Legislative Analyst's Office Reviews Proposed Pension Reform Ballot Measures

From Wednesday's Sacramento Bee:

January 6, 2010
Legislative Analyst assesses initiatives proposing to cut benefits

The Legislative Analyst's Office has completed its analyses of three proposed initiatives for the 2010 ballot that take straight aim at cutting health and pension benefits for new state and public sector workers.

The LAO and Department of Finance prepare a detailed fiscal analysis of each proposed initiative and submit them to the Attorney General as part of the initiative process.
Read the three fiscal impact reports by clicking here, and here and here.

The theme is similar across all three reports, though each of the proposed initiatives are different in their own details.

The LAO says that "minor" short term savings could be achieved by adopting the proposed benefit reductions. The savings would be more substantial in the longer-term, it suggests.

Yet the analyses carry a major-league caveat.

The LAO notes that to offset the decline of retirement benefits offered to new employees, "some governments likely would increase other forms of compensation for some employees in order to remain competitive in the labor market."

As Bee colleague Kevin Yamamura reported this week, California is projected to have unfunded pension liabilities of more than $100 billion through 2014-15.

Yamamura also reported that the governor has met with backers of one of the proposed initiatives analyzed above and is considering supporting the measure, which would reduce benefits for public sector workers who begin new jobs in Juy 2011 or later.

Latest on the Pension Reform Front

The latest on the pension reform from comes from the City of Los Angeles. Here's a couple of excerpts from today's LA Times (click here for entire article):

Alarmed over the spiraling cost of retirement benefits, Los Angeles' top budget officials have begun laying the groundwork for a June 8 city ballot measure that would dramatically scale back the pension benefits given to newly hired city employees.

The plan sets the stage for a showdown between the city's elected officials and the labor unions that, in many cases, helped put them in office...

Budget officials expect taxpayers' share of city pension costs to grow from $653 million this year to nearly $1.3 billion over the next four years for every agency but the Department of Water and Power, which has a separate retirement system. In other words, one of every four dollars collected by the general fund, which pays for basic services such as police, parks and libraries, would go toward retirement benefits by 2013.If benefits are not scaled back, the city will need to make "significant reductions" in the workforce and city services, the memo states. "The sooner we make changes, the sooner we can restore our long-term fiscal health."

Just like the pension reform ideas being floated here in San Joaquin County, modifying the benefits for future employees will have virtually no impact on the huge pensions costs coming the next few years. However, it will begin to slow the growth of pension costs.

If we as public employees don't begin to address this issue, there will be statewide ballot measures to impose a solution upon us--and that solution will definitely address current employee benefits as well.

Pension Blues

The news media continues to focus on public employee pensions. The Modesto Bee just completed an exhaustive investigative report on pensions in Stanislaus County. The Bee, which had to litigate in order to get some of the information, focused on the cost to taxpayers from spiking provisions that are available in the County's retirement program. As many of you know, County systems have much greater flexibility than CalPERS contracted agencies in developing retirement formulas.

The article highlighted the fact that employees in Stanislaus County are able to include vacation cash outs, deferred comp payments and other forms of add pay to calculate their final year's compensation. Most of these credits are not available in the vast majority of retirement systems, including CalPERS. Unfortunately, the general public is not aware of this, and will cast us all in the same light as Stanislaus County.

It is certainly another expose that the anti-pension foes will use against us in their punitive ballot initiative to limit future pensions.

Click here and here for the articles.

An Editorial in yesterday's Chronicle (click here) discusses San Francisco's skyrocketing pension costs. The article notes:

Mayor Gavin Newsom and Supervisor Sean Elsbernd deserve praise for taking on the politically delicate - but fiscally responsible - issue of pension reform. There were years when San Francisco's leaders had the luxury of avoiding the topic. In 1999-2000, investment income was rolling in at such a pace that the city had to contribute just $300,000 to keep the system fiscally sound. Those days are long gone. This fiscal year's bill exceeded $200 million - and growing. By 2013-14, the city's annual liability is expected to approach $500 million.

The reformers are proposing a series of measures to ensure that funds are deposited every year, even in good years for the retirement portfolio, and they are taking measures to curb spiking of pensions.

I think we'll continue to see more of these measures as time passes, including lots of other agencies looking at the two-tier pension system many of us are advocating for CalPERS cities.

Good News on the CalPERS Front

The latest entry from calpensions.com is good news for our budget. As we attempt to keep our expenses flat for the next year, this should be a big help. I suspect the rate hike delay for local government is due to the fact that the state has been heavily lobbying CalPERS to not hike their rates next year, as the state grapples with another enormous budget deficit. Here is the entry:

CalPERS is delaying a contribution rate hike for local governments and schools a year, pushing back the impact of huge investment losses in the stock market crash last year.

The change puts even more distance between the historic crash and the higher annual payments from employers needed to make up for the losses, which will not fully kick in until five or six years later.If the critics are right and the current level of retirement benefits are “unsustainable” for future employees, the financial crunch may not be a sudden rate shock but instead a kind of slow-motion train wreck over a number of years.

In any case, there will be no big CalPERS rate hike to point to next year during the campaign for an initiative to cut retirement benefits for new state and local government hires, if enough signatures are gathered to put the measure on the ballot.

Ron Seeling, the CalPERS chief actually, told a board committee last week that what had been expected to be three years of roughly equal rate increases will now have little or no increase in the first year.

Seeling said the rate increases approved by the CalPERS board last June were based on an estimate that investment losses during the fiscal year that ended that month would be 29 percent, but the amount turned out to be 24 percent.

“I wanted to make you aware that the 5 percent better performance than we had anticipated does have that impact,” he said.

There will now be little or no change in the contribution rate for non-teaching school employees next July 1, the first year of a three-year “smoothing” of the rate increase required by the market crash.

And there will be little change in the contribution rate for the 2,000 local government agencies in CalPERS on July 1, 2011, when their three-year smoothing starts after a lag caused by reporting and the time needed for the many actuarial calculations.

“It’s really a two-year phase-in and it comes two years out for the local governments,” said Seeling.

Facing opposition from the Schwarzenegger administration, the CalPERS board has taken no action on a contribution increase for state workers scheduled to begin next July along with the new rate for non-teaching school employees.

The administration opposed the proposed smoothing plan that pushes the big contribution increase required by the market crash into the future, arguing that CalPERS and future state budgets could be harmed by deferring payments.“

While the proposal achieves short-term savings, the employer rate would increase for 28 years thereafter as a result of that deferral,” Dave Gilb, Personnel Administration director and a CalPERS board member said in a letter last June.

