When it comes to managing skyrocketing pension obligations, Glendale’s either done all it can or is failing horribly, depending on who you talk to.
While most City Council candidates have criticized city pensions, the city manager, incumbents and union leaders say Glendale has already implemented comprehensive reform and nothing more can be done.
Glendale has taken big steps to curb rising pension costs, but more — albeit controversial — options are available.
“The first thing I would say is, I have no magic formula. No one has,” said Yan Tang, research director of USC’s Bedrosian Center on Governance and the Public Enterprise.
Changing retirement benefits is a difficult process that involves hours of negotiations with union leaders, many of whom believe employees have ceded enough already. Glendale officials negotiate annually with bargaining groups, except the Glendale Fire Fighters Assn., which has a multi-year agreement through 2016.
More than a decade ago, during the stock market boom, Glendale officials increased retirement benefits. But the boom times disappeared and payments to the California Public Employees’ Retirement System, or CalPERS, ballooned as Glendale faced yawning budget gaps.
“The thing that really changed everything is that one day politicians woke up and said, ‘Wow, look at how much we have to pay for [pensions] and our tax collections are getting flat,’” said Steve Malanga, senior fellow at the Manhattan Institute, a conservative think tank. “This was really getting to be a problem.”
Starting a few years ago, city leaders increased what employees pay for their pensions, reduced benefits and increased the retirement age for new hires. While current employees base their pensions on their single highest salary, new-hires’ pensions use an average of the last three years.
New firefighters are immune from the “blending” formula through 2014.
Glendale employees currently contribute between 8.5% and 12% of their paychecks toward their pensions — more than Burbank and Pasadena.
“We absolutely have done a lot,” said Craig Hinckley, president of Glendale City Employees Assn. “If you look at Glendale, we’re one of the few agencies that has a cost-sharing agreement.”
But the biggest changes, the reduced benefits for new hires, won’t be felt for about 30 years when all employees are covered under the new tier, said Jean-Pierre Aubry, assistant director of state and local research at the Center for Retirement Research, Boston College.
“What’s more, these changes to new-hire benefits do nothing to lower the current unfunded liability,” he said.
As of June 2011, the city’s unfunded pension liability — the difference between the value of the promises made to retirees and employees and the funds available to pay for those commitments — had accrued to $227 million, up from $205 million in 2010.
But Glendale has 84% of its liabilities covered, which is better than most. The conventional wisdom is that jurisdictions that are less than 80% funded are in bad shape, said Mario Mainero, a law professor at Chapman University.
In addition to making employees contribute more toward their pensions, Mainero said Glendale could reduce benefits for current employees, so long as the unions agree.
While that may be difficult, he said it could be done by threatening pay cuts or layoffs. It’s already happened in Glendale, where general employees saw their pay reduced 1.5% in 2010 after refusing to contribute more toward their pensions.
City Council candidate Sam Engel, former neighborhood services administrator, said he would ask employees to pay more into their pensions, while Edith Fuentes, a former zoning administrator who also is a candidate, said the city needs to rein in compensation.
Candidate Mike Mohill has advocated for 401(k) plans. Although employees can retire with 90% of their salary — as Mohill has said many times — that formula only applies to those who were hired before the most recent reforms and who have worked for 30 or 36 years, depending on their job title.
Some pension reforms suggested by experts, including initiatives to change current employee plans, have been invoked in San Diego and San Jose, but both face legal opposition by labor groups.
Last year, 66% of the San Diego electorate voted to give new hires, except police officers, 401(k) plans and freeze the pay used to calculate the pensions of current employees for five years. But the ballot measure has been hit with legal setbacks.
Most pension reforms are focused on new hires because of the legal hurdles that come with altering guaranteed benefits. But Florida and New Jersey have cut cost-of-living increases for retirees, which can reduce pension obligations by several percentage points each year.
Statewide changes in California that took effect this year reduced benefits for new hires even more and require Glendale’s newest workers to retire seven years later than previously.
Unless the council wants to reduce benefits even more for new employees, City Manager Scott Ochoa said, Glendale is done with pension reform. The new challenge is healthcare costs, he said.
“I don’t know that a third tier really gets you anywhere other than bragging rights that you did it,” Ochoa said, adding that future hiring decisions should play a role in pension discussions.
Experts agree that too much change can negatively impact recruiting and morale.
“We caution [that] when these changes are being done from a budget perspective, there are also other consequences that should be considered,” Boston College’s Aubry said.