By Gary Cohn

In a move to slash the retirement benefits of public employees in California, a group of mostly conservative policy advocates has been working behind the scenes on a possible 2014 ballot initiative. A copy of the still-secret draft initiative, which could dramatically impact the lives of hundreds of thousands of Californians and send a signal nationwide, has been obtained by Frying Pan News. (See the document’s text following this article or click here.)

If enacted, the proposed law would allow the state and local governments to cut back retirement benefits for current employees for the years of work they perform after the changes go into effect. Previous efforts to curb retirement benefits for public employees have largely focused on newly hired workers, but the initiative would shrink pensions for workers who are currently on the job.

“This initiative defines that a government employee’s ‘vested rights’ only applies to pension and retiree healthcare benefits earned for service already rendered, and explicitly empowers government employers and the voters to amend pension and retiree healthcare benefits for an employee’s future years of service,” the private draft states.

In other words, current state and municipal workers’ retirement benefits will only be partially guaranteed by the number of years they have already worked; from the time the initiative becomes law, the accrual of those benefits will be drastically curtailed.

One of the rationales provided by the draft ballot to justify its unprecedented reach into the lives of public employees is the ongoing funding shortfalls that California and many of its cities find themselves confronting. But, while pledging to help the state “maintain retirement plans that are sustainable, fiscally sound and able to meet the commitments to its employees,” the draft also claims its reduction of pension benefits is being carried out “[i]n order to protect the government’s ability to provide essential services to the public.”

The draft initiative is being circulated by San Jose Mayor Chuck Reed, who successfully pushed a pension-busting ballot initiative in his city’s 2012 election. That law, like a similar one passed the same year in San Diego, is currently being challenged in court. Reed, according to several sources, has been circulating the draft among other mayors, public officials and others in California who believe that public employee pensions should be scaled back.

Following repeated attempts to reach Reed for comment on the draft ballot, Frying Pan News received what appeared to be confirmation of its authenticity in an email sent by a Reed press aide:

“Throughout this process, there have been numerous discussions about policy options and multiple versions of draft language, so it’s impossible to tell what it is you may have. However, the substance of that statement is consistent with what the Mayor has advocated for more than a year.”

Marcia Fritz, president of the California Foundation for Fiscal Responsibility, goes further and says, “I’ve seen the draft – I don’t know if it’s final yet. I’ve been asked to weigh in on it.”

Dave Low, chairman of Californians for Retirement Security, a coalition that represents more than 1.5 million public employees, says that the draft measure being circulated by Mayor Reed and others would “take promised retirement benefits away from teachers, nurses, firefighters and other public employees.” He adds that courts have consistently decided that it is not permissible to cut promised retirement benefits to public employees. “A promise made should be a promise kept,” Low says.

Chuck Reed, a Democrat, has increasingly been seen as the public, bipartisan face of a nationwide effort to scale back retirement benefits for public employees. But behind the scenes, this effort is quietly spearheaded by a host of largely conservative individuals and organizations.

In May, for example, Reed was only one of dozens of people present at a closed-door pension summit held at a Sacramento hotel, where strategies to limit public retirement benefits were discussed. And earlier this week, Frying Pan News reported that the Pew Center on the States, an arm of the respected Pew Charitable Trusts, had formed an unusual partnership with the Laura and John Arnold Foundation in an effort to curb public employee pensions in several states.

The movement to curtail public employee pension benefits in California is being watched closely around the nation. Both those who favor curbing pensions and those who oppose it agree that any ballot initiative, such as the one laid out in Reed’s blueprint, will involve a lengthy and costly fight.

“The problem with initiatives is that public employee labor unions are very strong in fighting them,” says Jeff Adachi, the elected Public Defender in San Francisco and the man behind an unsuccessful initiative to curb pension benefits in that city. “It’s a tough route to go.”

