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Pension Cutters: Bipartisan Slogans, Right-Wing Money

10:36 am in Pension by Gary Cohn

Last week San Jose Mayor Chuck Reed delivered his usual speech about the benefits of slashing the retirement benefits of his city’s public employees – and why he is now pushing for a statewide ballot measure that could dramatically change the lives of hundreds of thousands of Californians. Reed’s initiative – which he characterizes as a bipartisan effort and which hasn’t yet qualified for the 2014 ballot — would allow the state and local governments in his home state to reduce retirement benefits for current employees for the years of work they perform after the measure’s changes go into effect. What was not usual about Reed’s speech was its setting: The Roosevelt Hotel in New York City, 3,000 miles from California.

Reed was a keynote speaker at a “Save Our Cities” conference sponsored by the Manhattan Institute, a conservative think tank co-founded by Ronald Reagan’s CIA director, William Casey. There was another California presence at the gathering: The video-streamed image and voice of former Los Angeles mayor Richard Riordan who, like the ghost of Hamlet’s father, seemed to demand revenge – in this case, for the ignominious implosion of his own $800,000 effort in 2012 for an L.A. ballot measure that would have forced city employees into 401(k) plans.

New York wasn’t Reed’s only port of call last week. The following day he spoke again — on a panel at the Mandarin Oriental Hotel in Washington, D.C. There he discussed firefighter and police pensions as part of a conference on state and local retirement systems sponsored by the Pew Charitable Trusts, the Urban Institute and the Laura and John Arnold Foundation.

Reed was invited to both events, says Michelle McGurk, Reed’s spokesperson. She says the Manhattan Institute and Pew Charitable Trusts each paid for one flight, and the city of San Jose also paid some costs, based on the amount of city work Reed did while on the East Coast.

“It was a mixture of him being invited to speak and city business,” McGurk says.

Reed’s message at both venues was the same: Cutting pensions of public employees is needed to stave off cuts in public services and even possible bankruptcy. That, and the fact that his initiative is part of a bipartisan or even largely Democratic-led effort.

This last statement has raised eyebrows.

“Mayor Reed’s East Coast junket shows exactly where his bread is buttered,” says Jordan Marks, executive director of the Washington, D.C.-based National Public Pension Coalition. “The Manhattan Institute and Pew Charitable Trusts are both aligned with right-wing ideologue John Arnold, who has funded a massive effort to gut public pensions all across the country.”

On October 15, Reed filed papers with the California Attorney General for his ballot initiative, known as the Pension Reform Act of 2014. Democratic mayors Bill Kampe of Pacific Grove, Pat Morris of San Bernardino and Miguel Pulido of Santa Ana, along with Anaheim’s Republican mayor, Tom Tait, joined Reed in filing the papers. Since then Reed has become a national spokesman for slashing the retirement benefits of public employees.

In a statement released during the October 15 filing, Reed said that “skyrocketing retirement costs are crowding out funding for essential public services and pushing cities, counties and other government agencies closer to insolvency.”

The money Reed has raised for his bipartisan effort has come from mostly partisan conservative policy advocates. He has drawn $200,000 from the Action Now Initiative, a nonprofit affiliated with Texas billionaire and former Enron trader John Arnold; $25,000 from Basic American Foods heir George Hume; $25,000 from venture capitalist Michael Moritz and his wife, novelist Harriet Heyman, and $50,000 from Richard Riordan. Reed disclosed the payments in behested payment reports filed with the city of San Jose.

“Californians,” says Jordan Marks, “should be wary of what Texas billionaires are selling for its firefighters, police officers, teachers and thousands of other public workers.”

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California Pension-Cutting Ballot Initiative Revealed

10:04 am in Pension by Gary Cohn

In a move to slash the retirement benefits of public employees in California, a group of mostly conservative policy advocates has been working behind the scenes on a possible 2014 ballot initiative. A copy of the still-secret draft initiative, which could dramatically impact the lives of hundreds of thousands of Californians and send a signal nationwide, has been obtained by Frying Pan News. (See the document’s text following this article or click here.)