“It resembles a form of borrowing from the fund because the employer rates are lower for two years, but must be paid back with higher rates in future years,” he said.

Gilb estimated that the state payment to CalPERS, $3.3 billion this fiscal year, should increase $879 million next July to reflect the crash. He said the increase under the proposed smoothing would be a small fraction of that, about $29 million.

But things have changed since June. Gilb retired, replaced by Debbie Endsley. More importantly, nonpartisan Legislative Analyst Mac Taylor estimated last week that the state budget has a $21 billion shortfall over the next year and a half.

Seeling told the CalPERS board last week that his staff has given the Schwarzenegger administration a half dozen options for increasing contributions for state workers.

Greg Beatty, Endsley’s board representative, thanked Seeling and said the administration will respond next month. Seeling said CalPERS wanted to accommodate the administration, but it “goes without saying” that the CalPERS board can set the rate.

“We could have set the rate for the state using the same methodology that we used for everybody else and said, ‘If you would like to pay it faster, send in some extra money,’” said Seeling, “and that may be where this turns out.”

A chart given to the CalPERS board last spring shows that after the three-year smoothing, contribution rates for most workers were expected to slowly climb for three decades, going from roughly 17 percent of payroll now to 27 percent.

The actuaries said they were treating the market crash as a unique event, “isolating” its cost from the rest of the fund and paying it off over 30 years with contribution increases.

“We believe that this year should be handled differently and that it should be paid separately and outside the smoothing process,” the actuaries told the board. “We do not want to rely on future investment returns to pay for the 2008-09 investment losses.”

Critics who argue that the current level of retirement benefits are “unsustainable” and should be reduced for new hires say CalPERS is too optimistic about its expected investment earnings, an annual average of 7.75 percent.

Among the experts who think average earnings will be less than 7.75 percent in the years ahead is Laurence Fink, chairman of BlackRock, the world’s largest money managing firm, who spoke to the CalPERS board last summer.

The CalPERS chief investment officer, Joe Dear, addressed the earnings issue last week during his monthly report to the board. He said 5.25 percent of the earnings assumption is “real” and 2.5 percent is inflation.

Dear said the 7.75 percent earnings assumption is below the national average for pension funds, 8 percent, and below the earnings average of CalPERS during the last two decades, 7.9 percent.

He said CalPERS believes, among other things, that stocks will yield 3 to 4 percent more on average than bonds and that private equity investments will average 3 percent more than domestic stocks.

Dear said he might agree with money managers, who tend to have a short-term investment horizon, that earnings may average 6 percent in the short term. But, he said, CalPERS has decades in which to repeat its past investment performance.

“It will take prudence, discipline, conviction and skill to repeat this performance over the next 20 years,” Dear said. “But I believe we have what it takes.”

If CalPERS earnings fall short of their target, the annual contributions required from state and local governments will grow even larger, taking money that could be used for other programs.

But as the aftermath of the historic stock market crash apparently shows, the financial squeeze could take years to play out. This article originally appeared on the Capitol Weekly Web site.

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. His blog is www.calpensions.com.

Pension Reform - San Joaquin County Style

I posted several months ago about the City Managers in San Diego coming up with a position paper on pension reform. As a follow up, I passed on this information to the other City Managers in the region.

I've been working closely with my peers in San Joaquin County on crafting a white paper on developing a two-tier pension system. This type of work has been most prominent in San Diego County, but I at least six regions are working on these standards including San Joaquin County.

The premise for the standards is simple, current pension benefits cannot be sustained in today or the expected future environment. Cities and counties are expecting extraordinary pension assessment increases in two years that will erode their ability to deliver services to the public. A second pension tier with lower benefits is not a panacea, however. This step would be helpful, but is not generally expected to create financial relief for about 10 years.

Nevertheless, cities must begin to start planning now. Any changes would have to be collectively bargained.

Here's the paper:

THE SAN JOAQUIN CITY MANAGERS GROUP

Background

The San Joaquin City Managers Group[1] is comprised of the County Administrator and the Chief Administrative Officers for the cities of Escalon, Lathrop, Lodi, Manteca, Ripon, Stockton, and Tracy. The group has closely followed the development of policies and guidelines for the creation of a second tier pension system in San Diego County. The momentum for a statewide initiative has also been noted coming from the Governor’s Office. Consensus was reached in approximately one month to develop a proposal for a second tier pension offering that could be implemented by the great majority of cities in San Joaquin County.

The goal is to provide full career employees with pension benefits that maintain their standard of living into retirement. The benefit levels should be set to be fair and adequate, yet fiscally sustainable for employers and taxpayers. Any proposal for such a regional pension standard must be based on proper actuarial work.

The group assumed that the defined benefit plan has worked for decades and should be retained. It is essential that reciprocity and comparability be guaranteed between local government agencies. However, there was acknowledgement that market conditions of the late 90’s led to “super funding” causing management and labor to seek increased benefits that have proven to be unsustainable and need to be rolled back to more appropriate levels.
Findings
Our group recommends a new pension tier for those city employees hired after January 2010, with the following features:

Ø Safety employees – 2.5% at 55, offset by 50% of Social Security where it is provided;
Ø Miscellaneous employees – 2% at 60, offset by 50% Social Security where it is provided;
Ø Average of highest three years;
Ø Employees must contribute at least 5% of salaries to pensions;
Ø Employer Paid member Contributions (EPMC) prohibited as PERSable wages;
Ø Maximum COLA of 3% for benefits paid to retirees

These changes can be legislated at the local level. The group recommends conferring with a public sector actuary and receiving input from local labor reps before finalizing this proposal.

The committee also recommends that San Joaquin County cities seek legislative pension reform at the State level. These would include:

Ø Establishing a benefit cap for miscellaneous employees and safety employees at 80%;
Ø Create new lower benefit formulas such as:
§ 2.7% at 60 for safety employees; and
§ 2.7% at 65 for miscellaneous employees.
Ø Give employers flexibility to determine when part-time employees are entitled to pension benefits;
Ø Obtain flexibility from PERS to allow employees to move into a lower level tier in the case of two-tier plans if there is some advantage in doing so;
Ø Establish additional reserve funding to reduce volatility;
Ø Retain full disability benefits for those who are injured and cannot work in any capacity, but restrict disability benefits for those who are able to work (in same or similar job) after work-related injury;
Ø Change CalPERS Board membership to achieve better employee/employer balance and greater public agency representation.
Ø Primary focus is return on investment.
The San Joaquin managers could advocate these changes to the Central Valley Division of the League of California Cities and to the greater League Board and to our State representatives.

