California Unions Scramble as Local Voters Poised to Eliminate Public Pensions

California Unions Scramble as Local Voters Poised to Eliminate Public Pensions

After the Ventura County Board of Supervisors on June 10 voted 4 to 1 to put a popular initiative to eliminate public employee defined-benefit pensions on the ballot, a coalition of public employee unions filed suit to prevent the initiative from going to a vote of the people in November. If the courts rule in favor of the 40,500 petition signers, Ventura County could save $460 million and spark a statewide taxpayer assault against California’s $450 billion in unfunded public employee defined benefit pension obligations.

The Ventura County Taxpayers Association (VCTA) in February of 2014 obtained a “comprehensive independent analysis” regarding a proposed pension reform initiative that would convert public employee retirement from a guaranteed defined benefit pension to a variable 401K type of defined contribution plan.  The study found such an action would reduce the county’s unfunded long term liabilities by $1.8 billion and save $460 million in short term cash-flow contributions. 

VCTA Co-Chairs of the Initiative for Pension Fairness and Sustainability, David Grau and Dick Thomson, argued that, “For decades, the unions and the politicians have had the only seats at the table– it’s time for the people to weigh in and achieve the kind of reforms that this flawed system simply isn’t capable of delivering.”  In 70 days the group raised 50% more signatures than the 25,000 required to place an initiative on the ballot. 

Despite the county’s number of employees only growing modestly, Ventura County’s annual pension contribution for its 15,000 public employee participants and retirees has jumped by 260% from $45 million in 2004 to $162 million in 2013. According to the Los Angeles Times, four fifths of county retirees who receive pension payments of over $100,000 per year are now getting a larger cash pension benefit than they earned while actually working due to pension spiking

Ventura and 20 other counties are incorporated under the state 1937 Act that allows greater freedom for local control, including the right to design and manage their own separate pension plans. These counties range in size from just 87,000 to about 10 million, but capture about 75% of the California’s residents.

Unions across the state were shocked by the speed and success of the VCTA signature drive. Unions quickly formed a coalition and sued to invalidate the initiative on the basis that the initiative for violating federal collective bargaining rights and state labor law requiring good faith negotiations with unions before determining types and amounts of benefits before ballots could be printed.

With the City of San Diego on the verge of bankruptcy in 2012, 66% of voters in California’s second largest city approved Proposition B reforms. Like the Ventura initiative, Prop B gives new county hires beginning in 2018 a 401(k)-style defined contribution investment plan. But unlike the San Diego initiative that exempted police to continue to receive defined benefit pensions, the Ventura County initiative has no exemption and only offers new deputy sheriffs a 401(k)-style plan. 

Ventura County Counsel Leroy Smith, who would also be subject to 401K requirement, provided the Board of Supervisors with a 21-page opinion that states the key difference between Ventura County and San Diego is that Ventura County pension plan’s authority is under California state’s 1937 Act versus a local ordinance.  According to Smith:

“Because the measure proposes only a local ordinance, which cannot by law disestablish the 1937 act plan in the county, the measure is illegal and of no effect….Once accepted, the 1937 Act provides no procedure by which a county can disestablish the retirement system or unaccept the retirement law by any subsequent local action, either by the voters or by the Board of Supervisors.”

David Grau, Chairman of the Ventura County Taxpayers Association, said he is confident the initiative will withstand the legal challenge because “[w]e got a legal opinion” that under the California Constitution, Article II, Section 8 (d), voters have the power to change the structure of pensions. 

According to the Attorneys Kenneth Lounsbery and James Lough that represent the initiative supporters, “This measure amends Ventura County Ordinance Number 401, which established the pension program in 1946 by a vote of the people.” Their argument is that if the people have the power to establish a pension plan, they have the power to amend a pension plan.

To unions across the State of California, the Ventura County initiative is an existential threat to a decade of pension spikes. Last January, a statewide poll issued by the Public Policy Institute of California found that switching new state and local government hires to a defined contribution system similar to a 401(k) plan was supported by 73% of likely voters. If unions cannot keep the initiative off the ballot, California voters seem poised to solve unfunded defined benefit pensions problems by eliminating them.