That would seem to be borne out by reactions to Reed’s initiative from organized labor, whose representatives blame politicians’ inability to find the resources to give retirees the benefits they promised workers in the form of negotiated contracts. They also point to figures put out by the California Public Employees’ Retirement System (CalPERS) showing that the average public employee retires on only $2,629 a month.

Others decry what they regard as the naked unfairness of having rules changed on them in mid-career. One such person is Lori Adams, a 46-year-old Burbank High School math teacher. She has been a public school teacher for 16 years and is planning to teach for at least another 14 years.

“If you went to a bank and made an agreement for a car loan or a house loan, and then in the middle years they decide to change your rate – that’s not fair,” says Adams, who is also president of the Burbank Teachers Association. “It’s making a deal when you sign it and in the middle of the game changing the rules. You make life decisions based on it.”

Marcia Fritz and others, however, see the ballot initiative as an opportunity to clarify what they regard as murky rules regarding state and municipal workers’ retirement plans.

“It’s putting public employees on the same page as employees in the private sector,” says Fritz. Yet initiative opponents, including Jennifer Baker, a retirement expert with the California Teachers Association, see no reason why public employees should be placed in the same category as workers in the traditionally more lucrative private sector.

“If individuals don’t make high salaries,” Baker says of public employees, “at least they have modest retirement benefits. If you’re going to cut that, you’re going to discourage potential teachers – people with bachelor’s or master’s degrees – from even considering entering the profession.”

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Text of draft ballot initiative:

OBJECTIVE:

In order to protect the government’s ability to: a) provide essential services to the public, and b) maintain retirement plans that are sustainable, fiscally-sound and able to meet the commitments to its employees, this initiative empowers the people of California to take the actions necessary to control the escalating costs of public employee retirement benefits.

INITIATIVE PROVISIONS:

This initiative defines that a government employee’s “vested rights” only applies to pension and retiree healthcare benefits earned for service already rendered, and explicitly empowers government employers and the voters to amend pension and retiree healthcare benefits for an employee’s future years of service.

– These provisions would apply to all future government employees.

– These provisions would apply to all current government employees, unless there is clear and convincing evidence that his/her employer intended to create a vested right to a particular level of retirement benefits for future years of service.

– The initiative would also allow all government employers to temporarily amend its retirement benefits for all employees’ future years of service if: a) they are facing a fiscal emergency or b) their retirement plan is “at-risk” according to the standards established by the federal government for private pension plans.

[Note: this provision remains subject to further refinement and discussion] For any public employee plan that is “at-risk” as defined by federal laws governing private pension plans, the government employer will be required to prospectively modify its employee pension benefits in such a way that will lift the plan out of “at-risk” status within XX years. If such action is not taken within two years, the government employer would be required to… (Potential Options: require employees to pay 50% of all pension costs, increase employee and/or employer contributions into the plan by XX, etc.)

Nothing in this initiative affects the retirement benefits that a government employee has earned and accrued for prior years of service.

Government employers and/or the voters would be required to wait until current labor contracts expire before adopting any changes to employee retirement benefits.

This initiative prohibits the State of California, CalPERS, and other government boards from interfering with elected leaders’ or voters’ ability to amend their public employee pension plans for employee’ future years of service (this includes prohibiting CalPERS from charging exorbitant termination fees to government employers who wish to amend their pension plans).

This initiative would apply to the State of California and all political subdivisions of the state, including, but not limited to, counties, cities, school districts, special districts, boards, commissions, the University of California, and California State University.

(Gary Cohn writes for Frying Pan News.)

Big win for California’s workers

by Brian Leubitz

Those working at the minimum wage have to work several jobs to get by in most of California’s communities. The Governor helped that somewhat today:

Gov. Jerry Brown this morning signed legislation to raise California’s minimum wage by 25 percent, from $8 an hour to $10 an hour by 2016.