The managers also note the work done by the League of California Cities on this subject. [2]

These reforms would provide adequate and sustainable pensions for long-term city employees in San Joaquin County cities. Our group also recommends communicating these ideas to other regional manager groups in the hopes of obtaining wider support for pension reform. We seek your reaction to this proposal.

[1] Greg Greeson; Cary Keaten; Blair King; Steve Pinkerton, Leon Compton; Manuel Lopez; Gordon Palmer; and Leon Churchill at the time this project began.

[2] “Pension Reform in California,” League of California Cities (March 2005); and “Replacement Ratio Study,” League of California Cities (February 2005).

It's Official, Signature Gathering Begins for Pension Reform

From Today's Sacramento Bee:

As we reported last night, the California Foundation for Fiscal Responsibility on Thursday re-filed proposed ballot measures that would create a mandatory second-tier pension system for new public employees hired by the state, counties, cities and other non-federal government agencies in California.
The group put forward a similar measure in 2007, but it didn't have the financial support to gather enough signatures to qualify for a statewide vote. Foundation President Marcia Fritz figures it will take $2 million to gather the 1 million signatures needed to get the initiative before voters in the November 2010 election. She said no well-financed backer has stepped forward with a big check.
In a telephone interview this morning, Fritz outlined a strategy that includes an aggressive Web-based signature-gathering campaign and a push to get 2010 gubernatorial candidates such as Meg Whitman to take up the cause.
"We hope that the candidates will step up and help us raise money," Fritz said. "It would give us exposure and give them an issue to talk about."
Fritz, who runs an accounting firm in Citrus Heights, estimates the savings from the foundation's benefit rollback for new hires would save California $1 billion in pension costs one year after taking effect on June 30, 2011.
Some features of the plan:
* -- Changes the retirement formula for new peace officers and firefighters from the current 3 percent times years of service at age 50 to 2.3 percent at age 58.
* -- Cuts the formula for other newly-hired public safety employees, such as park rangers and game wardens, from the current 2.5 percent at age 55 to 1.8 percent at age 60.
* -- Ties the full retirement age for all other employees to the federal standard. Those workers paying into Social Security would get a defined pension based on no more than 1.25 percent of pay. Those who don't contribute to Social Security would get no more than 1.65 percent.
* -- Caps annual pension benefits at 75 percent of an employees annual base wage.
* -- Requires retirement benefits be based on a three-year average of base pay, excluding things like overtime, uniform pay, bonuses, longevity pay, accrued but unused vacation pay.
* -- Requires that any public employee retirement enhancements go to a public vote. The foundation has filed two versions with the Attorney General, one requiring a simple majority vote of the people to enact enhancements and the other a two-thirds vote. Fritz said her group is seeking feedback before deciding which one to push for a public vote.
Click here to read one version and click here to read the other.

City of Tracy Layoffs/Pension Reform

Approximately 58 layoff notices were handed out in Tracy this week. Tracy is looking at huge revenue drops just like Manteca and every other city in the valley, state and country.

It looks like the cuts will impact every department including Police--but a disproportionate share of the cuts may occur in maintenance and operations.

To read more about the cuts, click here.

Another item in the news today involves pension reform. Two more City Managers groups have endorsed the concept of a two-tiered pension system for employees. The plan would put impact both the retirement formula and the date when retirement benefits max out for new hires.

According to the article:
The cities plan on abiding by the guidelines when elected and appointed officials enter future negotiations with their union groups. Because the policy would apply only to workers hired after the ratification of new union contracts, the changes will do little, if anything, to help cities clean up their current budget messes, said Brisbane City Manager Clay Holstine, who helped write the policy.

One of the mid-sized cities endorsing the plan notes that the plan would save the city $44 million over the next 20 years. To read the entire article, click here.

The San Joaquin County City Managers have also come up with policy document and I'll be blogging about it soon.

Your PERS Dollars at Work

The SacBee had a series of articles this week about excessive fees paid to middlemen who convinced PERS to invest with their client. CalPERS is now launching a "special review" of a former board member who made $50 million in fees for getting his client's investment purchased by CalPERS.

Here is an excerpt from the story (click here):

Stepping into a widening national probe of investment marketing agents, CalPERS on Wednesday launched a "special review" of a former board member who made $50 million in fees pitching deals to the pension fund.

The discovery of hefty fees paid to former board member Alfred Villalobos sparked a significant development in an ongoing investigation of placement agents � marketing middlemen hired by private equity firms and other money managers seeking investment dollars from public pension funds like CalPERS.

Villalobos, who served on CalPERS' board from 1993 to 1995, runs Arvco Financial Ventures, a placement agent firm in Stateline, Nev. As reported by The Bee in June, the Arvco firm is one of the most prolific placement agents in securing business from CalPERS, winning commitments totalling $3.3 billion since 2006.

...He added that Villalobos' fees were typical for placement agents and weren't a secret around CalPERS. He said Villalobos has succeeded as a placement agent because his clients "have made good returns for CalPERS."

The 11 deals disclosed by CalPERS Wednesday have mostly lost money so far, according to CalPERS investment reports. But experts say that isn't unusual for private equity investments in their early stages. Two of the older deals, dating to 2003 and 2004, are profitable.

The CalPERS documents, meanwhile, show that two retired state senators, Richard Polanco and Bill Campbell, worked on deals for Villalobos, flying first class or business class. The fare was reimbursed by Apollo Management.

CalPERS in May adopted a disclosure policy on placement agents and asked its various investment partners for documents on their hiring of agents. Those documents yielded the discovery of the fees paid to Villalobos' firm, Arvco.

I believe that all PERS members recently received ballots in the mail for their Board of Directors election. I'm sure that most of you assumed that employees ran for the Board to help protect our investments--I'm now thinking that some candidates had more in mind than ensuring great returns for the membership...

Public Opinion Poll on Public Sector Retirement Benefits

I've been noting for months that generous public employee pensions have become a hot issue for many government reform groups. A number of ballot measures are being proposed to look at possible changes to our benefits. Since public pensions are now in the spotlight, Mark DiCamillo of the Field Poll decided it was time to look at how the general public feels about our pension benefits.

As a glass half full guy, I believe the public is still supportive of our pension plans, paricularly for public safety, but most people seem to feel some level of reform would be a good thing. In summary, the poll found that:

60 percent support setting an upper limit on the amount workers can receive.
56 percent back replacing the system with a 401(k) retirement savings plan.
51 percent favor making current pension-setting formulas less generous.

