Silicon Valley is the epicenter of the state’s housing crisis, with even run-down older homes routinely selling for nearly $1 million and with apartment rent averaging over $3,400 in communities within a 10-mile radius of Mountain View. With some exceptions, local leaders generally say the right things about the urgent need to add more housing units.

But a new report about the region’s largest city, San Jose, shows the city has made little progress on its goal of adding 10,000 affordable housing units by 2022. According to a new report issued by city housing officials, 64 units were completed in the 2017-18 fiscal year. While 594 units are now being built and 270 are approved for construction, even if these units are counted, that means the city is on track to achieve less than 10 percent of its target by mid-2019.

Adding to this bad news is a recent San Jose Mercury-News report in which city officials expressed frustration on several fronts. Among the complaints:

• While Mayor Sam Liccardo has been consistent in pushing affordable housing, the head of the city’s housing department – Jacky Morales-Ferrand – sees an overall lack of focus at City Hall (pictured). One week, City Council members are touting rent-control ordinances, then they push the “tiny homes” concept, then it’s on to other issues.
• Morales-Ferrand also expressed disappointment that the state government has never provided cities with a new tool and new funding source to replace redevelopment, which Gov. Jerry Brown convinced the Legislature to gut in 2011.
• Councilman Johnny Khamis also has a complaint. He believes that the series of crime-reform initiatives touted by Brown and state lawmakers have complicated San Jose’s efforts to address housing and homeless issues. “I feel that the state just dumped a whole mess of people out of our prison system, and now we’re just having to deal with them,” he said.

Congress ‘0 for 115’ in approving helpful housing bills

Frustration with a lack of progress locally and in the state Legislature has led the influential, well-funded Silicon Valley Leadership Group to look for relief in a new place: Congress. While CEO Carl Guardino said the Silicon Valley and Bay Area congressional delegation had been helpful on major regional issues such as electrifying CalTrain and expanding the Bay Area Rapid Transit (BART) system to San Jose, he told the Mercury-News that there had been little help on housing from Washington.

Housing experts say ultimately, local and state land-use policies, fees, taxes and regulations are most crucial in whether new units can be built. But federal agencies regulate mortgages, enforce fair-housing laws and have provided billions of dollars over the years to develop housing projects and to subsidize low-income housing.

According to the Apartment List group, in its current session, which began in January 2017, Congress is “roughly batting 0 for 115” in approving housing legislation introduced by federal lawmakers. Rep. Barbara Lee, D-Oakland, has by herself introduced 11 bills that focus on creating affordable housing. In a March speech, Rep. Ro Khanna, D-Santa Clara, said, “I don’t want to live in the Silicon Valley that only has Facebook or Google engineers able to live here.”

But the Trump administration and the Republicans who control the House and Senate have shown little enthusiasm not only for bold new plans but for continuing policies that have led to 3 million affordable homes being built since the late 1980s. The Affordable Housing Credit Improvement Act, which would provide developers of low-income housing with a substantial tax credit, has languished in House and Senate committees since it was introduced in March 2017.

Sacramento has become the latest city to consider responding to California’s acute housing crisis with “tiny homes” – small, prefabricated studio homes with bathrooms and built-in hook-ups for electricity and water.

In an era in which $2,000 apartment rentals, $600,000 homes and $300,000-plus “affordable” public housing units are normal in the Golden State, the appeal of housing that can cost as little as $40,000 per unit is obvious to government leaders dealing with growing homelessness and increased fears that expensive housing will make it difficult to attract needed workers or drive them away.

Sacramento Mayor Darrell Steinberg last month proposed spending $21 million to help pay for the addition of up to 1,000 such homes – from prefab 300-square-foot modular homes to container units that could be set up inside warehouses. Steinberg offered the proposal as the centerpiece of his agenda to respond to his city’s homelessness problem and suggested that public housing vouchers could be used for construction costs.

“It’s all in our grasp,” the mayor said in his annual State of the Downtown address. “Public funding, private funding, tangible goals, public accountability and a community commitment to whatever it takes to make this homeless problem better in Sacramento.”