The bill, celebrated by Brown and his labor union allies at an event in Los Angeles, promises the first increase in California’s hourly minimum since 2008, when the minimum wage was raised 50 cents to $8. …

Assembly Bill 10, by Assemblyman Luis Alejo, D-Watsonville, will raise the minimum wage from $8 to $9 an hour on July 1, 2014, and to $10 on Jan. 1, 2016. (SacBee)

Now, under the current minimum wage, the average Californian needs to work 129 hours to pay for an apartment in the state. To be clear, that is working about 18.5 hours per day, seven days per week. And forget about some of the more expensive communities, like San Francisco where one bedrooms can go up to $3,000 per month for a standard unit in the eastern half of the city.

This bill will help somewhat with this issue, but clearly we need to encourage more affordable housing within easy transit distance of our city cores. And we haven’t even gotten to providing greater access to healthy food and quality schools…

All that being said, this is a positive first step for millions of Californians. Congratulations to Gov. Brown, Asm. Alejo, and all those who worked to get this bill passed.

Rhode Island town uses Kickstarter approach to government

by Brian Leubitz

While not strictly California news, with the number of California cities in bankruptcy right now, the story of a town in Rhode Island looking to crowdfunding is worth a read:

Central Falls, Rhode Island went bankrupt in 2011 after promising overly generous pensions to city employees. The city pulled itself out of bankruptcy last year and must now stick to a penny-pinching plan with no room for error or for luxuries like trash cans and public art. As a result, the impoverished city is getting creative: it’s now raising $10,044 on the civic crowdfunding platform Citizinvestor in order to clean up its main public park. It’s raised $245 so far. ([The Verge ])

Lest we think this is all very far away, San Mateo County is using the site to ask for money for fire rings at a county park and several other projects. The site is a bit spartan now, but it seems to be a growing business.

At one point in our history, taxes were used as the “crowdfunding” in order to purchased shared goods and services. Now that we have decided low taxes are more important than a government that can meet our needs, “luxuries” like bike parking and fire rings are supposed to be paid for out of your own good will.

Now, the service does allow for tax deductions, but shouldn’t we be focused on fixing the problems that are at the heart of these problems? For years, the “waste, fraud, and abuse” line was trotted out at every turn, with very little actual evidence as taxes were slashed. And now we are dealing with the ramifications, municipalities are forced to seek “out of the box” solutions that rely on good will alone.

It seems a risky proposition, at the very least.

by Art Pulaski, California Labor Federation

Negotiating a fair contract is a complex process that involves hard work and commitment from both labor and management. When both sides bargain in good faith and share a goal of securing a deal, a deal eventually gets done. I’ve personally been involved in many tough negotiations that ended with a fair deal that both parties could live with. It takes patience and willingness from both sides to compromise.

In the BART negotiations, unfortunately that hasn’t been the case. BART management paid Thomas Hock, an out-of-state lawyer with a history of driving disputes to a strike, nearly $400,000 to lead negotiations. Hock and his company have been responsible for seven strikes, 47 unfair labor practice charges and nine discrimination lawsuits. Not exactly a history of committing to compromise in order to secure a deal.

True to form, Hock hasn’t been serious about negotiating a resolution at BART that would spare the Bay Area a strike. Instead, he’s taken several vacations since he’s been on board. When he has bothered to show up at the negotiating table, he’s stonewalled. And now Hock and BART management have stopped negotiating altogether and are preparing for a strike.

Even worse, BART is saying that it will run a number of trains during a strike operated by managers who lack the minimum requirements to safely get BART riders to and from their destinations. In essence, BART is willing to sacrifice the safety of riders by pushing this dispute to a strike so that they ultimately get their way. There’s no regard for workers. No regard for riders impacted by a strike. It’s BART management’s way or — literally — the clogged highway.

The BART unions have made significant compromises in recent days with the goal of averting a strike, including last week’s concession on wages. The unions have come to the table seeking honest, good-faith negotiations to broker a deal before the 60-day cooling off period ends. They’ve proposed a modest 4.5 percent wage increase over three years after a five-year wage freeze, while offering to contribute more to their health care and retirement. It’s a fair proposal given BART’s relatively strong financial position. The unions have also sought important safety protections for riders and workers including opening more restrooms and providing for more secure stations at night, only to be rebuffed time and time again by Hock and the BART management team.

