Chuck Reed's Pension Attack Fails to Make the Ballot for a Third Time

Earlier today, former San Jose Mayor Chuck Reed admitted defeat for his third attempt to attack public employees' retirement security.  Accordingly to the Sacramento Bee, the move appears to be motivated by poor polling for the initiative and Reed's inability to raise enough money to pay people to gather signatures in support of the measure.

Reed's campaign for a statewide attack on retirement security follows his failed attempt to attack pensions in San Jose.  Despite his repeated failures of this issue, Reed said he and his partners planned to bring the issue up again in 2018.  He said in a press release that he planned to "re-file at least one of our pension reform measures later this year for the November 2018 ballot."

Reed is joined in his effort by Pacific Grove Mayor Bill Kampe and San Diego politician Carl DeMaio.  Pacific Grove's attack on pensions was ruled unconstitutional in 2013.

Chuck Reed Tries New Tactic in Pension Assault

Chuck Reed announced a new strategy to attack pensions in California today.  The text of new proposal has several features designed to take away employees retirement benefits.

It would abolish pensions for employees hired after January 1, 2019 and replace them with a "defined-contribution" system unless changes to benefits are approved in an election.  In a defined-contribution system, employees have to pay in a fixed amount with no guarantee of what their retirement income would be.  As a result, this approach shifts the risk and could result in thousands of public employees unable to retire.

The proposal is not limited to retirement benefits.  It provides, "Voters have the right to use the power of initiative or referendum... to determine the amount of and manner in which compensation and retirement benefits are provided to employees of a government employer."  As a result, the measure could be read to allow voter initiatives to eliminate or change MOUs, severely limiting collective bargaining in California.

The proposal also seeks to prevent the Public Employment Relations Board from hearing unfair practice cases involving ballot measures to strip employees of bargained-for compensation.

Chuck Reed Provides a Preview of His Threatened Assault on the California Constitution

On April 10, 2015, the Reason Foundation held their third annual Pension Summit. The Summit focused on a recent report by the Foundation which concluded the 2012 Public Employees' Pension Reform Act failed to fix California's pension problems. The keynote speaker for the event was former San Jose Mayor Chuck Reed. Reed presented his 2016 ballot initiative aimed at dismantling California pensions at the event. IAFF Local 522, along with other public employee organizations, picketed the event, letting Reed know his pension busting efforts are not welcome in Sacramento.

Pat Cook, in blue,
Local 522
Secretary-Treasurer

After a string of court losses invalidating local governments' efforts to break their contractual obligations, Reed seeks to undermine Californians' constitutional rights by eliminating or altering the Contracts Clause in California’s Constitution. Currently, both the United States' Constitution and California’s Constitution include a Contracts Clause barring public entities from taking actions impairing contracts. The courts have construed the Contracts Clause as requiring the state, counties, and cities to provide promised pension benefits. In Allen v. City of Long Beach the California Supreme Court held an employee has a vested (i.e. contractual) right to receive the pension benefits his public employer promised him.

Mike Feyh, in green, Local 522 Director of Membership Services

The Contracts Clause prevents public entities from walking away from all their contractual obligations, not just pension obligations. The Contracts Clause protects all Californians from legislation that impairs contracts with public entities, such as bond repayment obligations and commercial contracts. Without it, public entities would likely not even be able to borrow from the bond market, because financial institutions would not be able to rely on agencies' promises to repay their debts. While Reed's goal is to attack public employees' property rights in their pension, his efforts could undermine governments' contracts with private citizens, vendors, businesses, and lenders.

In recent years, California courts have rejected local governments’ attempts to impair employees’ vested benefits to address supposed “fiscal emergencies.” Our office vindicated both the U.S. and California Contracts Clauses in several high profile court battles: Stockton (fiscal emergency declaration does not authorize City to renegotiate a closed labor contract), Los Angeles (fiscal emergency declaration does not permit freezing retiree medical benefits or imposing furloughs), Pacific Grove (Ballot measure capping PERS pension contributions unconstitutional).  Similar rulings were obtained by the police and fire unions in San Jose invalidating in substantial measure Reed’s San Jose pension impairments.

To circumvent these Constitutional protections, Reed's initiative would grant public entities Chapter 9 Bankruptcy type powers to unilaterally modify their contractual obligations, but without the creditor protections and judicial oversight of bankruptcy proceedings. Reed abandoned a similar initiative on the ballot for the 2014 election after unsuccessfully suing Attorney General Kamala Harris over the title and summary her office assigned to it.



