Former San Jose Mayor Chuck Reed is digging in for more pushback from the largest public pension fund in the U.S. in his latest push to give California municipalities more leeway to control pension costs.
Standing in the way will be the $300 billion activist California Public Employees' Retirement System.
"They're the biggest bully in California," Reed said of CalPERS in an interview Tuesday night at the Harvard Club of New York, before he spoke at a dinner sponsored by the free-market think tank Manhattan Institute for Policy Research.
Reed, San Jose's mayor from 2007 through 2014 — when he termed out — and now special counsel at law firm Hopkins & Carley in that city, has launched another initiative to enable local governments to negotiate defined-benefit contracts.
Reed, a Democrat, and former San Diego city councilman Carl DeMaio, a Republican, are coordinating a drive to include the measure on the 2016 statewide ballot. A similar effort
Reed said he is not endorsing any particular pension-benefit package, such as diverting employees into a 401(k)-style plan — also called defined contribution — or a hybrid that combines it with more traditional defined-benefit plans.
"I'm a mayor and we don't like the state telling us what to do," he said. "We're not dictating any kind of pension plan. We want to empower local governments."
According to Reed, CalPERS, which insists public benefit packages are sacrosanct, casts an intimidating and litigious shadow on municipalities that want to tackle pension costs. "CalPERS will say, 'Don't go there. We have unlimited funds, you don't.' "
CalPERS recently lambasted DeMaio for saying the fund operated as a Ponzi scheme.
"We have a problem with that," CalPERS said on its website. "CalPERS' job is to pay what's been negotiated, and we do that with a diversified investment portfolio of nearly $300 billion."
Pension debt in California has spiked to nearly $200 billion in 2013 from $6.3 billion in 2003, state Controller John Chiang reported last November. In addition, the state's unfunded liability for retiree health-care benefits is estimated at $72 billion.
California is also home to bankruptcy filings — all against pension liability backdrops — by Vallejo, San Bernardino and Stockton. Though the initiative applies to California, Reed is selling it nationally given heightened awareness of unfunded pension liability within public finance circles. Battlegrounds have included Illinois, New Jersey, Rhode Island and Puerto Rico.
A successful effort by Reed would "really start to change the conversation," Daniel DiSalvo, a City College of New York professor and Manhattan Institute senior fellow, said in a recent Bond Buyer video. DiSalvo is the author of the book "Government Against Itself: Public Union Power and Its Consequences."
A recent
"This is sure to be one of the most closely followed developments in state and local policy over the next two years," said Manhattan Institute president Lawrence Mone.
Reed said his group will strive for simpler wording on the ballot initiative this time, and sell lawmakers and voters on how inflated pension obligations are crowding out basic municipal needs, notably infrastructure.
"We want to make it more difficult for people to misunderstand," he said. "We'll go for something simple to explain to voters, pitching the significant impact of this issue. People don't understand actuarial estimates but they understand cutting library hours."
Harris, considered a roadblock to the initiative, is running in 2016 for the U.S. Senate seat that fellow Democrat Barbara Boxer is vacating.
According to Reed, DeMaio is an important ally. "He's experienced with ballot measures," he said. "He's been through this in San Diego."
Under Reed's watch, San Jose in 2012 passed pension-cost reductions that he said amounted to 25% of an overall fiscal overhaul. The measure followed 10 straight years of cutting services to balance the budget.
"We were reaching service-delivery insolvency, the situation in which Detroit found itself," he said. One visible symbol was a police station the city built with bond money but could not open because it could not afford to run it.
The pension law passed the city council by a 6-5 vote and the measure received 70% approval in a referendum, though a state appeals court is weighing a challenge.
San Jose aimed to increase contributions by current employees and cut benefits for future employees. Also, employees would have the option of receiving a lower benefit package or contributing another 16% toward retirement benefits.
The local measure also eliminated the "13th check" — also widely synonymous with pension plans in bankrupt Detroit — which had featured extra payouts to retirees and sometimes employees receive at the end of a fiscal year if a pension fund has performed better than expected.