California Flag

Revealed: A secret plan to cut pensions.

If enacted, the proposed law would allow the state and local governments to cut back retirement benefits for current employees for the years of work they perform after the changes go into effect. Previous efforts to curb retirement benefits for public employees have largely focused on newly hired workers, but the initiative would shrink pensions for workers who are currently on the job.

“This initiative defines that a government employee’s ‘vested rights’ only applies to pension and retiree healthcare benefits earned for service already rendered, and explicitly empowers government employers and the voters to amend pension and retiree healthcare benefits for an employee’s future years of service,” the private draft states.

In other words, current state and municipal workers’ retirement benefits will only be partially guaranteed by the number of years they have already worked; from the time the initiative becomes law, the accrual of those benefits will be drastically curtailed.

One of the rationales provided by the draft ballot to justify its unprecedented reach into the lives of public employees is the ongoing funding shortfalls that California and many of its cities find themselves confronting. But, while pledging to help the state “maintain retirement plans that are sustainable, fiscally sound and able to meet the commitments to its employees,” the draft also claims its reduction of pension benefits is being carried out “[i]n order to protect the government’s ability to provide essential services to the public.”

The draft initiative is being circulated by San Jose Mayor Chuck Reed, who successfully pushed a pension-busting ballot initiative in his city’s 2012 election. That law, like a similar one passed the same year in San Diego, is currently being challenged in court. Reed, according to several sources, has been circulating the draft among other mayors, public officials and others in California who believe that public employee pensions should be scaled back.

Following repeated attempts to reach Reed for comment on the draft ballot, Frying Pan News received what appeared to be confirmation of its authenticity in an email sent by a Reed press aide:

Throughout this process, there have been numerous discussions about policy options and multiple versions of draft language, so it’s impossible to tell what it is you may have. However, the substance of that statement is consistent with what the Mayor has advocated for more than a year.

Marcia Fritz, president of the California Foundation for Fiscal Responsibility, goes further and says, “I’ve seen the draft – I don’t know if it’s final yet. I’ve been asked to weigh in on it.”

Dave Low, chairman of Californians for Retirement Security, a coalition that represents more than 1.5 million public employees, says that the draft measure being circulated by Mayor Reed and others would “take promised retirement benefits away from teachers, nurses, firefighters and other public employees.” He adds that courts have consistently decided that it is not permissible to cut promised retirement benefits to public employees. “A promise made should be a promise kept,” Low says.

Chuck Reed, a Democrat, has increasingly been seen as the public, bipartisan face of a nationwide effort to scale back retirement benefits for public employees. But behind the scenes, this effort is quietly spearheaded by a host of largely conservative individuals and organizations.

In May, for example, Reed was only one of dozens of people present at a closed-door pension summit held at a Sacramento hotel, where strategies to limit public retirement benefits were discussed. And earlier this week, Frying Pan News reported that the Pew Center on the States, an arm of the respected Pew Charitable Trusts, had formed an unusual partnership with the Laura and John Arnold Foundation in an effort to curb public employee pensions in several states.

The movement to curtail public employee pension benefits in California is being watched closely around the nation. Both those who favor curbing pensions and those who oppose it agree that any ballot initiative, such as the one laid out in Reed’s blueprint, will involve a lengthy and costly fight.

“The problem with initiatives is that public employee labor unions are very strong in fighting them,” says Jeff Adachi, the elected Public Defender in San Francisco and the man behind an unsuccessful initiative to curb pension benefits in that city. “It’s a tough route to go.”

That would seem to be borne out by reactions to Reed’s initiative from organized labor, whose representatives blame politicians’ inability to find the resources to give retirees the benefits they promised workers in the form of negotiated contracts. They also point to figures put out by the California Public Employees’ Retirement System (CalPERS) showing that the average public employee retires on only $2,629 a month.

