Lessons from the Front: Comparative Case Studies from California

this program is presented by university of california television like what you learn visit our website or follow us on Facebook and Twitter to keep up with the latest you see TV programs also make sure to check out and subscribe to our YouTube original channel you see TV prime available only on YouTube and so I’m going to do a quick round of introductions and then we will get to to the presentations from each panelist i’m michelle wild Anderson I’m on the faculty at the law school at UC Berkeley and I teach local government law our first speaker will be mayor loveridge of the City of Riverside he’s been a city leader since 1979 and mayor since 1994 which as you can imagine means he’s presided over a city that has nearly doubled in population and seen just enormous regional change over that period of leadership he’s a leader in several regional and statewide agencies and he’s a past president of both the California League of Cities and the National League of Cities so we’re very glad to have him here our second speaker will be Stephen Erie who’s a professor of political science urban planning and history which in my business is quite a triple feet he’s the author of four award-winning books on urban politics and urban history but he’s also an expert on urban governmental structure as well as state and regional water policy our third speaker is Mayor Chuck Reed of San Jose he joined the San Jose City Council in two thousand and he’s been its mayor since 2006 he has a distinguished prior career in the US Air Force as well as in litigation and his public biography expresses affinity for the working poor and governmental efforts to assist them I wanted to say something about that and but he’s really made fiscal responsibility and good government the focal points of his administration and finally Raleigh cats is with us he’s the supervising business agent for Public Employees Union Local one local one represents more than 13,000 local government employees in Northern California I’m he actually started at local one in 1978 but left for a period of years to practice as a labor lawyer and returned in 2002 as one of their leaders so we’re very grateful for him being here as well so thanks in advance to all of you and we will start with mayor leverage well first let me say thank you for those who are here this is friday afternoon at four-thirty after a some eight hours so my recognition to the survivors of this fiscal conference second I just wanted to make a point that was made earlier but to emphasize that no mayor would choose bankruptcy it really is the last choice and this business competition is serious you do not want to see your name and the headlights of this kind of conference kind of attention that bankruptcy it brings you can’t compete for residence or business Third Point or second point is that I if you were here this morning I listen to the excellent kind of overview the Michael Coleman gave I just wanted to underscore the view and you’ll see that in my remarks of how important toxic politics is to explain how people get into difficult fiscal fiscal circumstances experience the third point is experienced that San Jose and San Diego had with pension reform is different in Riverside we had a table approach we negotiated with a two-tier approach with each of our six bargaining units and very quickly I’d like to give you a kind of case study profile and with I think the the point that emphasizes the great kind of variation you find among cities and in California first is just the that the the difficulties of California cities I’ve also being played out across the

country the results of a scalded 27th and I’ll seize look at physical conditions of a cities when I was asked to come up max niemand asked if I would do a little compare and contrast with Riverside with Stockton we are the 12th largest city and in california stockton is the 13th we’re both older cities we’re both about the same distance from the coast our demographics are comparable so our unemployment numbers r Lawson housing values and percentage of foreclosures are nearly the same I’ll provide much more information on riverside and i will on stockton to graduate from university of Pacific in 19 2 1960 a quick personal profile I guess the most important thing is I’m in my life is going to understand my last hundred days we talk a lot about the first hundred days of office I’m now in my last hundred days there’s a interesting book out by Nancy glib is called the president’s club which does it at the presidential level but I haven’t seen any literature talking about the transitions from one mayor to another Riverside into city of 300,000 till we are about two thirds non non white we were originally a citrus town and which kevin carr star refer choices the quintessential citrus sound we are a red City there isn’t a Democrat within sight line of Western Riverside County I I could have I won’t make just the point when you start asking what are the markers of success of a city one of those markers is what you do with the budget we had a balanced budget 40 million dollar surplus we did negotiate with each of our bargaining units in terms of numbers of employees we have decreased from something like 2500 2 2200 we received many different awards this past year we were selected as a 2012 intelligent community the year award comes out of a policy think tank and and and and New York something like 430 5 cities around the world competed for this and I could spend more time talking about it we’re also very proud of where we are in sustainability in terms of national competition that basically the the argument I’m offering is that if you look for markers to success of city you’ll find it in the city of riverside this is our budget statement talking about the reserve and having a balanced budget and and the and the ratings the city has sustained this is a brief comment this is one of the founders of the intelligent community forum John John this is his is kind of take on Riverside talked at the shadows of La you can see his sort of a judgment to see drove in from LAX to to riverside and then I sort of go through the that the kind of problems of our region we we build homes where while Detroit build cars we’re not building homes now we certainly very I in foreclosures a major drop in home sales which affects property taxes retail sales have gone down but again the markers you have of a city not too dissimilar to those and in Stockton it ran up some numbers V you’re interested I can send you the powerpoint this is sort of the the demographic comparisons of riverside and and stockton here’s my argument just briefly one it’s not geography of whether or not a city is successful or not or is a comment here from chris hanney who says geography matters geography helps our immediate neighbor is San Bernardino it’s five miles away Victor Hansen some you may know he’s at the Hoover Institution at Stanford they had a column that circulated widely across newspapers at California he basically says there’s not one state he derived from Palo Alto to Fresno you find a much different much different place and he’s contrasting the shangri-la the Coast versus the what it calls the pre-modern