There’s still time to come to a deal that would avert a strike and ensure the safety of BART riders isn’t jeopardized. But the unions can’t negotiate by themselves. It’s going to take a commitment from both sides to negotiate non-stop, if necessary, to get that done. If Hock and the BART management team continue to refuse to negotiate, there’s only one option: a strike. Elected officials and BART directors must demand that management joins the unions at the negotiating table for round-the-clock, good-faith negotiations until a fair settlement is reached.

There’s a lot at stake for BART workers and their families as well as the hundreds of thousands of riders that count on BART to get to work, school and other destinations. Workers want to continue doing the job they’ve done exceedingly well for years. Riders want the trains to keep running. The only thing preventing a deal from getting done is BART management’s unwillingness to compromise. To avert a strike, that needs to change.

By Gary Cohn

When Kentucky’s legislature adopted a bill intended to transform the Bluegrass State’s troubled pension system last spring, state officials were ecstatic. Signing the bill into law on April 4, Democratic governor Steve Beshear hailed it as groundbreaking legislation that would “solve the most pressing financial problem facing our state – our monstrous unfunded pension liability and the financial instability of our pension fund.”

Not everyone was convinced.

Critics, who include pension-fund experts, lawmakers and AARP Kentucky, claim the new law will hurt workers, taxpayers and retirees. What’s more, they say the law was largely crafted behind the scenes by an unusual alliance between two out-of-state organizations: the Pew Center on the States and the Laura and John Arnold Foundation. Some detractors go further and assert that the Arnold Foundation is using Pew’s sterling reputation for academic integrity as a fig leaf to hide its own free-market agenda.

According to its website, the Center on the States focuses on policy initiatives that include early education, prison sentencing and corrections, and the electoral process. The center is one of seven arms of the influential Pew Charitable Trusts, which is headquartered Philadelphia, Pennsylvania, with offices in Washington, D.C. The Houston-based Laura and John Arnold Foundation is in the vanguard of nationwide efforts to limit pensions for state and municipal workers; it was founded by billionaire John Arnold, a onetime Enron trader who later made his fortune as a hedge-fund manager.

“We want to bring to your attention . . . the deceptive work that the Pew Center on the States is engaged in across the country in order to promote their cash balance overhaul policy,” a group of 10 Kentucky state senators and representatives cautioned in an open letter to legislators in other states. The letter warned lawmakers “about the ramifications of letting Pew into your state,” as well as “its unholy alliance with the Arnold Foundation.”

Critics of that alliance charge that Pew and Arnold share a mission for giving an academic veneer to a partisan belief that the nation’s massive public employee pension funds should be invested directly in costly “cash balance” plans rather than be professionally managed as traditional defined benefit plans by the public agencies that currently administer them.

Jordan Marks, executive director of the Washington, D.C.-based National Public Pension Coalition, says that the cash-balance plans promoted by Pew could dramatically reduce the pensions of workers. Under such plans, Marks says, employee pensions would be based on an average of all years of an employee’s service, instead of the highest three to five years of earnings – which is currently the norm. Moreover, in Kentucky new workers covered under the plan would be guaranteed only a modest four percent rate of return on investments. “It’s an extraordinary loss for middle class workers,” Marks says.

Pew may be mostly known for its financial support of PBS programs, which has given the foundation the kind of publicity that reflects the self-described “non-partisan and non-ideological” nature of Pew’s work.

Yet Pew has become a key player in one of America’s most partisan issues as cities and states tackle the complex problems involving public worker pensions. Pension reformers present their cause as a bipartisan good-government crusade, but a visitor landing on the website of nearly any one of this movement’s myriad organizations quickly falls down a rabbit hole of interlocking conservative organizations – whose unifying theme seems to be reflexive hostility toward workplace protections and the union contracts that guarantee them.