Sacramento only added 235 housing units in its central city in 2017, according to the Sacramento Bee. The newspaper also recently reported that in one eight-day stretch in January, nearly 35,000 residents got on the waiting list for public housing vouchers, formerly known as Section 8 vouchers.

San Jose, Fresno, Clovis see potential in housing alternative

Some other local governments in California pursuing “tiny homes”:

San Jose – In December, the City Council voted 9-2 for a $2.3 million “tiny home” pilot program in which 40 homes would be built in one location. If the project works out, officials hope to add “tiny home” villages in each of the 10 City Council districts, the San Jose Mercury-News reported.

The cost of the first 40 homes is $73,125 each – a pittance in the metro area which in 2016 became the first in the nation to have homes cost an average of more than $1 million, according to the National Association of Realtors.

Fresno – In 2016, it became one of the first cities in the nation to formally encourage “tiny homes” when a law took effect. “The pint-sized houses on wheels – complete with kitchen, living room and loft – are now considered backyard cottages thanks to changes in the city’s zoning and development code,” the Fresno Bee reported. “That means tiny homes can be used as independent living quarters on the same lot as a single-family house granted it meets some requirements. Previously, the mobile units could only serve as temporary lodging.”

The 270-square-foot model pre-approved by the city is built by a Fresno firm. Prices start at $45,000.

Clovis – In June, in interviews with the Fresno Bee, city officials touted a long-term development plan for the city’s Old Town that sees “tiny homes” of no more than 400 square feet build in residential alleys as the key to its revitalization.

City officials are working with a local builder to develop three models with designs that are pre-approved by the city and are available for free to the public. The city believes the “tiny houses” would cost about $50,000 on average, according to a report from Fresno County’s ABC 30 News.

Perhaps the American city farthest down the road in embracing the small housing approach is Boston. In 2014, Boston Mayor Martin J. Walsh launched a Housing Innovation Laboratory. City officials have developed a prototype called an Urban Housing Unit, or Uhu,  a 385-square-foot modular apartment. The prototype, which may cost as little as $40,000 to manufacture, is pictured above.

Legislators have largely avoided the pension issue since passage of a reform law that went into effect in 2013, and reformers have struggled to settle on an initiative strategy to take to voters. That’s unlikely to change. But last week the high court agreed to review a union appeal of a decision involving an obscure concept known as the California Rule. The decision could change everything.

The California Rule is not actually a rule, but a legal doctrine that emanated from a 1955 court case. Essentially, it states that no vested public-employee benefit such as a pension can be reduced unless public employees are granted another benefit of equal or greater value. Unions claim that a 2013 state law unfairly deprives them of vested benefits.

The rule remains the stumbling block for most efforts to reduce pension costs, given that it severely limits public agencies’ efforts to slice current pension costs. Hence, pension reformers and unions alike are eager to get a final verdict on the matter.

In the private sector, companies that offer defined-benefit pension plans – those plans that guarantee a pension payout based on a formula, as opposed to 401(k)s – are free to reduce the benefits going forward. In other words, employees must be made whole through today, but may start receiving lower benefits tomorrow. By contrast, in California and other states that follow this rule, government workers must be paid the full amount of the promised benefits until they (and their spouses) pass away.

The accepted interpretation has been that a benefit hike, once approved by a government agency, is permanent. It can never be rolled back. As a result, most pension reform proposals deal only with shaving benefits for new hires, who won’t start retiring for 25 or 30 years. That leaves service cuts and tax hikes as the only way to deal with increasing pension debt.

Some localities have tried to take on the rule. In 2012, for instance, San Jose officials put a pension-reform measure on the ballot that required current city employees to choose between new pension plans that offered fewer benefits than current plans. It passed with 70 percent of the vote, but the courts later gutted that measure. They relied on the California Rule.

But now the California Supreme Court is ready to address the issue, at least around the margins. Last week, the court, without comment, agreed to a union challenge of a San Francisco appeals court that put limits on the application of the rule. Last summer, unions appealed a similar Marin County case, in which an appeals court also put some limits on the rule’s application.