area of the of the inland inland area second argument it’s not simply demography I mean demography is not destiny I think success of a city is more than SES we are currently beginning to measure mark cities by educational attainment I think education entertainment it’s very important that we’re all kind of competing to increase education rates we have a three million dollar grant from Gates Foundation trying to do that it’s interesting book called economics a place to try to identify possible factors that account for success a place I haven’t done that separate amount causality is always difficult we’re working very hard on a season of our destiny plan that focuses on quality of life and partnership and recognizing that economic prosperity is the highest priority the city but here the two factors that I’d like to offer that are not geography they’re not demography first is that political factors are important and explaining in this case is kind of a study but cities politics matters and it’s not the form of government riverside in stockton have very comparable forms of government the difference in stockton as you’re nominated by in the district and then elected elected at-large Riverside you’re both nominated and elected within council districts so the first argument is something that’s kind of a soft measure but I think a particularly important measure and that’s the kind of political culture the kind of social capital defined in cities Riverside have a long history of the government to civic engagement and as I measure social capital high level I particularly like Robert buttons call and was quote comes from Bowling Alone that that social capital makes us smarter healthier safer richer better able to govern a just and stable democracy there’s something like 3,000 citations around on social capital trying to understand it and explain it but I think it’s one of the explanations of why city is successful the second one to emphasize is the notion of political stability and civility and in Riverside we’ve had a high level of political stability one marker is I think the length of time a city manager’s remained perhaps how long council members remained another marker is this question of civility in agreement and as a result to this kind of of stability you’ve had good management and which services are well delivered the premise is that very high levels of conflict complicate good fiscal decisions finally click conclusion is that the good city in California is more than geography and demography there are political factors that help explain economic and fiscal success or failure I thank you for your attention it’s been a long day this is the last panel and one thing I’ve learned is you don’t want to linger too long between an audience and sunset cocktails so I will try to keep I’m half Irish so it’s only try to keep my remarks brief I’m surrounded by mayor’s i’ll be talking about san diego and just consider me the anti mayor I am San Diego mayor Jerry Sanders most vocal critic I was also a critic of Mayor Murphy mayor Goulding mayor O’Connor a long line and we’ll talk a little bit about the Civic culture in the politics of San Diego now call back eight short years John Broder’s article in The New York Times September 2004 san diego was enron by the sea a pension scandal a burgeoning budget deficit a catastrophic growing pension liability absolute chaos in City Hall three mayors and three weeks the forced resignation of the

auditor in the city manager that’s September 2004 in September 2012 San Diego is being hailed as a budget and pension reform exemplar my job as the contrary in’ and also to try to sell books is to suggest don’t we oh I’m just I’m just about to get to that but thanks jack the check is in the mail Oh paradise plundered fiscal crisis and governance failures now understand today in 2012 it’s a success 2011 when this book was published by an unnamed prominent Bay Area University Press get my drift right what has happened in the eight years or actually even in the last year between the publication of fiscal crisis and failure and now success well let’s first look at the budget issue Mayor Jerry Sanders claims to have balanced the city’s budget now we have in San Diego at least a 25 year long chronic structural budget deficit we’ve been selling city assets starting with the thing called Pueblo lands for years to make up the shortfall this year it’s balanced how did we balance it very easily we borrowed from the road maintenance fund and then we backfilled road maintenance with a obligation a bond no we really haven’t balanced the budget we’ve just taken from Peter to pay Paul and there’s a larger normative question that needs to be addressed when you talking about balancing the budget and of course you know technically legally you’ve got to do it in California every year but there’s a lot of financial a ledger demand light handedness and tricks with accounting to allow that to happen but there’s a larger normative question and that is and it was actually raised it’s part of the subtext of mayor leverages it’s the quality of public services and they’re shockingly inadequate in San Diego and they have been for years we have an unaccredited fire department we’re 22 fire station short of meeting national accreditation standards we have the smallest big city police department in the nation I’m fortunate enough to live in la jolla I’m half Irish I do my drinking and Loya but I know that I can have that third or fourth beer and go the eight blocks home with impunity because I know that there’s only one patrol car / eight-hour shift among the 34 thousand residents of La Jolla the odds are in my favor the last 10 years we’ve seen serious deterioration in the quality of public services parks libraries etc etc it’s all in the book but we have now balanced the budget with a little help from pothole repair so the other claim to success San Diego is the new exemplar is a recently passed voter initiative comprehensive pension reform and what we did with the voters overwhelmingly approved in june of this year was for new hires to replace the existing defined benefit program with a 401 K now this also raises an issue that was beginning to get addressed with the previous panel and that is is the 401 K system broken and needing reform and restructuring but the interesting thing is that we already had moved under Mayor Sanders to a two-tier defined benefit program new hires for the last several years have gotten much less in the way of pension benefits and the irony is