Here's more detail on the poll from an article in the Riverside Press-Enterprise (click here):

But given recent media coverage of some retirees receiving annual pensions of more than $100,000, the state's voters have a fairly moderate view, he said.

Indeed, while voters back a less-generous system for newly hired workers, the largest group -- 40 percent -- say current pension benefits are about right, the poll found.
The poll found 58 percent of voters oppose imposing a tax on pension benefits exceeding $50,000 a year. And voters by a 52 to 41 percent margin continue to favor providing public-safety workers, such as police officers and firefighters, more generous pensions than other public employees, the poll found.

"They are not particularly harsh for what is in place for the current retirees," DiCamillo said.
Still, there are signs that views could shift, he said. Of those who do not believe benefits are about right, twice as many think they are too generous, the poll found.

Republicans, conservatives, men and those who follow government closely are more likely to think pension benefits are too lavish, the poll found.

Forty-five percent who say they pay a "great deal" of attention to government say pensions are too generous.

"That's an ominous finding," DiCamillo said. "Their opinions are usually good indicators on how future voters will decide when they learn more."

Overall, this is good news for those of us in public employment. The key is for us to continue to make sure that we continue to point out that the vast majority of public employee retirement salaries are reasonable and that the media and anti-government groups continue to focus on the exception, not the rule.

CalPERS pushed hikes now called "unsustainable"

I hadn't talked about pensions a whole lot lately, but I periodically check out the latest stores on www.calpensions.com which provides in-depth analysis of what is happening in the world of CalPERS. The caption above is the title of one of their most recent posts.

This post (click here) provides an excellent history of how our benefits have evolved over the past 25 years. In particular, it details the legislation that created the enhanced retirement packages that many member agencies (including Manteca) now receive.

It notes that:

A labor-friendly CalPERS board offered local governments an incentive eight years ago to boost public employee pension benefits, now called “unsustainable” by some.

CalPERS said it would reward higher benefits by inflating the value of the local government’s pension investment fund, making it easier to pay for more generous pensions.

Booming pension fund earnings in previous years were cited in a self-congratulatory board resolution approving the incentive in 2001. But the stock market boom had already cooled by then.
The CalPERS chief actuary, Ron Seeling, advised against the plan to inflate the market value of the assets, Tom Branan reported in the May/June 2001 issue of The Public Retirement Journal. (emphasis added)

Later in the article it notes:
CalPERS told the Legislature that the benefit increases in SB 400 could be paid for by “superior” investment earnings and the accounting change that boosted assets from 90 to 95 percent of market value.

Annual state contributions to CalPERS were expected to remain roughly unchanged for the next decade. But the CalPERS forecast was wrong, mainly because of a weak stock market not the cost of the increased benefits.

State payments to CalPERS, $157 million in 2000, soared to $2.5 billion by 2005 ($3.3 billion this year). Gov. Arnold Schwarzenegger briefly backed a plan to switch new state and local government hires to a 401(k)-style individual investment plan.

It also discusses the CalPERS' chief actuary's recent quote:

“I don’t want to sugarcoat anything,” Seeling said. “We are facing decades without significant turnarounds in assets, decades of — what I, my personal words, nobody else’s — unsustainable pension costs of between 25 percent of pay for a miscellaneous plan and 40 to 50 percent of pay for a safety plan … unsustainable pension costs. We’ve got to find some other solutions.”

Public Perception

Our proposed salary reductions focus on two areas: COLAs (cost of living adjustments) and pension payments. When meeting with the Budget Advisory Committee early this year, these were the hot spots for the community. In a recessionary economy, most of the committee members found it unconscionable that we were raising our salaries at a time when revenues were taking double digits drops (percentage-wise) and our very generous pension plans were being paid for by the employer.

I've also been posting plenty of articles about the backlash that is spreading across the state regarding our pension benefits. While the hotbed for pension reform has been Orange and San Diego counties, these aren't the only locales seeing heated debate over our employee pensions. Here is an excerpt from an article (click here) out of Redding:

The rising costs and alleged abuses of California's public pension system sparked a lively debate Thursday at a Redding forum — with Redding City Manager Kurt Starman suggesting that major reforms may be achieved only through a statewide ballot initiative.

"If something needs to be done, it needs to be done on at a statewide level so we (cities and counties) can remain competitive" and attract qualified police, firefighters and other professionals, he said.

Such an initiative is in the offing, said Marcia Fritz, a certified public accountant and vice president of the California Foundation for Fiscal Responsibility. Her group advocates pushing back the age of full retirement to 57 for public safety workers and 65 for other employees covered by Calpers, the public employee retirement system. In Redding, police and firefighters can retire as early as age 50.

Pushing back retirement by five years would cut pension costs in half, she said. "People are living longer and should be working longer," she said.

Her group also recommends suspending cost-of-living increases for current retirees and making workers contribute more to their retirement fund. The city of Redding, for example, currently picks up employees' shares of pension costs.

The group mentioned above is just one of several groups gathering signatures for an anti-pension iniative for the 2010 election cycle. The momentum is building to go after our salaries and pension. All you need to do is check out the blogosphere.

While anonymous reader comments always need to be taken with a grain of salt, I think it is instructive when you see anti-labor comments in stories in the San Francisco Chronicle, which has one of the most pro-labor readerships of any paper in the state. For example, check out the comments in the following story regarding the Vallejo bankruptcy (click here). A couple of years ago, it would have been highly unlikely to see such a hostile tone towards public employees, but it is now the norm.

There is also a lot of research going into ways to get salaries back in alignment with city revenues. On June 10, I posted a San Mateo County grand jury report about employee salaries (click here). The report was in response to escalating employee compensation costs--which has put every city budget under stress. The report's recommendations were as follows:

-The escalating employee costs can and should be reversed so civic services and infrastructure improvements are not neglected.
-In addition to stop-gap measures, such as temporary wage freezes and furloughs, long- term solutions should be implemented.
-Labor union contracts for newly hired municipal employees should be introduced to reduce the cost to cities of both pension and post-retirement health care plans.\
-For current, as well as newly hired employees, salary increases, total days off, the ability to convert sick leave to cash, and vacation pay must be contained.
-The practice of narrowly basing salaries and compensation packages entirely on those of nearby cities should be reconsidered. Hiring practices should be expanded to include competition with the private sector.
-Where cost-efficiencies can be achieved, services should be contracted out to other cities or private sector firms.
-Cooperation between cities to reduce overlapping functions should be pursued.
-Political barriers to change exist because all those negotiating employee contracts--staff, unions and city council members--benefit when wage and compensation packages increase.
-Barriers to change should be neutralized by providing for increased public involvement and, possibly through ballot measures.

