Pension Crisis

Kamala Harris' Description of Pension Initiative Again Riles Reformers

Casts attempts to give voters control over future benefits as stripping 'constitutional protections.'


Dancing with them what brung her
Kamala Harris

Pension reformers Chuck Reed (former Democratic Mayor of San Jose) and Carl DeMaio (former Republican San Diego City Council member) introduced a new ballot initiative in June that would amend Caifornia's constitution to give citizens more control over the pension and benefit obligations taken on by their own governments and offered to public employees.

Democratic Attorney General Kamala Harris, who also happens to be running for the Senate to replace retiring Barbara Boxer, put out a title and summary of the initiative this week. Needless to say, initiative proponents are not happy. Here's how Harris formally summarizes what Reed and DeMaio call the "Voter Empowerment Act of 2016":

PUBLIC EMPLOYEES. PENSION AND RETIREE HEALTHCARE BENEFITS. INITIATIVE CONSTITUTIONAL AMENDMENT. Eliminates constitutional protections for vested pension and retiree healthcare benefits for current public employees, including those working in K-12 schools, higher education, hospitals, and police protection, for future work performed. Adds initiative/referendum powers to Constitution, for determining public employee compensation and retirement benefits. Bars government employers from enrolling new employees in defined benefit plans, paying more than one-half cost of new employees' retirement benefits, or enhancing retirement benefits, unless first approved by voters. Limits placement of financial conditions upon government employers closing defined benefit plans to new employees. Summary of estimate by Legislative Analyst and Director of Finance of fiscal impact on state and local government: Significant effects—savings and costs—on state and local governments relating to compensation for governmental employees. The magnitude and timing of these effects would depend heavily on future decisions made by voters, governmental employers, and the courts.

A layperson might read the beginning of that description and conclude that current government employees could have their pensions and healthcare benefits stripped from them if this referendum is passed. That is not, in fact, what the initiative does. It does have several components to give voters more control over how its governments pay for public employees by:

  • Giving voters the power to use ballot initiatives to determine compensation and retirement benefits for employees.
  • Requiring governments to get voter approval in order to either enhance existing pension plans or to add new employees to pension plans. It also requires governments to get voter approval to pay more than one half of an employee's retirement benefits.

It also specifically states it doesn't alter any existing benefit agreements or reduces the benefits for work already performed.

To be clear, the reforms proposed within this initiative are huge, even if Harris is mischaracterizing them. Requiring a vote by each government body to continue letting new employees into pension programs could very likely fail, requiring the state and municipalities to switch to 401(k)-style defined contribution retirement funds instead (which don't require a vote). This switch is important for spending reform because it takes governments (and taxpayers) off the hook for a guaranteed return. Governments would be providing all their contributions at the front end and would not be obligated to make up for any below-expected returns from these funds like they would with a pension. Furthermore, California's Constitution has put municipalities in a bind by prohibiting them from decreasing future benefits for government employees, so giving voters the authority to potentially bypass collective bargaining could also potentially impact this rule.

Our own Reason-Rupe poll from back in February shows that giving voters the power to vote on public employee pension increases is very popular. We saw 78 percent of those polls supporting public votes. The majority also supports shifting public employees (especially new ones) to defined contribution 401(k)-style retirement programs. What DeMaio and Reed are proposing seems like it would likely go down well with voters.

But maybe not with the way Harris has described the legislation, and she's done this to Reed before. Reed abandoned a pension reform initiative in 2014 after losing a court fight over Harris' summary. This time it looks as though they're going to press forward anyway, though Reed and DeMaio told the Associated Press they're going to "conduct a legal review" of how Harris summarized their initiative.

The two of them will need to collect close to 600,000 signatures to make it onto California's ballot for the November 2016 election.

(Disclosure: DeMaio has previously worked with the Reason Foundation as an independent contractor on pension reform.)