L.A. union pact will save $15.7 billion over 30 years, analyst says

Confronted with a major financial crisis, the Los Angeles City Council voted three years ago to cut retirement benefits for new hires by raising the retirement age and reducing the size of pensions.

The Coalition of L.A. City Unions, which represents an estimated 17,000 civilian city workers, responded with a legal challenge. To get that group to settle its case and sign off on a new salary contract, Mayor Eric Garcetti and other city negotiators offered a new set of retirement benefits last summer — one that’s more generous to new hires than the 2012 plan, but less lucrative than what long-term employees have been receiving.

Now, the city’s top budget analyst is recommending that the City Council approve that agreement, saying it would produce $15.7 billion in savings over 30 years. The council’s Budget and Finance Committee will take up the agreement Monday.

In a memo released last week, City Administrative Officer Miguel Santana advised council members to abandon their 2012 pension-cutting measure, which was on track to save $6.9 billion over three decades. Lawmakers will need to replace it, he said, with a new package of retirement benefits for new hires, which is expected to cut pension costs by $5.2 billion over the same time frame.

That trade-off is necessary, Santana said, because the city faces a serious risk of having its three-year-old pension measure struck down in court. “The city made the strategic decision that it was more important to find predictability and certainty than keep that risk floating out there,” he said.

In his 16-page report, Santana said about half the savings contained in the deal, or about $7.6 billion, stems from the fact that most workers in the coalition will go three years without raises.

One taxpayer watchdog criticized that analysis, saying L.A. leaders are trying to “fool the public into thinking they’re being frugal.”

Kris Vosburgh, executive director of the Howard Jarvis Taxpayer Assn., said he was troubled to see the city back away from some of its pension cuts. Vosburgh also does not buy the city’s argument that declining to award three years of raises produces $7.6 billion for the public.

“In the real world, that’s not considered a savings,” he said. “When you don’t go out and buy a new car, you don’t say, ‘Gee, I just saved $25,000.’ ”

Santana said the city pension system’s actuary had previously assumed that every coalition member would receive raises between 2014 and 2016. And he argued that other savings would be achieved by reducing the size of starting salaries for future workers.

Meanwhile, the head of the union coalition said Santana’s latest report shows that the city previously had been on the wrong track.

“We’ve always said that the city’s [2012] pension policy was unfair and an end-run around the collective bargaining rights of the city’s civilian workforce,” said coalition President Cheryl Parisi, whose group represents librarians, tree-trimmers, 911 operators and other civilian city workers.

Retirement costs for the workforce have steadily grown over the last decade, consuming a greater share of the budget that pays for police officers, firefighters and basic public services. Yet under state and federal law, city leaders cannot cut the pension benefits of existing workers unless another benefit of equal value is provided in exchange, budget officials say.

As a result, the 2012 pension-cutting measure —backed by then-Mayor Antonio Villaraigosa and the City Council — only applied to new hires. Those reductions went into effect for workers who took city jobs starting July 1, 2013.

Now, because the three-year-old pension measure will be abandoned, nearly 1,800 employees hired over the last 2 1/2 years will be eligible for the city’s older, more lucrative retirement benefits.

If approved by the council, the replacement pension package will go into effect for workers hired starting next year. Its provisions will be more lucrative for those new workers than the one imposed in 2012.

For example, the council voted three years ago to raise the retirement age to 65, up from 60 for new hires with 10 or more years on the job. The latest plan moves that age to 63, officials said this week.

The 2012 vote also capped pensions for new hires at 75% of a retiree’s final salary, down from 100%. The compromise agreement lifts that limit to 80%, officials said. In a particularly lucrative concession by the city, the spouses of future workers will once again be eligible for survivor benefits that are equal to 50% of a deceased employee’s pension.

In a statement, Garcetti said the union agreement would replace “risk and uncertainty with guaranteed long-term savings.”

“This agreement puts the city in a position to restore and sustain the critical services Angelenos deserve,” he said.

Follow @DavidZahniser on Twitter for what’s happening at Los Angeles City Hall.

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