Public Unions Take On Boss to Win Big PensionsBy CHARLES DUHIGG
www.nyt.comCOSTA MESA, Calif. — City council elections in this Southern California city are usually sedate. Hot-button issues include whether libraries should stay open at night. Campaign budgets often don’t top $10,000.
Then Jim Righeimer, a conservative activist and real estate developer, jumped into the race last year.
The city was on the road to insolvency, he warned, because public employee unions had pressured politicians into handing over generous salaries and pensions. The police chief received $298,000 a year in total compensation, Mr. Righeimer noted. The deputy fire chief had retired with a pension of more than $182,000 a year.
City workers weren’t fans of Mr. Righeimer, who had been critical of public unions for years. Local police and firefighter groups started mailing leaflets and towing a billboard around town attacking him, implying he had skipped out on numerous debts. Public employees spent more than $100,000 opposing him, and six unions from neighboring regions spent another $33,000 endorsing his opponents.
“They try to drag you through the mud so bad that everyone else says, ‘I don’t ever want these guys as enemies, I’ll just leave them alone,’ ” said Mr. Righeimer, who still managed to win a council seat.
Costa Mesa, population 110,000, is California in miniature. For years, public employee unions across the state have often used their influence — sometimes behind the scenes but occasionally with public, hardball campaigns — to push for improved worker pay and benefits. They have exercised power beyond their numbers by donating money to lawmakers, burnishing candidates’ credentials with endorsements and supplying volunteers during elections.
Public employee unions are hardly the only group involved in bare-knuckles politics. Businesses lobby fiercely and executives make hefty campaign donations.
But public workers have a unique relationship with elected officials, because government employees are effectively negotiating with bosses whom they can campaign to vote out of office if they don’t get what they want. Private unions, in contrast, don’t usually have the power to fire their members’ employers.
Even in recent years, as economic troubles have worsened, benefits for some government workers have grown. In 2008, for instance, lifeguards in Laguna Beach started receiving increased retirement benefits as the state’s economy began to slow. The next year, the town’s chief lifeguard retired at age 57, with a $113,000-a-year pension after 36 years on the job.
Lawmakers in both political parties have often acceded to unions’ requests to avoid political confrontations or to curry favor. They have pushed difficult choices into the future.
But now, with the expenses of past promises coming due, the cost of deferred decision-making is mounting. California alone needs to begin devoting an additional $28 billion a year to state and local public pensions to remedy an existing shortfall, according to one nonpartisan study — and nationwide, estimates of such deficits reach into the trillions over the next few decades.
“We had no idea what we were doing,” said Tony Oliveira, who as a supervisor in Kings County, in central California, voted to increase employees’ benefits, and now is on the board of the state’s enormous pension fund. “This was probably the worst public policy decision in the state’s history. But everyone kept saying there was plenty of money. And no one wants to be responsible if all the cops quit to get paid more in the next town.”
Public employee unions, in their defense, say politicians have unfairly made them into simplistic bogeymen, responsible for problems that have myriad causes. Not all government workers receive generous pensions, they note. A public worker enrolled in the state’s largest pension fund who retired in 2008 with more than 30 years of service received a pension of $66,828 a year, on average, and a retiree with 20 to 25 years of service received around $34,872. Public workers who retire with fewer years on the job receive even less.
Moreover, unions note that they have improved millions of lives and are standing up for workers, who are mostly middle class, at a time when many families are losing ground financially.
“We fight for our pensions and paychecks the same way C.E.O.’s fight for theirs,” said Scott Diederich, a lifeguard and president of the Laguna Beach Municipal Employees’ Association.
Union leaders argue that pension shortfalls account for a proportionally tiny portion of governments’ financial problems and, by all accounts, there are plenty of parties to blame for the growth in payrolls and obligations. Pension officials add that workers are making sacrifices: in the last year, more than 100 California cities and agencies have lowered retirement benefits for new hires or increased the amount employees must contribute for pensions.
But no matter what steps are taken, the cost of public pensions will most likely preoccupy many states for years. In California, New Jersey and Illinois, lawmakers may eventually need to increase taxes more than 17 percent or cut government services to pay public retirees’ benefits, according to a nonpartisan study. In some states, no matter how much the economy rebounds, pension funds may not be able to meet their obligations without significant government support.