At issue is the California Public Employees’ Pension Reform Act, which went into effect in January 2013. Most analysts viewed the law as a modest attempt to get control of the state’s growing unfunded pension liabilities, or debt. Most of it applied only to newly hired state workers. But it did include a handful of provisions that affect current workers.

On Dec. 30, the First District Court of Appeal in San Francisco rejected a challenge by a state firefighters’ union claiming that PEPRA’s elimination of a 2003 benefit that let firefighters purchase up to five years of additional credits (airtime) before retiring was in violation of the rule.

“The unions argued that their members had a legal right to the pension benefits that were in effect when they were hired and that the state broke its contractual promise to them by eliminating those benefits,” according to a San Francisco Chronicle analysis. The 3-0 written opinion found that public employees have a right to a “reasonable pension” but they aren’t guaranteed “fixed or definite benefits immune from modification or elimination.”

“(P)laintiffs assert a vested contractual right to purchase up to five years of airtime service credit that is not subject to elimination or destruction by legislative amendment or repeal ‘even before the benefit has been accessed or the time for retirement has arrived.’” The court said plaintiffs “disregard the fact that, when amending the statutory scheme governing pension rights, the Legislature in fact provided (eligible public employees) … a several-month window in which to purchase the airtime service credit before the option terminated.”

The high court could uphold the rule or overturn it, or put certain limits on its application and deal narrowly with the “airtime” issue. In that separate Marin County case, five unions challenged PEPRA’s limitation of various ways that public employees enhance, or spike, their end-of-career salaries (bonuses, unused leave, etc.) to boost their lifetime retirement pay.

Unions argue that the reform reduced their vested pension benefits and was therefore in violation of their constitutional rights, as upheld by – you guessed it – the California Rule. “(W)hile a public employee does have a ‘vested right’ to a pension, that right is only to a ‘reasonable’ pension – not an immutable entitlement to the most optimal formula of calculating that pension,” ruled Justice James Richman, in language similar to the San Francisco ruling. He wrote that the Legislature may “prior to the employee’s retirement, alter the formula, thereby reducing the anticipated pension.”

As reporter Ed Mendel has explained in Calpensions, “The high court will wait until an appeals court rules on three similar spiking ban suits consolidated from Alameda, Contra Costa and Merced counties.” That might take some time, but this issue is definitely coming to the state’s high court in one form or another, sooner or later.

Battle lines are drawn. The unions claim that state and local agencies may not reduce any pension benefits. Pension reformers – and the courts, in recent decisions – say that while a reasonable pension remains a right, that doesn’t stop localities from reducing some things. These cases deal with pension-spiking enhancements and the purchase of airtime – controversial and somewhat limited practices. But the future of pension reform is on the line.

Steven Greenhut is Western region director for the R Street Institute. Write to him at sgreenhut@rstreet.org.

“The state rail authority is studying an alternative to build the first segment in the Bay Area, running trains from San Jose to Bakersfield,” the Los Angeles Times reported. “If the plan does change, it would be a significant reversal that carries big financial, technical and political impacts, especially in Southern California.” Local officials and residents have argued that the area’s transportation needs and challenges far outweigh those in the San Francisco Bay Area, where public transportation is dense and plentiful.

Moving the goal posts

The controversial, last-minute shift hinted at pessimistic calculations within the state’s High Speed Rail Authority as to how best to mitigate cost pressure and environmental constraints faced in the south, where any rail line will have to navigate — and penetrate — the area’s rugged natural terrain. “This new interest in building from the north first comes just one week after announcing an $800,000 effort to find a suitable starting location in Burbank, near L.A.,” Business Insider noted. “The hope is that the north-first plan would be less risky, making it more likely that construction can begin before the project becomes politically nonviable.”

In addition to changing the project’s starting line, the new plan also shifted its destination — another concession to the dramatic obstacles posed by a scheme routed directly into the L.A. basin. “The alternative being examined would run from Silicon Valley to Bakersfield and be less costly than the current proposal to connect the Central Valley with Burbank because it wouldn’t entail expensive tunneling costs,” as the San Jose Mercury News observed. “The outcome of the new evaluation will be known in the coming weeks, when the state unveils its 2016 business plan. The document will be the most comprehensive update for the $68 billion project in four years.”