To read the entire report, click here.

The drums are beating on employee compensation. Most citizens are seeing their salaries cut, their pension contributions eliminated and their retirement funds shrinking. They aren't happy about public employee salaries and benefits heading in the opposite direction of economic reality.
The package proposed to staff is merely an attempt to stay ahead of the curve, and to continue to have a well-paid workforce that can provide the necessary services to the public. If we insist on increasing salaries which in turn reduces services to the public--we will be faced with ballot measures that will force dranconian cuts to our compensation.

Defined Contributions for City of LaMesa

From California City News:

A big development in San Diego County--which along with Orange County is the hotbed of pension reform. City employees in La Mesa agreed to begin kicking in 8 percent of their salaries towards their own pensions. They were given half that amount back in salary increases, but the change is set to save the city up to $1 million a year, and establishes a milestone in the contributions themselves.

As Ed Mendel writes in his CalPensions blog, the "cities in the county had a front-row seat for the pension scandal in San Diego," and a working group of city managers decided to do something about it.

Read more, it's about your future. Also worth a read is a Daily Bulletin piece outlining the battle lines surrounding public pensions.

CalPERS, League of Cities weigh in on Pension Issues

Here's the latest extremely informative post from Calpensions.com:

The CalPERS chief actuary says pension costs are “unsustainable,” and the giant public employee pension system plans to meet with stakeholders to discuss the issue.
So, are the critics right: Do overly generous pensions threaten to eat up too much of state and local government budgets?

An historic stock market crash wiped out a quarter of the CalPERS investment fund last fiscal year. Some experts are forecasting limited investment earnings in the years ahead, making it difficult to replace the losses.

Now “sustainability,” a term used in environmental discussions, has become a common label for a big question about public employee pensions: Will the current level of benefits be affordable in the future?

The question of pension sustainability emerged as a hot topic during a seminar in Sacramento last week sponsored by the Public Retirement Journal.

Ron Seeling, the CalPERS chief actuary, described the process used to “smooth” the rate increases that will be imposed on the 1,500 local government agencies in CalPERS in 2011 in the wake of the stock market crash.

Instead of a rate increase of 4 to 20 percent of pay, the smoothing will reduce the rate hike to a more manageable 0.5 to 2 percent of pay.

“I don’t want to sugarcoat anything,” Seeling said as he neared the end of his comments. “We are facing decades without significant turnarounds in assets, decades of — what I, my personal words, nobody else’s — unsustainable pension costs of between 25 percent of pay for a miscellaneous plan and 40 to 50 percent of pay for a safety plan (police and firefighters) … unsustainable pension costs. We’ve got to find some other solutions.”

Anne Stausboll, the CalPERS chief executive officer, told the seminar that the CalPERS board talked about the “cost and sustainability of pension benefits” the previous week and decided that the system should take a “proactive role” on the issue.

“They asked us to formulate a way to convene our stakeholders — employers, labor, legislators and other stakeholders in our system — to convene everybody and start having a constructive dialogue on sustainability of pension benefits,” Stausboll said.

Dwight Stenbakken of the League of California Cities told the seminar that pension benefits are “just unsustainable” in their current form and difficult to defend politically.

“I think it’s incumbent upon labor and management to get together and solve this problem before it gets on the ballot,” he said.

Public pension advocates worry about a drive to replace the “defined benefit” plan, a guaranteed monthly check for life, with the “defined contribution” 401(k)-style individual investment plan increasingly common in the private sector.

Four years ago Gov. Arnold Schwarzenegger briefly backed an initiative proposed by former Assemblyman Keith Richman, R-Northridge, that would have switched all new state and local government hires to a 401(k)-style plan.

But Richman has since called a switch to a 401(k)-style plan “politically” unfeasible. He and the California Foundation for Fiscal Responsibility have talked about extending retirement ages and capping pension payments at two-thirds of final pay.(See Calpensions 26 Jan 09: “Pension intiative via internet”)

Last June Schwarzenegger, calling current benefits “unsustainable,“ proposed that pensions for new state hires be rolled back to the formulas used before CalPERS-sponsored legislation, SB 400, enacted a major benefit increase in 1999. (See Calpensions 30 Jun 09: “Arnold: cut retirement benefits for new hires”)

The governor dropped an attempt to make his “two-tier” pension reform proposal part of state budget negotiations. But he added pension reform to the list of issues he plans to pursue with legislative leaders later this year.

Schwarzenegger’s plan is similar to a proposal made four years ago by a League of Cities task force, which also referred to “dramatic benefit enhancements” made in the late 1990s.
The legislation, SB 400, only increased benefits for state workers. But the same higher benefits are now widespread among local government pension systems.

“The excuse that I’ve always heard is, “We don’t want to adopt these retirement formulas, but I have to because our neighbors adopted it and we have to be competitive in the labor market,” said the League of Cities’ Stenbakken.

He said eliminating all options and returning to pre-SB 400 retirement formulas for new hires would eliminate the competition between local governments that has increased pension benefits.

“I think this is one of the major mistakes we made with the PERS system,” said Stenbakken. “STRS, the State Teachers Retirement System, doesn’t have this problem. If you’re a teacher in Eureka or you’re a teacher in Los Angeles Unified, you get the same pension.”

In California, attempts to cut pension benefits are usually two-tier plans, cutting benefits only for new hires. Pensions bargained under labor contracts are said to be protected by court decisions, which allow cuts only if something of equal value is provided.

“In terms of dealing with pension cost currently, I only know of two ways to do it,” said Stenbakken. “That’s lay people off or reduce salaries.”

A retirement actuary, John Bartel, told the seminar that two-tier plans do not save much money, even after several decades. He said costs from the untouchable high-benefit first tier, a vested right protected by contract law, continue to grow.

“Unless that vested right issue changes, and I’m not expecting it will, that second tier is not going to save money,” he said.

Bartel said his clients tell him that the main motivation for switching to a two-tier plan tends to be “political in nature,” rather than an expectation of significant savings.

“It’s because a board member or a council member can stand up and say, “We think there’s a lot of bleeding here and we need to stop that bleeding, and we are going to do it on that basis,’” he said. “That’s what I’m hearing from my clients.”

Labor union officials told the seminar they worry that statewide pension reform legislation might bypass local collective bargaining. They said the Richman group’s list of 5,000 pensioners that receive $100,000 or more a year is less than 1 percent of total public employee pensions.

