Will Even Modest Pension Reforms in California Stand?

Pension spiking bounces back and unions look for any excuse for an exemption


Gov. Jerry Brown has not exactly been a hero when it comes to dealing with the public pension crisis in California. His latest budget flat-out declines to address the hundreds of billions of dollars in debt the state faces from unfunded public employee pension liabilities. He acknowledged its existence in his budget summary, but does not appear to be taking any measures to reduce it.

But he hasn't been a complete failure, entirely. Last fall, Brown did manage to push through some modest pension reforms – mostly targeting new employees – that capped salaries for pension calculations, required new workers to contribute to their own pension fund, increased the retirement age, and most importantly, attempted to address "pension spiking," where various little wage enhancements or bonuses were used to artificially increase a public employee's salary in order to increase their pension earnings upon retirement. Pension spiking has helped contribute to the more than 20,000 retired public employees (figures courtesy of Pension Tsunami) who currently rake in six-figure annual incomes.

But already what little reform the state has managed is in jeopardy. Daniel Borenstein at the Contra Costa Times noticed that the California Public Employees' Retirement System is essentially going to defy the order that pensions will be calculated based on base pay by declaring enhancements and bonuses are part of base pay:

If new workers receive one of nearly 100 different pay premiums for everything from marksmanship and longevity to being a notary or working on a library reference desk, CalPERS has decided, the extra compensation will be counted as income when their pensions are calculated.

Never underestimate the power of bureaucracy to twist words to prevent institutional change. With a stroke of a pen, bonuses can just be declared to be part of "base pay." And these bonus systems are just rife with abuse. Municipalities give bonuses to employees for knowledge of additional language even if there's no demand for it in their communities. I've seen contracts where street workers get bonuses if a particular type of street paving process is used. City workers find a way to make their base job responsibilities worthy of extra wages.

But that's not all! The Teamsters and two other unions are sponsoring a bill that would exempt 20,000 mass-transit workers from the pension reforms, arguing that the changes violate collective bargaining rights and put federal mass-transit grants at risk. Via the Sacramento Bee:

Introduced by Watsonville Democrat Luis Alejo, Assembly Bill 160 assumes public pension changes that took effect Jan. 1 violate a condition of mass-transit federal grants requiring an agency to preserve whatever employees' collective bargaining rights are authorized in that state.

The U.S. Department of Labor certifies when a mass transit provider is following the rules – no certification, no money. Alejo declined to comment on his bill, but his office estimates the state receives about $2 billion annually from federal mass transit grants.

That union activism could jeopardize California rail subsidies strikes me as a bonus, honestly. Alison Neufield, a San Francisco labor attorney, did point out that the unions probably don't want to push this battle too hard, because obviously blocking the federal grants will kill their own members' jobs.

Other union employees are also fighting implementation of the pension reforms. Unfortunately, Borenstein has noted in a follow-up column, Brown and California Attorney General Kamala Harris aren't lifting a finger to actually defend it in court:

Employees sued the retirement systems that administer pensions in the three counties. But the systems say they are indifferent and will abide by whatever the courts decide.

The retirement systems don't ultimately pay the bill. The cost is passed on to taxpayer-supported local governments. Yet the three counties' boards of supervisors have sat on the sidelines, as has Attorney General Kamala Harris, whose job includes defending state laws, and Gov. Brown, who vowed to end this sort of abuse.

In Contra Costa Superior Court on Thursday, Judge David Flinn, calling the case there "a very significant economic matter," said he found it "troubling" that only one side was represented. "Where are the real parties in interest?"

Flinn and Alameda County Judge Evelio Grillo have struggled with whether they can rule on theconstitutionality of the law if no one defends it. Grillo seems ready to move forward anyway and Flynn may also.

Brown's failure to defend the very bill he negotiated throws even these extremely modest gains into jeopardy. It may be ultimately up to the voters to force it, like they have in San Diego and San Jose (and the unions are trying to block it there, too).