Mayoral candidates discuss city employee retirement costs

City Controller and former City Councilwoman Wendy Greuel:

1. How did we get to this point? Do you regret your own past actions on employee contracts?

We aren’t alone in facing these challenges – nearly every city is grappling with the same issues. The recession has hit families hard and it has hit the city hard. With declining revenues, we are facing tough decisions as we pay the bills for decisions made when times were better.

Past decisions were based on the fiscal information we had at hand and a very different economic climate. In December of 2007, when many agreements were negotiated, the revenue projection for this year’s budget was $5.4 billion. Now revenue is projected to be $4.5 billion, 17% lower than 2007.

Looking back, at the height of the economic downturn, there were only tough decisions to be made. Looking forward, the city needs to identify efficiencies, streamline government and save more to meet its obligations in the future. That’s why I’ve consistently advocated for a larger Reserve Fund and suggested a 5% goal should be the minimum, not the maximum set aside for tough economic times to help avoid the painful choices we face today.

2. What if anything would you do to control retirement costs?

There’s no question that we need pension reform – the question is how to get there in a way that is fair and puts the city on the path to fiscal stability.

Getting our fiscal house in order would be one of my top priorities as Mayor and everything needs to be on the table. Soon after my election, I would convene a working group representing labor, business, the City Council, experts and others. I’m interested in building a lasting consensus, not dictating a solution that might be overturned by the courts or at the ballot box. We will need to move beyond finger-pointing and work together to find real solutions.

As Controller, I am conducting an audit of the pension systems that could become a blueprint for reforms and potential savings, as other audits have been.

3. Without new labor agreements, will city services diminish and how would you prioritize cuts?

Let’s be clear - the money in the city budget belongs to taxpayers. We need a budget that reflects the priorities of the city and delivers the greatest value for every tax dollar.

As Mayor, I would adopt performance-based budgeting that focuses on outcomes – what we are getting for every dollar spent. I would reform the budget process so that it is transparent and accountable. Taxpayers should be able to easily find out how their tax dollars are being spent.

If budget cuts are necessary, I would start with the results of the audits I have conducted as Controller. We’ve identified more than $100 million lost to waste, fraud and abuse. That has to stop. I would also take a hard look at the performance of each department and determine how we can reduce costs while funding delivery of our core services. We can’t afford to reduce our workforce where that would mean a reduction in services. We need to dig deeper to identify ways to cut costs and generate revenue.

Los Angeles City Councilwoman Jan Perry:

1. How did we get to this point, and do you regret your own past actions on employee contracts?

We did not react fast enough to the economic downturn that has led to the structural deficits at the national and local level. My experience through this process and my evolution as a policy maker has taught me the importance of taking a long-term view and of ensuring that we consider and adopt mechanisms that allow us to save for the future, continue to deliver city services, and prepare for the unexpected. I have been able to use my experience to develop a strong record of reigning in spending and asking the tough questions while respecting the work of our employees.

2. What if anything would you do as mayor to control retirement costs?

We cannot continue on our current trajectory and expect to deliver city services. The current system has to change and everything needs to be on the table including pension reform and the potential privatization of some city services. At the end of the day, we need to ensure the sustainability of our city budget while respecting our workers.

3. Without new labor agreements, will city services further diminish, and if so how would you prioritize cuts?

We are obligated to ensure the safety of all Angelenos. As mayor, I would support public safety efforts and prioritize quality of life issues like trash pick-up and street paving and repair in a manner that is forthright and realistic. In other words, let the taxpayers know what we are able to do given our budget realities and the time frame in which services and infrastructure work will be provided.

Los Angeles City Councilman Eric Garcetti:

1. How did we get to this point, and do you regret your own past actions on employee contracts?

Four years ago, all of the city’s major revenue streams dropped for the first time in more than a generation as a result of the global economic downturn. Since the vast majority of our city costs are people (pay, pensions, health insurance), we have to balance our budget by addressing all three. What was once sustainable, no longer is. Unless these budget trends are realigned, our fiscal problems will continue.

