The Sacramento Bee’s editorial board this morning argues that Federal Bankruptcy Judge Christopher Klein’s “potentially groundbreaking ruling in the Stockton bankruptcy case should send messages loud and clear.” The question is whether cities like Davis will hear that message.
The Bee writes, “To the Legislature – that it can’t rewrite federal bankruptcy law. To the city of Stockton, Franklin Templeton Investments and CalPERS – that they need to make a deal. And to local officials across California – that they need to get more serious about pension reform.”
It is, of course, the bottom line that we are most concerned about the need to get more serious about pension reform.
By ruling that “insolvent California cities could choose to reduce already-promised pension payments and even walk away from the California Public Employees’ Retirement System,” even though Stockton does not plan to do that, the door is now open to change.
Writes the Bee, “This entire ugly spectacle ought to refocus local officials on their financial reality: If they don’t control long-term retirement costs, those obligations will consume tax dollars at the expense of services to residents and jobs for current employees.”
As the Bee notes, many have started to dial back pensions. Cities like Davis have begun to reduce benefits for new hires and require all employees to pay their full share of the CalPERS contributions.
However, Davis, like other cities, has had to negotiate these changes. Davis exchanged the employees’ pension and retiree health concessions for as much as a two percent pay hike.
The Bee writes, “Because these changes are being made through negotiations with unions, local governments are often having to hand out pay raises and other sweeteners in return. And because they were far too generous for much too long, it is going to take years for significant savings from pension reform.”
That is exactly the dilemma the city of Davis is in. The city has implemented the pension reforms it can, it has slowed down the rate of salary and compensation growth to below inflation levels and yet, it is still in the red.
The Bee notes, “The city of Stockton overpromised and overspent, and buried itself in more than $200 million in debt. Franklin Templeton and other creditors made bad bets. And the biggest losers are the working people of Stockton, who will be paying for these mistakes for years to come. About 2,400 retirees have lost their city-paid health insurance, while residents are getting slammed by $90 million in budget cuts and by higher sales taxes to shore up public safety.
“If other cities don’t learn the right lessons, they could put their citizens in similar straits, even if they don’t flounder all the way into bankruptcy court.”
And that concerns us greatly at a time when the city of Davis is at a crossroads. The city has attempted to reduce pension obligations by convincing employee groups who signed agreements (that does not include fire or DCEA) to pay more of their employee share and agree to a second tier of benefits for new employees.
But Davis remains in the hole due to local issues such as lack of sales tax revenue, increased costs due to CalPERS changing their formulas, and the failure of the city to invest in infrastructure.
These changes are not nearly as robust as we would like to believe they are. While the city carved out labor agreements with 5-0 votes, other reforms required 3-2 votes to implement.
There are indications that some of the employee groups are resurgent. Fire and DCEA held out until contracts were imposed on them last December, and only have one-year contracts. Many of the labor agreements are up as soon as next summer.
The city voters passed a sales tax measure as a stop gap to close a $5 million shortfall, but a follow-up parcel tax measure that would have dealt with infrastructure needs will not be on November’s ballot, and polling suggests that, even if it makes it to the ballot, it may not pass.
There are indications – despite some protests from some on the council – that there is an impasse or at least a difference of opinion about the new city manager. The Vanguard continues to get confirmation that there is one candidate backed by employee groups, hopeful that new revenues will filter now to increase employee compensation.
Many continue to worry that new revenue – far off as it may be – from innovation parks will eventually go to employee compensation rather than shoring up existing city services and infrastructure costs.
There is some precedent for it. In 2004, the voters passed their first half-cent sales tax measure with the city purporting to need the revenue to continue existing services. But that’s not how it worked out, and instead the roughly $3 million in revenue went to a roughly 36 percent pay increase for fire, with additional revenues from double-digit property tax revenue increases going to fill 15-18 percent pay increases for the other bargaining units.
That engine shut off in 2008 when the economy and real estate market collapsed, but in 2009, the city made only small and minor adjustments to pensions and retiree health care. It was left to the last council to do the heavy living.
The question now is whether the council will continue down the path to sustainability or whether it will turn back and go with an approach that seems more employee-friendly, but masks the city’s fiscal problems.
—David M. Greenwald reporting
The first reform we should have, statewide, is regardless of how long you have worked for the city, county, state, whether you are “safety personnel” or not, you don’t collect a pension before you turn 60 for some and 65 to 67 for others, very much like social security. There are people who work doing heavy physical labor that can’t continue doing that sort of work after 60. Ideally, they should train for less physically demanding jobs but that isn’t always possible. For the fire and police workers, they need to move up from being in the patrol cars and fire engines in their forties but in no case should they be given retirement before they are eligible for social security. The rest of the world works into their 60’s and so should they. If they are disabled, let them live on SSDI like the rest of us if we are disabled.
the reform that they actually passed last year will have new employees who are safety retire at 57 and non-safety i believe at 62. the problem that they have is they can’t change the law for current employees, that’s the whole reason for the ruling this week.
DavisBurns
“f they are disabled, let them live on SSDI like the rest of us if we are disabled.”
I agree that there should be equal treatment. The question I have is whether SSDI is adequate to live on ? If it is, it should apply to all. If not, then it should be increased for all. The goal from my perspective would be not unity at the lowest existing standard, but rather provision of enough to live on …..for all.
ssdi is basically poverty senior income.
I have no problems making changes as effects new employees who know what they are getting themselves into.
