PUBLIC SERVICE

PROTECTION INITIATIVE 2012

Despite steps taken by the Mayor, City Council and Labor in recent years,
essential public services provided by the City of Los Angeles have been and will
continue to be eliminated unless effective actions are taken immediately to bring
public sector pension costs under control. The following chart from the Chief
Administrative Officer (CAO) illustrates the financial impact of these rapidly
escalating costs on the General Fund.

In 2005-06, the City’s contribution to employee pensions was $435 million which
was 10.5 percent of the General Fund. The rapid increase in the rising cost of
pensions has been a major factor in forcing the City to reduce staff and make
other cuts in essential services.

The projected costs shown above are simply not sustainable without devastating
the City’s ability to provide critical public safety and other core services. Between
2012 and 2016, pension costs are projected to increase by $442.6 million, and it
could be more if the City’s pension funds do not earn a minimum investment
return of 7.75% per year. Simply put, every dollar spent on employee pensions
is a dollar that cannot be used to put police officers in patrol cars, firefighters in
fire trucks and ambulances, or to resurface streets and repair sidewalks.
 The following table from the CAO illustrates the magnitude of the escalating
pension costs and examples of essential public services that could be provided if
these taxpayer dollars were not diverted to pension obligations.

FUTURE PUBLIC SERVICES AT RISK

2012 to 2016
Possible Public Services Not Provided: Cost Number Total
Fill Potholes (per hole) $21 475,000 $9,975,000
Restore Street (per mile) $350,000 300 $105,000,000
Reconstruct Street (per mile) $600,000 150 $90,000,000
Police Officer $200,000 500 $100,000,000
Firefighter $200,000 100 $20,000,000
Fire Truck $625,000 25 $15,625,000
Ambulance $181,000 50 $9,050,000
Helicopter $13,000,000 1 $13,000,000
Aquatics Program $10,000,000 5 $50,000,000
New Library Books $6,000,000 5 $30,000,000
TOTAL $442,650,000

The residents of the City of Los Angeles deserve better results for their hard
earned tax dollars. The first step to getting better results and improved public
services is to bring City expenditures on employee pensions under control.

Pension reform can be a complex administrative and legal issue, but the reforms
we are proposing are founded on the bedrock of two simple principles:

1. Pension costs and the resulting impact on essential public services are of
paramount importance to the residents and control of those costs should
reside with the residents.

2. Local government exists to provide essential public services, not to

maintain structural pension costs that place those services at risk.

Legal, permanent pension reform requires amending the current Charter of the
City of Los Angeles. The following proposals would provide permanent pension
reform and ensure that the overwhelming majority of taxpayer dollars are spent
on providing essential city services.
CHARTER REFORM PROPOSALS

1. AMEND CHARTER SECTION 1150 TO REMOVE AUTHORITY OVER

CIVILIAN PENSION PLAN DESIGN FROM THE MAYOR AND CITY
COUNCIL AND RETURN IT TO THE RESIDENTS

Authority over the civilian pension system was originally held by the
residents of Los Angeles. In the Charter reform of 1972, voters delegated
that authority to the Mayor and City Council, ostensibly to provide greater
flexibility to address fiscal and employment issues. This amendment has
left the citizens of Los Angeles without a voice.

As a result, in the overwhelming majority of cases, the pension that a

civilian employee receives is far superior to the pension that taxpayers,
who are paying for that pension, can expect to receive through Social
Security and company retirement plans.

2. AMEND CHARTER SECTION 1160 AND SECTION 1210 TO

ESTABLISH THE CITY POLICY ON THE MAXIMUM CONTRIBUTION
RATE FOR CIVILIAN AND SWORN PENSION PLANS

Currently, Charter Sections 1160 and 1210 require the City of Los Angeles
to make payment to the two pension systems in an amount equal to the
normal cost of the benefit and an amortized payment of the systems’
unfunded liability. This is a sound policy and should be continued.

The failure to achieve required investment performance, a significant

increase in life expectancy and the granting of additional benefits by the
City Council, and in some cases the voters, have led to tremendous and
unsustainable increases in the City’s cost for pensions. Without
immediate action, these costs will continue to rise and replace other core
city services.

Because the benefits enjoyed by current City employees are protected by

law, the remaining most effective way to control pension costs for current
City employees is to control the rate of salary growth because every
increase in salary also increases the pension obligations of the City. For
example:

• For Civilian Plans, the maximum City Contribution to fund employee

pensions (for both the normal cost and the unfunded liability)
should not exceed 15% of pay. When the normal cost and the
unfunded liability exceed 15%, the pension based salary amount for
all civilian classifications should be frozen until the City’s required
contribution is equal to or less than 15% of pay.
 • Recognizing the necessity to maintain a workforce that can perform
the highly specialized demands of public safety, the maximum City
Contribution to fund sworn employee pensions (for both normal
cost and unfunded liability) should not exceed 25% of pay. When
the normal cost and the unfunded liability exceed 25% of pay, the
pension based salary amount for all sworn classifications should be
frozen until the City’s required contribution is equal to or less than
25% of pay.

3. NEW TIER FOR CIVILIAN PENSIONS

Fundamental to the future cost of employee pensions is the level of

benefits that will be provided to employees during their retirement years.
It is worth noting that currently the maximum a private sector employee
will receive from Social Security at age 66 is $30,615 per year. A new tier
pension design for new civilian employees like proposal #2 provided by
Bartel would ensure that pension costs for new hires will gradually reduce
the threat to the City’s fiscal stability in the future.

PROPOSED PLAN DESIGN FEATURES

Bartel Proposal #2
Retirement Factor 1.60%

Early Retirement Full actuarial value reduction

Maximum Retirement Allowance 75%

Normal Retirement Age Tied to social security eligibility

Employer Contribution 25% of Normal Cost

Employee Contribution 75% of Normal Cost

Cost of Living Adjustment Consumer Price Index based with 1% Cap

Final Compensation Calculation Based on highest five year salary average

May not become a member of any other city
Dual Pensions
retirement system.
Estimated Savings over 30 years $3.188 Billion
Escalating pension costs and the corresponding reduction of essential city
services in order to meet these growing pension obligations is the most ominous
financial issue facing the Mayor and City Council. The issue has been seriously
addressed at the bargaining table in recent years and progress has been made,
but clearly not enough to divert continued cuts in essential city services. The
existing pension system is still unsustainable over the long term.

Unless substantially more steps are taken by the Mayor and City Council, more
tax dollars each year will continue to be diverted from essential city services to
pension contributions. As city services are cut, Los Angeles will become less
attractive to business and to individuals making it more difficult to broaden the tax
base and support existing city services. This is a vicious cycle. The time to act
is now.