It’s certainly not breaking news that our nation’s current fiscal trajectory is unsustainable. Terms like “fiscal cliff”, “mountain of debt” and “financial disaster” are being used with increasing frequency as we approach the January 1 deadline which will automatically cut $1.2 trillion of the federal budget while simultaneously allowing several tax cuts to expire. The economy is fragile, job growth is slow and Congress seems hell-bent on putting party before policy. But despite all the doom and gloom attitudes here inside the beltway, I am optimistic about our nation’s recovery. At BIPAC we’ve always known the solutions to our fiscal problems are not going to come from Washington. BIPAC President Greg Casey believes the answer “lies with the American public in places outside of Washington where the demand for statesmanship, accountability and reform will take root.” This reform is already transpiring in meaningful and impactful ways at the local level all across the country.
On June 5th, California’s 2nd and 3rd largest cities successfully passed pension reform measures on the ballot. The two initiatives, Proposition B in San Diego and Measure B in San Jose, overhauled retirement benefits for city employees in an effort to bring ballooning pension obligations under control. The pro-business group The Lincoln Club, BIPAC’s local deployment partner for San Diego County, was a key leader within the coalition group pushing the citywide reform with President T.J. Zane managing the issue campaign. Over two-thirds of the voters approved the measure in San Diego after it was brought to light that payments to the city’s retirement fund soared from $43 million in 1999 to $231 million in 2012 and the city’s Unfunded Actuarial Accrued Liability (UAAL) had exceeded $2 billion.
Proposition B, which was supported by Republican Mayor Jerry Sanders and several business associations, freezes the base pay used for pension calculations over the next 6 years, eliminates pension spiking (a tactic in which public employees artificially increase their final salaries in order to boost their pensions), and puts all new hires, except for police officers, into 401-k style retirement plans. The reform is expected to save the city over $90 million after five years, and as much as $2 billion after 27 years.
The effort to take on pension reform is by no means limited to one party. San Jose’s initiative will implement similar reforms and was enthusiastically supported by Democrat Mayor Chuck Reed. Measure B will require current workers to pay up to 16% of their salaries to keep their retirement plan or accept more modest benefits, and new employees will get less generous benefits as they are hired. San Jose’s total unfunded accrued liability (UAAL) is around $3 billion. Past efforts to cut pay and increase taxes were simply not enough to tackle the multi-billion dollar burden.
Public labor unions led the opposition in both cities, but with a super-majority of voters approving the reform in San Diego and 70% approving in San Jose, it was evident that voters welcomed the reforms. The results make it clear that both parties are willing to undertake — and the public backs — efforts to roll back a generation of public employee union protectionism to make real progress in dealing with the economic realities of the present day.
The wins in San Jose and San Diego are part of a pension reform movement which is spreading across the country and one that is seeing significant bipartisan support. On June 5th, the same day of the Prop B and Measure B victories, Los Angeles Mayor Antonio Villaraigosa- a Democrat, announced his support for pension reform. Mayor Rahm Emanuel (also a Democrat) is taking on public unions in Chicago to fight for pension reform as well. Currently Chicago’s unfunded accrued liability (UAAL) is a staggering $6.9 billion. However, unlike San Diego and San Jose where reform can be put to the voters in a ballot initiative, Mayor Emanuel needs gubernatorial and legislative approval. And in Knoxville, Tennessee the city council is working towards placing a pension reform initiative on the ballot this fall.
Supporters of the reforms in California are hoping the success will be a catalyst for change at the state legislative level and that it will become a model of responsibility at the national level. Municipal leaders are taking political risks by tackling an overwhelmingly complicated and difficult policy problem. Their courage and relentlessness is certainly to be admired. With state budgets collectively reaching over $4 trillion in debt, a significant portion of which is due to unfunded pension liabilities, the idea of standing idly by is not an option.
As members of Congress and Washington insiders look for ways to vilify members of the opposite party, I would encourage them to take note of what is happening in their home states and home towns. The bipartisan nature of reform we’re seeing at the local level is due to voters and elected officials acting upon the fiscal realities of today, and it’s here that the solutions to our economic woes can be found.
On June 5th, California’s 2nd and 3rd largest cities successfully passed pension reform measures on the ballot. The two initiatives, Proposition B in San Diego and Measure B in San Jose, overhauled retirement benefits for city employees in an effort to bring ballooning pension obligations under control. The pro-business group The Lincoln Club, BIPAC’s local deployment partner for San Diego County, was a key leader within the coalition group pushing the citywide reform with President T.J. Zane managing the issue campaign. Over two-thirds of the voters approved the measure in San Diego after it was brought to light that payments to the city’s retirement fund soared from $43 million in 1999 to $231 million in 2012 and the city’s Unfunded Actuarial Accrued Liability (UAAL) had exceeded $2 billion.
Proposition B, which was supported by Republican Mayor Jerry Sanders and several business associations, freezes the base pay used for pension calculations over the next 6 years, eliminates pension spiking (a tactic in which public employees artificially increase their final salaries in order to boost their pensions), and puts all new hires, except for police officers, into 401-k style retirement plans. The reform is expected to save the city over $90 million after five years, and as much as $2 billion after 27 years.
The effort to take on pension reform is by no means limited to one party. San Jose’s initiative will implement similar reforms and was enthusiastically supported by Democrat Mayor Chuck Reed. Measure B will require current workers to pay up to 16% of their salaries to keep their retirement plan or accept more modest benefits, and new employees will get less generous benefits as they are hired. San Jose’s total unfunded accrued liability (UAAL) is around $3 billion. Past efforts to cut pay and increase taxes were simply not enough to tackle the multi-billion dollar burden.
Public labor unions led the opposition in both cities, but with a super-majority of voters approving the reform in San Diego and 70% approving in San Jose, it was evident that voters welcomed the reforms. The results make it clear that both parties are willing to undertake — and the public backs — efforts to roll back a generation of public employee union protectionism to make real progress in dealing with the economic realities of the present day.
The wins in San Jose and San Diego are part of a pension reform movement which is spreading across the country and one that is seeing significant bipartisan support. On June 5th, the same day of the Prop B and Measure B victories, Los Angeles Mayor Antonio Villaraigosa- a Democrat, announced his support for pension reform. Mayor Rahm Emanuel (also a Democrat) is taking on public unions in Chicago to fight for pension reform as well. Currently Chicago’s unfunded accrued liability (UAAL) is a staggering $6.9 billion. However, unlike San Diego and San Jose where reform can be put to the voters in a ballot initiative, Mayor Emanuel needs gubernatorial and legislative approval. And in Knoxville, Tennessee the city council is working towards placing a pension reform initiative on the ballot this fall.
Supporters of the reforms in California are hoping the success will be a catalyst for change at the state legislative level and that it will become a model of responsibility at the national level. Municipal leaders are taking political risks by tackling an overwhelmingly complicated and difficult policy problem. Their courage and relentlessness is certainly to be admired. With state budgets collectively reaching over $4 trillion in debt, a significant portion of which is due to unfunded pension liabilities, the idea of standing idly by is not an option.
As members of Congress and Washington insiders look for ways to vilify members of the opposite party, I would encourage them to take note of what is happening in their home states and home towns. The bipartisan nature of reform we’re seeing at the local level is due to voters and elected officials acting upon the fiscal realities of today, and it’s here that the solutions to our economic woes can be found.
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