“I actually think it is sustainable,” said Terry Brennand of the Service Employees International Union. He said the basic problem is investment losses, not high benefit levels.

“What is sustainable?“ said Lou Paulson of the California Professional Firefighters. He said proposals to extend the retirement age for firefighters from 50 to 55 would result in more injuries with advancing age, driving up workers’ compensation costs.

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune.

Pension Reform Update

I'll be meeting with all of the San Joaquin County City Managers along with the County Administrator next week to further discuss the San Diego pension reform measure (click here).

Calpension had a lengthy article this week about the pension reform going on at the City of San Diego and Orange County--which as two of the cities with rockiest pension issues--are the first to introduce major pension reform. Here's a major excerpt from the article:

Prius pensions: San Diego and Orange go hybrid
By Ed Mendel

The city of San Diego and Orange County, both with a history of well-publicized budget troubles, have adopted similar cost-cutting pension reforms — a hybrid plan combining a monthly check with an individual investment account.

The hybrid gives the employer a more stable and predictable pension cost. And in the San Diego and Orange plans, there are savings because new hires receive a less generous retirement plan.
For the employee, there is the security of a guaranteed, though smaller, monthly pension check on retirement. And at work, there is more take-home pay and a retirement investment account that can move with the worker in a job change.

Unions representing general employees (not police and firefighters) agreed to the hybrid plans adopted in recent weeks as Gov. Arnold Schwarzenegger and others argue that some public employee retirement plans have become “unsustainable.”

At a time when recession-ridden state and local governments are making deep budget cuts, they face mandatory increases in contributions to pension systems, whose investment funds were devastated by the stock market crash last fall.

Critics also contend that powerful public employee unions have negotiated overly generous retirement packages, particularly in comparison to the 401(k) individual investment accounts now common in the private sector.

The hybrid is a compromise in the longstanding battle between advocates of the guaranteed monthly pension check (“defined benefit” in pension lingo) and the 401(k) investment account (“defined contribution”). (See Calpensions 15 Jun 09: “Retirement’s future: pension vs. 401(k)”)

The hybrid agreement in San Diego came after Mayor Jerry Sanders threatened to put the measure on the ballot. Voters are believed to be in a punitive mood after a pension scandal caused the self-dubbed “America’s Finest City” to be labeled “Enron by the Sea” in the national media.

More seriously, the city laid off employees, cut a number of services and was unable to sell bonds for several years.

State and federal charges, still pending, were brought against eight former pension officials in 2005 and 2006 as the unfunded liability in the city pension fund ballooned to $1.7 billion.
Officials cut two deals with union officials over the years that increased benefits while reducing contributions to the pension fund. The pension officials who approved the last deal were among the city workers receiving the increased retirement benefits.

The San Diego hybrid plan for new hires is a small first step expected to eventually save $22.5 million a year. But that could be several decades from now, depending on turnover in the workforce.

San Diego already had a kind of hybrid plan. But the defined contribution portion was a supplement that replaced Social Security. Now the defined contribution is formally part of a hybrid plan.

Some think the agreement with three non-safety unions sets the stage for future contract negotiations that will try to increase the percentage of the plan that is a defined contribution.

Meanwhile, the city’s retirement contribution for a new hire was cut nearly in half, dropping from 15.92 percent of payroll to 8.75 percent. The benefit for a 30-year employee retiring at 65 would drop from 119 percent of final pay to 84 percent.

A more ambitious hybrid plan in Orange County, which declared bankruptcy in 1994 after losing $1.7 billion on risky securities, could yield significant savings in the first few years.

Both new hires and current employees would be given the option of choosing the existing defined benefit plan or a new hybrid that combines a smaller defined benefit payment with a 401(k)-style individual investment plan.

One estimate is that the hybrid plan could save $10 million in the first year. Orange County Supervisor Chris Norby has a more conservative estimate of savings: $1.4 million a year if 10 percent opt in, $3.5 million if 25 percent sign up.

The existing defined benefit for a 30-year employee retiring at 55 is a generous 2.7 percent of final pay for each year worked. The hybrid defined benefit formula would pay 1.62 percent at 65, plus the amount in the investment account.

Officials think the hybrid option will be attractive to employees wanting an increase in take-home pay, Norby estimates 7 percent, or planning to move on to other jobs.
To apply to current state workers, not just new hires, the hybrid plans needs legislation, SB 752, which has been introduced by Sen. Lou Correa, D-Santa Ana, chairman of the Senate retirement committee.

“It is a breakthrough program that both the workers, the Orange County Employees Association, and the county of Orange have agreed to,” Correa said in the Los Angeles Times. “It’s one (plan) that I think could serve as a role model for the rest of the state.”
The Oregon Public Employees Retirement System adopted a hybrid plan that won praise, before the stock market crash last fall, for helping to erase a $17 billion unfunded liability.

“Oregon did the nation’s most dramatic pension overhaul in 2003,” said an article in USA Today in June of last year. “It did what most states consider impossible: slash benefits promised to existing workers.”

Pension benefits are protected by contract law and usually regarded as untouchable. In a widely watched city of Vallejo lawsuit, a federal judge has ruled that labor contracts can be overturned in bankruptcy.

But no action has been taken yet. The judge has ordered mediation in an attempt to reach a settlement between the city and firefighter and electrical worker unions, avoiding the need to overturn the contracts.

Some of the pension cuts in Oregon, unsuccessfully challenged by lawsuits, included changing an alternative retirement plan that guaranteed retirees an 8 percent return on investments, plus any earnings above that amount.

Actuarial tables were changed to reflect longer life spans, reducing some benefits, and an aggressive drive was launched to recoup “overpayments” to a large number of retirees.

Oregon pushed the pension reforms when state general fund revenue dropped 25 percent in an economic downturn. Gov. Ted Kulongoski, a former labor lawyer, insisted on retaining a strong defined benefit in the hybrid plan.

“I like the certainty,” Kulongoski told Plansponsor magazine two years ago. “It is better for employees. A defined contribution plan is not as secure, as far as what the retirement income will be.”

In the News...

Budget and pension issues continue to dominate the local government news. Here's a sampling of what the media has been writing about this past week.

The San Bernardino Sun wrote up a summary of the challenges faced by most of the local cities in their region (click here). Employee furloughs, frozen cost of living increases and borrowing from non-General fund sources was a recurring theme in most of the cities. Some have adopted their budgets, but those with budgets will likely need to change them due to the state budget. The cities that haven't increased staffing or have been slow to adjust salaries seem to have the most stable budgets.

