A new front in the war on public employees

June 13, 2012

Todd Chretien analyzes another advance in the assault on public-sector workers.

IN A drastic escalation of the offensive against the rights of public employees--in particular, to a decent retirement--voters in two of California's biggest cities overwhelmingly passed ballot measures designed to gut workers' pensions. The proposals, titled "Measure B" in San Jose, and "Proposition B" in San Diego, breezed to victory with two-to-one support in both cities, despite fierce opposition from unions.

The referendums were slightly different in the two cities, according to Associated Press. In San Jose, current workers will have money taken out of their pay if they choose to keep their current pension plan--or they can accept reduced benefits. New hires will automatically receive reduced benefits. The San Diego measure imposes a six-year freeze on pay levels that determine benefits, and it shifts new hires, except for police officers, into 401(k)-style plans.

Coming on the heels of Republican Gov. Scott Walker's victory in the Wisconsin recall election, the California results are certain to encourage anti-worker ballot initiatives in the coming months and years.

San Jose Mayor Chuck Reed
San Jose Mayor Chuck Reed (Mitchell Weinstock)

As Roxanne Sanchez, president of SEIU Local 1021, said in a June 11 statement: "I've said it before, and I'll say it again: We are not the reason for this country's bad economy. Big business is to blame, and pension reform is nothing more than a thinly veiled attempt by the 1 percent to line their wallets with more money."

CALIFORNIA LAW makes it relatively easy to put these sorts of measures up to a vote by allowing people to be paid up to $3 per name to gather qualifying signatures--as a result, millionaires and billionaires can get their pet projects on the ballot virtually at will.

This is exactly what happened in San Diego and San Jose, where libertarian billionaire and ex-Enron energy trader John D. Arnold directed his private nonprofit fund to donate $150,000 to the California Foundation for Fiscal Responsibility (CFFR). The CFFR is registered as a 501(c)3 foundation, legally barring it from political advocacy, but a quick look at the group's website shows its links to the proposals in San Diego and San Jose.

And California won't be the only state to hear from Arnold and his wife, Laura. According to Bloomberg.com, the modestly named Laura and John Arnold Foundation was worth $660.3 million in 2009, and "plans to be involved in pension-overhaul efforts around the U.S."

Unfortunately, the attack on public employee pensions reaches far beyond the ranks of Republicans like San Diego Mayor Jerry Sanders and maverick fat cats like Arnold.

San Jose Mayor Chuck Reed, a Democrat, fought hard for Measure B and toasted its passage at a victory party to the glee of real estate interests and wealthy campaign donors.

Meanwhile, Democratic Gov. Jerry Brown has proposed sharp cuts in pensions for state employees, including forcing all state workers to pay for 50 percent of their pension costs, moving workers to a 401(k)-type plan with no guaranteed retirement benefits, and raising the retirement age to 67.

According to an analysis of the effects of Measure B in San Jose by an AFSCME-sponsored organization, city workers already faced a 26 percent reduction in take-home pay due to previous wage cuts and benefit reductions. The passage of the ballot measure will push that cut in take-home pay above 40 percent.

Brown is unlikely to get his full plan through the Democratic-controlled state house, but by blaming California's budget deficit on teachers, nurses and other public employees, he hopes to wrest more concessions from unions in contract negotiations, as well as work with Republicans and centrist Democrats to enact parts of his overall proposal legislatively.

Although backers withdrew a planned statewide ballot initiative mirroring the San Jose and San Diego measures, it is now very likely that anti-union forces in cities and municipalities across California will try to imitate the two local referendums.

Not even workers in liberal bastions like San Francisco are safe from this assault, as liberal Democrats like Jeff Adachi and even progressives like former Green Party mayoral candidate Matt Gonzalez have supported proposals shifting the burden of pension costs to public employees.

The rush to blame public workers for budget deficits is so strong that unions have agreed to preemptive givebacks and increased contributions from members in the hopes of staving off even sharper attacks.

ALL OF this is premised on the idea that there is a "crisis" in public-sector pension funds.

Unlike 401(k) plans, California public employees are guaranteed a fixed-benefit plan when they retire, based on a formula that includes their salary and their years of service.

Contributions from employees and employers (which vary according to union contracts) are pooled into giant financial funds such as the California Public Employee Retirement Fund (CalPERS), valued at $233 billion, and the California State Teachers Retirement System (CalSTRS), valued at $147 billion. These, in turn, invest in state bonds and stocks on Wall Street, functioning as a semi-public collective mutual fund. Pensions for retired workers are then paid out of the fund's returns on its investments.

