Pension Reform Coming?

Latest news out of Sacramento is that Democratic leaders Senate Pro Tem Darryl Steinberg and Assembly Speaker John Perez have agreed to take up pension reform by June in advance of approving the budget. The Governor’s office and Republican leaders have been actively pushing legislative approval of the 12 point plan.

Unfortunately, the scuttlebutt is that the Democratic leaders have trouble with the first four points of that plan.  And if those first four points aren’t part of the pension reform bill when it is adopted, it will likely kill the support of the business leaders.  Here are the first 4 points of the Governor’s Plan:


  1. Equal Sharing of Pension Costs: All Employees and Employers
    While many public employees make some contribution to their retirement – state employees contribute at least 8 percent of their salaries – some make none. Their employers pay the full amount of the annual cost of their pension benefits. The funding of annual normal pension costs should be shared equally by employees and employers.  My plan will require that all new and current employees transition to a contribution level of at least 50 percent of the annual cost of their pension benefits. Given the different levels of employee contributions, the move to a contribution level of at least 50 percent will be phased in at a pace that takes into account current contribution levels, current contracts and the collective bargaining process.  Regardless of pacing, this change delivers real near-term savings to public employers, who will see their share of annual employee pension costs decline.
  2. “Hybrid” Risk-Sharing Pension Plan: New Employees
    Most public employers provide employees with a defined benefit pension plan. The employer (and ultimately the taxpayer) guarantees annual pension benefits and bears all of the risk of investment losses under those plans. Most private sector employers, and some public employers, offer only 401(k)-type defined contribution plans that place the entire risk of loss on investments on employees and deliver no guaranteed benefit.
    I believe that all public employees should have a pension plan that strikes a fair balance between a guaranteed benefit and a benefit subject to investment risk. The “hybrid” plan I am proposing will include a reduced defined benefit component and a defined contribution component that will be managed professionally to reduce the risk of employee investment loss. The hybrid plan will combine those two components with Social Security and envisions payment of an annual retirement benefit that replaces 75 percent of an employee’s salary. That 75 percent target will be based on a full career of 30 years for safety employees, and 35 years for non-safety employees. The defined benefit component, the defined contribution component, and Social Security should make up roughly equal portions of the targeted retirement income level. For employees who don’t participate in Social Security, the goal will be that the defined benefit component will make up two-thirds, and the defined contribution component will make up the remaining one-third, of the targeted retirement benefit.
    The State Department of Finance will study and design hybrid plans for safety and non-safety employees, and will fashion a cap on the defined benefit portion of the plans to ensure that employers do not bear an unreasonable liability for high-income earners.
  3. Increase Retirement Ages: New Employees
    Over time, enriched retirement formulas have allowed employees to retire at ever-earlier ages. Many non-safety employees may now retire at age 55, and many safety employees may retire at age 50, with full retirement benefits. As a consequence, employers have been required to pay for benefits over longer and longer periods of time.  We have to align retirement ages with actual working years and life expectancy. Under my plan, all new public employees will work to a later age to qualify for full retirement benefits. For most new employees, retirement ages will be set at the Social Security retirement age, which is now 67. The retirement age for new safety employees will be less than 67, but commensurate with the ability of those employees to perform their jobs in a way that protects public safety.
  4. Require Three-Year Final Compensation to Stop Spiking: New Employees
    Pension benefits for some public employees are still calculated based on a single year of “final compensation.” That one-year rule encourages games and gimmicks in the last year of employment that artificially increase the compensation used to determine pension benefits. My plan will require that final compensation be defined, as it is now for new state employees, as the highest average annual compensation over a three-year period.
    The proposals are divided into two groups. The constitutional amendment Brown offered broadly outlines the pension changes more narrowly defined in the language to change state law. The governor’s plan won’t go forward without two-thirds of the Legislature voting to put the constitutional changes on the Nov. 6 ballot, which would then need voter approval from a majority.