The City of Los Angeles has finally reached an agreement with 22,000 workers. As part of the package, cost of living increases were delayed by two years and about 2,400 employees will take early retirement. The changes were needed to deal with a $350 million budget deficit. Click here to read more.

Rohnert Park is laying off 25 employees, mostly in public safety to close their budget gap. Click here to read more.

In Contra Costa County, there is a lot of consternation about the latest listing of retiree salaries. 423 retirees are now earning over $100,000 per year. Read more here.

Public Pensions Stay in the Spotlight

While the state budget has been a big story over the past week, cities and counties are continuing to address one of two major long term issues plaguing every governmental entity--future pension obligations (health care being the other major issue).

On the heels of San Mateo County releasing a telling grand jury report on pensions, now San Francisco has released their own report on the status of public pension obligations in their county. As noted in an article this week in the Chronicle (click here):

San Francisco's skyrocketing pension costs are untenable and both unions and politicians are to blame for abusing the system by negotiating extraordinary pension and retirement benefits without considering the unfair burden on future generations, according to a report issued Thursday.

The article goes on to note:
The document specifically targets San Francisco's police officers and firefighters for essentially gaming the system through "spiking" - the practice of artificially inflating retirement benefits by increasing their compensation just before retiring, often through temporary promotions. The jury calls the practice "institutionalized and ongoing" in public safety agencies and estimates it cost the city and other employees at least $132 million over a 10-year period ending in 2008. The report said more than half of police and firefighters who have retired since 1998 receive a pension worth more than their highest pay.

The preamble to the Grand Jury report pretty much sets the tone for the entire report:

In reference to the pension scandal in San Diego in recent years, the Pulitzer Prize winning author Roger Lowenstein wrote:
"The unions push for benefits that are beyond the ability of governments to properly fund. The unions get their promises; the politicians get to satisfy a powerful constituency. And by shortchanging their pension funds, they can run their budgets on borrowed time and put off the necessity to tax until later generations." 1
The time to payback the pension commitments made over the past 20 years is today, and the City of San Francisco may be unprepared to meet its obligations, without severe cuts in essential services to the residents of the City and the business interests who employ thousands of San Franciscans.

To read the entire grand jury report click here.

Down in San Diego County, the City Manager led pension reform group is having their recommendations for a two-tier pension system tested in Escondido. The San Diego Tribune notes:

The City Council this week authorized the city manager to pursue overhauling the pension system. The reforms would be accomplished by asking employees to contribute more to their pensions, and by giving new hires less generous retirement benefits.

More specifically, the City Manager is proposing to:
* Ask current employees to contribute more to their pensions. Escondido pays all of its public safety employees' contributions, and all but 1 percent of the other employees' contributions.

*Reduce retirement benefits for employees hired after January 2010. That would create a two-tiered pension system in Escondido in which current, non-uniformed employees receive 3 percent of the highest salary they earned for every year they served when they turn 60, and uniformed employees get 3 percent at age 50. New non-uniformed employees hired after January 2010 would be given 2 percent at age 60, and new uniformed employees would be given 2 percent at age 50.
*Seek legislative reform of the public employees' pension system, CalPERS, to include more employer representation on its board. Most cities in San Diego County, except for the city and county of San Diego, use CalPERS.

(click here for entire article)

Just up the road in Orange County, the Board of Supervisors will also be asking for legislation to implement their proposal for a two-tier system. As noted in the Los Angeles Times:

Under the plan, incoming employees as of March 1, 2010, would have the option to choose the older pension plan of 2.7% of the average of an employee's 36 months of highest salary at age 55, or 1.62% at age 65, which includes a 401(k)-style retirement account with up to 2% employer matching. Existing county employees would also be given the chance to move down to the new tier.

The lower tier is expected to appeal to new hires who may not stay with the county long or those who may need more money in their pockets now.

Click here for the entire article.

In a closely related item, one of the reasons for all this rush to reform, is the current condition of our pension funds. Both CalPERS and CalSTRS released their annual investment performance reports this week. The two investment funds lost a combined $100 million in value over the past year, which was about a 25 percent drop in overall value of the funds.

An article in the LA Times (click here) noted that the Governor has been harping about the potential future impacts on the state budget due to underfunded pensions. Here are a couple of excerpts from the article:

"No long-term fix is more important to our state's solvency," Schwarzenegger wrote in an opinion column in The Times this month. The governor plans to ask the Legislature to approve changes in the system. The state, he said, would save money by giving smaller pensions to new state workers through changing "our unsustainable retiree pension formulas."

Schwarzenegger told reporters last week that the big pension funds could face an estimated $300-billion shortfall in covering the cost of pensions to current and future retirees.

All of this points to the fact that pension reform is on the way. We at the local level need to work closely with our bargaining groups to find a solution that can ensure fair compensation for our employees while ensuring that we will still have enough available revenues to provide service to the public.

City Pension Standards

The seven City Managers in San Joaquin County and the County Administrator meet monthly to discuss issues of mutual interest. Yesterday, we discussed a proposal developed by the San Diego City/County Management Association. This proposal discusses the elephant in the room of every city labor agreement--our inability to continue supporting our current pension plans. As I've noted before, not only are these benefits unsustainable, government workers are getting vilified in the media for having defined benefit plans far superior to anything in the private sector.

As noted in their report which you can access here:
Their group is recommending a second tier pension offering that could be implemented by the great majority of cities. This pension program would not affect existing city employees who have vested rights to the current pension program, but would affect new employees after a date certain and be both sustainable and defensible.

The study goes on to provide a great background on the evolution of government pension systems and how they've changed over the years. It goes on to support the continuance of defined benefit versus defined contribution programs for delivering benefits as defined benefit programs are professionally managed. They also offer lower fees and cover disability retirements and death benefits--which are not typically provided in defined contribution programs.

Essentially it recommends a return to the benefits that were available pre-1999 when most of the pension benefits were upgraded in conjunction with a once in a generation surge in the stock market. I realize that this will not sit well with many on opposite ends of the issue. I'm certain that labor groups will be reticent to reduce benefits for future employees and be concerned about the resentment that might emanate from those hired under the new plan. I'm sure there will also be many who believe that government employees should be relegated to the same defined contribution plans now common in the private sector.

There is no doubt in my mind that you'll be hearing a lot more of this debate in the near future. As our available revenues continue to flounder and health and pension costs continue to increase, we'll be faced with very difficult budget decisions in the future. In my mind, updating the pension system is a necessity and the sooner we begin to face this issue, the sooner we can resolve it and move on to other budget challenges.

