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November 2011 Edition
2012 - The Year of Pension Reform
Coming to a Boil!
2012 will be the most explosive political year in California politics I've seen since I moved here 32 years ago. Local and State government pension reform is likely to be the most intense political battle since Prop 13.
From Dan Schnur - director of the Jesse M. Unruh Institute of Politics at USC - "I can’t remember an issue that has exploded on the political landscape with the speed and force of the debate over public employee pensions."
The stakes are huge – hundreds of billions of unfunded pension debt hangs over California’s sick economy. Hundreds of thousands of public employees planned their retirements based on what they thought were solemn promises. Public services are being slashed.
These are hugely complicated issues – but know this – we are about to have a political firestorm in California – and unavoidably in our County – over the next 12 months until the November 2012 general election - and probably thereafter.
Click to see what I think about Pension Reform. (It may open in a new tab - not a new window.)
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The "Great Game" of 2012
Here's how I see it. The "main event" is a 3 player statewide chess game:
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• Jerry Brown’s play with the Legislature and his November 2012 ballot initiative
• Californians for Pension Reform (CPR - get it?) two-pronged initiative gambit
• Whatever Labour may try to do to try to take the wind out of CPR's sails
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There are many local pension reform efforts - San Francisco - San Diego - Sonoma County - and many others. I believe they will be subsumed by the statewide drama – although the local efforts are a major motivator for statewide politicos to get something done.
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Jerry Brown
On October 27 Jerry Brown released what many skeptics were forced to admit were much stronger reform proposals than expected.
Brown's 12 point program will require both legislative action and a statewide initiative in November 2012. Click to read a good SHORT summary of Brown’s proposals. And here's a link to the Governor’s description of his proposals. Finally - here's a good article describing the shortfalls pension reformers see.
Oh - and - Jerry needs a tax increase, but as we learned here in Mendocino County in the Measure C County Sales Tax initiative a year ago, Jerry knows there's no chance of a general tax increase without significant reform.
Remember – Jerry was a first-term Governor when Prop 13 passed. He knows what that feels like and will let his Democratic and Labor colleagues know what's coming if they don’t “get real”.
Jerry Brown is about to get the work-out of his life. He has to thread a needle - create enough "real" reform to finesse CPR's proposals, and convince his left-allies they'd better swallow the bitter medicine 'cause the alternative is much worse (from their perspective).
And – I believe Jerry knows the current path leads to failure.
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Californians for Pension Reform
A week or so later a group named Californians for Pension Reform introduced two possible initiatives for the same 11/2012 election. They are "testing" these to determine which to actually place on the ballot.
Both share a number of changes to how public pensions are organized and financed.
Where they differ is primarily in the type of retirement plans they would impose. One is a
"hybrid" retirement plan (click to see) - the other is usually characterized in the press as a 401k type plan (click to see) but it's more subtle than that. What it fundamentally does is remove unfunded pension risk from the public.
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Girard Miller
The analyst I respect the most about "all this" is Girard Miller who (among many things) writes about public finance for Governing Magazine.
Miller produced reviews of Governor Brown's and CPR's proposals. He analyzes these proposals in two categories - "Anti-Abuse" and "Fundamental Fiscal Reform". I can’t recommend these articles enough:
Jerry's Proposals
CPR's Proposals
Miller’s archived articles on public retirement benefit finance are must reads for anyone who wants a solid grounding in these issues – look for those about retirement benefits.
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Action in California and Across the Country
Pension Reform is hot right now not just in California but across the US.
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Sonoma County
Sonoma County Supervisors Shirlee Zane and David Rabbitt produced a very serious report (
click to download - 3MB) on that County’s pension debt problems with proposals that could significantly change the financial path of the county's pension obligations. The full Board of Supervisors has indicated they intend to move forward with the proposals.
I don’t think the proposals put forward are adequate to achieve the goals stated in the report - but just like Jerry Brown's program it's significantly more than many critics expected.
I believe these two Sonoma County Supervisors deserve praise for this effort. As a very simple example – when most people use the word "sustainable" in reference to public pensions they mean the sustainability of the pensions. In contrast the Sonoma Report defines "sustainable" as "pension obligations are met without degrading services to the community". That's exactly where the concept should be - the fundamental purpose of county government is to provide services to the people.
Sonoma County Supervisors have taken a giant first step to confront their unsustainable pension debt. Now - more needs to be done.
San Jose
Democratic mayor Chuck Reed intends to get a strong pension reform measure on the March 2012 ballot. Read his descriptions of his reform proposals here. See Mayor Reed explaining the City’s crisis to citizens in a short video here.
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Rhode Island
Rhode Island just passed the most extensive reform to date in state government pensions including imposing a hybrid system (combination Defined Benefit and Defined Contribution). The most striking thing is Rhode Island imposed these changes on current public employees in spite of previous collective bargaining agreements. Will it stand up in court? Click to see the Rhode Island General Assembly’s very good website on this groundbreaking legislation.
San Francisco
San Francisco Public Defender Jeff Adachi (click to see him describe his motivations) led the charge for pension reform in the City for the past 3 years. Adachi put two initiatives on the ballot – one last year and another this month. Both lost. However, there's no question he raised the issue and almost certainly forced Mayor Edwin Lee to put a "Labor Union – Chamber of Commerce" reform package on the ballot in 11/2011 that did pass.
San Diego
Until CPR's proposals the most far-reaching proposal to change public pensions in the state to date will be on the June 2012 ballot in the City of San Diego. San Diego was the first major municipality in the US that "hit the public pension wall" with a huge pension scandal (click to see more) that dominated that city's news from late 2003 until today. The initiative (click to learn more) would convert most City employees to a 401k type program – safety employees would keep a form of defined benefit pension.
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