that by moving from this two-tier system and particularly with less generous defined benefit pensions to a 401k declined contribution we’re actually going to have to increase our pension payments and why is that it’s because you need to go back 30 and 40 years to see where the roots of the current pension problem are and they start not with city manager Jack mcgrory and what is called managers proposal one 1996 they start with iconic mayor Pete Wilson and the decision to move off of Social Security and the way to get and it’s a bit basically the city saved money you know it was an automatic pay raise for employees but the way that peed got them to do it was do we have a deal for you health care unfunded how are we going to pay for health care we took it out of pinched the pension system under Pete Wilson we also put a cap on surpluses any surplus in terms of investment earnings above eight percent would go into the general fund to pay for basic city services well as we know about the market what goes up comes down and if you don’t capture right those those you know investment returns as the market as the Bulls are running what happens when the Bears take over now in the June election it was pointed out that we have currently a 2.2 billion dollar pension liability and if you read the local New paper heard most of the politicians you thought it was due to all powerful city unions greedy city workers and Cadillac pensions but you know the city commissioned an audit of the drivers the causes the independent variables pushing the 2.2 billion dollar liability what did we find out half of it was due to investment losses and there’s a backstory here and actually I had to have not heard this discussion throughout any of the panels today and that is the deregulation of public pensions going back to the 1980s in a much more earlier regulated environment you could only take so many of your chips to Las Vegas and play the casino you put it into t-bills you put it into bonds not into stocks and equities the great thing is when the Bulls are running everybody makes money the city doesn’t have to contribute look I am as guilty as was pointed out on a previous panel in the University of California Retirement System we didn’t pay in for a whole lot of years we’re paying in big time now but the point is is that the chief driver was investment losses the second driver thirty-five percent fifty percent was investment losses thirty-five percent this is the interesting story was underfunding of the pension and I’ve got to remember about sunset cocktails right yes wrap things up thirty-five percent was under funding was diverting it into health care for city workers you know taking the surplus off it also was what we call managers proposal one in two and nineteen ninety-six in 2002 where we continued the underfunding and then gave benefit enhancements right penchant enhancements for city workers but you look at the 2.2 billion then only 50 % of it was due to what we call retroactive benefit increases this is managers proposal 1 and 2 now going forward there’s a larger liability but in terms of the current liability not much now what does the comprehensive pension reform initiative do in terms of resolving that 2.2 billion dollar liability hardly anything that 2.2 billion dollar liability is for kirit current retirees you know the the pension changes the reform are for new hires in fact if you look out 10 in 15

years it looks like particularly if you have to make up the Social Security shortfall as you go to a 401k that will actually be forced to pay more in the next five to ten years going out to 20 to 25 years the key element in the initiative was a five year pay freeze for existing workers which have long-term pension implications in terms of much lower you know salaries when they retire so you know one of my dearest friends is Jeff Bowman fire chief who resigned in protest in San Diego lifelong Republican and he said we are about to conduct a great natural field experiment when you have all of the cities around you four firefighters with defined benefit pensions and you have the city of San Diego for firefighters with a much less generous 401k plan will we have recruitment and retention problems will we as he say in the city of San Diego become like the San Diego Padres have become with a very low payroll a permanent farm club stay tuned Mary from San Jose the subtitle for this afternoon’s this session is lessons learned from the front so I’m going to tell you upfront what the lessons learned because I know that we’re connected to the UC system here with this gathering so I’m assuming there’s going to be a test at the end so I’m just going to tell you you know the stuff that will be on the exam up front before I explain it so I’ve been at this for nearly six years ever since I became mayor when I declared the long-term structural budget deficit in San Jose as public enemy number one in my very first state of the city speech so I’ve learned a few things along the way I’ve paid a pretty high political tuition and I spent a lot of time trying to figure it out so lesson number one that there really are two objectives in dealing with the pension reform two objectives to me both of equal value first is we have to make sure that the employees get what they have earned that they get paid what they have earned second we have to deliver services reasonable level of services to the taxpayers and residents of our city that is our mission and to do both of those at the same time is what makes it really hard to find an answer if you want to do one or the other it’s pretty simple but both are equally important objectives to me so you can just take that into consideration asian listen to what I have to say the second thing I’ve learned after hours and hours and hours and weeks and months of walking around this problem looking at it from every angle top and bottom side to side is the central problem is the benefit structure that we have is too expensive these benefits cost too much the city’s cannot afford them any employees cannot afford them and you can’t solve this problem with actuarial assumption changes as interesting as that argument is it doesn’t change the cost of the benefit the benefits cost what they cost because the employees have earned it and you have to pay them the third thing that I’ve learned is the only feasible way I believe to solve the problem dealing with the costs achieving both objectives is you have to reduce future accruals for current employees and you can do that with the you know percentage per year changes stretching out the retirement age slowing down the colas there’s a several things you can do but you have to deal with the current employees and you do it with the future accruals because if you don’t you’re not going to solve the problem if you don’t you will do maybe what we did in the state of California which was good but it’s essentially a ten percent solution and I have to work to that hundred percent solution not a ten percent solution and I’ll explain why here so this is the background of what drove us to take the political risks to do the fight and it was a fight you heard Bob Brown singh earlier trust me it was a fight Bob’s an excellent representative