As a battle cry, “pension reform” has joined the ranks of “paycheck protection” (see 2012’s Proposition 32 in California) and “educational choice” (i.e., national parent-trigger laws). All three movements aim to seriously weaken organized labor and the benefits it has won for all employees. And, as the economy stumbles along in the wake of the 2009 recession, activists from these causes have exploited fears of diminished state and municipal coffers to create a climate of crisis in which their various “reforms” are presented as painful but necessary solutions.

Earlier this month Pew senior researcher David Draine spoke in Florida before the Jacksonville Retirement Task Force and offered his organization’s help in dealing with that city’s public employee retirement plan.

Draine, the lead researcher on several studies looking at state-run public employee retirement systems, strongly defends Pew’s involvement with states and municipalities that are confronting pension issues, on the grounds that Pew is serving the public interest. He also justifies Pew’s partnership with the Arnold Foundation.

“While pension reform is arguably one of the most daunting financial problems facing states and cities today, we do not have a one-size-fits-all solution,” Draine wrote Frying Pan News in an email.  “Every city and state has a unique set of policy preferences and budgetary challenges; what is critical to achieving lasting reform is an open, inclusive, data-driven process.”

He added:

“Pew has partnered with the Laura and John Arnold Foundation to help states and municipalities face their growing pension liabilities and continuing funding challenges. In some states, if changes are not made every retiree, worker and taxpayer will be burdened with rising costs and unpaid promises for years to come. Our partnership supports efforts to pursue data-driven reform of pension systems that will be fair, affordable, and fiscally sustainable.”

While few budget experts would deny there are problems with funding public employee pensions, there is nothing resembling a consensus that supports the solutions proposed by Pew and the Arnold Foundation – whose warnings of imminent pension bankruptcy complement similar apocalyptic scenarios sketched by conservatives about Social Security’s future.

Marks says that the Pew-Arnold axis threatens Pew’s longstanding reputation for non-ideological work in the public sphere.  “The Arnold Foundation is using Pew’s brand to take on retirement security,” he says.

And the head of the largest trade association for public sector plans finds serious flaws in Pew’s figures. Hank Kim, executive director and counsel of the National Conference on Public Employee Retirement Systems, says that “generally our position is that we are very disappointed in Pew. Since 2010, we’ve expressed to Pew that its methodology for reports is flawed. Their reports incite fear.”

Kim says that the cash balance plans being pushed are complex and somewhat hard to understand, but that they will cost states more to administer and provide employees with lesser pensions than defined benefit plans. He sees the former as opening the door for 401(k) plans, which are known as “defined contribution plans” and not to be confused with the current defined benefit plans.

“Pew and Arnold will not be satisfied with cash balance plans,” he says. “That’s the first step toward defined contribution plans.”

With its $5.6 billion endowment, the Pew Charitable Trusts ranks number 19 on a list of the world’s wealthiest charitable foundations. Originally called the Pew Memorial Trust, the foundation was created in 1948 by the heirs to the Joseph N. Pew Sun Oil fortune and hewed far more closely to the family’s conservative, small-government political beliefs.

Pew first thrust itself into the national debate on public sector pensions when its Center on the States released a headline-grabbing 2010 study claiming that the combined pension shortfall for all the states was a staggering $1 trillion.

“It’s an eye-popping number,” Kim says of Pew’s claim. “But that trillion dollar deficit covers both pension and health care costs, and health care costs are at least 60 percent of that figure.”

Whether the report reflected actual history or hyperbole, it launched Pew into the public-sector fixit business in a big way.

To date, Pew has partnered with the Arnold Foundation in Illinois, Montana, Kentucky and Rhode Island, wading in with actuarial studies and polling data to prod municipal and state lawmakers into incorporating Pew-authored restructuring plans.

