Riordan drops L.A. pension reform

November 27, 2012 - By admin

Nov. 27, 2012

By John Seiler

It looks like only bankruptcy will bring pension reform to Los Angeles. Former Mayor Richard Riordan just dropped his efforts to put San Jose-San Diego-style pension reform before the city’s voters:

“The sudden retreat followed an attack by organized labor on a plan that Riordan said is vital to avoiding municipal bankruptcy. City leaders are coping with a financial crisis and will ask voters next spring for a sales tax increase to avert more cuts. Riordan argued that City Hall should reduce employee pension benefits instead.

“The failure of Riordan’s ballot drive could push the pension issue further into the background of the 2013 mayoral race. Three City Hall insiders in the contest have criticized the plan, while a Republican outsider has embraced it.”

The sales tax likely will pass. Combined with increases in federal and state taxes, the higher city taxes will kill businesses and jobs, in the end reducing revenue. The lower revenue will make it harder to make current pension payments. Then the city will follow Vallejo, San Bernardino, Stockton and Mammoth Lakes in declaring bankruptcy.

By then, Mayor Antonio Villaraigosa will have a cabinet job in the next Obama administration, and his successor will get the blame for the debacle.

Just this month, my colleague Brian Calle wrote on our Web site an article, “Los Angeles teetering on the brink of bankruptcy.” He interviewed Riordan.

The teetering now is even closer to the brink.

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Comments(41)
  1. jimmydeeoc says:

    “……Civilian employee unions waged a different strategy, sending members to malls and grocery stores to counter Riordan’s signature-gatherers. Union organizers approached voters who signed Riordan’s petition and sought to persuade them that they made a mistake. They then asked them to sign a document requesting the city clerk to remove their names from the pension petition.”

    You can’t make this stuff up. Unless you were doing a bio-pic of Walter Reuther.

    http://www.latimes.com/news/local/la-me-riordan-pension-collapse-20121127,0,524402.story

  2. NTHEOC says:

    How many more losses can those at the CWD handle!!!!!! lol…… Ohhhhhhh the sky is falling!!!! Hahahahah…

  3. Rex the Wonder Dog! says:

    NTHEOC is another one of those gloaters………… has to kick a man when he is down :(

    Mr Math will eventually ride into town, and when he does he is going to tame all those scammed pensions, with cutbacks.

  4. NTHEOC says:

    Rex the wonder says,
    Mr Math will eventually ride into town, and when he does he is going to tame all those scammed pensions, with cutbacks.
    ———————————————-
    The only Mr Math I have been hearing about lately is the record sales from this past weekend and cyber Monday!!!!! Oh my gosh, where’s the soup lines. The sky is falling!!!!!!!! Lol!!!! Now moron riordan finally figured out working with the labor unions is the way to go,hah!!! Just like riggy over in Costa Mesa!!!!!!! So many victories for the middle class and labor unions, life is good!!!!! Like I always say,”Living the dream” !!!!!!!!!!!!!!

  5. Rex the Wonder Dog! says:

    NTHEOC, can you say S-A-N B-E-R-N-A-R-D-I-N-O :)

    Mr Math just rode into town there, I wonder how thye are doing with him ;)

  6. NTHEOC says:

    Rex the Wonder Dog! says:
    November 28, 2012 at 7:07 am
    NTHEOC, can you say S-A-N B-E-R-N-A-R-D-I-N-O
    ============================
    Big fricken deal!!! 99.9% of cities still are not going the BK route. So a couple ghetto cities are in how many hundreds of cities. Oh how about the city of huntington beach? Twice now the people have voted to keep the “PENSION TAX” in place.Now that’s a city that takes care of the employee’s and the people care about them to!!! HAH!!

  7. Rex the Wonder Dog! says:

    Big fricken deal!!! 99.9% of cities still are not going the BK route.
    ==

    If San Bernardino is successful, na dthey should be, then other muni’s WONT NEED to go the BK route. All they will have to do is THREATEN the BK route and that wil be enough.