of the Union position in San Jose and a great example of how difficult it is to negotiate a solution unfunded liabilities this is the optimistic scenario seven and a half percent discount rate seven half percent rate of return 3.4 billion dollars when fund abilities as of jun 2011 it’s up since then because last year’s return was not seven and a half percent not even a half a percent so its up those unfunded liabilities are killing us because we’re having to pay them off this is a ten-year history of what we paid this is not a projection this is not assumptions these are real dollars 73 million dollars to 245 million in 10 years and if you look if you’ve read the work that Joe donation is done you’ll see there are many other cities in the state of California that have the same kind of ramp up that’s big dollars 245 million dollars as what we paid last year and this year this year was flat for some Israel result of actions we took the prior year it’s more than twenty percent of our general fund and the cost per employee for those of you have to make a payroll there’s probably a few people here understand that the retirement costs are more than fifty percent of payroll and going up and this number is going up because the actuaries for our independent retirement boards are telling us the cost going to continue to go up for another 10 or 12 years as we work off the liabilities unfunded liabilities how did we manage in ten years with those great increases in costs revenues did not keep up with the cost increases therefore we shrink our workforce we cut 2,000 people out of our workforce we cut cops we cut firefighters librarians community center workers you name it we’ve cut a mostly by attrition but in the last couple of years we laid off firefighters one year the next year we laid off police officers now you know a mayor is getting desperate in a city is getting desperate when you’re laying off police officers and firefighters and desperate we are because this is an existential threat to the city if you consider what the mission of the city is it provides services to its residents of taxpayers which i think is the mission of the city continuation of that was the recipe for disaster continuation to that is a recipe for following Stockton Vallejo central falls Rhode Island and other cities into bankruptcy and as leverage said bankruptcy is the last choice and we did not want to go there this is how it played out in a police department public safety is our number one priority if the fire chief is here I say publix fires number one if the police chief is here I say police’s number one but public safety is our number one priority there’s a slide like this for the fire department looks pretty much like this Police Department we increase the budget by nearly 100 million dollars over ten years and yet we have less police officer working for us today and we had ten years ago we had money we gave him money wasn’t enough because skyrocketing costs and you all know as costs are going up faster than revenues that’s going to come from somewhere and it came out of staffing twenty percent smaller police department than ten years ago so a little advice from outside third party editorial commentary Wall Street Journal some of you probably pay attention to what they say so they’re recommending the rest of California do what San Jose did which is reduced benefits going forward you got to freeze them say oK you’ve earned what you’ve earned you get to keep what you’ve earned we reduce them going forward and it’s still possible today this far down the road as we are that we can still pay people what they’ve earned if we freeze what they’ve got now and make the reductions going forward if we just continue to let it grow we will reach a point central falls Rhode Island where you call up the retirees one day and say sorry we’re cutting your payments in half so yes this is probably what the rest of California should do so what did we do as much has been said about what we did in with our ballot measure measure be in Joo Joon which passed by nearly seventy percent of the vote it really wasn’t all that complicated new benefits for new employees hey everybody’s doing that over a couple hundred cities the net I think in California alone current employees they’re going to have to pay more for their benefits a lot of people are doing that affect state of California just said current employees for the state of California can have to pay more for their benefits affects

hundreds of thousands of people but as I said the city can’t afford the benefit and the employees can’t afford to if it so when the employees start paying towards the unfunded liabilities our employees are facing probably a thirteen percent increase in what they’re paying good at thirteen percent of pay increase in what they’re paying today they can’t afford that really I mean it’s tough it’s going to be hard they’re already paying a lot so we want to give them an option to switch to a more modest but still very good pension plan for future years that optional choice is going to require the IRS to approve the changes in the plan we’re working on that but the unions are trying to stop that at the national level lobbying the Treasury to keep that from happening because the general strategy has been just say no I think you heard that from Bob Brown seen earlier just say no will not solve the problem unless of course you believe that the federal government is going to step in with trillions of dollars and bail us all out and if you believe that well keep praying it’s going to take more than prayer so what still needs to be done in California from San Jose perspective and the perspective of eight of the ten mayors of the largest season in California ab this is a letter that we sent to the mayor or to the governor and the leaders in the legislature is we need clear authority to be able to modify the future accruals of current employees and we need the ability to give our employees a choice to go for a lower-cost plan because they can’t afford what we have we can’t afford what we have what will that take the constitutional amendment because the law of vested rights in California is unsettled but it’s not based on the language the California Constitution its case law we can change our constitution and allow us to change future accruals so that we can pay what people have earned in a crude today so that’s what I think we need that would be helpful to San Jose helpful to other cities and helpful to the state of California and with that you’ve heard the lessons from the