Alarmed over the spiraling cost of retirement benefits, Los Angeles' top budget officials have begun laying the groundwork for a June 8 city ballot measure that would dramatically scale back the pension benefits given to newly hired city employees.
The plan sets the stage for a showdown between the city's elected officials and the labor unions that, in many cases, helped put them in office.
Union leaders have already begun denouncing the proposal, saying the City Council cannot make the changes without returning to the negotiating table. But three council members said Tuesday they have no choice but to consider the plan, given the enormity of the city's budget shortfall, expected to reach $1 billion by 2013.
"Part of it is about staying out of bankruptcy," Councilwoman Jan Perry said. "Part of it is about increasing our bond rating. And part of it is about preserving essential city services."
City Administrative Officer Miguel Santana, the top budget analyst at City Hall, would not comment on the proposal, which the council plans to discuss behind closed doors today. But in a confidential memo sent to council members Tuesday, Santana said the current retirement system is "unsustainable" -- and should be replaced by a system in which new workers get fewer benefits and become eligible for retirement later in life.
Budget officials expect taxpayers' share of city pension costs to grow from $653 million this year to nearly $1.3 billion over the next four years for every agency but the Department of Water and Power, which has a separate retirement system. In other words, one of every four dollars collected by the general fund, which pays for basic services such as police, parks and libraries, would go toward retirement benefits by 2013.
If benefits are not scaled back, the city will need to make "significant reductions" in the workforce and city services, the memo states. "The sooner we make changes, the sooner we can restore our long-term fiscal health."
A group representing 22,000 civilian city employees criticized Santana's proposal, saying decades will pass before the city sees any meaningful savings, in large part because newly hired employees will be nowhere near retirement.
"This is really not what pension reform is about. This is a political agenda," said Barbara Maynard, spokeswoman for the Coalition of L.A. City Unions.
Santana's memo comes months after warnings about the city's growing pension liabilities from an array of advocates, including former Mayor Richard Riordan and the League of Women Voters.
The city's three retirement systems -- one for civilian workers, a second for police and firefighters, and a third for DWP employees -- were battered by major investment losses in last year's financial meltdown. Losses in two of those three systems will force the city's general fund to contribute more toward retirement benefits this year.
The council must decide by Feb. 3 whether to pursue a ballot measure for one, two or all three groups of city employees in the June election, according to Santana's memo. The council also has other options for reducing retirement benefits of its civilian workers, such as passing an ordinance, the report states.
Mayor Antonio Villaraigosa would not disclose his position on a ballot measure, saying instead that the city needs to look at pension reform. But Councilman Dennis Zine, a retired police officer, said the city has no choice but to pare back benefits when other services are being cut.
Officers with the Los Angeles Police Department who work 33 years are eligible to receive 90% of their salaries. Under the proposal, new officers would be allowed to collect 70% of their salaries after working 30 years.
Benefits for city employees are calculated according to the size of their salaries, the number of years they have worked and the type of job they held.
Civilian employees who retire at 60 after 25 years of service currently receive 54% of their salaries, according to budget officials. DWP workers who retire at 60 after 25 years with the city receive more than 57% of their salaries. And police officers who retire at 50 after 25 years will receive 65% of their salaries.
The city's proposal is being debated at the same time that a sweeping pension plan is being pushed by the California Foundation for Fiscal Responsibility, an advocacy group founded by former Assemblyman Keith Richman. That plan, being considered for the November statewide ballot, would reduce pension benefits and raise the retirement age for all new hires in city, county and state government.
"The public is getting the message," Richman said. "People understand that they're currently paying for two police departments or two fire departments -- one that's working and one that's retired."
In Los Angeles, the council must go to the voters whenever it seeks changes to the retirement benefits of police officers and firefighters. Nevertheless, Santana recommended that the council consider a ballot measure that applies to every city agency, including the DWP.
That concept has already drawn the ire of the powerful International Brotherhood of Electrical Workers Local 18, which represents more than 8,600 of the utility's workers. Zine said the union's business manager, Brian D'Arcy, called him to speak out against the plan. Union spokesman Bob Cherry also told The Times that a two-tier pension system would create "disharmony" in the workplace.
In his memo, Santana said that the reductions in benefits for new DWP hires would correct a major disparity in pay between utility workers and other city employees. A study found that DWP workers make, on average, 18% more than their counterparts in other parts of the city workforce.