  8. eatingdogfood says:

    Democrats + Unions = Bankruptcy !!!

  9. Tough Love says:

    A positive side to this may be that the much larger city of LA is a better test case for the Federal Courts to declare that in bankruptcy, both FUTURE service pensions accruals as well as PAST service accruals of both those still active and those already retired can be reduced.

    Greed HAS consequences and there is no other realistic solution.

  10. SkippingDog says:

    Here’s and excellent analysis of why Chapter 9 bankruptcy won’t relieve SB or LA from their long-term pension obligations:

    http://www.calpersresponds.com/uploads/calpers-legal-position-municipal-bankruptcies.pdf

    It comes directly from CWD and provides clear guidance on the differences between Chapter 9 and other bankruptcy provisions.

    Just for the sake of argument, if these matters were to actually make their way to the US Supreme Court some day, do you really believe that the court’s strongly articulated commitment to “federalism” (particularly by such notable justices as Scalia, Roberts, Alito, Thomas and Kennedy) would suddenly insert the Supremacy Clause into an area of long settled law? Not likely by any stretch of your fevered imaginations.

  11. Tough Love says:

    Skippy, CalPERS is about as reliable for truthful, and complete (and lacking in materials omissions) information on Ch 9 Bankruptcy law as Bernie Madoff is on investment adviser integrity.

  12. Tough Love says:

    Skippy, I know your self-interest is confined to your CA Pension (not sure if it’s CalPERS or another one), but for discussion purposes, there ARE pension Plans (e.g., the Illinois Teachers Plan, likely 30% funded under appropriate accounting) that ALL knowledgeable parties agree MUST one day default.

    SO WHEN, (not if) it does, where will the money come from EVEN IF the Courts say that the full pensions must be paid ?

  13. SkippingDog says:

    I’m fortunate to benefit from a pension plan that’s currently funded well north of 90%, TL. The SB case and other CalPers matters are academically interesting to me because the arguments being made by you and others are, basically, that you can ignore the law when it becomes inconvenient. That won’t work in New Jersey or in California, nor are you likely to find a court that will support such a position.

    When you claim there are pension plans that “All knowledgeable parties agree MUST one day default,” you fail to describe the legal mechanism for such a thing to happen. I make no claim to be conversant in Illinois state pension law, so perhaps there are not as many protections for pensioners in that state.

    I do know California public pension law, and have become quite familiar with the provisions contained in Chapter 9 of the Bankruptcy Code since our most recent financial troubles began. I would once more refer you to the 10th Amendment that people on your side of this argument so much like to cite for support against federal intrusions of state sovereignty. That’s exactly why Chapter 9 was legislated in its present form, and why it is significantly different from Chapters 7, 11, or 13 of the Bankruptcy Code.

    There may in fact come a time when SB or some similarly situated municipality is able to work out an extended payment plan for its mature CalPERS obligations, but that plan will be funded through a new bond offering or some other debt instrument and will be specifically designed to eventually pay off the municipality’s entire CalPERS debt with interest.

  14. Tough Love says:

    Skippy, It will be interesting to see how this (and other bankruptcies that will likely follow in short order) are adjudicated in the State and Federal Courts.

    Of course while your position is that the Taxpayers must honor the commitments made by those they “elected” (no matter how unnecessary, unjustified, and excessive those commitments may be), my position is that Taxpayers have every right to renege on commitments to bind them when made by those (our elected representative) influenced by campaign contributions or election support from the Unions representing the employees who participate in the Pensions covered by those votes.

  15. SkippingDog says:

    The business interests and people affected by any piece of legislation use their First Amendment rights to influence those laws in the manner most desirable for their particular position. That applies not only to public employees who seek improvements in their wages and benefits, but also to every company that enters into a business contract with a government entity, every organization that might be affected by any statute under consideration, professionals such as physicians, attorneys, CPA’s and others who benefit from a statutory scheme that makes entry into their profession more regulated or difficult, etc. Insurance companies are notorious rent seekers from both the state and federal government.