front there will be a test so apparently I’m the last thing standing between all of you when the cocktail reception which is a hell of a thing to have to do particularly on a friday in sessions I guess gone now over eight hours please indulge me I have not been here for the rest of the session I actually got asked to fill in just a couple days ago so I haven’t had the benefit of hearing any of the panels and the fund the peeing other things people have said I appreciate your indulgence first mr. mayor Reed I’m a Giants fan but the aids need to stay in Oakland secondly no on 32 I heard there was the opposite opinion expressed earlier today it’s not real campaign finance reform it just will make corporations and billionaires more powerful and is really very very anti-democratic Chris peoples asked a question the last panel that was rhetorical about bailouts for Wall Street but not for public employees and public agencies i would say that really is more than rhetorical i think that goes to the heart of the matter here and i want to make that point and I’d also note that although my wife and I have paid income taxes for many many many years and we don’t get any government assistance other than our home mortgage deduction in our charitable contribution deduction which by the way our home mortgage deduction probably means we get more government assistance and a lot of people make less money despite that fact she and i are both voting for the president and our daughter who’s a little bear UCLA Bruin even though I’m a big bear Kel there she actually paid income taxes last year made enough money and she’s voting for the president so I guess we’re in the fifty three percent I say all of that because i think when we have a discussion about fiscal problems in the state and i’m not saying that pensions are not something we have to talk about but when we have a discussion about fiscal problems of state if we don’t talk about the real causes of that we may as well not be here the reason we have this mess in this state in this country is not because of public sector pensions not because of public employee unions negotiating reasonable wages and benefits for people they represent the reason is because this country has gone through the greatest economic crisis since the Great Depression and that did not happen because working people make decent wages and have a pension that happened because of a deregulation of a financial industry and yes a Democratic president signed that bill complete ignoring of those financial in debt financial industry for a decade under

the previous administration tax cuts for the very wealthy for which there was no economic justification and today we are paying for it and I submit to you that not to diminish challenges that we have about funding pensions and other things if we had had a robust economy not even at the level of the early 2000s where property tax revenues were going up eight nine ten eleven percent but just it had the kind of increase in revenue that the state projected I think in 2007 we would not be having this discussion today the California budget project i think a year or two ago said that but if we had simply at the state level met the expectations the projections that were made before the great recession i think the state budget would have had 110 120 billion dollars in revenue rather than about the 80 billion so all of the cuts the state had to make could be directly attributed to the economic downturn again that did not happen because working people have decent wages and decent benefits and if we want to talk about fixing things and we don’t want to talk about fixing those basic economic facts then we are spinning wheels and when I made my allusion to the fifty three percent to the forty-seven percent or the one percent that I think goes to the core of the matter of any discussion we have about this I think governor Romney’s off-the-cuff remarks that have been captured on YouTube really reflect the division that exists in this country you know most of us work for somebody else most of us don’t own our own business most of us aren’t entrepreneurs most of us work for somebody else and it seems to me that today’s and I will be partisan today’s Republican Party which is not Dwight Eisenhower’s Republican party doesn’t seem to care about anybody who isn’t a quote job creator close quote but of course all of us are job creators because if we don’t have any money we can’t buy the things all the brilliant entrepreneurs may produce if we don’t have any money we don’t pay as many taxes to local agencies to provide the services that all of us or almost all of us want and if we don’t have those important government services there is no economic growth this notion that everything we have in this economy is simply generated by some brilliant hard-working people in the hell would the rest of us and it had nothing to do with schools roads infrastructure etc etc is so devoid of reality and yet its current currency and part of our political debate when I went to this university between 1973 and 1978 my parents members of the so-called great generation who moved from San Francisco in the early 50s to a town called Concord where there were 6,000 people so they could buy a house and raise a family they paid six hundred thirty seven dollars and fifty cents a year to send me to this University the first four years i was here i worked in pay taxes so i took five years to graduate and i think the last year the tuition went up fifty bucks and my deal with my parents was since i’m taking five years i’m going to pay it but can i still live at home and not have to have any rent they said yes a few days ago my wife and i wrote a check so that our baby bear could pay tuition for this quarter at UCLA it’s something around forty four hundred dollars I don’t think that increase in cost is simply a function of UC Berkeley or UC systems pension costs being higher or UC administrators pay being out of whack or fancy and by the way they seem to be much faster than I went to school fancy workout rooms for students I think it has something do with the fact that as a society we have said we’re not going to continue to fund one of the most important parts of our economic infrastructure our education system and oh by the way we’re not going to fund roads and streets and everything else because the worst thing that can ever happen to anybody is to increase your taxes Grover Norquist who’s the guru of the current thinking and some quarters wants to take it back to the way it was before Teddy Roosevelt not Franklin Roosevelt Teddy Roosevelt and then he qualifies it except for the tariffs he says he wants to shrink government so it’s so small you can drown it in the bathtub and people sign pledges to him that say I will never never ever vote for a tax increase and yet public employees are expected to cut their pay pay more for their pensions

