Election Highlights: The Impacts of Pension Reform

By Foster City Mayor Art Kiesel

A review of the June 5 election presented Californians with some interesting issues with redistricting, open primary, and local pension reform appearing on ballots.

Redistricting presented some of us with different candidates than those we identified with in the past. Open primary has created the need to use a different strategy during the primary, as the top two vote-getters will face each other again in the November general election, so tactics and posturing in June has taken on new importance.

But pension reform measures caught my interest the most, as the cost of employee salaries and salary-related benefits (pensions) have been increasing at a rate faster than revenues - and, if not held in check, could be a financial death nail to a municipality’s survivability.

There were three pension reform issues on the June 5 ballot - two in California and one in Wisconsin.

The issue in Wisconsin was the potential recall of their governor for challenging the current pension system. The Governor was not recalled and won by the same margin he won by when he was first elected (53 percent).

Closer to home, the two California measures - one in San Jose and one in San Diego - attacked the current public employee pension structure. Oddly enough, both measures were labeled Measure B. San Diego’s measure to reform the pension system passed by over 66 percent of the vote, while the San Jose measure passed by approximately a 70 percent margin. 

Both the San Diego and San Jose pension reform plans will allow current workers to keep pension amounts that they have already earned while reducing future earnings. Employees will be expected to make more contributions themselves.

While negotiating Foster City’s employment contracts in the first half of 2011 with the Police and Fire bargaining units, an agreement was reached to accept a two-tier system. Existing employees will be receiving 3 percent at age 50, and newly hired employees will receive 2 percent at age 50.

These agreements will certainly have a positive impact to our city’s financial situation in the future. But, even with these reforms in new hire pensions, it could take decades to see any significant impact on pension payments from the City. 

The Little Hoover Commission, a nonpartisan organization, produced a report in February, 2011 entitled Public Pensions For Retirement Security. Included with the report is a letter to the governor and the four leaders of the California Legislature, stating “California’s pension plans are dangerously underfunded, the result of overly generous benefit promises, wishful thinking and an unwillingness to plan prudently.”

They pointed out that, unless aggressive reforms are implemented immediately, the problem will worsen, forcing municipalities to take drastic measures by making deep Draconian cuts into services and staffing in an effort to fund these pensions. Some cities will be forced to consider bankruptcy, much like Vallejo did.

It appears that the Governor already heard the message, by developing a 12-point pension reform plan he has proposed for the state. Unfortunately, the plan has had difficulty gaining any traction in the Legislature. Perhaps, after reviewing the recent election results in San Jose, San Diego and Wisconsin, the phrase “reconsideration of my position” might creep its way into their vocabularies.

As the “baby boomers” are reaching retirement age, it can be expected that there will be an increase in the number of retirements over the next several years. However, more retirements might be expected depending upon the paths of the pension reform movement.

Over the past year, Foster City has seen the Assistant City Manager and Community Development Director retire, while both our Fire Chief and Police Chief have announced their retirements. 

The San Jose measure addresses the pensions of current employees, not just new hires. The sanctity of the pensions of current employees has been attacked by the San Jose measure, and most assuredly will be heading to the courts to be sorted out. The results of any court decision will have a tremendous impact on public employee pensions as well as the fiscal viability of the governmental entities. 

As more and more measures make their way to the ballot box, are passed by the voters, and then drug off to court, will we reach a point where the court system becomes our legislative arm of the government?

That outcome is not, as I learned, about our government and how it is supposed to work - or, at least, was designed to work by our forefathers almost 250 years ago.

I would appreciate your comments on this and other issues by e-mailing me at akiesel@fostercity.org or calling me at 650-573-7359.

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