LAO: Reed's Pension Measure May Cost "Billions"

December 22, 2013

Contact: Steven Maviglio

Californians for Retirement Security




SACRAMENTO -- San Jose Mayor Chuck Reed's proposed ballot measure to slash pension benefits for public employees could potentially cost state and local governments "billions of dollars," according to an analysis issued today by the nonpartisan Legislative Analysts Office (LAO)

The measure has "increased annual costs—potentially in the hundreds of millions to billions of dollars—over the next two decades for those state and local governments choosing to increase contributions for unfunded liabilities," concluded the LAO. 

The LAO also noted "costs could exceed tens of millions of dollars initially" for state and local governments to develop retirement system funding reports and to modify procedures and information technology. 

Lastly, the LAO concluded "there is significant uncertainty as to the measure’s fiscal effects on state and local governments" and that "Many of these provisions could be subject to a variety of legal challenges, including suits alleging that the measure impairs contract obligations under the U.S. and/or California Constitutions."

Dave Low, Chairman of Californians for Retirement Security, a 1.6 million member coalition of public employees and retirees, said the LAO's assessment raises significant questions about the financial impact of this measure.

"It's clear from this assessment that this poorly-crafted measure will not only add to the retirement crisis in our state by eliminating vested retirement benefits for teachers, nurses, firefighters, school bus drivers and other public employees, but also cost our communities and state billions of dollars," said Low. "This measure would be a financial disaster for taxpayers and retirees alike."

Low noted that two measures that local communities have passed to slash the retirement benefits of public employees already have cost taxpayers millions of dollars in legal costs. In Reed's own city of San Jose, $5 million has been budgeted to pay for lawyers to defend Measure B. San Diego, which passed a similar pension measure, has spent millions on legal fees defending its initiative and short-term implementation costs have been pegged at $27 million.

When evaluating a similar pension measure In 2012, the LAO also noted slashing pension benefits would have significant short-term costs to state and local governments for "two or three decades." It also said long-term savings would be offset "by increases in other employee compensation costs."