The changes would kick in Jan. 1, 2013. Labor agreements that contradict the governor’s plan would prevail until the pacts expire.  The statutory language includes these proposals:

  • Ends additional retirement service credit purchases, or “airtime.”
  • Forfeits all or part of pensions for elected officials or civil servants convicted of a felony associated with their offices or jobs.
  • Ends retroactive pension enhancements.
  • Ends “pension holidays” for employers and employees.
  • Mandates that all employees pay “at least one-half” the normal costs for defined benefit plans or the defined portion of a hybrid plan. Employers may not pick up the employee share.
  • Limits the hours and wages for retirees who return to government work.
  • Calculates benefits based on a 36-month average of an employees’ wages.
  • Narrows the definition of wages that can be included for pension calculation purposes.
  • Establishes a hybrid pension system for new hires. It would replace 75 percent of an employee’s income after 30 years of service and a “normal” retirement age of 57 for public safety employees or, for all other workers, 35 years of service at age 67.
  • Sets 5 years and 52 years old as the minimum length of service and age that safety classes can qualify for retirement, 57 years old for all other groups.
  • Eliminates seats on the CalPERS Board of Administration now occupied by a member of State Personnel Board and an insurance industry representative
  • Gives CalPERS board membership to the Department of Finance director.
  • Adds an independent health insurance expert and a representative from a contracting agency to the CalPERS board, both appointed by the governor.
  • Adds three public representatives to CalPERS’ board, two appointed by the governor and one jointly appointed by the Assembly speaker and the Senate Rules Committee.
  • Sets 25 years of service as the threshold to receive 100 percent of the state’s retiree health benefit. Applies to new hires only.

Read more here:

The Governor’s 12 point plan has been endorsed by the Marin County Board of Supervisors.  While the Plan is great progress, it isn’t all that needs to be done to make the public pension system sustainable.  The recent change in the rate of predicted return from 7.75% to 7.5 demonstrates how vulnerable the state, counties and cities are to being able to make the payments for a pension system that is consuming more revenue than ever possible to provide.
In other news, the independent effort to put an initiative on pension reform has been suspended.  The following is a statement from Dan Pellissier, president of California Pension Reform: “California Pension Reform is suspending its effort to qualify an initiative for the 2012 ballot after determining that the Attorney General’s false and misleading title and summary makes it nearly impossible to pass. We will continue to push our elected representatives to reform our broken pension system and if they fail, we will focus on qualifying an initiative for 2014. California taxpayers face more than $240 billion in pension debts that grow every year, a brutal math problem that requires courageous leadership instead of the special interest politics that is blocking meaningful reform today.”

In Memory of Supervisor Hal Brown

Hal Brown was more than Marin County’s longest serving Supervisor. He was a man who lived true to his beliefs in respecting people, be they women, children, County employees or his constituents. Hal had a marvelous sense of humor and sense of right and wrong, especially when it came to spending taxpayers’ money. He was a leader when needed such as when he led the battle to fix the flooding in the Ross Valley, and a team player when appropriate such as in working with the rest of his colleagues to make Marin County a better place to live and work. 

NBLC joins the many others in honoring Hal’s memory and knowing that his leadership will be missed. His fight with pancreatic cancer proved yet again his mettle and demonstrated his profound dignity. May he rest in peace and watch over us from heaven.

The Problem with Killing Money to Save Money

What would it mean if we ended all money and just went digital?  I think most of find pennies and nickels useless.  Did you know that it now costs more to mint them than they are worth?  According to David Wolman in “The End of Money,” (The Awl, February 2012) “a few years ago, the cost of making a penny peaked a 1.8 cents per cent, and nine cents per nickel.”  While those costs have fallen a little, compare that to only 34 cents to make a new dollar coin.  The U.S. Mint “has manufactured about half a trillion coins over the past generation, yet the mint itself estimates that 200 billion of them has fallen out of circulation.  According to one estimate, Americans forfeit $1 billion a year due to the time spent dealing with pennies at cash registers and in wallets,” says Wolman. Even retail is moving away from trying to entire buyers by pricing items at a penny less, i.e., $5.99 v. $6.00. 