Chris Andrew, Local 522
 City Vice President

Reed’s initiative would modify the Contracts Clause to allow public entities to impair their contractual obligations by majority vote of their governing body. Reed’s new initiative would likely accomplish this by repealing the California Contracts Clause altogether or singling out public employees for elimination of their Constitutional rights. Either approach is repugnant. Excluding public employees’ contracts from the Contracts Clause would allow governments to redirect money promised to public safety employees for politicians' personal spending priorities (politicians rarely return savings to the tax payers). Eliminating the Contracts Clause altogether would threaten everyone's contracts with the government.

 
 

Reed’s new initiative also fails to account for the Contracts Clause of the U.S.  Constitution which provides the same protection against impairments of contract. Even if Reed succeeds in altering the California Constitution, future attacks on vested pension benefits will likely remain unconstitutional under the U.S. Constitution.  California courts have held that the California and United States Contracts Clauses are construed the same. (See for example San Bernardino Public Employees Assn. v. City of Fontana and Kern v. City of Long Beach.) In the last 47 years, no court in the Ninth Circuit has upheld a public agency’s attempt to impair its own contractual obligations. (See So. Cal. Gas Co. v. Santa Ana.) Thus, damaging the California Constitution will not insulate Mr. Reed’s agenda from Constitutional protection.

Public employees are already working to expose Reed’s new initiative for what it is: an attempt to use the ballot box to accomplish what the courts already prohibited governments from doing. Keep an eye on this blog for continuing updates on Reed’s efforts to rewrite our Constitution.



Ventura County Pension Initiative Barred from November Ballot

On August 4, 2014, Ventura County Superior Court Judge Kent Kellegrew tentatively decided to issue an injunction barring the initiative to phase out Ventura County's pension system from appearing on the November 2014 ballot. The ruling has significant statewide implications for counties that participate in CERL.

The initiative seeks to withdraw Ventura's participation in the County Employees Retirement Act of 1937. This would put future Ventura County employees into a 401(k)-type retirement savings plan rather than the benefit plan covering current employees. The court held Ventura county cannot 'opt out' or terminate its participation in the Act based on a countywide voter initiative.

When the Legislature enacted the Act, it permitted individual counties to choose to participate. When Ventura County chose to participate in the Act, it agreed to follow the rules established by the Legislature. The Legislature only allows a county to terminate participation in the Act using the procedures set forth in Government Code sections 31564 and 31564.2. These procedures do not allow a county to opt out of the Act using a countywide voter initiative.

The court held allowing this measure to be considered on the November ballot would only result in wasted public resources. Even if the voters adopted the initiative, the measure could not be implemented because the initiative did not comply with Government Code sections 31564 and 31564.2.

In addition, the initiative fails on other grounds. The court held the initiative violates the single subject requirement imposed by the California Constitution.

On Wednesday, August 6, 2014, the Ventura County Taxpayers Association said it will not appeal Judge Kellegrew's August 4 ruling. This ruling marks a significant victory in preserving pension rights for county employees.

The ruling is unique as a pre-election challenge victory. After the superior court denied a pre-election challenge to a retirement-related Menlo Park initiative, most victories, such as those in San Jose and Pacific Grove successfully challenged initiatives after the election. This win helps establish that even highly unusual pre-election challenges can thwart attacks on retirement security.

Poll Shows Californians Oppose Reed Initiative

A recently survey conducted December 5-9, 2013 shows Californians coming out against the Reed Initiative by a margin of 49% to 35%.  The poll shows an overwhelming majority of Californians oppose efforts to eliminate public servants' pensions.  Specifically, the poll noted that 54% of California strongly oppose "Eliminating Police, Firefighters, and Other Public Employees Vested Pension Benefits."  Read the report on the new poll here.

PERB Moves to Stop San Diego Pension Initiative, Issues Complaint Against City

On February 10, 2012, the Public Employment Relations Board granted a request for injunctive relief to stop the so-called "Comprehensive Pension Reform Initiative for San Diego."  PERB also directed its General Counsel to "immediately initiate an action for appropriate injunctive and writ relief in San Diego Superior Court."  A copy of PERB's letter granting injunctive relief and complaint is available here.

The initiative seeks to replace defined benefits pension for most city workers with a 401(k) and reduce public safety benefits.  The initiative would also cap city payroll for five years and remove charter provisions requiring employee approval to change pension benefits.  PERB's Complaint alleges the city council placed the initiative on the June 2012 ballot without satisfying its duty to meet and confer, violating the Meyers-Milias-Brown Act.

