By Jim Christie
SAN FRANCISCO Dec 3 For California's
public-sector unions, San Jose Mayor Chuck Reed's proposed
statewide ballot measure for pension reform is a call to arms -
and they're bringing out the big guns.
Reed, a Democrat, has taken only preliminary steps in his
quest to amend the state constitution to allow changes in future
pension benefits for current public employees, a move to help
local governments control soaring retirement-related spending.
Courts have interpreted the constitution as now barring changes
to a public employee's pension after he or she was hired.
But the state's powerful unions have already begun to push
back, portraying Reed's plan as a right-wing attack that would
unfairly threaten the retirement security of policeman,
firefighters and other public servants.
The unions have recruited some two dozen elected local
officials to speak out against the proposed amendment. They say
they could spend even more on the fight than the $75 million
they shelled out in 2012 to defeat Proposition 32, a ballot
measure that would have eviscerated union political power.
"When you're trying to put a stake through the heart of the
labor movement, people will come out of the woodwork," said
Steve Maviglio, spokesman for the campaign against Prop 32 and
for the unions lining up against Reed's proposal.
"I could say that if a measure like this moves forward,
it'll outstrip what was spent on Prop 32."
Pension costs have become one of the fastest-growing
expenses for cash-strapped local governments across the nation.
They loom large in the municipal bankruptcies of Detroit and two
mid-sized California cities, Stockton and San Bernardino, as
well as in the big fiscal problems in
Illinois. Reed and his backers say
change is crucial to the fiscal health of cities, counties and
other government entities.
Reed said in an interview his measure would not revoke
pension benefits that employees have already accrued and would
not allow government to impose unilateral changes.
"Benefits that have been earned are protected," he told
Reuters. "Future benefits that might be earned are negotiable.
... We've tried to make clear that these future changes are
subject to the collective bargaining process, just like pay."
Public employee unions, though, see strong pension plans as
one of their key achievements and regard any attack on them as a
"We view this not as an attack on public sector unions but
as an attack on workers," said Steve Smith, a spokesman for the
California Labor Federation, a coalition of public and
Reed has raised just $300,000 so far and recruited only a
handful of elected officials to his cause. Political strategists
say he'll need $2 million just to collect enough signatures to
get the proposal on the ballot, and tens of millions more for
the measure to have any chance of passage.
"If you're picking an existential fight with unions, you'd
better have a well-heeled group of contributors," said Thad
Kousser, a political scientist at the University of California,
Reed acknowledges the mismatch, noting that he has been the
measure's main promoter and fundraiser, with no paid staff. He
said he is holding off on full-scale fund-raising until the
state attorney general's office signs off on a title and ballot
summary describing the measure's purpose to voters. That is
likely to happen in coming weeks. Reed has also yet to decide
whether to move ahead for the 2014 election or wait until 2016.
Still, the unions are nervous. Surging costs could ratchet
up support for Reed's proposal. In California, where many
government pension plans are managed by the California Public
Employees' Retirement System, the giant fund administrator known
as Calpers, many local officials are fretting about anticipated
increases of as much as 50 percent in their Calpers
Reed's financial backers so far include former Enron trader
and hedge fund magnate John Arnold, whose involvement has
already proven a lightning rod for union opponents.
Richard Riordan, a former mayor of Los Angeles and long-time
advocate of pension reform, and Michael Moritz, a highly
successful venture capitalist who backed an unsuccessful pension
measure in San Francisco three years ago, have also contributed
to Reed's cause.
Reed says other powerful backers could eventually emerge,
including wealthy Silicon Valley liberals and established
activists such as millionaire Charles Munger Jr. The son of
Warren Buffett's partner Charles Munger, the younger Munger put
up nearly $36 million to support Prop 32.
"He's on my list," Reed said, in reference to potential
Charles Munger Jr could not be reached for comment.
THE WAY FROM SAN JOSE
Reed's statewide initiative was born of his fiscal struggles
in San Jose, the state's third-largest city, where pensions were
eating up 20 percent of the city budget and growing fast.
Frustrated with relentless cuts in services, voters backed Reed
on a local ballot measure that guarantees current city employees
pension benefits they have already earned but requires that they
pay more to keep them at the same level in the future.
Reed's proposed statewide measure could open the door to
local officials proposing overhauls similar to San Jose's.
"I got a lot of phone calls after the election," said Reed,
as local officials around the state sought to learn how he'd won
backing for a pension measure in a union-friendly San Francisco
Bay area city.
The unions are challenging the San Jose measure in court,
arguing that it violates state law guaranteeing that public
pension plans in place on the day an employee is hired cannot be
altered. Similar provisions exist in 12 other states, according
to Amy Monahan, a University of Minnesota professor who has
researched state pension laws.
Reed's statewide ballot initiative aims to put that legal
issue to rest once and for all, and embolden would-be pension
reformers at the state and local level.
Opponents aim to frame Reed's effort as the handiwork of
wealthy, out-of-state plutocrats.
In a letter earlier this month, 18 union officials slammed
Reed for taking $200,000 from the Action Now Initiative, a group
funded by Arnold, who the unions allege "made his fortune at
Enron ripping off Californians through the energy crisis."
Arnold, who was a natural gas trader at Enron, said in an
interview that he had nothing to do with the company's role in
California's power troubles. He added that he made his fortune
with his hedge fund after the company went under.
Citing Detroit, Stockton and San Bernardino, Arnold said
he's backing Reed's measure to help local governments tackle
pension costs that could lead to more municipal bankruptcies.
"If you ignore the problem, it's not hard to predict where
it's going to end up," Arnold said. "In some situations you have
to address the benefits to keep the system financially
Reed confirmed the contribution from Action Now and
dismissed the union's attack. "It's just a fact of life that
they will attack wherever the money comes from," he said.
In their letter, union officials also accused Reed of
seeking "dark money," campaign funds whose sources aren't clear,
and "shopping your measure to out-of-state extremist
The union message seized on a recent action by the
California Fair Political Practices Commission, which in
October announced a $1 million settlement with two nonprofit
political groups for failing to disclose the source of funds
used in the 2012 campaign in favor of Prop 32 and against Prop
30, a tax measure.
The commission said the groups were connected to Charles and
David Koch, billionaires who are prominent in conservative
Robert Tappan, spokesman for Koch Companies Public Sector
LLC, acknowledged a connection to one of the nonprofit groups
but said the group operated on its own. He said the Koch
brothers were not involved in the settlement, and that
Commission Chair Ann Ravel had acknowledged that they were not
found to have been involved in any Prop 32 improprieties.
Reed said he would not seek support from the Koch brothers,
and the Koch spokesman said they do not expect to be involved
"in any way" in Reed's efforts.
The unions, meanwhile, have sought support from public
officials to oppose Reed's efforts, and about two dozen
small-city mayors and other officials, including San Francisco
Board of Supervisors President David Chiu, signed on to last
week's union statement opposing the effort.
But notably absent were any of the mayors of the state's
larger cities, or any of the leaders of the Democrat-dominated
And Reed, a plain-spoken Democrat who frames his message in
strictly pragmatic terms, thinks he might even gain support from
another pragmatic Democrat - Governor Jerry Brown.
Brown has pressed the legislature to enact modest pension
reforms, such as raising the retirement age for most employees.
Brown has close ties to organized labor, but Reed is hopeful.
"More needs to be done, to quote the governor," said Reed.
Brown's office declined to comment on the measure.