pay more for their health care or get out of the way and stop being an obstacle to reform in this state we want to do reform let’s change the two-thirds rule on voting for taxes let’s give city councils and mayor’s the ability to raise taxes and let the voters run them out of office if they don’t like it when the forementioned Pete Wilson by the way my father worked at you sleep rest professor the forementioned Pete Wilson was governor and we had a problem in the early 90s he and a guy named Willie Brown worked out a deal to balance a budget that required fifty percent cuts fifty percent increases in taxes then speaker Brown said the governor’s got to get some votes on his side of the aisle because I’m going to take a lot of heat in my district cutting programs for poor people I can’t ask barbara Lee to even think about voting for it Gray Davis proposed two-thirds cut one-third tax increases and we eventually ran him out of office a few years ago a few Republicans had the audacity to vote for tax increase they got recalled so how can we engage in reform in that political mindset now I got a note 2 i’m running out of time let me make a few other observations i have said publicly i say it to members of our union government exists to provide services it does not exist to employ people government exists to provide services the people who work for government absolutely have a right to collective bargaining they should be paid a decent wage they should have decent benefits and the measurement of decent wage and decent benefits is not necessarily is it more or less than people make in the private sector I saw a piece in the desks or the other day about the chicago teachers strike it says the average pay of a chicago teacher is seventy six thousand dollars a year compared to an average of the city of chicago resident of 42 or 45 the inference one I think as opposed to draws gee there must be overpaid because they make more than the taxpayers do my hunch is that 75,000 in Chicago gets you about what it does in Oakland San Jose San Francisco in other parts of this state and I think most of you know seventy five thousand dollars in this area does not make you a fluent you probably cannot afford to buy a house if that’s your soil income so the computer it’s a completely false comparison what do they make compared to art with similarly private secret or the fact that awful lot of people in the private sector no longer have a decent pension it doesn’t follow that everybody who’s got a decent pension left shouldn’t have a decent pension I thought the idea was to ride to raise everybody up not to lower everybody up the one of the great achievements in this country which we are now walking away from is that working people became working middle class and it didn’t happen because of Ford and Carnegie and melon and Rockefeller and steve jobs and bill gates it happened as mark shields the commentator on macneil/lehrer said excuse me PBS newshour i’m dating myself the bookends were the New Deal the GI Bill in the labor movement people if working people don’t have money this economy will not survive my last point I have said again publicly we made a mistake collectively estate in the late 90s when we had 10 years of irrational exuberance where we had growth in the stock market which nobody should have thought could be sustained and we did at least two things that didn’t make a lot of sense one of them was we cut the vehicle license fief no justification at all wasn’t like prop 13 trying to address property taxes raising because of inflation of home values not because taxes are being raised and yes I say this we made some improvements in pension plans based upon a level of stock market return which I don’t think anybody should have thought was could continue similarly in the 2000s I think the 90s were the greatest growth in the stock market the 2000s I’ve been told by an investment person is the greatest decline in the stock market we’ve had two major hits in the stock market the 2000s so just as we should not have made long-term decisions based upon irrational exuberance of the 1990s we should not overcompensate by making the irrational decisions based upon a tenured period where the stock market declined in a manner that is unprecedented there will be economic growth I’m not suggesting economic growth will reduce all of these numbers completely but there will be economic growth and that decline you know these costs we see on pensions even if pensions had never been improved in the 1998-99 teas and early 2000s even if we had the same formulae then we would have seen this kind of curve what has started in a lower place we would have seen this

kind of curve because of losses in the stock market not caused by working people not caused by the mayor’s I have told our members who are very you know the case studies if I’d done case studies I would have just given you a list of all the agencies where we represent people where workers have agreed to cut their wages pay more for health care pay more for pension agreed to new tears for new hires given up retiree medical people who work in school districts who work six or seven hours a day custodians bus drivers food service people who now paying hundreds and hundreds of dollars for their health care or who have lost their health care at all that would be my case study if I put a PowerPoint together but I tell our members who complain about their employer wanting to cut things that their employers public agencies are the victim of the same economic mess they are victims up and until we fix that economic mess we can have all the programs like this in the world and we’re going to have the same problems thank you very much well thank you very much to everybody that was terrific so we’ll take questions from the audience and I have I have a couple myself if you guys don’t have any bad are there any news figured okay great thank you this is a question for mr cash mr. cath I agree with everything you said about the root causes for the current crisis but given the current political environment what do you propose should either a solution especially short-term solution for the patient crisis I I think short-term solutions are very difficult because particularly when it comes to pension I think the only thing that really does anything to drop that number in the next year or two is either to have employees pay dramatically more than their pain now which doesn’t drop the number it just means floor doesn’t pay as much or and this maybe get me in trouble in some quarters I haven’t looked at all the numbers may we talked about but it may be that something as drastic as new as current employees changing their benefit going forward would have some significant effect but I think absent basic improvement in the economy we’re going to continue to strong the long for the next few years and at some point you just can’t go