How Chuck Reed's Pension 'Reform' Scheme Doesn't Add Up

San Jose Mayor Chuck Reed gestures during the 8th Annual CEO Summit at IBM offices in San Jose, Calif., Friday, April 22, 201
San Jose Mayor Chuck Reed gestures during the 8th Annual CEO Summit at IBM offices in San Jose, Calif., Friday, April 22, 2011. (AP Photo/Paul Sakuma)

In late December, California's nonpartisan Legislative Analyst, the state office responsible for analyzing the impact of proposed ballot measures on state and local budgets, sent up a large red flag. It said that an initiative that would eliminate the Constitutional vested rights of public employees to retirement and retiree health care could cost "billions of dollars" and send cities and counties throughout California spiraling into further debt.

The ballot measure in question relates to the retirements promised to public servants, such as the teachers in our public schools, the police officers patrolling our streets, the school bus drivers transporting our children, and more -- the hard-working, middle-class Californians who help keep our local economies thriving. It would give politicians unilateral authority to change the pension benefits and retiree health benefits promised to current public employees, and in some instances circumvent the collective bargaining process.

The idea has been proposed by San Jose Mayor Chuck Reed. Reed has already spent $5 million of taxpayer dollars in San Jose on a similar measure whose major provisions were recently overturned by the courts. Now he wants to take the idea statewide.

The Legislative Analyst's Office evaluated the language of Reed's proposal and determined that it would bring about "significant uncertainty" to governments' budgets. In fact, the LAO said Reed's measure would likely result in increased costs "potentially in the hundreds of millions to billions of dollars -- over the next two decades" for many governments. Increased reporting required by the ballot measure would increase costs by another range of "tens of millions to hundreds of millions of dollars." On top of that, the initial costs of implementing the pension changes outlined in the ballot measure would costs cities and counties more in the short-term, when many cities are still working to pull themselves out of the recession.

That's exactly what happened in San Diego. Voters there said "yes" to a measure to end defined-benefit pensions for public employees and force them into riskier 401(k)-style accounts, but instead of reducing the city's costs, the city's actuary determined that implementing the measure would cost the city $27 million more in the first year alone.

If local governments are serious about reducing the costs of employee compensation as a way to balance their budgets, they should address pensions and health care costs in the proper venue -- at the bargaining table with employees, not on a political soapbox. In nearly 400 jurisdictions in recent years, elected leaders and public employees have shown that they are willing to do just that, agreeing to changes including reduced benefit levels and higher employee contributions.

It's important to question whether the proponents of Reed's ballot measure have our cities' and counties' best interests at heart. The seed money for Reed's effort has come from a man named John Arnold. Arnold is a Texas billionaire and a former executive with Enron, the company that fleeced Californians and California cities during the energy crisis a decade ago. Arnold has already given $200,000 to Reed's anti-public worker measure, and that's on top of the $7 million he has spent on similar anti-pension measures around country, including in San Diego and San Jose. Uber-wealthy venture capitalists and hedge fund managers are some of the other donors behind Reed's measure.

Meanwhile, a coalition of more than 25 California mayors and other local elected officials have courageously taken a public stance in opposition to Reed's idea. These are the people who truly care about and represent our communities. They know that allowing governments to turn stable pension systems into Wall Street-style money-making schemes carries with it tremendous risk for local governments. They also know that reneging on promises made to hard-working public servants would send our state's middle-class families spiraling in a race to the bottom. Reed's proposed measure is a lose-lose for government budgets and for our communities.


Dave Low is Chairman of Californians for Retirement Security, a 1.6 million member coalition of teachers, firefighters, school employees, police officers and other public employees.