The State Worker

California public pension proposal would create ‘uncertainties,’ analyst says

Legislative Analyst Mac Taylor.
Legislative Analyst Mac Taylor.

Legislative Analyst Mac Taylor said this week he doesn’t know what would happen if a new public pension ballot proposal becomes law.

“There is significant uncertainty as to the magnitude, timing, and direction of the fiscal effects of this measure and its effects on current and future governmental employees’ compensation,” Taylor wrote in a Tuesday letter to Attorney General Kamala Harris. “... The magnitude and timing of these effects would depend heavily on future decisions made by voters, governmental employers, and the courts.”

The assessment, co-signed by state Finance Director Michael Cohen, will soon appear on petitions for a proposed ballot measure that aims to upend the way public pay and benefits are set by requiring voters to weigh in.

The proposal asserts California voters have the right via initiative and referendum to determine state and local government employees’ pay and benefits. Employees hired Jan. 1, 2019, or later would not be allowed to join existing pension plans unless voters approved continuing those plans.

Voters also would have to approve new plans, according to the analysis.

“In other words ... the measure closes existing governmental defined benefit pension plans on January 1, 2019,” the analysis states.

Government employers could pay no more than half the cost of retirement benefits for those new employees, including future unfunded liabilities. So once enacted, the proposal would probably significantly cut pension and retiree health costs for state and local agencies.

The measure also specifies that nothing in it “shall be interpreted to modify or limit” death benefits “even if those benefits are provided as part of a retirement benefits system.”

Former San Jose Mayor Chuck Reed, a Democrat, and Republican Carl DiMaio, a former San Diego city councilman, are the measure’s prime promoters. They’re aiming to qualify the proposal for the November 2016 statewide ballot.

Their message: Retirement benefits are long-term, big-money financial commitments that are squeezing government resources. Future benefits should be subject to a public vote, like some bonds and taxes.

But unions have blasted the proposal as a Trojan horse that will decimate public employees’ compensation and undercut collective bargaining.

Taylor’s analysis says the measure would trigger trade-offs and plenty of uncertainty:

▪ If voters exercise final say on compensation, the result “could increase or decrease governmental employer costs,” according to the analysis.

▪ If the proposal is approved, the action would quickly move to the courts. The legal tussles could take unanticipated turns as judges weigh the power of the initiative and the referendum against government’s contractual obligations to its employees.

▪ Subjecting labor agreements to voter approval “could affect the dynamics at the collective bargaining table,” according to the analysis. “This new dynamic likely would result in different outcomes at the bargaining table.”

▪ Although the proposal says it doesn’t modify or limit death or disability benefits, it doesn’t shield them future changes by government employers or the electorate, the analyst noted.

The analysis raises other issues: How much would less-valuable pension benefits pressure salary increases? Would some employees now excluded from Social Security go into the system? Would the number of disability pensions skyrocket?

Harris has until Aug. 11 to issue a title and summary for the measure.

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