Taking aim at pensions
Eager to expand the police force, then-Mayor Richard Riordan helped persuade voters a decade ago to sweeten the pensions for public safety employees. Now, with pension costs threatening to overwhelm the budget, Mayor Antonio Villaraigosa and the City Council are urging voters to go in the opposite direction. Measure G, on the city’s March ballot, would offer lower retirement benefits to police officers and firefighters hired after July 1, and require them to pay more into the system. The measure wouldn’t save much in the near term, but it’s an important step toward the city’s long-term health. The Times urges a yes vote on Measure G.
Retirement benefits for city workers are set through contract negotiations with various public employee unions, then ratified by ordinance — except for those provided to sworn public safety officers, which are included in the City Charter. Once set, state law effectively bars those benefits from being reduced for current employees, not just for the years they’ve already worked but for those ahead of them. That’s why it’s hard to undo the damage inflicted by excessively generous pension deals.
In 2001, when Riordan promoted the previous deal, city officials argued that they were having trouble recruiting and retaining police officers because of competition from the California Highway Patrol and other public safety agencies that were boosting their pensions. So the city offered a charter amendment that gave long-serving police officers and firefighters a pension as large as 90% of their highest yearly salary (plus annual cost-of-living increases), which The Times endorsed and voters approved. Other groups of city employees obtained better retirement packages too.
Now, however, the situation has changed. The increase in benefits proved problematic after Wall Street’s collapse damaged pension funds in L.A. and across the country, leaving them with too little money to cover the cost of future retirees. To narrow that gap, the city has to pay them a growing share of its budget. Within five years, pension expenses are expected to increase from less than one-sixth of the general fund budget to more than a third. At the same time, rising healthcare costs are making retiree health benefits increasingly unaffordable.
Some labor representatives argue that the rebounding stock market will solve the pension funds’ problems, but that’s quixotic. The city will have to make even higher payments into the pension funds if the return on their investments is less than about 8% annually, a percentage that’s in line with their historical performance but hardly assured now.
Measure G would begin the process of digging the city out of its pension hole by requiring newly hired police officers and firefighters to contribute more of their pay to their pension funds — 11%, compared to 8% or 9% for current officers. A portion of that money would be used to help offset the increasing cost of retiree health benefits. The measure would also reduce the amount most new hires will receive when they retire. Payments would start at 40% of salary for those who retired after 20 years of service, not 50%, although the maximum would remain at 90% of pay for those who’d served 33 years or more. And the amount would be based on the employee’s highest salary over a two-year period, not his or her single best year.
The change could save an estimated $152 million over the coming decade, depending on how many public safety employees are hired. That’s a drop in the bucket compared to the city’s unfunded pension liability, which is an estimated $6.8 billion (not counting pensions at the Department of Water and Power) and growing fast. Nevertheless, passing Measure G would help Villaraigosa and the council persuade other public employee unions to bring their plans into line with the fiscal realities. L.A. should send a clear signal with a strong vote in favor of Measure G.
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