Clearly, much more must be done, but it has been a central focus of mine for the last four years to play a key role in significant progress on the size of our workforce, the cost of pensions, and the cost of providing health insurance. We have shown that there is a way forward if we tenaciously grind out the hard work and focus on solutions, not on politics. I’ve done that at the bargaining table quietly, but with real results.

Despite the tough economy, we are in far better shape than we were a few years ago. In 2010, the projected deficit for this year (2012-13) was about $950 million and the deficit for next year (2013-14) was projected at more than $1 billion.

I worked to reduce the size of our workforce by nearly 5,000 employees, to negotiate and pass $500 million in pension reforms, and to finally address the cost of providing healthcare, including the first contracts where city employees pay for a share of their
healthcare out of pocket. These reforms are making a deep impact while avoiding the brinksmanship and gridlock seen in Washington, Sacramento and Wisconsin.

We didn’t always agree at the bargaining table, but by focusing on solutions and not politics, this year’s deficit that was previously projected at about $950 million was whittled down to $238 million by the time this year’s budget process began. That gap was closed and the budget was balanced -- as it has been for the last four years without deficit borrowing or gimmicks like selling city assets in a down market.

Some have called for slash and burn cuts that would go so far as to take cops off the street and leave us with libraries and parks open only a few days a week. Others have suggested accounting tricks that would pretend the problem didn’t exist. I’ve been leading a process
that identifies real financial targets, then brings all sides and ideas to the table to develop policies that would create real savings. That’s the approach I will continue to pursue until we have true
structural balance in our budget, and I would be able to have a far greater impact as Mayor.

Next year’s gap, previously projected at more than $1 billion, is about $200 million. Clearly, there is a lot of work still to be done, but we have shown that there is a way forward if we tenaciously grind out the hard work and focus on solutions, not on politics.

2. What if anything would you do as mayor to control retirement costs?

I am looking forward to having an even greater impact through the Mayor’s Office. But I’m not waiting until I am Mayor. I’ve been working on the Council to play a key role in reducing the size of our workforce, the cost of pensions, and the cost of providing health insurance. In addition to working with analysts to develop policy and policymakers to enact reform, I both led honest negotiations with union leaders and attended ratification meetings to have an honest
dialogue with rank and file workers.

I have taken action and studied the full spectrum of pension reforms, including the retirement age, “spiking,” “double-dipping,” “banking,” and other pension issues. I would also reiterate that healthcare costs have been at least as big a driver (if not bigger) of our budget gaps than our pension costs over the last decade.

The $500 million in pension reforms I mentioned above include current employees, both sworn and civilian, and include reforms enacted via ballot measure.

I would pursue the course that I have been on: identifying clear targets then bringing all sides together until real solutions are found. No accounting tricks, no fantasies about shortcuts. I don’t
believe that this should be about ideology, nor should the script be delivered by those looking to decimate the earned benefits of hard-working city employees, nor by those who would budget by
aspiration and hope that this problem will go away.

What I won’t do is conduct policy by press conference. That only leads to gridlock.

As mayor, I will set targets, and then find real solutions, whether they are the similar to those that have been discussed lately, or new ideas that are brought to the table. What works is identifying a real number to solve for and then doing it. What doesn’t work is giving a
speech on a set list of reforms and foreclosing workable options outside of that box.

Right now, discussion at City Hall is focused too much on how much to cut, and some are even talking about raising taxes. That’s a discussion that at best can only slow a downward spiral. What’s missing is a focused strategy for how we grow a local economy that has lost 165,000 jobs in 30 years.

We are facing this budget crisis in large part because we have a revenue problem -- which stems from the economic problem.

We must prioritize job creation and economic growth. That’s what generates the revenues that keep cops on the street, library doors open and potholes filled. Jobs fill budget gaps and create the revenues to provide city services. That’s why I’ve been leading the fight against the city’s gross receipts tax for the last decade. It taxes businesses even when they lose money -- driving jobs and the revenues they produce outside of Los Angeles.

We must also focus on efficiency -- stamping out waste and making sure City Hall catches up with and surpasses the private sector in terms of streamlining its practices. Outmoded paperwork and redundancies waste taxpayer dollars and frustrate the people City Hall is supposed to serve.

