Unions as leaders

City officials have persuaded a coalition of public employee unions to make major concessions on their retirement benefits, saving more than $300 million over the remaining years of the contract. The savings aren’t enough to solve the city’s budget problems in one stroke — far from it, in fact. But the agreement does provide a template for bringing down costs across all city departments. It also demonstrates that the same collective bargaining process that has turned pensions into fiscal time bombs can also help defuse them, and can do so more effectively than a Wisconsin-style rescission of bargaining rights. That’s an especially important lesson now, with public pensions under attack across the country.

The agreement announced Thursday by Mayor Antonio Villaraigosa, City Council President Eric Garcetti and leaders of the Coalition of L.A. City Unions offers workers steadier wages in exchange for shouldering almost twice as much of the cost of their retirement benefits. If the coalition’s roughly 19,000 workers ratify the deal, they wouldn’t be subject to any more furloughs, at least until the contract expires in mid-2014. But in return, they would soon have to contribute 11% of their pay to the city’s underfunded retirement accounts, compared with 6% today. The extra contribution would cover the entire cost of retiree health benefits, at least for the time being.

The significance of the deal is that it would affect current workers, not just future hires. The city’s pension fund is so woefully underfunded that the council has to devote a growing share of the annual budget to retirement contributions. Without concessions from current workers, those contributions would consume 20% of the general fund by 2015, up from 8% in 2009.

Local officials can’t simply compel workers to accept reduced pension benefits or cover more of the costs. Under longstanding court rulings, a public employee’s pension is locked in the day he or she is hired, and cities can’t reduce the payments unless they offer a comparable new benefit in return. But leaders of the L.A. City Unions agreed to amend existing contracts because they recognized the inherent tradeoff. The more money the city spent on retirement benefits, the less it had to spend on everything else. And the squeeze was only going to get worse.

That should be equally apparent to the rest of the city’s unions, particularly the police and firefighters, whose pensions account for the bulk of the city’s retirement costs. They should agree to contribute the same percentage of their pay into the retirement fund as members of the L.A. City Unions, whose salaries are far below the average city worker’s. Such a change wouldn’t solve all the problems with public employee pensions, but it would eliminate the biggest source of the city’s chronic budget shortfall.