Voters could see police and fire pension changes on March ballot

With escalating pension costs threatening to shut down even more city services, Mayor Antonio Villaraigosa and other city officials on Monday proposed modest changes to the retirement plans of newly hired police officers and firefighters.

While Villaraigosa said the plan would spell the end of "the era of big pensions," critics said it does not go far enough to address the city's pension crisis.

Among other things, the mayor's plan calls for new hires to pay 2 percent of salary for health care, up from nothing now. It would also reduce the pension for those who retire after just 20 years to 40 percent of their salary rather than the current 50 percent.

"This is not a radical proposal, but it is sustainable," Villaraigosa said of the plan, which if approved by the City Council, could go to voters in March.

The Civic Alliance, which includes many of the city's top business and community leaders, said more radical reform was needed.

"Every dollar overspent on pensions is a dollar less for city services," the group said in a letter sent to all city officials. "Either we cut public services even further or pass an increasingly severe budget burden to our children."

City Administrative Officer Miguel Santana said the mayor's proposal is expected to save about $120 million in the first 10 years. That is just a fraction - about 20 percent - of the city's looming pensions bill.

For example, last budget year, the city contributed about $650 million to its two pension systems. That figure is expected to double to $1.3 billion in four years and probably increase even further after that.

Pension costs alone are expected to take up one-third of the city's general fund within two years.

Still, the mayor said the plan, which has the support of firefighters, is a step in the right direction by making employee contributions for health care mandatory for new hires.

"The era of free health care is over," Villaraigosa said, voicing confidence other local jurisdictions will take similar action.

The plan would also base all pensions on an annual average of the two highest years of an employee's salary, not one highest year as used for current pensions.

"We are looking at a landmark proposal affecting the future of Los Angeles," Villaraigosa said. "The general fund is driven by pension and health care costs. Next year, we are looking at a $320 million shortfall and half of that is due to pensions.

"What we are proposing will affect new hires and, for every 1,000 hires, we will save $173 million in pension costs."

The mayor said he did not believe any change in the pensions would affect the ability to recruit new officers or firefighters.

"We aren't the only jurisdiction looking at this," Villaraigosa said. "Every other jurisdiction will be looking at reducing their pension benefit."

Representatives of the Los Angeles Police Protective League, the union representing police officers, said they were studying the proposal and would have no comment before it is considered by the City Council.

Firefighters, however, said they would support the proposal as outlined by the mayor.

"We have been working with them and getting collaboration," United Firefighters of Los Angeles City President Pat McOsker said. "We want to see the final package, but we can live with this. It still allows someone to have a full career with the fire department - 33 years - and still be able to retire."

The Civic Alliance supported many of the specific proposals, although it said it wanted to see a higher retirement age and benefits calculated on the last three years of pay to avoid pension spiking in the final year of an employee's career.

"Simply put, the pension programs must be substantially reformed," the group said in its letter.

Also, financial consultant Alex Rubalcava, who has been working with former Mayor Richard Riordan on the issue, said the city was ignoring an approach where workers would have a defined contribution pension system, similar to 401(k) plans.

"This goes nowhere near far enough," Rubalcava said. "What's needed is a defined contribution plan and eliminate the health care portion. No one in the real world is guaranteed health care."

Santana said officials looked at a defined contribution plan and rejected it.

"When we looked at it as an option, it did not provide the savings we need," Santana said. "What we came up with is the most comprehensive one to reach our goals."

Controller Wendy Greuel said she supported the mayor's plan.

"Every month, as City Controller, I have to pay our bills and it is becoming a choice of paying for pensions or for services," Greuel said. "I would prefer to pay for services. Angelenos deserve the highest level of service."

Pension reform has become a top issue in recent months as the City Council works to balance its $7.01 billion budget. Santana said pensions now cost about 15 percent of the total budget.

Last Friday, Council President Eric Garcetti introduced a reform proposal for the civilian pension fund, which can be changed by ordinance and without going before voters.

The proposal includes raising the retirement age to 60, requiring a three-year averaging of salaries to determine pensions and prohibiting drawing a pension and salary at the same time.

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