For example, City Hall should be specializing in filling potholes, not keeping email servers running with gum and tape. I led the move of the city’s email system to the “cloud,” which saves taxpayers millions of dollars because we no longer paying to maintain old, costly, and unreliable servers.

As Mayor, I will have direct authority over City departments and their managers to enact the cost-control reforms we need. Leadership begins at the top, and I will make sure the message is sent that “the way things have always been done” simply doesn’t cut it. We will do more with less. We will get innovative, get efficient and get real on my watch.

3. Without new labor agreements, will city services further diminish, and if so how would you prioritize cuts?

We must tackle the toxic combination of rising costs and dropping revenues through controlling expenses and creating jobs and economic activity. Los Angeles has already reduced its general fund workforce by almost 5,000. I have proven that I can cut in tough times to balance budgets, but I would prioritize efficiency, reform and economic growth to generate savings and revenues before we enact cuts that, for example, reduce the number of potholes that can be filled.

I have also shown the way to get tough projects (new parks, street paving, reinstating library hours, maintaining a strong police force) done in lean times. Now, it is time to boost our revenues through a stronger local economy, by collecting what we are owed, and by implementing systems that save us money.

My office launched the City’s first constituent services smart-phone application, so Angelenos in my district can report a pothole or graffiti to the City from the palms of their hands -- anytime, anywhere and without the need to wait on hold or utilize an expensive, outdated call center. This is just one example of how we must move City Hall forward in terms of efficiency and technology.

I believe we must prioritize those city activities that best generate quality of life improvements and economic growth -- that is how we can pay for the whole host of services the people of Los Angeles expect and deserve.

Attorney and former federal prosecutor Kevin James:

1. How did we get to this point?

The Executive Employee Relations Committee entered into contracts, year after year, that the city could not afford, and the City Council gladly rubber-stamped their actions. Neither the EERC nor the Council can legitimately feign ignorance, or blame the bad decisions on an “unknown” recession -- numerous community members, bloggers and radio broadcasters (including myself) warned the Council and the EERC that we could not afford the overly-lucrative contracts they were about to enter into. These same Councilmembers regularly received huge financial support for their campaigns from the very employee unions that benefitted from the employee contracts.

Whatever the unions wanted, the unions received - even in crisis. Whether it was ERIP (Early Retirement Incentive Program), “transferring” general fund employees over to the DWP budget to avoid laying them off, or “shifting” costs to future years to make the budget appear balanced, the unions got what they wanted.

In addition to the questionable planning referenced above, overly-optimistic investment forecasts have also contributed to the crisis. Current forecasts of 7% to 8% are no longer realistic (if they ever really were). As you know, CalPERS just reported a 1% return at the state level for the year ending June 30. As you also know, anything below the fund’s discount rate of 7.5% (which most public pensions in the U.S. use as their rate) forces the taxpayer to cover the difference.

2. What if anything would you do as Mayor to control retirement costs?

I would implement real pension reform. If the Council will not agree, I would go around them and, as Mayor, work to get pension reform put on the ballot.

My ideas for pension reform include the following:

First, pension reform has to include all of the city unions, including the DWP.

Second, we must raise the retirement age. I agree with the proposal to raise the retirement age for civilian employees to 67. As for public safety employees (as well as civilian jobs that require a certain level of physical exertion), we should move those employees to other needed positions requiring less physical strain during later years of their employment if the situation warrants it.

Third, we cannot maintain the current discount rates of 7.5% to 8% - that rate must come down to reality.

Fourth, we must raise the contribution rates that employees contribute to their own pension and health insurance costs. I know some of the unions have agreed to this already, but more is needed.

Fifth, we must further cap an employee’s pension collections. This can be done a couple of ways, by capping the amount an employee can receive, or by limiting how much the city contributes each year -- all while recognizing that it might have to be further limited depending on the city’s ability to move out of the current financial crisis.

Sixth, limiting pension calculations to an employee’s base salary.