Others decry what they regard as the naked unfairness of having rules changed on them in mid-career. One such person is Lori Adams, a 46-year-old Burbank High School math teacher. She has been a public school teacher for 16 years and is planning to teach for at least another 14 years.

“If you went to a bank and made an agreement for a car loan or a house loan, and then in the middle years they decide to change your rate — that’s not fair,” says Adams, who is also president of the Burbank Teachers Association. “It’s making a deal when you sign it and in the middle of the game changing the rules. You make life decisions based on it.”

Marcia Fritz and others, however, see the ballot initiative as an opportunity to clarify what they regard as murky rules regarding state and municipal workers’ retirement plans.

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Promise Breakers: How Pew Trusts Is Helping to Gut Public Employee Pensions

10:02 am in Pension by Gary Cohn

When Kentucky’s legislature adopted a bill intended to transform the Bluegrass State’s troubled pension system last spring, state officials were ecstatic. Signing the bill into law on April 4, Democratic governor Steve Beshear hailed it as groundbreaking legislation that would “solve the most pressing financial problem facing our state – our monstrous unfunded pension liability and the financial instability of our pension fund.”

Not everyone was convinced.

Critics, who include pension-fund experts, lawmakers and AARP Kentucky, claim the new law will hurt workers, taxpayers and retirees. What’s more, they say the law was largely crafted behind the scenes by an unusual alliance between two out-of-state organizations: the Pew Center on the States and the Laura and John Arnold Foundation. Some detractors go further and assert that the Arnold Foundation is using Pew’s sterling reputation for academic integrity as a fig leaf to hide its own free-market agenda.

According to its website, the Center on the States focuses on policy initiatives that include early education, prison sentencing and corrections, and the electoral process. The center is one of seven arms of the influential Pew Charitable Trusts, which is headquartered Philadelphia, Pennsylvania, with offices in Washington, D.C. The Houston-based Laura and John Arnold Foundation is in the vanguard of nationwide efforts to limit pensions for state and municipal workers; it was founded by billionaire John Arnold, a onetime Enron trader who later made his fortune as a hedge-fund manager.

“We want to bring to your attention . . . the deceptive work that the Pew Center on the States is engaged in across the country in order to promote their cash balance overhaul policy,” a group of 10 Kentucky state senators and representatives cautioned in an open letter to legislators in other states. The letter warned lawmakers “about the ramifications of letting Pew into your state,” as well as “its unholy alliance with the Arnold Foundation.”

Critics of that alliance charge that Pew and Arnold share a mission for giving an academic veneer to a partisan belief that the nation’s massive public employee pension funds should be invested directly in costly “cash balance” plans rather than be professionally managed as traditional defined benefit plans by the public agencies that currently administer them.

Jordan Marks, executive director of the Washington, D.C.-based National Public Pension Coalition, says that the cash-balance plans promoted by Pew could dramatically reduce the pensions of workers. Under such plans, Marks says, employee pensions would be based on an average of all years of an employee’s service, instead of the highest three to five years of earnings – which is currently the norm. Moreover, in Kentucky new workers covered under the plan would be guaranteed only a modest four percent rate of return on investments. “It’s an extraordinary loss for middle class workers,” Marks says.

Pew may be mostly known for its financial support of PBS programs, which has given the foundation the kind of publicity that reflects the self-described “non-partisan and non-ideological” nature of Pew’s work.

Yet Pew has become a key player in one of America’s most partisan issues as cities and states tackle the complex problems involving public worker pensions. Pension reformers present their cause as a bipartisan good-government crusade, but a visitor landing on the website of nearly any one of this movement’s myriad organizations quickly falls down a rabbit hole of interlocking conservative organizations — whose unifying theme seems to be reflexive hostility toward workplace protections and the union contracts that guarantee them.

