By JUDY LIN
Published: Saturday, Oct. 29, 2011 – 8:39 am
Last Modified: Saturday, Oct. 29, 2011 – 5:45 pm
SACRAMENTO, Calif. — San Francisco’s public pension system took a beating during the recession, which has left it carrying a hefty unfunded liability for its 26,000 current and 28,000 retired employees. The city’s pension obligation is growing by $100 million a year, leaving less funding for police and fire protection, park maintenance and health services for the needy.
Unable to keep up, San Francisco is among several California cities asking voters to help tackle the public pension problem – which is now one of the biggest causes of municipal budget shortfalls.
In San Diego, city leaders and reform advocates recently submitted more than enough signatures to qualify an initiative to change the city’s charter on pension calculations. If it qualifies, it would appear on the June ballot.
And San Jose’s mayor has set a goal of placing retirement reform before voters in a March special election; labor groups are offering a compromise plan.
Local governments are increasingly turning to voters for help to rein in the cost of public pensions as the state continues to wrestle with the issue. Talks stalled earlier this year between Democratic Gov. Jerry Brown and Republican lawmakers after they failed to reach a compromise on tax extensions. Brown failed to generate support for his proposed changes and is now offering a plan to raise the retirement age to align with Social Security and move new state workers to a hybrid system where guaranteed benefits are combined with a 401(k)-style plan.
Pension reformers say voters support efforts to roll back enhanced retirement benefits that were handed out during economic boom years. It was a time when pension funds appeared so flush that some cities stopped asking employees to pay into their retirement programs.
As pension costs shoot up, taxpayers have been asking why they are on the hook to pay guaranteed lifetime pension and health care benefits for public employees as defined-benefit pensions have all but disappeared from the private sector, replaced by 401(k) plans that have tanked in value.
“When you look at the math, you realize there’s no way that cities and counties can keep up with the escalating pension costs,” said San Francisco Public Defender Jeff Adachi, who has made pension reform his campaign centerpiece for mayor.
But any proposal to change retirement benefits for current and retired public employees will almost certainly invite legal challenges from unions that represent police officers, firefighters, librarians and city hall workers.
Robert Bezemek, an Oakland union attorney who represents retired public employees, says less generous benefits are easy to negotiate for new hires but the courts have been fairly consistent about maintaining existing retirement contracts because employees have vested rights. He said an employer, whether it’s a city or state government, must prove financial hardship and the courts often recommend replacing benefits with something of similar value.
“When a promise has been made, it has to be kept,” Bezemek said.
For example, the California Supreme Court this month declined to hear a challenge from Orange County, which lost its effort to roll back enhanced pension benefits for sheriff’s deputies.
But how clear do those promises have to be? Local governments struggling with unfunded pension liabilities are closely watching another case the state’s high court heard out of Orange County.
The county argues that it was within its right to lower health care costs by separating retirees from current employees, which increased retirees’ premiums. The Retired Employees Association of Orange County argues retired employees have a contract right to be pooled with current employees, which lowers their costs because they are pooled with younger and healthier workers.
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