Seventh, we must also do something to stop the abuses of the pension system. For example, we should ignore an employee’s last year of compensation when calculating pension benefits. That is when you see more abuse of the system.

Two of the more sweeping pension reform proposals that are now being put on the table I believe also deserve consideration. The first proposal is the elimination of the defined benefit pension in exchange for a 401(k)-style individual investment plan. The second (which was floated in the recent story about Riordan’s meeting with Mayor Villaraigosa) returns power over the pensions to the voters.

Real pension reform is not an ideological issue, it is an actuarial issue - we simply do not have a choice.

Finally, I have a feeling that I am the only Mayoral candidate that has looked into recent developments in California case law concerning the vested-rights doctrine. Not to get too “in the weeds”, but the courts appear to be on a trend toward easing the definition of what constitutes vested rights. That will give future city officials more leeway in renegotiating prior obligations -- especially city officials willing to battle it out in court in the name of saving city services and I am willing to have that battle.

3. Without new labor agreements, will city services further diminish, and if so how would you prioritize cuts?

Without new labor agreements, further reduction in city services will unfortunately be unavoidable. Prioritization of cuts would be based on common sense relating to the importance to the city of the service. In other words, all such cuts will be painful. The only cuts that will not be painful will be the phasing out of the significant waste, fraud and abuse in this city government. Recognizing that simply saying “waste, fraud and abuse” is not enough, choices will have to be made.

Another way to characterize what gets cut, is by stating what gets preserved.

First of all, the potential for bankruptcy in the City of Los Angeles presents a new type of leverage the new Mayor will have to negotiate further concessions from unions. If the reality/threat of bankruptcy is not enough and cuts have to be made throughout the city, after a public battle between my office as Mayor and our city’s union leaders over salary freezes and potential reductions in pay, here is how I envision preservation prioritization:

Initially, every department will be requested to suggest on its own 3% cuts across-the-board. After that, recognizing that arguments for the importance of every department can be made, here is how I see their priority in groups (my suggested sequence is of course subject to revision after department-head presentations fighting for their own funds) (please also note that there is certainly room available for departmental consolidation as well (e.g., Commission for children, youth and their families, and Commission of the Status of Women consolidated into Community Development Dept.)):

High priority: Public safety gets first priority in avoiding cuts, Police Dept., Fire Dept., Building and Safety Dept., Chief Administrative Officer’s Dept., City Attorney, Controller, Emergency Preparedness Dept., Office of Finance, Housing Dept., Planning Dept., Personnel Dept., Public Works Dept., Transportation Dept., Office of the Treasurer.

Mid-level priority in avoiding cuts: Dept. of Aging, Animal Services, City Clerk, City Ethics Commission, Dept. on Disability, Employee Relations Board, Environmental Affairs Dept, General Services Dept., Housing Authority, Information Technology Agency, Los Angeles Public Library, Dept. of Neighborhood Empowerment, Dept. of Recreation and Parks

Lower-level priority in avoiding cuts: Commission for children, youth and their families, Commission on the status of women, Convention Center Dept., Community Development Dept., Cultural Affairs Dept., El Pueblo De Los Angeles Historical Monument Authority Dept., Human Relations Commission, Zoo Dept.

Another alternative: Public/Private Partnerships: People often ask why Los Angeles is not better at public/private partnerships given all of the talent, knowledge and business diversity that exists in the region. I believe that the city’s reputation as a corrupt city government - which it has earned - harms the city’s ability to attract professionals from private industry to partner with. By cleaning up corruption, we significantly increase our chances at developing new and thriving partnerships with incredible private industry partners existing in the region.

Departments worth reviewing for public/private partnerships are all of the departments that could face the earliest round of cuts.

As Mayor, my office budget and my salary will be cut by comparable levels.

Finally, as a lawyer for almost 25 years with extensive experience in negotiating high-level agreements, I believe there are certain things that can be done to level the field when negotiating contracts with our city employee unions. For example, if all employee contracts are redesigned to expire at the same time, city officials (tasked with representing the taxpayer) will be better able to work out new agreements without one union having the deal points previously agreed to by another union as their starting point.