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How to Restore Financial Sustainability to Public Pensions

Last month the League of California Cities released a “Retirement System Sustainability Study and Findings.” The findings were not surprising.

“Key Findings” were (1) City pension costs will dramatically increase to unsustainable levels, (2) Rising pension costs will require cities to nearly double the percentage of their general fund dollars they pay to CalPERS, and (3) Cities have few options to address growing pension liabilities.

These findings corroborate the California Policy Center’s concurrent recent updates on the pension situation in California. In the January 31st update “California Government Pension Contributions Required to Double by 2024 – Best Case,” and the January 10th update “How Much More Will Cities and Counties Pay CalPERS?,” using CalPERS own “Public Agency Actuarial Valuation Reports,” it is shown that over the next six years, participating cities will need to increase their payments to CalPERS by 87%, from $3.1 billion in the 2017-18 fiscal year to $5.8 billion by the 2024-25 fiscal year.

This 87% rise in pension payments, officially announced by CalPERS, is definitely a best case. The report from the League of California Cities offers the following footnote on page 1 that underscores this fact: “Bartel Associates used the existing CalPERS’ discount rate and projections for local revenue growth. To the extent CalPERS market return performance and local revenue growth do not achieve those estimates, impacts to local agencies will increase. Additionally, the data does not take into account action pending before the CalPERS Board of Administration to prospectively reduce the employer amortization schedule from its current 30 year term to a 20 year term. Should the Board adopt staff’s recommendation, employer contributions are likely to increase.”

The report from the League of California Cities includes a section entitled “What Cities Can Do Today.” This section merits a read between the lines:

ANALYSIS OF RECOMMENDATIONS TO CITIES CONFRONTING UNSUSTAINABLE PENSIONS

1 – “Develop and implement a plan to pay down the city’s Unfunded Actuarial Liability (UAL): Possible methods include shorter amortization periods and pre-payment of cities UAL. This option may only work for cities in a better financial condition.”

1 (reading between the lines) – PAY CALPERS MORE. Reduce the unfunded liability by making your annual catch-up payment even more than CalPERS is instructing you to pay in their “Public Agency Actuarial Valuation Reports.” Doing this will save money over several years. But only if you can afford it.

2 – “Consider local ballot measures to enhance revenues: Some cities have been successful in passing a measure to increase revenues. Others have been unsuccessful. Given that these are voter approved measures, success varies depending on location.”

2 (reading between the lines) – RAISE TAXES. Do what you’ve been doing incessantly ever since pension benefits were enhanced right before the financial crisis of 2000 wiped out the pension fund surplus. Raise taxes. Say it’s “for the children” and to “protect seniors,” and based on the last several years of data, there is an 80% chance voters will approve the new tax.

3 – “Create a Pension Rate Stabilization Program (PRSP): Establishing and funding a local Section 115 Trust Fund can help offset unanticipated spikes in employer contributions. Initial funds still must be identified. Again, this is an option that may work for cities that are in a better financial condition.”

3 (reading between the lines) – PAY CALPERS MORE. Make payments into a separate investment fund, over and above your annual pension payments, earmarked for CalPERS. Then draw on those funds when the annual pension payments increase. But only if you can afford it.

4 – “Change service delivery methods and levels of certain public services: Many cities have already consolidated and cut local services during the Great Recession and have not been able to restore those service levels. Often, revenue growth from the improved economy has been absorbed by pension costs. The next round of service cuts will be even harder.”

4 (reading between the lines) – CUT SERVICES.

5. “Use procedures and transparent bargaining to increase employee pension contributions: Many local agencies and their employee organizations have already entered into such agreements.”

5 (reading between the lines) – MAKE BENEFICIARIES PAY MORE. Good idea. The League of California Cities might expand on the feasibility of this recommendation and provide examples of where it actually happened (cases where employees agreed to pay more towards their pension benefits but received an equivalent pay increase do not count).

6 – “Issue a pension obligation bond (POB): However, financial experts including the Government Finance Officers Association (GFOA) strongly discourage local agencies from issuing POBs. Moreover, this approach only delays and compounds the inevitable financial impacts.”

6 (reading between the lines) – GO INTO DEBT TO PAY OFF DEBT. Pension obligation bonds are at best a dangerous gamble, at worst a deceptive scam. The recommendation itself (above) dismisses itself in the final sentence, where it states “this approach only delays and compounds the inevitable financial impacts.”

WHAT CAN LOCAL ELECTED OFFICIALS DO ABOUT UNSUSTAINABLE PENSIONS?

1 – Learn what really happened and communicate it to everyone – employees, elected officials, journalists, citizens. CalPERS, an independent entity largely controlled by public employee unions, joined with powerful union lobbyists to push through pension benefit enhancements beginning in 1999. Despite a sobering and ongoing stock market correction that began only a year later in 2000, over the next several years these two special interests successfully lobbied to roll these financially unsustainable benefit enhancements through nearly every state and local agency in California.