At the same time, however, local officials in Bakersfield have yet to warm to the new proposal. “Connecting California high-speed rail between Kern and the Bay Area before building south toward Los Angeles would not resolve the touchier issues surrounding the project’s local impacts, but it would provide more time for planning the route south from Bakersfield,” they have informed the Bakersfield Californian. “There have been contentious discussions about different proposed alignments through Kern and how they would affect local homes, businesses, schools and churches, as well as Kern’s prospects for landing a maintenance facility that would bring more than 1,500 good jobs.”

Feet to the fire

The changes have come hot on the heels of a sharp escalation in lawmakers’ displeasure toward rail authority officials. Since October of last year, when the Los Angeles Times broke news of the authority’s secrecy over anticipated cost overruns, the project’s fortunes have fallen under increasing scrutiny in Sacramento. In the story, the paper recalled, it “found that the years remaining before the deadline were not enough to construct 300 miles of track, bore 36 miles of mountain tunnels, build six train stations, erect high-voltage electrical systems and construct a heavy maintenance facility. The story was based on comments by tunnel engineers, construction experts and geologists.”

“The story also reported that the agency’s primary consultant, Parsons Brinckerhoff, had submitted a cost estimate in October 2013 that projected a 31 percent increase in the cost of the initial construction segment and a 5 percent increase in the cost of the full 500-mile system. The estimate, which was the culmination of a two-year effort by a team of engineers, was not used when the state issued its 2014 business plan several months later.”

At a recent hearing called to address that and other issues, lawmakers were told that the Times had made a mistake about the ballooning cost of construction.

“Rail Authority CEO Jeff Morales said that’s not accurate,” KQED reported. “There was no 31 percent increase in the cost of the program,” according to Morales. “We did not withhold information about a cost increase in the program because there was no increase in the program.”

One workshop was held in San Francisco last week. [See the Palo Alto Online’s account for background information.] The next workshop is planned for this Tuesday, September 15, in San Jose from 4:00 p.m. to 7:00 p.m. at the Roosevelt Community Center. A one hour presentation is planned at 6 p.m. at 901 E. Santa Clara St. San Jose, CA 95116. The Morgan Hill session will be held September 23^rd. The last meeting will be held in Burlingame October 7^th. The agenda for all workshops will be identical, regardless of location.

As background, at the August 2015 board meeting, the High-Speed Rail Authority approved a Request for Qualifications to be sent out. This RFQ covers both the San Jose to San Francisco segment as well as the San Jose to Merced segment. The consultant chosen will manage the corridor activity conducting “environmental analysis and documentation, regulatory permitting and compliance, engineering and preliminary design services.”  Whoever is selected, they are expected to finish the project by December 2017, a very quick process.

Contentious Segments

In the past, both of these segments (San Jose to Merced and San Jose to San Francisco) have been problematic for the Rail Authority. Besides the Peninsula’s vehement opposition to the high-speed rail project, the Merced to San Jose segment, featuring the Chowchilla Wye, was also an area of great contention because of the use of prime farmland and destructive of sensitive environmental areas.

[See the Youtube when Ben Tripousis, Northern California regional director presented the RFQ to the board on August 4, 2015. Here is the document presented at the Rail Authority board meeting.]

Peninsula history

As a reminder, the peninsula’s environmental work stalled for a couple of years due to questions about the joint use of the Caltrain corridor with High-Speed Rail.

This is more commonly known as the blended system first introduced in 2011 by Senator Joe Simitian, Congresswoman Anna Eshoo and Assembly member Rich Gordon, also called the SEG plan. There was extreme unhappiness about the high-speed train coming through the very crowded peninsula area with the real possibility of expansion of the corridor to four tracks.

The SEG plan required no above ground tracks be added to the corridor unless the cities desired that design; and that the high-speed rail plan stay within the current Caltrain footprint. It also required the blended plan be done in one stage. The rail authority had pushed for phased implementation eventually leading to four tracks which is no longer part of the plan today.