And as legislatures in many states consider their options, battles with public workers are becoming rancorous. In Texas, Michigan, Idaho, Arizona and elsewhere, public employee unions have pushed for recall elections of lawmakers or of new laws that reduce workers’ benefits. In Wisconsin, skirmishes have temporarily shut down the state Senate, and more than a quarter of senators — both union critics and supporters — are potentially facing recall.
In California, where the Teachers Association, the prison guards’ union, the A.F.L.-C.I.O. and the American Federation of State, County and Municipal Employees, or Afscme, are particularly influential, confrontations are especially intense, though some union officials concede something needs to change.
“Are we supposed to turn down a raise, or not fight as hard as possible for our members?” asked Nick Berardino, general manager of the Orange County Employees Association. “But, yes, we understand that reform is necessary and we want to be good partners.”
But critics — who note that Mr. Berardino’s organization has helped finance political attacks in Costa Mesa — worry that such partnerships are not capable of an equal give-and-take.
“In my six years in Sacramento, the only time I ever received a phone call in the middle of a vote was when the head of a state labor federation chewed me out because I hadn’t voted yet,” said Joe Nation, a Democrat who served in the California Assembly from 2000 to 2006. “You learned pretty quickly that you don’t want to upset these guys.”
The Unspoken Cost
Ron Seeling warned them that serious problems could be looming.
It was 1999, and the California Public Employees’ Retirement System, or Calpers, the large government agency that manages retirement benefits for more than 1.6 million public workers, retirees and their families, was lobbying the legislature to increase employees’ benefits. Calpers’s plan would lower the retirement age for some workers to 50 years, even as it raised pensions to as much as 90 percent of their salaries.
Lobbyists were arguing that the plan — which would ultimately create the largest pension increase in the state’s history — wouldn’t cost “a dime of additional taxpayer money.”
But Mr. Seeling, the agency’s chief actuary, knew that wasn’t necessarily right. Sitting at his desk, poring over spreadsheets, he saw the truth. Calpers, at the time, was awash in cash and many cities believed that pensions were essentially self-funding if the stock market remained high. But if the market stumbled, he realized, Calpers’s plan could cost taxpayers billions of dollars.
Mr. Seeling cautioned the Calpers board of the risks, but his worries were brushed aside. Calpers’s job is to invest pension funds to get the best returns and administer benefits to retirees. But it has also been an advocate for public workers. Many board members, when Calpers was pushing its plan in 1999, were closely aligned with the people who benefited from increased pensions. Six of Calpers’s 13 board members were elected by government retirees or workers, as required by state law. Another was a union official. Two others were politicians who had sought union endorsements and campaign contributions.
“Labor controlled too much of the board,” Mr. Seeling, now retired himself, said in an interview. “It’s been harmful to the state.”
When Calpers’s plan to expand pensions came up in the state Legislature, lawmakers from both parties voted for it. On the Senate floor, it passed after 45 seconds of debate with no dissenting votes. Some legislators from that period, in interviews, said they believed that public workers deserved to share in the economic growth.
Other lawmakers were told if they didn’t vote for the plan, public employee groups would attack them in ads and give their opponents tens of thousands of dollars in contributions, and they could lose endorsements from police, firefighters or other influential groups, according to legislators and lobbyists.
Such threats, politicians knew, were real. Over the next five years, public sector unions would spend more than $77 million on California state elections and ballot initiatives alone.
Mr. Seeling issued another warning to the Calpers board at a meeting in 2001. This time, it was considering a proposal that would encourage cities to increase workers’ benefits by allowing officials to change actuarial calculations, so they could raise pensions without incurring higher costs right away. One board member, echoing Mr. Seeling’s concerns, told his colleagues they were “playing with fire,” according to a transcript of that session. But a majority approved the plan anyway.
In 2009, Mr. Seeling told a room of pension experts that the agency’s ever-escalating payouts were becoming “unsustainable.”
“Board members came up to me afterwards and said, ‘We agree with you, but if we say it publicly, it’s political suicide,’ ” Mr. Seeling recalled in an interview.