As a battle cry, “pension reform” has joined the ranks of “paycheck protection” (see 2012’s Proposition 32 in California) and “educational choice” (i.e., national parent-trigger laws). All three movements aim to seriously weaken organized labor and the benefits it has won for all employees. And, as the economy stumbles along in the wake of the 2009 recession, activists from these causes have exploited fears of diminished state and municipal coffers to create a climate of crisis in which their various “reforms” are presented as painful but necessary solutions.

Earlier this month Pew senior researcher David Draine spoke in Florida before the Jacksonville Retirement Task Force and offered his organization’s help in dealing with that city’s public employee retirement plan.

Draine, the lead researcher on several studies looking at state-run public employee retirement systems, strongly defends Pew’s involvement with states and municipalities that are confronting pension issues, on the grounds that Pew is serving the public interest. He also justifies Pew’s partnership with the Arnold Foundation.

“While pension reform is arguably one of the most daunting financial problems facing states and cities today, we do not have a one-size-fits-all solution,” Draine wrote Frying Pan News in an email. “Every city and state has a unique set of policy preferences and budgetary challenges; what is critical to achieving lasting reform is an open, inclusive, data-driven process.”

He added:

Pew has partnered with the Laura and John Arnold Foundation to help states and municipalities face their growing pension liabilities and continuing funding challenges. In some states, if changes are not made every retiree, worker and taxpayer will be burdened with rising costs and unpaid promises for years to come. Our partnership supports efforts to pursue data-driven reform of pension systems that will be fair, affordable, and fiscally sustainable.

While few budget experts would deny there are problems with funding public employee pensions, there is nothing resembling a consensus that supports the solutions proposed by Pew and the Arnold Foundation – whose warnings of imminent pension bankruptcy complement similar apocalyptic scenarios sketched by conservatives about Social Security’s future.

Marks says that the Pew-Arnold axis threatens Pew’s longstanding reputation for non-ideological work in the public sphere. “The Arnold Foundation is using Pew’s brand to take on retirement security,” he says.

And the head of the largest trade association for public sector plans finds serious flaws in Pew’s figures. Hank Kim, executive director and counsel of the National Conference on Public Employee Retirement Systems, says that “generally our position is that we are very disappointed in Pew. Since 2010, we’ve expressed to Pew that its methodology for reports is flawed. Their reports incite fear.”

Kim says that the cash balance plans being pushed are complex and somewhat hard to understand, but that they will cost states more to administer and provide employees with lesser pensions than defined benefit plans. He sees the former as opening the door for 401(k) plans, which are known as “defined contribution plans” and not to be confused with the current defined benefit plans.

“Pew and Arnold will not be satisfied with cash balance plans,” he says. “That’s the first step toward defined contribution plans.”

With its $5.6 billion endowment, the Pew Charitable Trusts ranks number 19 on a list of the world’s wealthiest charitable foundations. Originally called the Pew Memorial Trust, the foundation was created in 1948 by the heirs to the Joseph N. Pew Sun Oil fortune and hewed far more closely to the family’s conservative, small-government political beliefs.

Pew first thrust itself into the national debate on public sector pensions when its Center on the States released a headline-grabbing 2010 study claiming that the combined pension shortfall for all the states was a staggering $1 trillion.

“It’s an eye-popping number,” Kim says of Pew’s claim. “But that trillion dollar deficit covers both pension and health care costs, and health care costs are at least 60 percent of that figure.”

Whether the report reflected actual history or hyperbole, it launched Pew into the public-sector fixit business in a big way.

To date, Pew has partnered with the Arnold Foundation in Illinois, Montana, Kentucky and Rhode Island, wading in with actuarial studies and polling data to prod municipal and state lawmakers into incorporating Pew-authored restructuring plans.

In the case of Kentucky, Pew’s efforts resulted in bill language calling for a so-called “hybrid plan design” employing costly 401(k)-styled cash balance accounts that would be substantially more expensive for new workers than the state’s existing defined benefit plans.

