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November 7, 2013
Viewpoints: Slashing pensions at the ballot is foolhardy

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(Nov. 7 -- By Ron Cottingham, Special to The Bee)

There's good reason that cities and counties are not allowed to unilaterally cut retirement benefits for their existing public employees. Imagine a police officer putting his or her life on the line for 20 years and planning for an eventual retirement, who is told that the pension they were promised is being taken away. Or what about public school teachers, many of whom do not earn Social Security, seeing their retirements cut at the whim of a local school board?

Public employees are not wealthy. They are working-class people who retire, on average in California, on pensions of just $26,000 a year. The retirements they earn factored into their decisions to take lower-paying government jobs - compared to what's possible in the private sector - in the first place. So, state law protects them from having those pensions used for political leverage or as ways to fill holes in government budgets.

However, Chuck Reed, the mayor of San Jose, wants to change that. He has submitted paperwork as a first step toward putting a ballot measure in front of voters next year that would alter the state's constitution in order to allow elected officials to renege on promises made to firefighters, teachers, garbage truck drivers and other public servants. In doing so, Reed is giving local governments a scapegoat for their financial problems.

Make no mistake - the so-called "pension crisis" is manufactured. It began in our state when the city of Stockton found itself with a massive budget deficit, then wrongly blamed it on pension obligations. The myth continued when San Bernardino filed for bankruptcy protection and pointed the finger at public workers' retirements. Truth is: Stockton borrowed and spent lavishly on building a ballpark on its waterfront prior to the Wall Street-induced economic collapse. In San Bernardino, many years of budget mismanagement finally came to roost.

At the state level, the most frequent argument against public employee pensions is that the state's major pension systems project returns on their investments that are too optimistic.

This past year, the California Public Employees' Retirement System forecast a 7.5 percent return when the naysayers claim 3 percent or 4 percent is more realistic. Lo and behold, CalPERS posted a 12.5 percent return. What's more, over the past 20 years - including the lean recession years - that retirement investment system has seen an average return of 8 percent annually.

To put all of this in a way that's more easily understandable: CalPERS owes a debt to public workers that it will have to pay to them in the future, it has about 70 percent of the money it owes in the bank today, and it's growing that account by earning healthy interest - more than expected - on its investments.

That begs the questions: why the alarm over public pensions, and why the crusade by Reed to make the topic a statewide ballot issue?

To answer that question, take a look at who is bankrolling his initiative campaign and other similar efforts. According to an outfit called the Arnold Foundation, its namesake John Arnold has given $7 million to anti-pension causes around the country, including here in our state, and was asked by Reed to give the initial $200,000 to put this current ballot measure in motion. You probably haven't heard of Arnold, but you're familiar with a defunct company where he was once an executive: Enron. The Texas billionaire made his fortune trading in natural gas, and has now taken an interest in the retirements promised to everyday public employees including teachers and firefighters.

But don't expect Reed to fess up to who is funding his campaign. He shuns transparency and has refused to say who his donors are. Californians have had enough of that kind of campaign manipulation after a shadowy Arizona organization put $11 million into fighting Gov. Jerry Brown's initiatives last year. The Arizona outfit was later found to have ties to the Koch brothers.

The right place to have a discussion about public employees' pensions is at the bargaining table - and that has already happened in nearly 400 municipalities throughout the state where unions have agreed to significant concessions, though it rarely grabs headlines. The wrong place to have the discussion is from the top of a political soapbox, though perhaps from that vantage point Reed will see clearly that California voters don't want to rip retirements away from the workers currently protecting and serving their communities. Especially when doing so is only in response to a manufactured crisis and won't ultimately address governments' budget shortcomings.

Ron Cottingham is president of the Peace Officers Research Association of California.

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