Many countries have eliminated low value coins to save costs and bother.  But a funny thing happens when you begin to eliminate currency because it is so invaluable. Says Wolman, “Eliminating the penny is an admission of inflation.  What does a formal acknowledgement of the worthlessness of 1 cent say about the worth of a dollar? In other words, it doesn’t help the economy to remind people that prices are continually rising, while the purchasing power of their money is continually falling, even though both are true.” 

Luckily for Americans, we haven’t experience high inflation since the 1970s.  Wolman points out, “Younger Americans today have been so lulled by economic stability that the notion of all prices surging upward is alien.” He asks, “What’s riskier:  producing and circulating annoying coins at a loss, or injuring morale about the economy so much as to undermine faith in more than just the value of those little metal discs?”

Wolman’s solution is to move to digital currency.  He wishes that the Federal Reserve, Bank of England, European Central Bank and most other central banks would not mint more coins and just move into the “digital realm.”  And with an interesting note, he says that when people tip when paying with plastic, they tip more than with cash.  And with our cell phones becoming an easy way to pay for things, perhaps Wolman will get his wish to go cashless sooner than he thinks.

NBLC Leading the Way …

NBLC thinks about leadership a lot.  Especially when there seems to be such a need for leadership on all fronts.  Here are some ideas that might help improve all of our leadership capabilities:

  1. Never Whine:  Constant complaining is not a characteristic of leaders. “The habit follows those who lack success and feel powerless to improve things for themselves.  By their very act of whining, people are admitting that they lack the competence, character, communication skills, or commitment to improve things.  Not a good message to send.,” says Dianne Booher (How to act like a leader – Holy Kaw! 2/9/2012).
  2. Make Others Successful:  No one likes self-serving career chasers.  “The people you are leading can make or break you. If you focus on helping make those you’re leading a success, you will be associated with successful people.  It will be a successful expression of your leadership and add longevity to it,” says William Powell, (The Leadership Advisor, 6/28/11).
  3. Finally, ask more questions than you answer: “With the high velocity of change in the world, it is impossible to have answers to all the important questions. Much more important is a deep curiosity about the world and the ability to frame the right questions in profound ways. The world’s toughest problems cannot be solved by you or any one organization. A leader’s role will be to bring the right people together to address the challenging issues you raise. Research demonstrates that the biggest mistakes result from decisions made by people without deep consideration of thoughtful questions,” says John Coleman and Bill George (Five Resolutions for Aspiring Leaders, 12/30/11).

Leaders of today and tomorrow are continuous improvement advocates.  We applaud your efforts!

SMART Train Not Derailed

The petition drive to repeal SMART’s funding has officially failed. The efforts of the anti-SMART folks came up short when after many months of signature collecting they could not reach the needed amount of signatures.  The wisdom of the voters in approving the SMART ballot measure in 2008, and not repealing it now, is a testament to the voters’ commitment to new jobs being created and green transportation alternatives being provided, especially when the freeway will never be widened beyond current plans.

SMART’s new leadership has turned the project in the right direction, providing clear updates to the voters, putting SMART’s house in order and taking advantage of the economic times to get the best deals on construction contracts and bond sales. Since all of these improvements haven’t been able to please the anti-SMART folks, they must have their own political agenda that prizes disruption and delay, refusing to work to improve the project, and offering no other alternatives than trying to kill the project.

Luckily, there is no doubt that there is a train in our future.  This small anti-SMART minority cannot override the majority of the voters in the North Bay.  They have already wasted taxpayer funds and now threaten to continue wasting more taxpayer dollars by pressing for another repeal drive. The voters have spoken but the anti –SMART folks don’t want to listen to the nearly 70% of the voters who support SMART, nor to the voters that refused to sign their misguided petitions.  How many times do the voters have to speak before they get it?