In the case of Kentucky, Pew’s efforts resulted in bill language calling for a so-called “hybrid plan design” employing costly 401(k)-styled cash balance accounts that would be substantially more expensive for new workers than the state’s existing defined benefit plans.

Pew’s promotion of technocratic-sounding solutions to pension shortfalls, especially its mantra about “data-driven” problem-solving, lends its white papers the texture of dispassionate scholarship. Its partnership with the Arnold Foundation, however, has created intense controversy and provided ammunition to its critics.

Jim Wayne (D-Louisville), who has been a member of the Kentucky House of Representatives since 1991, says that Pew played a crucial role throughout the legislative process.

“They had a tremendous influence,” says Wayne. “The parties interested in change needed to rely on an outside source. Pew drew up the proposal, they did the analysis and presented the information to a [legislative] task force.”

Wayne says that Pew generally pushed the positions favored by his state’s Chamber of Commerce and League of Cities, working both behind the scenes and publicly.

“Pew gave them credibility,” Wayne says of these two groups. “Pew is recognized nationally as experts, with facts and figures.” As a result of Pew’s work, Wayne adds, “new workers have a much weaker pension program.”

If Pew embodies the image of an objective social scientist, the Laura and John Arnold Foundation has unambiguously embraced the role of partisan pit-bull in its nationwide efforts to curtail public worker pensions. The latter’s website identifies pension reform as one of its key initiatives and provides position papers supporting its stances – papers that frequently cite Pew studies.

Last year in California, the Arnold Foundation contributed to anti-worker pension measures passed by voters in San Jose and San Diego. Two years ago, the Center for Investigative Reporting disclosed that the Arnold Foundation had given a $150,000 grant to the conservative California Foundation for Fiscal Responsibility for a series of reports seeking to limit public employee pensions.

The Arnold Foundation’s 2011 tax return, a public record, vividly reveals an ideological agenda in its contributions made to organizations around the country “to research and promote education on public retirement plans.” The recipients of Arnold’s largess have included the James Madison Institute, based in Tallahassee ($265,000); the Kansas Policy Institute, based in Wichita ($10,000); the Manhattan Institute for Policy Research (MIPR), based in New York City ($15,612), and the Thomas B. Fordham Institute, headquartered in Washington, D.C. ($52,500).

The first two groups present themselves as free-market, pro-privatization think tanks, while MIPR, a right-wing nonprofit founded by the late Cold Warrior and Reagan CIA chief William J. Casey, has called for the complete elimination of public-sector defined benefit pension plans. The Fordham Institute is a right-wing education think tank whose agenda has recently broadened to include studies that scapegoat public teacher pensions for diverting precious public education money away from the classroom.

Pew’s relationship with Arnold began only recently, when the two groups joined forces to aid in furthering each other’s reach. Josh McGee, a vice president at the Arnold Foundation and Draine, the Pew Center’s lead pension researcher, have appeared together at informal meetings and before state legislatures and city councils around the country. McGee and Draine typically turn up with studies and PowerPoint presentations that support scrapping defined benefit pensions in favor of 401(k)-styled contribution plans, cash-balance accounts or hybrid plans.

“The fact is that they [Pew] go into states arguing they are non-partisan and then proceed to make recommendations and undermine and dismantle [public employee] pension plans,” says Hank Kim. “They have a bias – that bias is that public plans ought to be closed or frozen.”

Pew has called for transparency in other groups that conduct public surveys and the Arnold Foundation boasts about its research transparency. Yet both have given vague answers to specific questions about whether the Laura and John Arnold foundation has given financial support to Pew relating to work on public employee pensions.

The collaboration between the two organizations, says Jordan Marks, could ultimately undermine Pew’s reputation for good works and non-ideologically driven research.

“If Pew had its way,” Marks says, “it would retire teachers and firefighters and others into poverty.”

(Gary Cohn writes for Frying Pan News. Bill Raden contributed to this story.)