Mr. Seeling eventually told the agency’s leaders he wanted to retire. He still believed in Calpers’s mission and was still proud of his role in helping millions of state workers retire with dignity. But the job’s stresses were taking a toll.
When the financial crisis hit in 2008, his warnings came true. The value of Calpers’s fund dropped $100 billion from its peak, losing over a third of its worth. The cost of pension promises, however, was still going up. More than 190 California cities and agencies have increased government workers’ benefits since the economic downturn began.
When the California Legislature tried to scale back pension costs, some unions went on the offensive. Last year, the California Correctional Peace Officers Association, the prison guards’ union, spent $250,000 attacking Anna Caballero, a Democrat campaigning for state Senate. The attacks were payback, lobbyists and lawmakers say, for legislation that slightly lowered pension rates for some future government workers. Ms. Caballero lost that race.
The union representing the prison guards spent another $3.6 million supporting eight dozen other candidates, including the present governor, Jerry Brown, and criticizing their opponents.
Earlier this year, a new prison guard contract came up for approval in the Legislature. The Legislative Analyst’s Office estimated it would cost an additional $51 million in its first year, and Republican lawmakers, looking for ways to narrow an estimated $10.8 billion budget gap, said they had the votes to kill the deal.
Then a Republican senator, Anthony Cannella, changed his mind and voted for the prison guards’ contract. It passed.
Mr. Cannella was elected over Ms. Caballero, the target of the attacks by the correction officers’ union.
The union “was actually crucial to my election,” Mr. Cannella said in a video produced by the union.
In a statement, Mr. Canella said that he favored pension reform, and that the contract he had voted for, which was bundled with other agreements, forced state employees to shoulder more of their pension costs and established equal compensation with other state workers. A representative of the prison guard union said it evaluated candidates based on a variety of factors, including their philosophies, integrity and effectiveness.
Calpers says its retirement fund is healthy, having earned back more than $70 billion of the value lost since 2007. But it still has asked the state for $3.6 billion this fiscal year to pay for promises made to retirees. It expects to ask for another $3.5 billion next year.
In a statement, Calpers said that “to paint the picture that the Calpers board and its decisions are driven by labor is misleading and inaccurate. ... The board is well diversified and decisions are not made by the board alone,” but also by its staff. Calpers said legislators were told in 1999, when the agency lobbied to increase worker’s benefits, that there was a cost to the plan.
“The costs of Calpers pensions for the state represents 2.2 percent of total general fund expenditures,” the agency wrote. “To suggest that pension costs are the cause of layoffs, degradation of our schools or the California economy would be irresponsible.”
In statements, Afscme said it had backed Calpers board candidates who were most qualified to protect members’ retirements. Art Pulaski, the executive secretary-treasurer of the California Labor Federation, a coalition of 1,200 affiliated unions, wrote in a statement that the idea “that unions have spent money on elections to control politicians is as offensive as it as inane. In every election, we carefully analyze candidate records and positions and support those most likely to support policies that help working families.”
Mr. Seeling, for his part, is now enjoying retirement with a pension of about $78,000 a year.
“I can live on it,” he said. “I wish I had more. But it’s enough. I don’t think anyone needs that much more for a comfortable life.”
Operation Domino
It was informally known among local union leaders as “Operation Domino,” and for years the goal was straightforward: persuade one city to increase salaries and pensions for workers, and then approach neighboring municipalities and argue that if the increases weren’t matched, the city’s police, firefighters or other employees might quit, in large numbers, and go elsewhere.
By the time the dominos made it to Costa Mesa, neighboring areas had already toppled. “The unions would say, ‘Gee, Irvine, Newport, all of these nearby cities, they offer these higher benefits for police and firefighters and it’s a real tight labor market, and if we don’t receive similar benefits, what if we leave and go work there?’ ” said Allan Roeder, Costa Mesa’s city manager for more than two decades, who retired in March with a pension of $190,000 a year.
Then, starting about a decade ago, word began to spread that the Costa Mesa police had more than a dozen vacancies they couldn’t fill. Graffiti became more common. Police representatives warned that gang activity was rising and, without strong benefits, the department couldn’t attract officers.