    If one were to take your argument seriously, every contract or statute applying to any of the groups listed should simply be declared null and unenforceable if the legislators involved accepted campaign contributions or election support.

    Public employees are not second-class citizens, which is why the laws apply equally to them as to others in protecting their property rights and contract obligations. To suggest otherwise merely demonstrates your malice against a particular group of people rather than any kind of principled stand against special interest influence in our political structure.

  16. Tough Love says:

    Skippy, No malice, I just don’t feel that the 3-rd party Taxpayer should be bound to pay for self-interested deals benefiting not them, but both deal-makers (the Public Sector Union/workers and the politicians) but not the ultimate payer (the Taxpayers).

  17. SkippingDog says:

    You seem to forget that the Taxpayers received some type of service for the funding they provided – police, fire, library, streets, etc. You may have some buyer’s remorse and think you could have made or found a better deal, but you’ve already had the meal.

  18. Tough Love says:

    Skiipy, Yes, the services were rendered, but at FAR FAR greater total cost (cash pay plus pension accruals plus benefits) than necessary of fair to Taxpayers.

    And that FAR FAR greater cost is directly due to the self-interested deal-makning between the Public Sector Union/workers and the politicians.

    It’s not that better deals don’t exit (witness the 100o applicants for each open safety position …. certainly an indication of excessive compensation), but that the deal-makers refuse to pursue and directly stifle those better deals.

  19. SeeSaw says:

    TL also refuses to admit that all public employees and all public pensioners are taxpayers; also the benefits the pensioners receive are put right back into the economy, benefitting society in every way.

    How about those clerical workers on the docks in LA who are on strike, TL! Isn’t that private industry? I have learned that those clerical workers are the higests paid clerical workers in the U.S. What makes those clerical workers in that private industry so special, that they are making so much more than clerical workers in the public sector? They better be taken down a notch–right?

  20. Tough Love says:

    SeeSaw, Tired old arguments:
    (1) Sure Public Sector workers are Taxpayers too, but only THEY support (and often RALLY FOR) Tax INCREASES, because they know they will get back (in the for of fund to support THEIR pensions) about $5And I love the for every $1 THEY pay in incremental taxes.
    (2) And the argument that … “the benefits the pensioners receive are put right back into the economy, benefiting society” is beyond pathetic. Would society benefit any less if the higher taxes needed to support your excessive pensions remained in the Taxpayers pockets to be spent BY THEM ?

    I have no knowledge of the clerical dock worker strike. While overpaying them might lead to higher consumer prices, consumers have a choice where to shop. But not for Public Sector services. When taxes are unnecessarily too great (to support overcompensated Public Sector workers) Taxpayers can’t shop elsewhere and are captive to the abuse.

  21. runthenumbers says:

    I posted this on another article that Skipping tried to diffuse. Almost as if he is paid to go around refuting bad news about public pensions:

    http://newsandinsight.thomsonreuters.com/Legal/News/2012/11_-_November/Calpers_and_the_Constitution__a_looming_confrontation_/

    “For the lawyers, Could there be some sort of argument made about equal protections under the law. If private companies are allowed to go bankrupt and their employees pensions are drastically reduced, why should government employees have superior rights. If they have run the government into bankruptcy they should bear some of the pain. Talk to the steel workers, airline employees, and most recently Hostess employees. They don’t have any constitutional protections for their pensions. After all if there is no money, it can’t be paid. It is bad enough that government employees are allowed to unionize and then elect their own bosses with whom they negotiate. They should not be granted superior rights to those in the private sector.”

  22. Tough Love says:

    runthenumbers, Of course you are right. Much of the Private Sector Plan history traces to ERISA (1974), and because the Gov’t can’t “force” Private Sector Employers to offer pensions, to “encourage” Private employers to offer such pensions, ERISA was designed with safety-valves when employers are in financial distress. An example is the legal right to terminate or freeze the Plan, or to reduce FUTURE service pension accruals. To accommodate bankruptcies, Private Sector Plans with insufficient assets to fund all Pension accruals to date, the PBGC was set up to guarantee (but with a cap) certain benefits. The 2012 cap is $55,840.92 when the participant is age 65 at Plan termination but significantly lower if younger (e.g., $36,296.64 at age 60 and $25,128.36 at age 55).