Demographic changes dictate future: 65+ age group will dominate for decades

In “After Seven Billion,” by Neil Howe (1/15/12 New Geography) it is debunked that the 21st century will see the “population bomb” that was predicted by Malthus and Paul Ehrlich.  Turns out the trends that they based their predictions on were temporary and that birthrates are declining.  Birthrates are falling in the U.S. but even more dramatically in Europe, Asia, and the former Soviet Union.  Japan is experiencing “depopulation” as it is now in its fourth year of negative population growth.  Howe says that the global birth dearth is “that the traditional motivations for childbearing are no longer as strong in modernizing societies.  Children used to be an economic asset to their parents, …now children are an avoidable and increasingly expensive liability.”  This zero growth trend will greatly affect the global economy including creating labor shortages, reduced consumer demand, less risk taking and entrepreneurism, and less immigration.  On the bright side, businesses that lead on providing products and services to older consumers who are living longer will prosper, especially if they “understand how tomorrow’s generation of seniors will have different needs, means and preferences than seniors in the past.”  Grasping that the 65+ population “will be the fastest growing demographic group in most countries for decades to come” is critical.  Says Howe, “People who understand how global aging and generational change intersect will do quite well in the world that’s coming, whether they are politicians, inventors of new technology, or creators of culture.”

Running an Experiment on the Economy

Excerpt from “Tectonic Shifts” in Employment – Information technology is reducing the need for certain jobs faster than new ones are being created.

Technology Review published by MIT – January/February 2012

By David Talbot

New research is showing that advances in workplace automation are being deployed at a faster pace than ever, making it more difficult for workers to adapt and wreaking havoc on the middle class: the clerks, accountants, and production-line workers whose tasks can increasingly be mastered by software and robots. “Do I think we will have permanently high unemployment as a consequence of technology? No,” says Peter Diamond, the MIT economist who won a 2010 Nobel Prize for his work on market imperfections, including those that affect employment.

“What’s different now is that the nature of jobs going away has changed. Communication and computer abilities mean that the type of jobs affected have moved up the income distribution.”

More evidence that technology has reduced the number of good jobs can be found in a working paper by David Autor, an economist at MIT, and David Dorn, an economist at the Center for Monetary and Financial Studies in Madrid. They too point to the crucial years of 2000–2005. Job growth happened mainly at the ends of the spectrum: in lower-paying positions, in areas such as personal care, cleaning services, and security, and in higher-end professional positions for technicians, managers, and the like. For laborers, administrative assistants, production workers, and sales representatives, the job market didn’t grow as fast—or even shrank. Subsequent research showed that things got worse after 2007. During the recession, nearly all the nation’s job losses were in those middle categories—the positions easiest to replace, fully or in part, by technology.

Dramatic shifts have happened before. In 1800, 90 percent of Americans were employed in agriculture. The figure was down to 41 percent by 1900 and stands at 2 percent today. People work, instead, in new industries that were unimaginable in the early 19th century. Such a transformation could happen again. Today’s information technologies, even as they may do short-term harm to some kinds of employees, are clearly a boon to entrepreneurs, who now have cheaper and more powerful tools at their disposal than at any other time in history. As jobs are lost, Brynjolfsson says, “we will be running an experiment on the economy to see if entrepreneurs invent new ways to be productive equally quickly.” As examples, he points to eBay and Amazon Marketplace, which together allow hundreds of thousands of people to make their living hawking items to customers around the world.

The problem, he says, is that not enough people are sufficiently educated or technologically savvy to exploit such rapid advances and develop as-yet-unimagined entrepreneurial niches. He and McAfee conclude their book by arguing that the same technologies now making industry far more productive should be applied to updating and improving the educational system. (In one promising example they cite, 58,000 people went online to take an artificial-intelligence class offered by Stanford University.)

Peter Diamond says that one of the most important things the government can do for employment is to take care of basics, like infrastructure and education. “As long as we have so many idle resources, this is the time when it’s advantageous—and socially less expensive—to engage in public investment,” he says. Eventually, he believes, the economy will adapt and things will work out, once again. “Jobs have been changing and moving around—within the country, out of the country—for a very long time,” he says. “There will be other kinds of jobs that still require people.”