The "crisis" in public-sector pension funds flared in 2007 and 2008 with the stock market crash. CalPERS and CalSTRS lost tens of billions of dollars, and so, because the state is obligated to pay retired workers the amount they agreed to in union contracts, there is a "deficit" between the rate of return on the funds and their ability to pay current pensions without dipping into their capital base. Thus, the state, county and city governments are obliged to make up the difference by paying out of their yearly budgets.

In the case of CalPERS, the fund's managers recently voted to lower their projected annual return--what it pays out to retirees--from 7.75 percent to 7.5 percent, or a reduction of about $303 million, which gets added to the projected state budget deficit of $9.3 billion. The red ink is then passed on down to localities, and the difference has to be made up in local budgets.

For instance, CalPERS cuts to its projected rate of return this year will leave an additional $67 million hole in the Santa Clara County budget--which just happens to be where San Jose is located.

At the macro level, CalPERS estimates that it has $85 billion, spread out over decades, in unfunded mandates--the gap between expected returns on investments and what the fund owes retired or future retiring workers.

That sounds like a lot of money, and it helps drive the attack on public employees when cuts to public services are blamed on the state and localities having to "raid" their budgets to pay for retirees.

But the reality is that even the highest estimates for CalPERS' shortfall pale in comparison to the estimated $13 trillion that the U.S. Treasury handed out to private banks and companies in the massive Bush/Obama bailout of Wall Street.

There is a crisis--but it's really a side-effect of taxes on the 1 percent falling to historic lows. In California alone, there are over 650,000 households with liquid assets (not including the value of their homes) of more than $1 million.

If those households were all taxed $20,000--or 2 percent on just their first $1 million in liquid assets--the state would generate $13 billion in additional revenues, which would more than cover the entire state budget deficit. If the state taxed these households just $100,000, or 10 percent of their first $1 million in assets, it would generate $65 billion--enough not only to wipe out all deficits, but allow California to restore past cuts to public education, health care and public transportation, while launching a massive jobs program to eliminate unemployment.

Union members and progressive activists attempted to take a very small step in this direction this spring by putting a proposal on the November ballot statewide for the "millionaire's tax" that would have raised between $6 billion and $9.5 billion in the first year by increasing taxes on households earning more than $1 million.

Brown fought tooth and nail against the initiative and pressured organizers to withdraw their proposal in favor of his plan, which also includes a regressive sales tax on the poorest Californians. It's unclear that Brown's so-called "compromise tax" will pass in November.

Brown's own vilification of public-sector unions has only helped the initiatives of labor's enemies on the right. In fact, public employees recently agreed to pay hundreds of millions of dollars more towards the costs of their pensions with increased deductions from their paychecks.

However, the unions rightly resisted Brown's attempt to transform their guaranteed retirement benefits into 401(k) plans, which rise and fall with the stock market and can leave workers high and dry.

While it's true that turnout for the June 5 election was very low, thus amplifying the conservative vote in favor of the San Jose and San Diego ballot measures, it's nevertheless obvious that the bipartisan campaign against public employee pensions has reached dangerous levels--and is in danger of becoming "common sense" if it isn't challenged forcefully, and soon.

Larry Bradshaw, vice president of SEIU Local 1021 in Northern California, explained the stakes involved in this fight:

Pensions are an anti-poverty device for working people. A recent study by the University of California Berkeley Labor Center predicts that nearly half of Californians will retire in poverty. Defined-benefit pensions are the antidote to that scenario of destitution and poverty for seniors.

Unfortunately, unions--and in particular, public-sector unions--did not respond vigorously when private-sector employers began gutting and shedding their pension plans. Now, having succeeded in decimating pensions in the private sector, the same right-wing think tanks and anti-labor politicians have set their sights and their tax-exempt foundations on public-sector worker pensions.

The unions for public workers have been far too timid and defensive in both Wisconsin and in California in safeguarding collective bargaining, wages and pensions. Labor needs to say, "Yes we have a good pension plan, and you deserve one, too--let's fight together to win a decent pension for all working people." That's the position SEIU Local 1021 has adopted: secure retirement for all.

Public-sector unions will have to work hard to translate Bradshaw's message into a successful defense of their pensions, but they shouldn't be left alone to fight.

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