    While Public Sector Plans have no “official” backstop analogous to the PBGC, the Public Sector Unions and Plan participants clearly consider the Taxpayers to be that backstop. That might be fair if the generosity of Public Sector pensions (as a % of pay at retirement, and factoring in the very significant added value of COLAs and much earlier unreduced full retirement ages) was similar to that of Private Sector Plans and there existed a cap on payouts similar to those of the PBCG.

    But neither does. Rarely do participants in a Public Sector Plans (even the rapidly growing number with $100K+ annual pensions at ages in their 50s) expect anything less than full payment even if their employer is insolvent and their Plan is materially underfunded. And, the taxpayer paid-for share of Public Sector pensions are ROUTINELY 2-4 times (5-6 times for Safety workers) greater in value at retirement than those granted comparable Private Sector workers making the SAME pay, retiring at the SAME age, and with the SAME years of service.

    Clearly (when compared to the Private Sector Plan PBGC caps), forcing Taxpayers to top-up failing Public Sector Plans to the full value of these very very rich benefits promised (Far greater than what they get) is unfair to Taxpayers.

    The biggest problem (for Taxpayers) is how the Public Sector Unions in cahoots with the politicians (they often put into office via significant campaign contributions and election support) often themselves (or their family members) participants in the same Public Sector pension Plans, have constructed a vast array of pension “protections” not available to the Participants in Private Sector Plans. These “protections” may take the form of State Constitutional guarantees, Contract Law or Proper Rights arguments, or Case Law. The extra-ordinary level of such “protections” often defies common sense. As one example, these protection often mean that the rate of FUTURE service accruals cannot be reduced for any current employee (even if that employee is one day into a 30-40 year career), leaving few if any options to reform a Public Sector Plan system that most (not on the receiving end of these benefits) feel is too generous and unaffordable. Some Plans even state that any change (considered of lesser value) must be countered with a incremental benefit of equal or greater value.

    I’ll end with one last thought …. with Public Sector workers making no less in “cash pay” (per the US Gov’t BLS) why are they entitled to CONTINUE to receive (for FUTURE service) pension accruals ANY greater than their Private Sector counterparts … let alone ones that are currently multiples greater, and what justifies greater “protections” than those granted the Private Sector Taxpayers whose Public Sector Plan contributions (and the investment earnings thereon) typically pay for 80-90% of the total cost of Public Sector pensions ?

  23. SkippingDog says:

    I never refuted your article post at all, rtn. I merely pointed out that Chapter 9 is a different animal from Chapters 7, 11, and 13 of the Bankruptcy Code and that the same rules do not apply to states that apply to businesses because of the 10th Amendment.

    Read Chapter 9 sometime and note the differences. Among them you will find that the bankruptcy court has no power to impose a workout plan that violates any state law or regulation, and the creditors have no power to force a municipality into bankruptcy.

    I’m surprised that you would find that surprising, since it is invariably those like yourself and TL on the Right who love to invoke the “states rights” and “state sovereignty” protected by the 10th Amendment from federal intervention. A bankruptcy court is the height of federal intervention.

  24. Tough Love says:

    Skippy, Then being a student of Ch 9 bankruptcy law, you certainly cannot be pleased that under Ch 9, as part of that having “no power to force a workout Plan”, that Judge cannot force a city to sell assets or raise taxes in order to fund it’s pension promises.

  25. SkippingDog says:

    Very true, TL. A judge can’t order the sale of assets or a tax increase under the workout plan, but neither can a judge order the violation of a state law or regulation. That means CalPERS will be paid first in SB, and it’s likely the bondholders will take the biggest losses.