Questions of Legality

The high-speed rail board was under the leadership of Curt Pringle in 2011. He and others on the board had mixed emotions about the concept. Questions about the legality of the blended program were sent to the Attorney General’s office twice back in the 2011 by then CEO Roeof van Ark.

This year a public records request was sent to the Rail Authority asking what the result of those inquiries were but they refused to release any AG response, claiming attorney/client privilege.

The question of the legality of the blended system, along with trip time questions and financial viability will be litigated in part two of the Tos/Fukuda/Kings County lawsuit February 2016. [See Tos Trial Brief II on the TRANSDEF website which gives a bit of history about this taxpayers lawsuit.]

In the July 2012 appropriation vote, the state Legislature approved an appropriation of $600 million of Proposition 1A bond funds to Caltrain’s electrification project under the premise that it is a corridor that will eventually operate high-speed rail trains in the future. They also appropriated $500 million for the Los Angeles to Anaheim route though projects were not yet identified for that segment. Neither amount was presented in a funding plan as required in the Prop. 1A ballot measure.

Many, including former Rail Authority Chair Quentin Kopp, have questioned the legality of this appropriation and the idea of the blended system. In a declaration filed for the Tos/Fukuda/Kings County lawsuit, Kopp says he believes “the “track-sharing” arrangement with Caltrain represents one example (Los Angeles to Anaheim represents another) of the Authority’s current alteration of the project from a genuine HSR system.”

Environmental Process

Regardless of that argument, another issue blocking access to the bond funds for the San Francisco to San Jose segment is the non-completion of high-speed rail environmental work required under Prop. 1A on the Peninsula — hence the rush to finish the environmental work described above.

But how they will finish the environmental process is still unclear.

Will the Authority follow the California Environmental Quality Act or use the less stringent National Environmental Protection Act? Or will they use the CEQA process unless challenged in court therefore using the Surface Transportation Board ruling as an “ace in the hole”?

Two years ago, the Surface Transportation Board, a federal agency, exempted the Rail Authority from following CEQA because it is a railroad project under their control. But the end of the story has yet to be written regarding the subject of a CEQA exemption for rail projects as it is expected to be heard, and hotly debate, in the California Supreme Court sometime this year.

There are no American Recovery and Reinvestment Act of 2009 federal grants assigned to the San Francisco to San Jose or the San Jose to Merced segments nor is there private funding available. The project in the Central Valley to the San Fernando Valley currently has at least a $25 billion gap in funding.

Last week, after a three-year court battle, the police and fire unions finally accepted a compromise that preserves most of the reforms backed by voters. The San Jose Mercury-News has some key details:

[The] city viewed Measure B as a way to control skyrocketing retirement costs that had more than tripled after benefit increases in the late 1990s and devoured funds for services. The measure called for current employees to pay more into their pensions, eliminated bonus checks for retirees, established scaled-back benefits for new workers and stricter disability provisions.

 

The proposed settlement would roughly maintain most parts of the measure already enacted, such as eliminating bonus checks for retirees and scaled-back pensions for new hires while abandoning provisions blocked by a trial judge’s 2013 ruling or which the council had not enacted, such as higher pension contributions from workers and some disability changes.

Concession opposed by many retirees

The fact that San Jose negotiators won unions’ acceptance of the end to so-called “13th checks” to pensioners in years in which pension fund returns were high is a major development on the pension reform front. In San Jose and many other local governments with such policies, current workers and retirees had argued that this amounted to a vested benefit that couldn’t be revoked — even if it were never collectively bargained.

CalPensions’ Ed Mendel wrote about the practice in 2013 and noted that what may nowadays seem illogical and unsustainable — giving retirees more money when a pension fund portfolio does well, but not giving them less money when that investment portfolio has a bad year — is a hangover from a past California where officials couldn’t fathom the idea of hugely underfunded pensions someday being a major problem.

Declaring earnings excess or surplus might have been a backdoor way to give employees more money and employers short-term budget relief, knowing from the outset future generations were likely to get a larger pension bill.

 

But whatever the cause, treating investment earnings as an excess or surplus, in ways large and small, has skimmed off money that could have been invested, adding to pension debt rather than lowering it.