Pew’s promotion of technocratic-sounding solutions to pension shortfalls, especially its mantra about “data-driven” problem-solving, lends its white papers the texture of dispassionate scholarship. Its partnership with the Arnold Foundation, however, has created intense controversy and provided ammunition to its critics.

Jim Wayne (D-Louisville), who has been a member of the Kentucky House of Representatives since 1991, says that Pew played a crucial role throughout the legislative process.

“They had a tremendous influence,” says Wayne. “The parties interested in change needed to rely on an outside source. Pew drew up the proposal, they did the analysis and presented the information to a [legislative] task force.”

Wayne says that Pew generally pushed the positions favored by his state’s Chamber of Commerce and League of Cities, working both behind the scenes and publicly.

“Pew gave them credibility,” Wayne says of these two groups. “Pew is recognized nationally as experts, with facts and figures.” As a result of Pew’s work, Wayne adds, “new workers have a much weaker pension program.”

If Pew embodies the image of an objective social scientist, the Laura and John Arnold Foundation has unambiguously embraced the role of partisan pit-bull in its nationwide efforts to curtail public worker pensions. The latter’s website identifies pension reform as one of its key initiatives and provides position papers supporting its stances — papers that frequently cite Pew studies.

Last year in California, the Arnold Foundation contributed to anti-worker pension measures passed by voters in San Jose and San Diego. Two years ago, the Center for Investigative Reporting disclosed that the Arnold Foundation had given a $150,000 grant to the conservative California Foundation for Fiscal Responsibility for a series of reports seeking to limit public employee pensions.

The Arnold Foundation’s 2011 tax return, a public record, vividly reveals an ideological agenda in its contributions made to organizations around the country “to research and promote education on public retirement plans.” The recipients of Arnold’s largess have included the James Madison Institute, based in Tallahassee ($265,000); the Kansas Policy Institute, based in Wichita ($10,000); the Manhattan Institute for Policy Research(MIPR), based in New York City ($15,612), and the Thomas B. Fordham Institute, headquartered in Washington, D.C. ($52,500).

The first two groups present themselves as free-market, pro-privatization think tanks, while MIPR, a right-wing nonprofit founded by the late Cold Warrior and Reagan CIA chief William J. Casey, has called for the complete elimination of public-sector defined benefit pension plans. The Fordham Institute is a right-wing education think tank whose agenda has recently broadened to include studies that scapegoat public teacher pensions for diverting precious public education money away from the classroom.

Pew’s relationship with Arnold began only recently, when the two groups joined forces to aid in furthering each other’s reach. Josh McGee, a vice president at the Arnold Foundation and Draine, the Pew Center’s lead pension researcher, have appeared together at informal meetings and before state legislatures and city councils around the country. McGee and Draine typically turn up with studies and PowerPoint presentations that support scrapping defined benefit pensions in favor of 401(k)-styled contribution plans, cash-balance accounts or hybrid plans.

“The fact is that they [Pew] go into states arguing they are non-partisan and then proceed to make recommendations and undermine and dismantle [public employee] pension plans,” says Hank Kim. “They have a bias — that bias is that public plans ought to be closed or frozen.”

Pew has called for transparency in other groups that conduct public surveys and the Arnold Foundation boasts about its research transparency. Yet both have given vague answers to specific questions about whether the Laura and John Arnold foundation has given financial support to Pew relating to work on public employee pensions.

The collaboration between the two organizations, says Jordan Marks, could ultimately undermine Pew’s reputation for good works and non-ideologically driven research.

“If Pew had its way,” Marks says, “it would retire teachers and firefighters and others into poverty.”

Gary Cohn is a Pulitzer Prize-winning journalist who has worked for the Los Angeles TimesBaltimore Sun and Wall Street JournalThis story was reported by Frying Pan News as part of its California Exposé investigative series, and published here in collaboration with Firedoglake.

