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Reason Foundation Analyzes Long Beach "Full Pension Reform," Says It Leaves $700 Million Unfunded Liability And...



(Dec. 26, 2013, 5:50 a.m.) -- A few weeks after Long Beach officials that the city had achieved "full pension reform" (in new contracts with the final four city employee unions to agree to pay a larger percentage of their raises toward their pensions), the non-profit Reason Foundation published an analysis of the arrangement.

Titled "'Full Pension Reform' In Long Beach Leaves $700 Million Unfunded Liability," the piece includes an analysis of what past and present Long Beach officialdom did. It concludes in pertinent part:

...Like every positive development in government, there is a catch to all these reforms. The last four bargaining units to officially ratify the agreements -- engineers, confidential employees, managers, and lifeguards -- agreed to a deal that is estimated to cost taxpayers $83 million over 10 years. How? While agreeing to pay their full 8% contribution, up from 2%, the city offered employees a 6% pay increase to cover the cost of these contributions. In addition, these employees will receive a 5% salary increase in the first year of the contract, and an additional 4% salary increase in the second year of the contract.

In other words, in exchange for paying their full contribution rate, these employees will be receiving a 15% salary increase. As a result, much of general fund savings from the reduced unfunded liability are eliminated by higher salaries. This generally how the city achieved "full pension reform" with all of its bargaining units, with pay increases to offset the additional "employee contributions" with salary increases...

[Describes similar arrangements made by Ventura County and Santa Barbara]

In any case, these "pension reforms" are only delaying more substantive pension reforms and giving policy makers a false sense of security when it comes to tackling their unfunded pension liabilities. Meanwhile, taxpayers continue to bear the brunt of "reforms" that come at high cost to them without any reason to believe that their best interests are being represented.

To read the full piece, click here

The Reason Foundation is a non-propfit not affiliated with any political party, whose self-stated mission "is to advance a free society by developing, applying and promoting libertarian principles, including individual liberty, free markets and the rule of law."

LBREPORT.com Perspective

Mayor Bob Foster and some of his Council allies had roles in creating the problem they now claim to have solved [at taxpayer expense.]

Mayor Foster was elected in 2006. He outpolled less well-funded retired Vice Mayor/Councilman Doug Drummond in April, then lambasted runoff opponent Vice Mayor Frank Colonna using Drummond's slogan citing "pension potholes" (lack of infrastructure funding allegedly due to a costly 2002 pension spike approved by Councils including Colonna [and then-Councilmember Bonnie Lowenthal].)

In the runoff, City Hall's "big three" city employee unions -- police, firefighters and IAM -- endorsed Foster. Within two years of his election, Foster recommended contracts with the big three unions giving them sizable raises without what he now calls "pension reforms." (Police contract "re-opener" in 2007 (unanimous Council approval); new contracts in early 2008 with firefighters (approved 8-1, Gabelich dissenting) and IAM (approved 7-2, DeLong and Gabelich dissenting.)

These agreements, arguably unaffordable when made, became clearly unsustainable with the economic downturn that began in fall 2008. Mayor Foster then demanded to re-open the contracts he'd recommended, agreeing to pay the contractually promised raises but with a larger percentage going toward the employee's pension. Foster called this "pension reform" although taxpayers ultimately paid 100% of the "reform." (Taxpayer dollars for the raises and the employee pension share couldn't be spent on other things.) Also left for the future: higher ultimate pension payouts because the raises boosted the salary on which pension payouts will be based.

As of the end of 2013 entering the 2014 election cycle, every city employee union has received sizable raises; the final four unions -- including unionized city management -- received roughly 15% raises (over two to three years) and agreed to pay a larger percentages toward their pensions. On the four final contracts, details of the contractual raises were hidden until after the Council adopted the city's FY14 budget (Sept. 2013). This avoided public budget discussion of 2014 service impacts and left future Councils to deal with future service impacts. On the same night as a Council majority approved the managers' contract (7-2, Schipske and Johnson dissenting), city management said the city couldn't afford restore previously provided LBFD Engine 8 and Rescue 12 without cutting other services, tapping reserves or inviting deficits (coverage here.)

And no, it can't be blamed entirely on the economy. Other cities weathered the "great recession" and their taxpayers didn't endure what Long Beach City Hall did...and many of them didn't have oil revenue to bail them out. Long Beach residents and businesses now have roughly 20% fewer police officers for routine citywide deployment...with no plan cited by city management or the exiting Mayor to replace them. LB's current police level for citywide deployment is roughly equivalent per capita to L.A. cutting over 25% of LAPD's officers. Two replenishment police academy classes (leading into the 2014 election cycle) are expected basically to offset annual retirements/exits but not provide any significant net increase. Some fire stations remain without a fire engine or a paramedic unit.

Councilman James Johnson (usually a Foster ally) said the final four contracts should be called raises, not pension reform, since they were a new agreements, not changes to previous contracts.

Councilwoman Gerrie Schipske previously agendized a proposal that would have required management to make its offers in labor negotiations public (which would have disclosed the 15% raises before they suddenly appeared after Council closed sessions. The disclosure practice is required by state law for school districts, but Mayor Foster (who backed the raises) didn't support Schipske's proposal and the Council, a majority of whom mainly did what the soon-to-exit Mayor wanted, didn't support it either.



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