One reason why some retiree groups held out hope that “13th checks” might win court muster was because they were not explicitly banned going forward by Gov. Jerry Brown in the 2012 pension reform law he shepherded to passage. The argument was this amounted to a de facto concession to these checks being a vested right.

But as the conclusion to the San Jose litigation indicates, police and fire union lawyers apparently no longer believed they had a case to sustain the “13th checks.”

Where the “13th checks” keep coming

In San Diego, meanwhile, the practice lives on. City officials — including many who played key roles in the crafting and adoption of a pension reform ballot initiative that passed on the same day as San Jose in 2012 — believe the right is vested. This is from a November 2013 Union-Tribune story.

A holiday season bonus is back for San Diego city employee pensioners, in the form of a “13th check” for the year that averages $720 per retiree.

 

The extra cash will be paid out to some 7,700 people next week, totaling $5.5 million, even though the system’s long-term shortfall in meeting pension obligations is $2.3 billion.

 

The payments apply only to city workers hired before mid-2005 but have grown in recent years as more people hired before that have retired and lived longer. …

 

This year the system said it had realized investment earnings of $241.7 million, compared to certain costs of $150.7 million. That left a balance of $91 million sufficient to trigger the payment of the 13th check.

Photo Credit: HUD.gov

Many Golden State developers must now include so-called affordable housing units in their sales plans. The California Supreme Court sided against the builders, who brought a contentious, high-profile suit against municipal policymakers.

“At issue was a 2010 San Jose law that requires some new residential developments to set aside 15 percent of their units for sale at below-market rates,” noted the San Jose Mercury News. “The California Building Industry Association said the city failed to justify the 15 percent requirement and should base any such quota on an assessment of possible negative effects of the market-rate housing.”

But the impact of the ruling went far beyond San Jose city limits. “The League of California Cities and California State Association of Counties estimate more than 170 municipalities have some kind of ordinance on the books,” according to KQED. Officials in Sacramento have also brought attention to the diminishing quantity of less costly urban housing. As the Los Angeles Times observed, the state’s Legislative Analyst reported months ago that California’s housing is among the nation’s most expensive.

Given the court’s protection of the laws, their continued expansion became all but certain in liberal-leaning urban areas. “The decision clears the way for Los Angeles and other cities to require developers to sell a percentage of the units they build at below-market rates as a condition of a building permit. Developers also could be given the option of paying into a fund for low-cost housing,” the Times reported.

In a statement, the Times added, L.A. mayor Eric Garcetti applauded the ruling. “This gives Los Angeles and other local governments another possible tool to use as we tackle our affordable housing crisis,” he said.

A hands-off approach

Describing California’s paucity of cheap housing as a crisis of “epic proportions,” Chief Justice Tani Cantil-Sakauye went well beyond the bounds of San Jose’s set-asides to endorse broad municipal regulatory powers. Cities, she wrote, should “regulate the use of real property to serve the legitimate interests of the general public and the community at large.”

Rather than seeing itself as indulging in judicial activism, however, the court embraced city attorneys’ contentions that its powers simply didn’t extend to pricing rules. “There is no basis for the courts to second-guess the City Council’s considered judgment in adopting an inclusionary housing ordinance as a means to comply with its affordable housing aims,” they argued, according to the Associated Press.

Judicial gymnastics

Behind the hands-off approach, however, the court followed a complex line of legal interpretation. Plaintiffs claimed that San Jose’s “inclusive housing ordinance,” or IHO, amounted to an unconstitutional “taking” of property. Previously, the U.S. Supreme Court had ruled that the possibility of such a taking triggered heightened judicial scrutiny, a stricter standard of interpretation than the city’s attorneys wanted the California Supreme Court to use.

Under heightened scrutiny, a so-called “exaction” imposed by an IHO can only pass constitutional muster if regulators “can establish a reasonable relationship between the amount of a city’s need for affordable housing and the portion of that need attributable to a particular development project,” as the National Law Review noted.

