Pension Reform


In response to questions asked by the LA Times regarding pension reform, Kevin provided the following answers:

1. How did we get to this point?

The Executive Employee Relations Committee entered into contracts, year after year, that the city could not afford, and the City Council gladly rubber-stamped their actions. Neither the EERC nor the Council can legitimately feign ignorance, or blame the bad decisions on an "unknown" recession -- numerous community members, bloggers and radio broadcasters (including myself) warned the Council and the EERC that we could not afford the overly-lucrative contracts they were about to enter into. These same Councilmembers regularly received huge financial support for their campaigns from the very employee unions that benefitted from the employee contracts.

Whatever the unions wanted, the unions received - even in crisis. Whether it was ERIP (Early Retirement Incentive Program), "transferring" general fund employees over to the DWP budget to avoid laying them off, or "shifting" costs to future years to make the budget appear balanced, the unions got what they wanted.

In addition to the questionable planning referenced above, overly-optimistic investment forecasts have also contributed to the crisis. Current forecasts of 7% to 8% are no longer realistic (if they ever really were). As you know, CalPERS just reported a 1% return at the state level for the year ending June 30. As you also know, anything below the fund's discount rate of 7.5% (which most public pensions in the U.S. use as their rate) forces the taxpayer to cover the difference.

2. What if anything would you do as Mayor to control retirement costs?

I would implement real pension reform. If the Council will not agree, I would go around them and, as Mayor, work to get pension reform put on the ballot.

My ideas for pension reform include the following:

First, pension reform has to include all of the city unions, including the DWP.

Second, we must raise the retirement age. I agree with the proposal to raise the retirement age for civilian employees to 67. As for public safety employees (as well as civilian jobs that require a certain level of physical exertion), we should move those employees to other needed positions requiring less physical strain during later years of their employment if the situation warrants it.

Third, we cannot maintain the current discount rates of 7.5% to 8% - that rate must come down to reality.

Fourth, we must raise the contribution rates that employees contribute to their own pension and health insurance costs. I know some of the unions have agreed to this already, but more is needed.

Fifth, we must further cap an employee's pension collections. This can be done a couple of ways, by capping the amount an employee can receive, or by limiting how much the city contributes each year -- all while recognizing that it might have to be further limited depending on the city's ability to move out of the current financial crisis.

Sixth, limiting pension calculations to an employee's base salary.

Seventh, we must also do something to stop the abuses of the pension system. For example, we should ignore an employee's last year of compensation when calculating pension benefits. That is when you see more abuse of the system.

Two of the more sweeping pension reform proposals that are now being put on the table I believe also deserve consideration. The first proposal is the elimination of the defined benefit pension in exchange for a 401(k)-style individual investment plan. The second (which was floated in the recent story about Riordan's meeting with Mayor Villaraigosa) returns power over the pensions to the voters.

Real pension reform is not an ideological issue, it is an actuarial issue - we simply do not have a choice.

Finally, I have a feeling that I am the only Mayoral candidate that has looked into recent developments in California case law concerning the vested-rights doctrine. Not to get too "in the weeds", but the courts appear to be on a trend toward easing the definition of what constitutes vested rights. That will give future city officials more leeway in renegotiating prior obligations -- especially city officials willing to battle it out in court in the name of saving city services and I am willing to have that battle

3. Without new labor agreements, will city services further diminish, and if so how would you prioritize cuts?

Without new labor agreements, further reduction in city services will unfortunately be unavoidable. Prioritization of cuts would be based on common sense relating to the importance to the city of the service. In other words, all such cuts will be painful. The only cuts that will not be painful will be the phasing out of the significant waste, fraud and abuse in this city government. Recognizing that simply saying "waste, fraud and abuse" is not enough, choices will have to be made.

Another way to characterize what gets cut, is by stating what gets preserved.

First of all, the potential for bankruptcy in the City of Los Angeles presents a new type of leverage the new Mayor will have to negotiate further concessions from unions. If the reality/threat of bankruptcy is not enough and cuts have to be made throughout the city, after a public battle between my office as Mayor and our city's union leaders over salary freezes and potential reductions in pay, here is how I envision preservation prioritization:

Initially, every department will be requested to suggest on its own 3% cuts across-the-board. After that, recognizing that arguments for the importance of every department can be made, here is how I see their priority in groups (my suggested sequence is of course subject to revision after department-head presentations fighting for their own funds) (please also note that there is certainly room available for departmental consolidation as well (e.g., Commission for children, youth and their families, and Commission of the Status of Women consolidated into Community Development Dept.)):

High priority: Public safety gets first priority in avoiding cuts, Police Dept., Fire Dept., Building and Safety Dept., Chief Administrative Officer's Dept., City Attorney, Controller, Emergency Preparedness Dept., Office of Finance, Housing Dept., Planning Dept., Personnel Dept., Public Works Dept., Transportation Dept., Office of the Treasurer.

Mid-level priority in avoiding cuts: Dept. of Aging, Animal Services, City Clerk, City Ethics Commission, Dept. on Disability, Employee Relations Board, Environmental Affairs Dept, General Services Dept., Housing Authority, Information Technology Agency, Los Angeles Public Library, Dept. of Neighborhood Empowerment, Dept. of Recreation and Parks

Lower-level priority in avoiding cuts: Commission for children, youth and their families, Commission on the status of women, Convention Center Dept., Community Development Dept., Cultural Affairs Dept., El Pueblo De Los Angeles Historical Monument Authority Dept., Human Relations Commission, Zoo Dept.

Another alternative: Public/Private Partnerships: People often ask why Los Angeles is not better at public/private partnerships given all of the talent, knowledge and business diversity that exists in the region. I believe that the city's reputation as a corrupt city government - which it has earned - harms the city's ability to attract professionals from private industry to partner with. By cleaning up corruption, we significantly increase our chances at developing new and thriving partnerships with incredible private industry partners existing in the region.

Departments worth reviewing for public/private partnerships are all of the departments that could face the earliest round of cuts.

As Mayor, my office budget and my salary will be cut by comparable levels.

Finally, as a lawyer for almost 25 years with extensive experience in negotiating high-level agreements, I believe there are certain things that can be done to level the field when negotiating contracts with our city employee unions. For example, if all employee contracts are redesigned to expire at the same time, city officials (tasked with representing the taxpayer) will be better able to work out new agreements without one union having the deal points previously agreed to by another union as their starting point.,0,2567951.story?page=1

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