Pension Reform

I've noted in a number of posts the ever increasing number of cities and counties concerned about the spiraling costs of defined benefit pension programs. Ventura County is the latest local agency to address the issue head on. Here is an excerpt from Tuesday's Los Angeles Times:

Alarmed by spiraling pension debt, Ventura County could join a growing number of local governments requiring that future increases in retirement benefits for public employees be put on the ballot.Voters in Orange County and the city of San Diego in recent years have stripped benefit-granting authority from their elected officials, reserving that power for the electorate. San Francisco has required voter approval of pension benefit hikes since its founding charter over a century ago.

The Ventura County Grand Jury recently recommended that voters there be given the same opportunity. Two members of the Board of Supervisors said they are willing to consider the proposal.

It goes on to note:

Grand Jury foreman Ron Zenone said the panel investigated pension costs because they account for a large portion of the county's general fund. Pension costs grew 327% over the last decade and are projected to increase 20% to 25% a year for several years.Ventura County is hardly alone. Eight years after granting one of the most lucrative pension plans in the state, San Diego County is trying to rein in costs by creating a tier of employees with lesser benefits. In February, the county's retirement fund had lost $2.5 billion, or about 30% of its value, as the stock market plunged. At that time, Dianne Jacob, chairwoman of the Board of Supervisors, said the county would have to increase its annual payment from $300 million to $700 million in five years.Riverside County government, too, is looking to trim benefit costs after granting costly enhancements, and the Bay Area city of Vallejo declared bankruptcy last year in part because of climbing retirement payments.

Read the full article by clicking here.

CalPERS Updates their Rates

This past week, the CalPERS board met to address the 23 percent reduction in portfolio value since this time last year. Back in 2005, PERS had adjusted rates upward in an attempt to "smooth out" future payments to ensure that rates wouldn't skyrocket in bad years. Unfortunately, this most recent investment shock was larger than anticipated when rates were "smoothed out".

A second "smoothing" was approved that will raise rates but allow agencies to absorb the increase over a longer period of time. For local governments, we'll first feel the impact of this increased rate in the 2010-2011 fiscal year. We don't know yet what the actual rate will be, but will receive it soon and begin to factor it in to our long range budget planning. In any case, while some are not happy with the rate smoothing, it will save a lot of jobs over the next few years. Whether we will regret this in hindsight remains to be seen. If the stock market stabilizes, it will turn out to be a good decision. If the market starts heading south again for an extended period of time, we'll end up paying a far greater price in the future.

Here are a number of articles on the subject:

Click here for the Los Angeles Times story. Click here for Pensions & Investments take on the subject. For PublicCeo.com, click here. For calpensions.com, click here.

In a related matter, Orange County is close to putting in place the a two-tier pension system. Here's an excerpt from the Orange County Register:

Here's how it works: existing county employees could decide whether to keep their old benefits, or select a hybrid plan that includes reduced pension and a defined contribution plan, which is similar to a 401k. New employees also would get to choose between the two plans.
For example, an employee who has been working at the county for 30 years and makes $60,000, now pays about $700 a month toward his pension. He can retire at age 55 and collect $4,050 per month.
Under the new plan, employees would retire later – at 65 – and collect less from their pensions – about $2,430 a month for a 30-year employee. But when they're working, they'd pay less each month – about $360 for the employee who makes $60,000. Plus, they could decide how much to contribute to the 401a plan, which the county would generally match up to two percent.
The agreement also establishes a committee of union workers and county executives charged with finding more efficient ways to run the county. Any savings would be passed on to the employees in the lower-tier retirement plan in the form of a higher county matching contribution – a sort of public profit-sharing.

Click here for the entire story.

Back in the 1990s, the State of California had initiated a two-tier system when revenues dropped during the recession. Here is an excerpt from an editorial this week in the San Diego Union Tribune, which discusses legislation passed in 1999 to enhance state retirement benefits and eliminate the two-tier system that had saved the state hundreds of millions of dollars (be sure to read the section I've put in bold):

Three months after the CalPERS board made its recommendation, Senate Bill 400 swept to passage and was signed by Davis.
It revised sharply upward the formula under which retirement benefits were calculated for state and public school workers; it based the benefits on the final year of pay (normally the highest), not an average of the final three years; it erased a previous money-saving reform by ending a tier system under which new hires received smaller pensions; and it conferred a vast array of pension sweeteners on retirees and their survivors. It also paved the way for local governments throughout the state to offer similar retroactive gifts of public funds to their employees and retirees.
CalPERS' argument that this enormous pension spike would have little long-term fiscal consequence had carried the day. Its official estimate was that in 2008-09, the state's employer contribution would be only $379 million.
The actual figure: $4.6 billion. The likely figure in the next few years, thanks to the stock market's huge slide, will probably be much higher. (emphasis added)
In other words, the annual cost of the allegedly benign 1999 pension spike is likely to be at least a dozen times the original estimate. And if state leaders did the prudent thing and started setting aside money to cover at least $48 billion in unfunded retiree health benefits, that would add at least $2 billion more to the annual tab.

Pension Tsunami

Pension Tsunami is the name of a very popular blog that is tracking public employee pension issues in California and across the nation. As the stock market has tumbled and goverment budgets tighten, government employee pensions are becoming the latest flashpoint for limited government activists.

In my nightly (and sometimes overnight) review of local and state government issues on the web, I'm finding more and more chatter about the high cost of defined benefit programs. This chatter will only increase as cash strapped municipalities are forced to increase pension contributions to meet the demands of CalPERS to guarantee future benefits.

Not surprisingly, conservative anti-tax/limited government groups in Orange County are leading the way. The Orange County Register seems to be serving as their mouthpiece. Wednesday's Register editorial page had a rather pointed opinion piece on the State's inability to address pension reform. This piece was a follow up to a story they did on the top 20 employee CalPERS pensions in the State and a feature on double dipping by the retired City Manager of Anaheim. You can read the editorial by clicking here, the top 20 list can be accessed here and the double dipping story here.

Last fall, Orange County approved a ballot measure that requires a public vote before their county government can increase employee pensions.

The Los Angeles Times also was busy discussing pension reform as well. Los Angeles City Council members earn $178,000 per year. One of their Council members is very concerned about the future liabilities of the city's private pension system. This Council member is very familiar with their pension system since this former Police Chief is the city's highest pensioner at $265,000 per year. You can read that article here.