to employees and say you’ve taken cuts now for the last five or six years you got to take more cuts so at some point and it’s happened I know we see the chart public agencies are going to have to make more and more difficult decisions about what levels of services we can or to provide I have a question for Raleigh cats we have something in common I both must be part of the six fifty-three percent I pay taxes I have kids both are earning money they pay taxes and all of us are voting for the president goodness now as to substance I wanted you to explain something to me over the last ten years CalPERS has earned five percent per annum the Dow Jones Industrial Average his 2000 points higher than it was in 1999 it closed the December thirty first nineteen ninety nine at 11,500 it’s 13,500 now it’s very close to where it was before 2008 so you said we’re having all these problems because stock markets are down even though CalPERS earned five percent per annum for the last ten years can you explain to me how that can be that they can earn money and stock markets can be back to where they were before the crash and higher than they were ten years ago and yet that’s the reason we have increased pension costs I think you know the answer maybe that’s a setup so if you young so so so your answer is if you assume a seven and a half percent rate of return and you only you’re 25 you have unfunded liability right so what did tell person earn over the last 30 years or the last 20 years and I think over the last 30 years had earned something close to the eight percent that we talked about but let’s take that a step further so let’s say so if the stock market is back to where it was just before two thousand eight then it hasn’t earned any money in five years and I have this discussion with our members who say but they’re making money now and if they’re going to have excess early and we and if you look at the plane I’m most familiar with contra costume system last five years they’ve had zero they’ve had 18 they’ve had 12 etc right so if you had the same amount of money in your personal investments now you had in 2008 you wouldn’t be real happy with that right so let’s say the answer is interest rates plummeted so they’re fixed income portfolio Rose fly so even also we’re doing so there’s nothing what you said in the beginning designer percent right so what they are five percent forever for the last 10 12 years but they assumed urban are made don’t

you worry so let’s let’s say no but if the assumption was that the so you’re saying they were made the wrong assumptions on stock alright so again again we had many years and I see mr Bernstein back there and we’ve had this discussion all those years in the 90s where they earned in excess of what they assumed the taxpayers of that year we’re subsidizing future taxpayers now it’s a longer debate probably enough time here to talk about pension holidays were a mistake or what would happen but let’s say that all those let’s say there had been a five percent assumption rate rather than eight percent the last decade we would not have any unfunded liability right however all the public employers would have been paying much more money each of those years for their for their pension obligations so you would have paid it over the last ten years now they wouldn’t be paying it back in an unfunded liability of an interest rate but each of those years they would have paid more money contra costa county in the 90s build up reserves Contra Costa County Retirement System gave what some might call a pension holiday not completely they SAT vented the cola portion as opposed to what purchase some cities in the person but Contra Costa County build up very healthy reserves in that time and when we had declines in 2002 and over the next seven or eight years when there were budget shortfalls every year the county was able to take out of those reserves every year to soften the effect on services had they put all those reserves in the 90s into the unfunded liability their pension costs would be less today but they wouldn’t had the money the last seven or eight years so I’m not you somebody have to get out pencil and paper but i’m not sure they’d be any worse or better off but you are correct if the assumptions were lower it wouldn’t be the same level in Fenway i doing and if you lowered the assumption today 25 percent it would not do the mirrors any good the next three or four years because their pension rates will go way up in budgets they can’t afford anything hello my name is parent wall and I teach entrepreneurship for engineers at UC Berkeley and there’s this risk reward ratio and I think you know if you’re investing your money and there’s an upside in the downside then you probably would say well there’s this thing called the efficient frontier where you get a higher return and if you want the stability that in not the list there should be one set of rewards willing to take a risk there should be an upside down to incentivize people to do it so you can either get the stability of a pension or and then when things will hire you say well I want to get that reward and then when that reward doesn’t come and there’s a risk factor so there should be probably a combination in the pension funds where there is a reward if the economy does not side and if everybody is faltering with 401 K Z for the economy isn’t doing everybody should be a player of that and the way I think to get out of this nest is starting companies throughout new jobs and offer a higher tax base that we can then have more resources to expand that one solves a problem it costs too much money so you start all the companies you want and all the tax revenues are not going to go up nearly fast enough to cover the increase in the growth and we spend a lot of time in same as they trying to help new companies start and build a tax base but that will not solve the problem for a local government we don’t have an income tax for for example so sales tax property taxes they’re not going to go up as fast as the economy so we’re always going to be behind the power curve on the revenue side I have one thing I wanted to add david lowe it works for me if you have a question about anything I’ve said or you think I’ve said or what we didn’t say knows a call my office and talked to David I Edmund well I’ve got a blog Cal pensions con my question from Mara read if I could what’s the status of the implementation of major be you mentioned you need the IRS approval of the option I think there’s also one or more lawsuits and and when you said a constitutional amendment would be helpful to San Jose are you suggesting that you may not get what you need legally to actually implement the manager let’s see three or four questions there first the status major view was a charter change so major be set the parameters of a variety of things and we still have to do ordinances and details and let us got to be negotiated and worked on with the retirement boards so we are anticipating getting those ordinances done for effective date the first of January we have five or six lawsuits five or six of our unions filed lawsuits in state court we filed an action in federal court we’re now sorting out which courthouse is going to move those ahead so we haven’t yet got to argue the merits of

