Bloomberg News

California Cities Adopt Pension Reforms While Brown Negotiates

June 10, 2011

June 10 (Bloomberg) -- With little public comment and about 15 people in attendance, the City Council of Brea, California, voted unanimously last month to slash pensions for future hires and require current employees to pay as much as 4.5 percent of their salary toward retirement, up from zero.

The city of 40,000, about 30 miles (48 kilometers) southeast of Los Angeles, had negotiated the changes with its unions, so there wasn’t any objection from them. By next year, according to a city report, employees will be contributing $1 million more annually to their pension benefits.

Brea is among about 90 cities in the most populous state that have made changes to their pension plans, according to an informal list kept by the California Public Employees’ Retirement System, while Governor Jerry Brown and lawmakers wrestle over ways to lower costs. Calpers and the California State Teachers´ Retirement System listed unfunded liabilities of almost $113 billion at the end of fiscal 2009. Brea employees participate in Calpers.

“This is really a pretty momentous achievement,” Brea Councilman Brett Murdock said at the May 17 meeting. “If there’s any other city council members out there watching, I just want to say it can be done. Brea did it. I hope other city councils see this and carry the flag.”

New York Governor Andrew Cuomo proposed changes June 8 to his state’s system that would end early retirements, increase contributions and eliminate unused vacation payouts for employees hired in the future. The same day, New Jersey’s Chris Christie reached agreement with his Senate’s Democratic leader to increase workers’ contributions.

Emergency ‘Right Now’

Taxpayers who have seen local government services cut are demanding that elected officials take action on the rising costs of public-worker benefits, said Lacy Kelly, chief executive officer of the Association of California Cities-Orange County.

“For cities, the emergency is right now,” Kelly said in a telephone interview.

San Francisco Mayor Ed Lee and Supervisor Sean Elsbernd on May 24 proposed a November ballot measure that would cap pension benefits, raise retirement ages and require greater contributions from workers. San Jose Mayor Chuck Reed has proposed similar changes.

Los Angeles and San Diego negotiated agreements this year that will add employee contributions to their retirement health- care for the first time. The cities have also lowered benefits for future workers.

Financial Problem

Brown has said that retirement costs, at 5.5 percent of general-fund spending, aren’t California’s biggest financial problem. However, with many cities paying larger shares of their budgets to employee costs, “pension reform at the local level is needed now,” said Robert Ming, a city councilman in Laguna Niguel and president of the Orange County group.

Brea contributed $8.3 million. or 8.9 percent, of its general-fund spending to retiree health-care and pensions last year, according to the city’s annual report. Los Angeles put in $710 million or 16 percent of its budget, according to a City Council presentation by City Administrative Officer Miguel Santana last year.

In a survey by the League of California Cities, two-thirds of the 296 localities that responded said they’re negotiating changes in their plans. Thirty-eight percent had increased pension payments from current employees, and 20 percent had created a new tier of benefits for future hires.

Some believe the changes at the local level, particularly lower benefits for future workers, don’t go far enough.

“It deals with new hires, and right now we’re not hiring,” said John Moorlach, a supervisor in Orange County. “The only real change you can have is to go back to bargaining units” and negotiate increases from existing members, he said.

--With assistance from Michael Marois in Sacramento, Alison Vekshin in Washington and Esme E. Deprez in New York. Editors: Pete Young, Stephen Merelman

To contact the reporter on this story: Christopher Palmeri in Los Angeles at cpalmeri1@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net


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