I have a great deal with what is essentially a “bait and switch” for those who are nearing retirement age, have no ability to completely rearrange their finances from what they had justifiably believed that they would be getting in retirement and may now be essentially being told….too bad…just kidding on the retirement plan. I am wondering how this fits in with the Christian ethics and sense of morality that some posters have been extolling on another thread ? How is it ok in this religious ethos to rip the financial rug out from those who have plaid fairly by the rules with which they were presented all of their working lives ?
The reality is that if a city goes bankrupt and cannot pay pensions, city employees may be left with absolutely nothing (this has happened). However, if these same employees had made some concessions, they may have been able to stave off the worse case scenario, and been left with something.
There is nothing that is going to work other than converting all currently working government employee defined benefit retirement benefits to defined contribution plans. We should calculate the present value of the existing benefits and fund 401k 403b accounts, and then implement matching employer contribution plans.
The benefits to this:
– True real-time accounting of costs.
– Makes public sector employee benefits fair and equitable with the other 95% of workers.
– Government employees are not job-locked… they can take their retirement benefits with them and go work somewhere else without monetary penalty.
– People get to decide when they want to retire, not be practically forced to retire because their benefits are fully vested. This means that older employees that are still productive and valued and that enjoy working would not face negative incentives to keep working.
– Move labor movement between private and public sector… instead of the public sector being locked up by workers unwilling to leave because of their pension accrual, and private sector workers unwilling to move to public sector in mid-career because of minimal vesting opportunities.
The ONLY downside is that public sector employees face market risks like the other 95% of workers.
Frankly
“Makes public sector employee benefits fair and equitable with the other 95% of workers.”
This is only true if you make the assumption that the “other 95% of workers” are getting benefits that are commensurate with providing them an above poverty level of living for the rest of their lives. If this is not true, then the benefits of the 95% should be adjusted closer to those of the public sector and we should all bear the cost.
“Government employees are not job-locked… they can take their retirement benefits with them and go work somewhere else without monetary penalty.”
This is a very age dependent statement. How likely do you think it is that a still productive 62 year old will have an easy time finding a job in their field when employers are seeking younger workers ? I know since I am on our hiring team that in department building one of the things that is desirable is to hire an individual who can be coached to become a strong member of the group and who is likely to make a long term ( 10-20 ) year commitment to the group. Age is not really the criteria, number of years of desired employment is. Unfortunately the two do tend to go hand in hand.
“People get to decide when they want to retire, not be practically forced to retire because their benefits are fully vested.”
This sounds lovely, but is not completely accurate. There can be multiple ways in which employees can be pressured to leave that do not go so far as to break the law by creating a hostile work environment but which can serve as subtle or not so subtle
“nudges” to move on even if the individual is a fully contributing member of the group.
Tia wrote:
> This sounds lovely, but is not completely accurate. There can be multiple ways in
> which employees can be pressured to leave that do not go so far as to break the
> law by creating a hostile work environment but which can serve as subtle or
> not so subtle
I think Tia is missing the point, public employees are “forced” to retire at 50 due to a “hostile work environment” they are “forced” to retire because only an idiot would work ~40 hours a week to make only 10% more (or in many cases LESS money) than they could make “retired”
I have a “retired” friend in his early 50’s that retired at 50 as a battalion chief for a Bay Area fire district a few years back and he was able to play the “overtime game” his last year so he is now retired and making MORE than he ever made working. It is not like this guy (that is faster than me running sub 40 minute 10Ks) needed to “retire” due to “old age”…
With former Davis Fire Chief Conroy and her Firefighter husband in their 50’s “retired” making ~$200K/year (not counting any health care cost) I wonder how many million Davis will pay then in their “golden years”. On the bright side the Davis Fire Chief “and” her husband make less than the SF Fire chief (who will probably retire at 50 this year with a $300K pension).
I want public safety people to make a fair wage, but something is wrong when most 55 year old “retired” cops and firemen from the bay area who went to junior college for two years are making more than the average 55 year old MD that is “working” 60 hours a week…
SOD – Isn’t it so hypocritical hearing so much whining and crying about the 1%ers while the same that do that whining and crying are also the first to protect absurd public sector pay and benefits.
If anything in our country’s left-right political discourse disqualifies the left from being considered fair and balanced, it is this.
Who is trying to protect public sector pay and benefits?
The Democratic Party
How likely do you think it is that a still productive 62 year old will have an easy time finding a job in their field when employers are seeking younger workers ?
Tia – I don’t think you get it. How are you connecting the dots? The point is that the 62 year old does not have to quit and go find another job. But if she hates what she does and wants to do something else, she would take her fully-vested retirement account with her. And if she was fired… wrongly or rightly… before her fully vested pension benefit retirement… if she had a defined contribution plan instead, she would take 100% with her. But with a standard defined benefit pension, the employer keeps the balance only with a commitment to pay her a certain amount based on her pay and years of service when she quit or was fired. Because of this a government employee is motivated to work hard to not get fired and to warm a chair even if they hate their job.
Look at it this way… say the value of a government employee’s 2.5% at 30 defined benefit pension is presently valued at $500,000 after 20 years of service. If that employee walks away at 20 years, the value of that benefit will stay at $500,000 10 years later when she retires.
Now let’s say that instead the employee has a defined contribution plan with $500,000 balance in her 403b plan. She is invested in a balanced selection of mutual funds with moderate risk and earning a 6% long-term return on investment. In 10 years that $500,000 would be worth about $900,000. She loses the benefit of that additional $400k in earnings and that is why she would stay working in her government job.