the case but there is a constitutional issues that the unions have raised on vested rights and of course to the unions everything is a vested right they believe that what you had in your brain about what you’re going to earn the day you were hired 30 years ago is what you’re entitled to for you know the next 60 or 70 years and I think that’s an extreme version of vested rights but that’s that’s their position so there’ll be this vested rights argument in in the case that San Jose is in a little bit different position that than others because under the state charter or the state constitution we’re a charter City we have complete authority over compensation our charter says we can roll back retirement benefits especially reserves the right to the council we have made our employees pay more in the past for their retirement benefits and so we’re going to have an interesting fight nothing important in California happens without litigation so it’s no surprise so we’re not counting the money and we’re not spending the money but I do anticipate having savings in the next fiscal year with that as these cases so you know get resolved at the trial court level mad at the couple thoughts one the question of vested right so folks understand is there’s a series of court decisions that say there are certain things which are vested rights and therefore under the contents his contract clause they can’t be taken taken away yeah unless and this is that can’t be thinking unless employees get something of equivalent value and of course what does equivalent value is not defined well the Mayan are saying the case laws there’s great deference given if it’s negotiated between the Union and the employer so the easiest way to address that is to do it at the bargaining table now i observe san jose from a distance but i will say the collective bargaining is the best way to get these things done i agree with you on him it work and my guess is mr. mayor that some folks on my site might say it didn’t work not just because of them but because of others so I’m not giving the reasons I’m just saying it didn’t work we have how many 20 sessions for the state mediator so you know they were right there all and it just didn’t happen and the so I think that’s the vested rights argument and I think you had another point that’s lost mr. we’ll go to the next movement that has an expression um I actually want to intervene with with a question and I’m I’m young and that’s naive and I’m a university professor which means that i’m somewhat distant and I I just want to observe that but I mourn the divisions on this panel and warn the divisions that have been represented throughout the day because the dual interests between the cities and its employees are so to me I just want to say that and along those lines I just want to sort of make a sort of observation / question which is that one concern I have about the current recession and about the are the conversations around the recession’s impact on cities in particular is that the call because work forces have been slashed and because the quality of services have gone down and you express your regret over that those losses but expectations from voters remain high or at least stable and we have this shrinkage in the local public sector in a cyclical problem in which voters will continue to return to the ballot box to tie the mayor’s hands on the revenue side and that and it strikes me that some of the sort of political divisions that we’ve seen today are the source of that that destructive cycle and anyway if you have any comments on that and the other thought came back to now get in a second I say to people all the time it is in a union’s interest that its members employer is financially healthy doesn’t matter whether you’re a private sector employer or public sector employer I think that our members and most of our members employers be they their managers or their elected officials share some common interests if they want to provide the services that we want to provide we Loni Hancock Center Hancock has often described her to describe a structural deficit as the difference between the amount of money it takes to provide the services that people want and the amount of money that people actually are willing to pay and you know we it’s a whole nother panel but you know we have this crazy ballot box budgeting and California all of those things I think go to that and they do make the challenges for the mirrors and the council members and every else much more difficult than they need to be and you notice we do everything in an election cycle and short term I heard somebody commenting a week or two ago

about the presidential campaign said I don’t want to hear about each month’s unemployment numbers I want to hear what your plan is going to do over the next six seven how things going to look six or seven years ago our system doesn’t our political system doesn’t really allow us to have that kind of conversation other than in buildings like this and the Public Policy Center we don’t have real public policy decisions we are all driven by the Pollack’s the other thing is change is very difficult for anybody our health care system in contra costa county is putting in electronic medical record system if you have kaiser at least in northern california you already know about that system but changing it is a huge task and it’s causing all kinds of habit so when you ask people I don’t think anybody should be surprised that when you tell people we’re here with the rules for 25 years here’s the pension you thought you were going to get you negotiate it away a pay raise several years ago from blue of the importance of employer would pay more for your pension or you didn’t get as big of a pay raise because we improve the pension improve health care and now you say sorry that deal is all gone I don’t think it should be a surprise anybody that’s difficult and the answer the other going on the on the other issue you raised with the mayor of the IRS prop issue ironic in Contra Costa County we’ve actually tried to set it up so that a new high current employees can go into the lower pension tier and we haven’t been able to because of this I won’t bother you with the arcane there’s an IRS regulation about or ruling on something called constructive receipt and until that’s changed new hires can’t have an option of going into the less expensive pension plan without there being serious tax consequence just tells me we need to wrap ropa i I’m sorry but thank you you