los Angeles are the losers in either scenario; and they will continue to be the losers until we reduce the percentage of the budget that is committed to pensions and health care contributions for retirees. The voters in San Diego and San Jose made that statement loud and clear two weeks ago.  It is time for elected officials or the voters of Los Angeles to take action as well.

via Pension Reform a Must for City of Los Angeles | PublicCEO.

Editorial: From the left, a critique of public unions –

Mortimer Zuckerman, owner of US News and World Report, owner of the left leaning NY Daily News, “long time supporter of the Democratic party,” billionaire developer, writing in US News on “Why We Need a New Approach to Public Unions,” makes a case that is best made by Democrats.

He notes that in the recent Wisconsin recall the “central issue was the political power of the public service unions, which translates into salaries, benefits, and pensions far above those received by the median wage earner in the state. Wisconsin taxpayers understood that the state’s $3.6 billion deficit posed a mortal danger to continuing public services such as education and necessary infrastructure …”

Zuckerman goes on to point out that in “state after state, lavish, unaffordable over-promises have been made to public service employees … (and that) in fact, the cost of healthcare benefits and pensions is rising so fast that it is producing a fiscal crisis in virtually every state in the union …”

Keep in mind that these are the words of a prominent Democrat with an extensive business background. He goes on to describe what many consider the fundamental conflict of interest inherent in public employee unions. “The public unions often elect the management that they negotiate with. They organize voting campaigns for politicians who, upon election, repay their benefactors by approving salaries and benefits for the public sector employees, irrespective of whether they are sustainable

… The taxpayer-funded public service unions have essentially dictated the terms of their employment to the taxpayers they are supposed to serve …”

The result of this conflict of interest, Zuckerman suggests, is that “Government employees are better off in almost every area than private sector employees, be it in paid benefits, time off, or job security. Pensions are particularly irritating, for many state workers can retire in their mid-50s at close to full pay and receive pensions for far more years than they have worked …”

Zuckerman outlines the scale of the pension issue by pointing out that if “you take their pensions’ present value in terms of the cash you would need to buy an annuity making payments equal to the pension, we have created a new class of millionaires …”

And on the fairness issue he notes that “in 2008, the average wage for the 1.9 million federal civilian workers was more than $79,000, compared to an average of slightly over $50,000 for the nation’s 108 million private sector workers (measured in full-time equivalents) … Ninety percent of government employees receive lifetime pension benefits versus 18 percent of private employees, not to mention annual salary increases and earlier retirement with instant, guaranteed benefits paid for with the taxes of the very same private sector workers …”

The issue appears to be gaining critical mass, as indicated by a spate of public sector union rollbacks initiated by Democrat as well as Republican elected officials. “In San Jose, 70 percent voted to require city workers to pay up to 16 percent of their salaries to retain their retirement plans or accept more modest benefits. In Iowa, the governor will propose requiring state workers, some of whom pay nothing toward their health insurance, to shoulder 20 percent of the premium …”

Zuckerman sees the issue more in terms of special interest groups than unionism per se. “The Wisconsin vote was not so much an anti-union vote as it was a vote against special interests that seek to preserve exorbitant benefits at the expense of the public.”

In closing, Zuckerman says there is ” no quick fix to deal with the legacy of billions in unfunded liabilities. But there must be a fundamental rethinking of the public workforce and how we negotiate their contracts. One solution would be to take labor negotiations out of the hands of vulnerable legislators and assign them to independent commissions. Americans cannot maintain their essential faith in government if there are two Americas and the private sector subsidizes disproportionate benefits for a public sector elite.”

via Editorial: From the left, a critique of public unions –