The city admitted that it broke new ground in the aggressiveness of its housing regulations. As KQED noted, “the city side-stepped the usual study showing a relationship between the development of for-sale housing and the city’s need for affordable housing.”

But the court, the Review continued, ruled the set-aside in San Jose’s IHO was not an exaction at all, “because it did not constitute the payment of a monetary fee but rather simply placed a limit on the way a developer may use its property.” Rather than requiring developers to pay money or turn over its property to the public, the IHO placed “a restriction on the property by limiting the price for which the developer may offer certain units for sale.”

Former San Diego City Councilman Carl DeMaio and former San Jose Mayor Chuck Reed, both of whom successfully passed pension reform in their respective cities during their time in office, announced Wednesday their plans to work together on a statewide pension reform measure for the 2016 ballot. Reformers hope to take advantage of easier ballot measure qualifying rules that require the lowest number of signatures in decades.

“Without serious pension reform in California, we face a future of cuts to important services and more tax revenues diverted to unsustainable pension payments,” Reed, a Democrat, said in a press release announcing the effort.

The group points to independent numbers which show the state’s pension liabilities have increased 3,000 percent in a decade. Last November, then-State Controller John Chiang (now state treasurer) pegged the state’s total unfunded pension liability from 130 public pension systems at $198 billion, a dramatic increase from just $6.3 billion in 2003.

Redux of San Diego pension reform fight

Last year, while DeMaio was preoccupied with his campaign for Congress against Rep. Scott Peters, Reed unsuccessfully tried to qualify a similar statewide pension reform measure. However, that effort stalled during the qualification stage over a dispute with Attorney General Kamala Harris over wording for the title and summary. This time around, he’ll benefit from DeMaio’s experience as a grizzled veteran of ballot-measure shenanigans.

“We have done a lot of legal work to make sure this initiative is bulletproof,” DeMaio, a Republican, told Reuters. “Because the unions are going to throw the kitchen sink at us.”

DeMaio knows full well the extent to which organized labor will go to thwart pension reform. In 2011, he led the effort to qualify San Diego’s Comprehensive Pension Reform measure for the 2012 ballot. The CPR measure forced all new employees into a 401(k)-style plan and capped contribution levels for current employees.

Labor organizers deployed activists to block signature gatherers and frighten potential signatories with misleading claims that signing would put them at risk of identity theft. At the time, longtime San Diego political operative T.J. Zane, who now serves as executive director of the San Diego Republican Party, described the San Diego-Imperial Counties Labor Council’s signature-blocking efforts as “unprecedented in its scope and ferocity.”

After the measure qualified for the ballot, San Diego voters overwhelmingly passed Proposition B in June 2012 by a two-to-one margin.

Chuck Reed: Pension reform in San Jose

At the same time DeMaio was reforming pensions in San Diego, Reed, then-mayor of San Jose, was leading a similar effort in Silicon Valley. Reed’s Measure B passed by an even larger margin: 70 percent to 30 percent. The Wall Street Journal praised Reed’s efforts and described him as “that rare creature, a Democrat in a liberal bastion who is nonetheless focused on salvaging government finances while inviting the wrath of public unions and their political allies.”

Ultimately, courts effectively gutted the most important provisions of Reed’s measure.

“San Jose’s was the most far-reaching, in that it challenged the core obstacle to serious pension reform in California,” Steven Greenhut, one of the state’s leading experts on pension reform, wrote at City Journal. “But a Santa Clara County Superior Court judge gutted the reform measure, saying San Jose could cut its employees’ pay, but not their pension benefits.”

Even after the negative court rulings, Reed’s successor has begun to further distance the city from Measure B in a bid to make “peace in the city’s pension wars.”

Broad-based coalition for reform

The proposed statewide pension measure for 2016 already has received some harsh criticism as the work of two washed-up politicians.

“2 out-of-work pols @carldemaio & Chuck Reed plan to attack @CalPERS, retirees with #pension measure in 2016,” tweeted Democratic political consultant Steven Maviglio. CalPERS is the California Public Employees’ Retirement System, America’s largest public-pension system.