Labor-Backed Pension Reform Wins, Adachi Initiative Fails in San Francisco

On Tuesday, San Franciscans considered two voter initiatives about public employees' pensions: Measure C, backed by local labor unions, and Measure D, the so-called Adachi Initiative.  Measure C passed with 68% of the vote and Measure D failed, attracting only 33%.

Measure C requires employees to pay a small portion of their salaries to offset healthcare costs and requires most employees pay 7.5% of their salaries to the pension system until the system's investments recover from the recession.  Measure C was endorsed by labor, including the San Francisco Police Officers Association and San Francisco Fire Fighters, IAFF Local 798.

San Francisco's Public Defender, Jeff Adachi, spearheaded Measure D, which would have taken even more away from San Francisco's public employees and targeted public safety professionals in particular.  Measure D would have required most employees pay at least 7.5% and police and fire 10% of their salaries even after the pension system recovers.  It would also have reduced pension benefits.  Adachi's previous attempt to slash pension failed in 2010.

Ohioans Reject Anti-Union Law In Landslide Election

In their November 8, 2011 general election, voters in Ohio voted overwhelming to overturn a state law restricting public-sector employees' collective bargaining rights.  By a vote of 63% to 37%, voters rejected Ohio Senate Bill 5, which severely restricted collective bargaining rights in that state.  The 250-page bill increased the number of police and fire department employees prohibited from joining unions, prohibited unions from ensuring members pay their fair share for representation, and allowed employers to pick and choose what they wanted to bargain over, and, in some cases, whether they wanted to bargain at all.  Under Ohio law, the election means the S.B. 5 will not go into effect and current labor laws will remain in place.

CalPERS: "We are back"

CalPERS posted a gain of 20.7% in its investment portfolio for the fiscal year ending June 30, 2011, marking its largest market gains since 1997.  CalPERS investments grew across the board: stock value is up 30.2%, private equity stakes increased 25.3% and real estate assets increased 10.2% in value.  CalPERS investments now stand at $237.5 billion, up from $200.5 billion last year and $165 billion in 2009.

The average annual growth rate of CalPERS' investments plays a critical role in the cost of participation in the plan and employer contribution rates.  CalPERS' critics regularly attack its target growth rate of 7.75% and make forecasts assuming a growth rate as low as 2-3%.  However, as a result of its higher-than-expected growth, CalPERS now stands at 8.38% growth averaged over 20 years despite the big hits to the fund in 2008 and 2009 and appears well on its way to being fully recovered from the effects of the recession.

CalPERS Takes a Stand on Vested Pension Rights

On Thursday, July 14, 2011, CalPERS released a position paper on the status of pension benefits earned by public servants under the system. The paper, Vested Rights of CalPERS Members: Protecting the pension promises made to public employees, interprets sections of the Public Employment Retirement Law (PERL) CalPERS enforces and related state and federal constitutional provisions. The position paper explains CalPERS pensions are vested rights under the federal and state Contract Clauses. It also explains CalPERS' fiduciary duty to members and cautions CalPERS may take legal action "[i]n the event CalPERS questions whether changes in the PERL or other applicable law may cause an unconstitutional impairment of its members’ vested rights..."

Proposed Initiative Would Cut Pensions, Raise Retirement Age

Former Assemblyman Roger Niello submitted a proposed initiative to the California Attorney General, the first step toward getting on the ballot in a statewide election.  If approved by voters, the "Public Employee Pension Reform Act" would amend the California Constitution to:

• Prohibit collective bargaining over pensions.
• Raise the retirement age for current and future employees to 62.
• Ban retroactive increases in pension benefits.
• Cap retirement benefits at 60% of employees salary based on a three-year average.
• Require pensions be calculated on base pay only.
• Force employees to pay at least half of retirement contributions.

To pass, the proposed initiative requires a simple majority (50% + 1) and would go into effect immediately.  It has no exceptions for public safety professionals, but exempts members of the Legislature.  The author of the initiative served in the Legislature from 2004 to 2010.   


Before the Public Employee Pension Reform Act can get on the ballot, proponents must collect signatures from approximately 800,000 registered voters, a number equal to 8% of those who voted in the last election for Governor.  The full text of the proposal is below.

- Public Employee Pension Reform Act Proposal -