  26. Tough Love says:

    Skippy, On the contrary, clearly many cities will ultimately have funds for ‘essential” service (current salaries , minimal road repair, garbage collection) only.

    Pension payment to CalPERS, certainly not be “essential”, can simply be ignored under such circumstances and there’s not a darn thing a Court can do about it.

  27. runthenumbers says:

    Skipping, My point is we then have two constitutional amendments at odds with each other. The 14th (Equal Protection) and the 10th. I suspect that this needs to be addresses by the SCOTUS. On the surface it does not seem right that the state can grant special rights to public employees and not grant the same rights to private employees. There is no equal protection there. Note that both of these would trump bankruptcy law.

  28. MathIsHard says:

    “You seem to forget that the Taxpayers received some type of service for the funding they provided – police, fire, library, streets, etc.”

    A pension was not what the Taxpayers paid for, they paid for the service.

    That which cannot be paid, when the money runs, will not be paid.

    Everyone has been promised things they will not get at currently assume dispensation levels. Pensions, 401(k)’s, IRA’s, OASDI, OASHI, SSDI, Medicare, Medicaid…assuming a payout of 60% to 80% of what ‘you are owed’ is sensible.

    It also makes no sense for Taxpayers to pay higher and higher tax burdens, so that State retirees can retire on a standard of living far higher than that of the taxpayer.

    When the Public Sector earns more than the Private sector (that pays the Public Sector’s salaries), the system has become unsustainable.

  29. SkippingDog says:

    TL – In California, CalPERS contributions are superior debt obligations even to bonds. That means the pension obligations will be paid first, with bonds second and everything else coming after that. You might wish people would hold their breath and just refuse to pay, but CalPERS can obtain a judgement in state court to enforce their contracts.

    RTN – I suppose your approach might be worth a try, but it isn’t the public employees that have any special rights as you suggest. Chapter 9 of the Bankruptcy Code recognizes that it is the state government (and the inferior units of the state government such as counties and municipalities) that is protected from federal intervention by the 10th Amendment. There’s no “equal protection” argument available because, by definition, states are sovereign entities.

    Keep trying though. It’s probably good mental exercise and lets you burn off some steam.

    BTW, if you want to gain some understanding of how chapter 9 bankruptcy is different from other types, search “Chapter 9 Bankruptcy Primer.” You’ll quickly find a very well written overview by the American Bankruptcy Institute, which will address your “equal protection” arguments as well as answer a lot of other questions that you might have about how the 10th Amendment applies and limits the jurisdiction of the federal bankruptcy courts in such cases.

  30. SkippingDog says:

    One other point, TL. If a CalPERS contracting agency were to follow your suggestion and not pay their legally required obligation, the contract each agency has with CalPERS specifically allows the retirement system to place a lien on all of the municipality’s property. Search “California Public Employee Retirement Law” and look at the contents of Article 1 and the “Contracting Agency” section for specific statutory requirements.

    Remember that under Chapter 9 a bankruptcy court is not permitted to ignore controlling state laws, and the controlling California law for CalPERS contracting agencies is quite specific in this area.

  31. runthenumbers says:

    Skipping, I think your argument is far too simplistic. The state must still provide “Equal Protection” under the law to its citizens. Taxing one group of citizens to pay another “special” group of citizens is not equal protection. In my opinion this trumps Chapter 9, and the 10th amendment argument is weak. There are multiple ways that this can addressed. The fact that the money isn’t there will make this have to be addressed.

  32. Skippingdog says:

    You might also want to bone up on your Equal Protection argument. So long as there is a “rational basis” for what you might perceive as discriminatory treatment, the Supreme Court has long held that there may be functional differences that remain legal.

    The basic test is similar outcomes for similarly situated individuals. Therefore, the comparison would not be between public and private employees, but between private/private or public/public entities.

    Good luck anyway. The more you know, the more you grow.

  33. Skippingdog says:

    Consider this, RTN: If your argument held water why has it not been used in the nearly 80 year history of Chapter 9 law? The bankruptcy lawyers who developed the legislation and have argued it before every court in our nation were and are very smart people.

