Not all Californians believe that drought is the greatest threat to their state’s future. Early this month, a bipartisan group of current and former local officials filed the “Voter Empowerment Act of 2016,” a statewide ballot measure aimed at reforming the politics of public pensions. Its passage would forbid politicians in California from lavishing expensive retirement benefits on workers without explicit voter approval.
The effort is being led by Carl DeMaio, a Republican former member of the San Diego city council, and Chuck Reed, a Democrat and former mayor of San Jose. If they prevail, the effects will be felt nationwide. A yes vote in this deep blue labor stronghold will strengthen the hand of reformers in other pension-plagued states, such as Illinois and New Jersey.
California’s pension struggles first gained national notoriety between 2009 and 2012. The financial crisis sent pension funds into steep decline, and the broader economic slump hammered public revenues from income, property, and sales taxes. Thus, short on cash with which to backfill their rapidly expanding pension deficits, the state government and all manner of municipalities were forced to slash services and raise tax rates.
Today, the main pension plans for state workers and teachers in California are about $190 billion short of what workers have been promised in benefits, despite the Dow Jones Industrial Average having nearly tripled in value since its March 2009 nadir. Not coincidentally, state and local governments’ recovery continues to trail that of corporations. The number of private sector jobs in California surpassed its pre-recession high in November 2013 and has kept climbing since. Local government employment, by contrast, is still down by about 90,000. This reduction in municipal workforces should not be seen as “right-sizing.” The cost of government has not declined, nor have continuing budget imbalances made cities, counties, and school districts any more efficient. Rising pension expenditures have left taxpayers in the position of having to, in effect, pay more for past government services while getting less and less in the way of current services.
The problem is as much legal and political as it is fiscal. Fifty-five percent of government workers in California are union members, the sixth-highest share among the 50 states. Pensions have become a cornerstone of the “new Tammany Hall” arrangement, whereby elected officials boost workers’ pay and benefits in exchange for union assistance at the ballot box. No other special interest comes close to matching the resources possessed and deployed by labor in California, especially at the local level.
Even on the rare occasions when political support develops to challenge the unions on pensions, legal barriers thwart reform. The so-called California Rule is a state constitutional doctrine that prevents modifying current public employees’ pension benefits: Whereas private corporations routinely “freeze” their defined-benefit pension plans—workers keep everything they’ve earned so far, but future accruals come in the form of 401(k)-style defined-contribution plans—this is effectively prohibited for state and local workers in California.
The pension reform game is rigged. As DeMaio explains, “I’ve always likened this to a baseball game. Reformers are one team and the government-union bosses are another team. And the reformers are out there on the field, doing practices, building support amongst the public. The unions aren’t doing any of this, . . . they’re sitting behind the dugout writing the rule book with the umpires.”
In 2012, Reed and DeMaio led local pension initiatives that won with 69 percent and 66 percent of the vote, respectively. Their 2016 approach draws heavily on those experiences, as well as Reed’s abortive attempt to put a statewide proposition on the 2014 ballot. He was stymied by Kamala Harris, the state’s pro-labor attorney general, whose office is responsible for the language of all state ballot measures. Reed accused Harris of using “false and misleading words and phrases which advocate for the measure’s defeat . . . and create prejudice against the measure, rather than merely informing voters of its chief purposes and point.” This time around, Reed and DeMaio believe they have designed a measure that will prove legally viable, appealing to voters, and effective as policy, and they’ve launched their effort early in the election cycle to allow plenty of time for potential litigation over an unfavorable ruling on the language.