Dutra Asphalt Plant Approval Upheld by Court

NBLC is very pleased that the Dutra Asphalt Plant approval has been upheld by Judge Chocteau.  The Judge dismissed all of the opponent’s claims recognizing that the Dutra asphalt plant meets planning and environmental requirements as was detailed by Sonoma County Counsel and Planning staff during the approval process.  This is a vindication for the Sonoma County Board of Supervisors and a well deserved ruling in favor of the Dutra project which leap through hoops to gain the approval. It is a victory for the North Bay as we will now see more jobs created, more infrastructure projects underway, and lower costs to the taxpayers because the asphalt plant is nearby.  Congratulations also go to Les Perry of Perry, Johnson, Anderson, Miller & Moscowitz LLP for representing the Dutras in court and winning the case.

As a neighbor of the Dutra asphalt plant, NBLC welcomes them to the neighborhood!

SMART Completes $191 Million in Bond Financing to Fund Construction

NBLC is pleased that Sonoma Marin Area Rail Transit (SMART) was very successful in selling the bonds needed to fund the train and pathway project.

SMART was able to achieve its bonds sales at very favorable rates, despite efforts to derail the project. The successful sale takes advantage of the historic lows for financing and allows SMART to also reap the rewards of starting construction when rates are very competitive.

“We are very encouraged that SMART was able to do so well in the bond market and save the taxpayers’ money. This sale brings us much closer to getting 900 new construction jobs and injecting almost $200 million into the local economy.

This is the best present the North Bay could have received for the holidays!” said Cynthia Murray, NBLC president and CEO. Murray co-chaired the 2008 ballot measure campaign which led to the voters passing the SMART sales tax.

NBLC commissioned a poll in October of this year to gauge voter support for the SMART project. At the time, Murray said that she hoped that the poll results, which showed strong and enduring support for the SMART project, would cause opponents to cease their attempts. “Selling the bonds at the right time for the right rates is just one more affirmation of SMART carrying out what the voters wanted in 2008 and still want today – passenger trains and multi-purpose pathway in the North Bay.”

Poll Shows Little Voter Appeal to Repeal SMART

Three years after their original vote on Measure Q, the sales tax ballot measure passed in 2008, an overwhelming majority of voters want the SMART project to continue to move forward. Voters show little desire to stop the SMART train project according to a poll commissioned by North Bay Leadership Council (NBLC) The poll, completed in late October, found that voters in Sonoma and Marin County strongly support construction of the project as presently planned from San Rafael to Santa Rosa. Six of 10 voters (58%) opposed the repeal of Measure Q.

Despite a perceived rocky start for SMART due to the recession and management issues, voters have held firm in their commitment to the project for the same reasons they supported Measure Q. “It is clear from the poll results, that given these tough economic times, North Bay voters are clamoring for the 900 jobs SMART will create by year’s end followed by many more jobs in the coming years. Voters seek to reap the twin benefits of stimulating the local economy and getting reduced construction and materials costs,” said Cynthia Murray, president and CEO of NBLC. Murray continued, “Voters also want green transportation alternatives to Highway 101 offered by the train and pathway, and aren’t buying the argument that if SMART goes away that there will be any another alternative.”
Proponents of repealing Measure Q remain approximately the same percentage (32%) as those who did not vote for it in 2008. Then and now, the anti-SMART proponents have failed to undermine voters’ convictions that the SMART project will create much-needed jobs, boost the economy, relieve congestion, and reduce greenhouse gas emissions. The poll confirms that the repeal effort is misguided and cannot succeed.

Said Murray, “We hope that these compelling poll results lead the anti-SMART group to drop its efforts to stop the train. The train opponents have already cost Marin and Sonoma taxpayers millions of dollars bond sale penalties. Now they want to make taxpayers pay even more for an unnecessary, expensive do-over election that voters already decided in 2008,” Murray concluded.

The poll, by Dresner Wickers Barber Sanders, fielded 501 randomly selected, registered voters in the SMART district (Marin and Sonoma Counties) between October 27-30. Given the sample size, the poll results have a margin of error of +/- 4.37% at a .95 confidence level.