California unions brace for showdown over pension reform
SAN FRANCISCO, Dec 3 (Reuters) - For California's public-sector unions, San Jose Mayor Chuck Reed's proposed statewide ballot measure for pension reform is a call to arms - and they're bringing out the big guns.
Reed, a Democrat, has taken only preliminary steps in his quest to amend the state constitution to allow changes in future pension benefits for current public employees, a move to help local governments control soaring retirement-related spending. Courts have interpreted the constitution as now barring changes to a public employee's pension after he or she was hired.
But the state's powerful unions have already begun to push back, portraying Reed's plan as a right-wing attack that would unfairly threaten the retirement security of policeman, firefighters and other public servants.
The unions have recruited some two dozen elected local officials to speak out against the proposed amendment. They say they could spend even more on the fight than the $75 million they shelled out in 2012 to defeat Proposition 32, a ballot measure that would have eviscerated union political power.
"When you're trying to put a stake through the heart of the labor movement, people will come out of the woodwork," said Steve Maviglio, spokesman for the campaign against Prop 32 and for the unions lining up against Reed's proposal.
"I could say that if a measure like this moves forward, it'll outstrip what was spent on Prop 32."
Pension costs have become one of the fastest-growing expenses for cash-strapped local governments across the nation. They loom large in the municipal bankruptcies of Detroit and two mid-sized California cities, Stockton and San Bernardino, as well as in the big fiscal problems in Illinois. Reed and his backers say change is crucial to the fiscal health of cities, counties and other government entities.
Reed said in an interview his measure would not revoke pension benefits that employees have already accrued and would not allow government to impose unilateral changes.
"Benefits that have been earned are protected," he told Reuters. "Future benefits that might be earned are negotiable. ... We've tried to make clear that these future changes are subject to the collective bargaining process, just like pay."
Public employee unions, though, see strong pension plans as one of their key achievements and regard any attack on them as a broader threat.
"We view this not as an attack on public sector unions but as an attack on workers," said Steve Smith, a spokesman for the California Labor Federation, a coalition of public and private-sector unions.
Reed has raised just $300,000 so far and recruited only a handful of elected officials to his cause. Political strategists say he'll need $2 million just to collect enough signatures to get the proposal on the ballot, and tens of millions more for the measure to have any chance of passage.
"If you're picking an existential fight with unions, you'd better have a well-heeled group of contributors," said Thad Kousser, a political scientist at the University of California, San Diego.
Reed acknowledges the mismatch, noting that he has been the measure's main promoter and fundraiser, with no paid staff. He said he is holding off on full-scale fund-raising until the state attorney general's office signs off on a title and ballot summary describing the measure's purpose to voters. That is likely to happen in coming weeks. Reed has also yet to decide whether to move ahead for the 2014 election or wait until 2016.
Still, the unions are nervous. Surging costs could ratchet up support for Reed's proposal. In California, where many government pension plans are managed by the California Public Employees' Retirement System, the giant fund administrator known as Calpers, many local officials are fretting about anticipated increases of as much as 50 percent in their Calpers contributions.
Reed's financial backers so far include former Enron trader and hedge fund magnate John Arnold, whose involvement has already proven a lightning rod for union opponents.
Richard Riordan, a former mayor of Los Angeles and long-time advocate of pension reform, and Michael Moritz, a highly successful venture capitalist who backed an unsuccessful pension measure in San Francisco three years ago, have also contributed to Reed's cause.
Reed says other powerful backers could eventually emerge, including wealthy Silicon Valley liberals and established activists such as millionaire Charles Munger Jr. The son of Warren Buffett's partner Charles Munger, the younger Munger put up nearly $36 million to support Prop 32.
"He's on my list," Reed said, in reference to potential backers.
Charles Munger Jr could not be reached for comment.
THE WAY FROM SAN JOSE
Reed's statewide initiative was born of his fiscal struggles in San Jose, the state's third-largest city, where pensions were eating up 20 percent of the city budget and growing fast. Frustrated with relentless cuts in services, voters backed Reed on a local ballot measure that guarantees current city employees pension benefits they have already earned but requires that they pay more to keep them at the same level in the future.
Reed's proposed statewide measure could open the door to local officials proposing overhauls similar to San Jose's.
"I got a lot of phone calls after the election," said Reed, as local officials around the state sought to learn how he'd won backing for a pension measure in a union-friendly San Francisco Bay area city.
The unions are challenging the San Jose measure in court, arguing that it violates state law guaranteeing that public pension plans in place on the day an employee is hired cannot be altered. Similar provisions exist in 12 other states, according to Amy Monahan, a University of Minnesota professor who has researched state pension laws.
Reed's statewide ballot initiative aims to put that legal issue to rest once and for all, and embolden would-be pension reformers at the state and local level.
Opponents aim to frame Reed's effort as the handiwork of wealthy, out-of-state plutocrats.
In a letter earlier this month, 18 union officials slammed Reed for taking $200,000 from the Action Now Initiative, a group funded by Arnold, who the unions allege "made his fortune at Enron ripping off Californians through the energy crisis."
Arnold, who was a natural gas trader at Enron, said in an interview that he had nothing to do with the company's role in California's power troubles. He added that he made his fortune with his hedge fund after the company went under.
Citing Detroit, Stockton and San Bernardino, Arnold said he's backing Reed's measure to help local governments tackle pension costs that could lead to more municipal bankruptcies.
"If you ignore the problem, it's not hard to predict where it's going to end up," Arnold said. "In some situations you have to address the benefits to keep the system financially sustainable."
Reed confirmed the contribution from Action Now and dismissed the union's attack. "It's just a fact of life that they will attack wherever the money comes from," he said.
In their letter, union officials also accused Reed of seeking "dark money," campaign funds whose sources aren't clear, and "shopping your measure to out-of-state extremist organizations."
The union message seized on a recent action by the California Fair Political Practices Commission, which in October announced a $1 million settlement with two nonprofit political groups for failing to disclose the source of funds used in the 2012 campaign in favor of Prop 32 and against Prop 30, a tax measure.
The commission said the groups were connected to Charles and David Koch, billionaires who are prominent in conservative politics.
Robert Tappan, spokesman for Koch Companies Public Sector LLC, acknowledged a connection to one of the nonprofit groups but said the group operated on its own. He said the Koch brothers were not involved in the settlement, and that Commission Chair Ann Ravel had acknowledged that they were not found to have been involved in any Prop 32 improprieties.
Reed said he would not seek support from the Koch brothers, and the Koch spokesman said they do not expect to be involved "in any way" in Reed's efforts.
The unions, meanwhile, have sought support from public officials to oppose Reed's efforts, and about two dozen small-city mayors and other officials, including San Francisco Board of Supervisors President David Chiu, signed on to last week's union statement opposing the effort.
But notably absent were any of the mayors of the state's larger cities, or any of the leaders of the Democrat-dominated state legislature.
And Reed, a plain-spoken Democrat who frames his message in strictly pragmatic terms, thinks he might even gain support from another pragmatic Democrat - Governor Jerry Brown.
Brown has pressed the legislature to enact modest pension reforms, such as raising the retirement age for most employees. Brown has close ties to organized labor, but Reed is hopeful.
"More needs to be done, to quote the governor," said Reed.
Brown's office declined to comment on the measure.