    What are the chances that you’ve suddenly stumbled onto a previously unconsidered but compelling legal theory? My guess is they’re about nil.

  34. Skippingdog says:

    Math – Pensions are nothing more than deferred compensation for a service already rendered. That’s why they are held in trust for the employee.

  35. Tough Love says:

    Cuing into the FINAL court decision … as to whether CalPERS can be stiffed w/o consequence to the stiffing city ….. will be watched (by the financial, and Public Sector employee communities) with the devotion of watching a presidential runoff, the last 2 minutes of a tied Superbowl, or that head-to-head sprint to the NYC marathon’s Central Park finish line 15 or so years ago).

    I’m hoping for the stiffing of CalPERS and the hair-cutting the pensions …. because, with the Union/politician collusion and self-interest that generated these grossly excessive pensions, THAT’s what is necessary, appropriate, and fair to the Taxpayers.

  36. Tough Love says:

    Quoting Skippy …”Pensions are nothing more than deferred compensation for a service already rendered.”

    So tell us Skippy, EXACTLY what “service” did you provide for that portion of your pension granted RETROACTIVELY via SB400.

    Perhaps you have a time machine and went back in time to those years and worked more hours ? Was that it ?

  37. Skippingdog says:

    Precisely the same services I provided when I received pay increases, promotions, and other benefit increases over the course of my public service career. All of those were computed into the final compensation I received for purposes of my retirement, so they’re no different from an increase in my pension benefit that was provided as increased compensation as well.

  38. Tough Love says:

    Skippy, Baloney, promotions and raises apply to FUTURE service at least “theoretically” because you’re more knowledgeable and skilled over time. Getting an increase in the pension factor applied to PAST years is nothing but a theft of Taxpayer wealth concocted by your Union, CalPERS, and accommodating (bought and paid for) politicians.

    *********************
    By the way, I said “theoretically” above, because we both know that in the Public Sector world of Union contracts, getting a promotion/raise rarely requires merit, just that you’re still breathing.

  39. Skippingdog says:

    So in your world a pension benefit can never be improved once an individual begins work? Is that what you’re really trying to sell, TL?

  40. Tough Love says:

    Skippy, Improved yes …. but ONLY applicable to FUTURE service. If (and that’s a big if) there was justification to raise the formula factor from 2% to 3% per year of service and an employee already had 10 years of service, those 10 years should have remained at 2%, with only FUTURE years at 3%.

    Here’s an extreme, but accurate example of why the retroactive change as applied was indeed a theft of Taxpayers wealth …..

    Suppose a police officer was hired in 1972 at age 25. This officer had 29 years of service at the time SB400 was passed in 2001. If he retired after 30 years at age 55 in 2002 (with say $100K pensionable compensation), his pension (pre-SB400 increase) would have been 2% x 30 years x $100,000 = $60K annually (COLA adjusted), with a lump sum value of just about $1.2 Million.

    The the SB400 increase from 2% to 3% as retroactively applied to his pension is 50% greater, with a lump sum value of just about $1.8 Million.

    What would have been fair (again, IF and ONLY IF the factor increase from 2% to 3% was justifiable) would have been a pension calculated with 29 years at 2% and 1 year (the year post SB400 implementation) at 3%. This would have increased the lump sum value of his pension by only $20K instead of the $600K via the RETROACTIVE application of the 3% in SB400 to PAST years of service.

    This officer worked one more year at his regular job. What service did he provide for that $600,000 ?

    Nothing ….. it was, as I previously stated, simply a theft of Taxpayer wealth … concocted by your Union, CalPERS, and accommodating (bought and paid for) politicians.

  41. Tough Love says:

    Skippy, Cat got your tongue ?

    So how much of that stolen Taxpayer wealth can we attribute to your retroactively increased pension ?

    **********************

    When the inevitable sh** hits the fan, these retroactive increases should be at the top of the list for elimination.

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