When Mr. Roeder went to the grocery store, residents asked him why he wasn’t keeping the streets safe.
“When achieving public safety is threatened, law enforcement gets what they want,” he said.
Today, many Costa Mesa police officers and other safety workers are eligible to retire as young as 50 years of age, receiving up to 90 percent of their salaries each year for life.
In other communities, unions used more subtle methods. Lifeguards in Newport Beach helped win public support for increased pensions by expanding the city’s junior lifeguard program, which started with 50 children and now enrolls 1,200 a year.
“Everyone in this community knows we’re the people making sure their sons and daughters don’t drown,” said Brent Jacobsen, who has been a lifeguard for 24 years. “I talk to a lot of parents because of the junior lifeguards, and I tell them we expect to be treated fairly.”
Last year, the head of the junior lifeguard program retired with a pension of $105,000 a year.
Soon after Newport Beach increased benefits, Mr. Jacobsen’s brother-in-law, a lifeguard in nearby Laguna Beach, persuaded his city to raise pensions.
The costs of such increased benefits, in many places, weren’t felt for years. But starting in 2007, Costa Mesa had to draw on its reserve accounts to pay bills. The city stopped buying fertilizer and seed for some parks and canceled street maintenance projects. Last year, pension costs topped $15 million, up from $6 million a decade ago and more than triple the amount the city spent filling potholes and maintaining playgrounds and on capital projects.
Then Mr. Righeimer declared his candidacy for city council. After winning a bruising race, he proposed outsourcing as many as 18 city services, from firefighting to payroll, to private firms. The move, he said, would cost the city less in salaries and free taxpayers from additional pension liabilities. Pink slips were sent to almost half the city’s 472 employees, though some of those layoffs, which do not take effect until September, might be rescinded if the outsourcing bids do not meet expectations.
On the day the pink slips were handed out, a city worker, 29-year-old Huy Pham, climbed to the roof of City Hall and jumped to his death. A local union organization helped pay for television commercials that implied the mayor and city councilors were responsible.
“People like Jim Righeimer have a visceral dislike for people in unions,” said Mr. Berardino, the Orange County union leader. “And I understand that people are angry because they see their own retirement accounts shrinking, and wonder, why shouldn’t public workers suffer, too?
‘Race to the Bottom’
“But why are we making this a race to the bottom? Why aren’t we making sure every working American gets a decent pension after a lifetime of work?” Mr. Berardino asked.
Mr. Berardino and other labor leaders around the state are discussing with Governor Brown and legislators proposals that could standardize pension benefits, so that cities are not competing with each other, and cap yearly retirement payouts at $127,000 or less.
Many of those details are still under negotiation and the plan might not win approval. Even if it does, it is unclear how much immediate relief such reform could bring. By law, the pension formulas of existing workers are essentially unalterable — any changes affect only future hires. And studies by nonpartisan academics indicate that even if public work forces stop growing and the stock market rebounds, it may not be enough to prevent a pension funding crisis. In some states, including California, a study found that pension fund managers needed to earn a 12 percent return each year for the next three decades to meet obligations. Such prolonged returns are far higher than historical norms. (Calpers, in a statement, said it expected to earn double-digit returns this year, and disagreed with the 12 percent estimate.)
“Governments are going to have to decide if they want to raise taxes or cut services or do a bit of both,” said Robert Novy-Marx, a professor at the Simon Graduate School of Business at the University of Rochester who, with Joshua Rauh of the Kellogg School of Management at Northwestern University, has studied the expected costs of future pension obligations. “There’s no other way out of this. State and local governments have become like Detroit car manufacturers, trapped under pension promises that are growing faster than their economies.”
In the meantime, Costa Mesa — like many cities in California and around the nation — continues to debate how pension costs should be borne. At a recent city council meeting, Mr. Righeimer and his colleagues sat in session for more than six hours, until well past midnight, as dozens of workers, citizens, union supporters and other speakers, in three-minute increments, criticized the layoffs and vowed they would remember politicians’ decisions at election time.
In the audience sat three local firemen wearing Costa Mesa Fire Department T-shirts, all of whom declined to give their names.
“I’m not here on anything official,” one said. “We just like the council to know that we’re watching them.”