Slash and Burn: The War Against California Pensions

1:33 pm in Pension by Gary Cohn

Benjamin Gamboa doesn’t know John Arnold, but they are linked by a shared concern over the fate of public-employee pensions in California.

“I’m proud to have a pension,” the 30-year-old Gamboa says. “I believe every American should have a pension.”

The two men live in very different worlds. Gamboa is a research analyst at Crafton Hills College in Yucaipa, California. Arnold is a hedge-fund billionaire from Houston, Texas.

There’s another difference between them: Arnold recently had a representative present at a secret “pension summit” held at a Sacramento hotel, where strategies to limit public employee retirement benefits were discussed; Gamboa, a union member, did not – representatives of labor were specifically not invited.

“Pension reform” has become the latest battle cry in a seemingly endless war that has ostensibly been declared against tax-dollar waste, but whose single-minded purpose has been to slash the job protections and benefits enjoyed by California’s working middle class. Pension-cutting advocates have filled airwaves, websites and op-ed pages with stories about employees retiring in early middle age on six-figure pensions. The reality is that the average state and municipal worker retires on about $26,000 a year.

The Sacramento summit took place May 22 at the Citizen Hotel, a luxury boutique inn two blocks from the state capitol. It was hosted by the Reason Foundation, a Los Angeles-based conservative and libertarian public policy group that embraces privatizing government functions and cutting public employee pensions. The foundation’s most prominent trustee is billionaire businessman David Koch, a longtime advocate of reducing public sector retirement benefits.

The meeting’s agenda – a copy of which was obtained by Frying Pan News — was written in the terse, opaque prose of event planners, but still offers a glimpse into the group’s plans. Among other items, it  lists an hour-long session on “Overcoming Opposition: Anticipating and Addressing Government and Union Opposition.” Perhaps the agenda was even more important for what it did not say: That the attack on public sector pensions may soon be transformed into a state ballot initiative that would change California’s constitution.

The participants in the closed-door meeting were Republicans and Democrats, and included public officials and representatives of numerous foundations and think tanks intent on reducing pensions for public employees.

Among those attending were San Jose Mayor Chuck Reed; former San Diego city councilman Carl DeMaio; Josh McGee, a vice president at the Laura and John Arnold Foundation; Marcia Fritz, president of the California Foundation for Fiscal Responsibility; Dan Pellissier, president of California Pension Reform; Ed Ring, executive director of the California Public Policy Center (CPPC) and editor of UnionWatch.org; Jack Dean, executive director at the Reason Foundation and editor of PensionTsunami.com, and Steven Greenhut, a journalist and author of the book Plunder! How Public Employee Unions Are Raiding Treasuries, Controlling Our Lives and Bankrupting the Nation.

Their gathering received no media coverage, with the exception of a brief mention in a column Greenhut wrote for the San Diego Union-Tribune. Despite the pension-cutting movement’s talk of the cause’s bipartisan pedigree, it seems to rely upon transfusions of money from wealthy rightwing personalities and nonprofits. Apart from the Reason Foundation’s close ties to David Koch, Greenhut’s own online hobby, CalWatchdog, is the creation of the Pacific Research Institute, a libertarian think tank with deep pockets.

Both the Reason Foundation and Pacific Research Institute are allied with the Koch-funded American Legislative Exchange Council (ALEC), which has been writing corporatist model legislation for about 30 years. More locally, however, the nexus for pension-cutting is the Tustin-headquartered California Public Policy Center, a conservative nonprofit led by Ed Ring, who worked to promote the anti-union Proposition 32 last year. CPPC’s advisors include Marcia Fritz and Jack Dean; its president is Mark W. Bucher who helped qualify and pass 2000’s Proposition 22, which effectively banned same-sex marriage in California. (Bucher is also a board member of Family Action, a rightwing Orange County political action committee.) Another CPPC board member, Robert Loewen, also serves as president of the ultraconservative Lincoln Club of Orange County.)

The Sacramento meeting apparently helped set the stage for moves that are now occurring largely behind the scenes.

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