In anticipation of push-back from local governments, state pension funds and organized labor, Reed and DeMaio have made it a point to build a broad-based coalition that sets aside their different political parties.  The coalition also will include David Grau of the Ventura County Taxpayers Association. Last year, after collecting thousands of signatures, Ventura County’s pension reform proposal was removed from the ballot, according to CalPensions.com.

“CalPERS has dedicated itself to preserving the status quo and making it difficult for anybody to reform pensions,” Reed recently said of the effort. “This is one way to take on CalPERS, and yes, CalPERS will push back.”

It’s unclear whether the proposed ballot measure will be drafted as a statute, which requires 365,880 valid signatures, or a constitutional amendment, which requires 585,407 valid signatures.

MLB also depends on a 100-year-old antitrust exemption that lets it control its teams more than is allowed in pro football, basketball and hockey. The Chronicle reported:

A federal appeals court preserved Major League Baseball’s roadblock to the Oakland A’s proposed move to San Jose on Thursday, setting the stage for the South Bay city’s against-the-odds appeal to the U.S. Supreme Court to roll back the sport’s nearly century-old exemption from antitrust laws.

The high court first ruled in 1922 that laws restricting monopoly enterprises didn’t apply to big-league baseball, and reaffirmed that decision in 1953 and 1972, saying Congress had acquiesced by leaving the laws intact….

In Thursday’s ruling, the Ninth U.S. Circuit Court of Appeals in San Francisco refused to reinstate a lawsuit by the city of San Jose against the major leagues that challenged the antitrust exemption. A federal judge had dismissed the core of the suit in 2013.

“Like Casey, San Jose has struck out here,” Chief Judge Alex Kozinski said in the 3-0 decision. “Only Congress and the Supreme Court are empowered to question continued vitality (of the 1972 ruling), and with it, the fate of baseball’s singular and historic exemption from the antitrust laws.”

On something like this, the U.S. Supreme court is unlikely to challenge Congress’ powers. After all, potentially Congress could repeal all anti-trust laws, making the whole thing moot.

But there’s more to it than is in the story or decision. A century ago, there were only two nationwide professional sports: baseball and boxing. College football was popular, but was amateurs. The NFL didn’t start until 1920 and the NBA until 1946.

The NHL started in 1917, but I remember as late as the late 1960s it consisted of just the “Original Six” teams, two Canadian: Montreal Canadiens, Toronto Maple Leafs, New York Rangers, Chicago Black Hawks, Boston Bruins and my hometown heroes, Gordie Howe’s Detroit Red Wings.

As to boxing a century ago, it was mostly local, and sporadic. So MLB was the only “national” pastime. Because of its influence, it got Congress to grant it the anti-trust exemption.

Is that the picture today? No, it’s entirely different. We not only have the four large major leagues, all of which compete in the fall during the World Series. And in May-June, MLB competes against the NFL and NBA playoffs.

We also have: movies, TV, the Internet, amusement parks, soccer, Arena Football and numerous other entertainments.

Assuming the Supreme Court even takes this up, that’s how it ought to rule.

If the court wants to go “activist” on major-league sports, it should rule taxpayer ripoff subsidies of stadiums is illegal under the “General Welfare” clause.

Instead it has flirted with bankruptcy because of its burgeoning pension problem — a problem that already was the major cause of the bankruptcies of Vallejo, San Bernardino and Stockton. The pension problem, as everywhere, was caused by the irresponsible pension spiking of 1999-01.

Enter Mayor Chuck Reed. A Democrat, he valiantly struggled with the problem, passing the Measure B in 2012 with 69 percent of the vote. It is being challenged in court by grasping unions.

Term limits are forcing Reed to leave. But Sam Liccardo, who backs Reed’s reforms, just was elected to succeed him — in the teeth of vicious union opposition.

Reed failed to place a pension reform initiative on the statewide ballot this November after Attorney General Kamala Harris forced on the initiative an incredibly biased title and summary. He says he’s going to keep pushing reform, including a possible 2016 initiative.

It wouldn’t surprise me if he ran for governor in 2018. After all, the problem only is going to get worse. And Harris’ anti-reform stance could come back to haunt her in her own bid for the higher office.