Then, for years, whether intentionally or via a culture that encouraged wishful thinking, CalPERS obfuscated the deepening financial challenges from local officials and the public, deferring the day of reckoning. For more on this, read “Did CalPERS Use Accounting “Gimmicks” to Enable Financially Unsustainable Pensions?”

2 – Support legislation that will make it easier to take steps to reduce financially unsustainable pension benefits. For example, state senator John Moorlach – the only actual CPA currently serving in California’s state legislature – has just introduced Senate Bill 1031. According to Moorlach’s recent press release, this bill “would protect the solvency of public-employee pensions by making sure each yearly COLA – cost-of-living-adjustment – isn’t so large it tips the underlying fund into insolvency. If a pension system is funded at less than 80 percent, then the COLA would be suspended until the funding status recovers.” Great idea.

3 – Fight for either legislation or a citizen initiative to implement the “Pension Sustainability Principles” that the California League of Cities’ Board of Directors adopted in June 2017. In particular, “converting all currently deemed ‘Classic’ employees to the same provisions (benefits and employee contributions) currently in place for ‘PEPRA’ employees for all future years of service.”

4 – Understand that public employee unions are likely to fight any substantive revisions to their pension benefits, and be prepared to incur their wrath. When they fund candidates to challenge you and destroy you in the next election, own the pension issue. Make it the centerpiece of your campaign and challenge your union-funded opponent on the basis of financial reality.

5 – Thoroughly familiarize yourself with the dynamics of pension finance and the underlying concepts. A good place to start is the CPC primer “How to Assess Impact of a Market Correction on Pension Payments.” Quoting from that article – “Any policymaker who is required to negotiate over pension benefits, explain pension benefits, consider changes to pensions, or understand the impact of pensions on current and future budgets, or for that matter, contemplate any sort of increase to local taxes and fees, needs to understand the basic financial concepts that govern pensions. They should understand the difference between the total pension liability and the unfunded pension liability. They should understand the difference between the normal payment and the unfunded payment. They should understand the difference between unfunded payment schedules that use the “percent of payroll” method vs. the “level payment” method. They should know what “smoothing” is. They should thoroughly understand these concepts and related concepts.”

6 – Local elected officials might consider ways to exit CalPERS. The option of leaving CalPERS should not be dismissed merely because the terms of departure require a large payment. While the buyout terms CalPERS imposes on agencies that want to leave the system are onerous, the funds a city must muster for the buyout are still retained as funds reserved to service their pension liability. This is one situation where financing scenarios might make sense, because once an agency leaves CalPERS, they are no longer subject to many of the restrictions CalPERS places on the ability of agencies to modify pension benefits. The savings realized by having the latitude to make more substantive changes to benefit formulas could mitigate the financing risk.

7 – Finally, remind the members of public employee unions that merely opposing their leadership on pension policies does not automatically make you their enemy. Defined benefit pensions are superior to individual 401K plans, because they do not carry the market risk nor the mortality risk that is inherent in anyone’s individual 401K. But defined benefit plans must be fair to taxpayers, they must be financially sustainable, and the participants must pay their fair share. Appeal not only to their desire to see their pension funds stabilized so they don’t face draconian cuts in the future instead of measured cuts today, but also to the reasons they entered public service, their altruism, their civic pride, their patriotism, their desire to make a contribution to society.

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CTA’s New Gambit to Cheat Taxpayers Annually

A bill, near passage, would require you and me to pay for union indoctrination sessions in California. 

California is a fabulous place. Fantastic weather, fertile fields, glorious mountains and a thousand mile coastline have long beckoned many to the Golden State.

And then there is the state legislature.

This law-making body is very far from fabulous. Its main activities in our one-party state are taxing, spending and regulating our business community, workers and economy to death. Additionally, many of its members are in the pocket of the California Teachers Association, which is by far the biggest political spender in the state, unleashing $290 million on candidates and causes between 2000 and 2013.

The latest legislative sop to the unions is AB 2835, a CTA-co-sponsored bill that, if it passes, will force local governments, including school districts, to provide 30-minute in-person orientations, paid for by the taxpayer, to each and every new public employee during work hours within the first two months of their being hired. But as pointed out by several government officials in a piece that ran in the East Bay Times recently, cities, counties and special districts already do that, spending “the better part of a full day educating new employees on the benefits available to them, policies on harassment and violence, and how to respond to possibly harmful workplace situations. Our employees begin their public service with the knowledge they need to serve their communities.”

However, AB 2835 goes way beyond that, requiring local governments to set aside half of an hour – within the first hour of any orientation it provides – for each union representing public employees to speak, with almost no restrictions, to new employees. “It won’t matter if local governments are using an online or video orientation to maximize tax dollars and avoid unnecessary travel expenses. It won’t matter if a police officer or firefighter should be on-call to respond to emergencies instead of meeting with his or her union representative. Every employee. In-person. Thirty minutes during the first hour of an orientation. Every time.”

This requirement would place an enormous administrative burden on government, and it won’t come cheap. The California State Department of Finance has estimated that the mandate would cost taxpayers “more than $70 million annually for local governments and more than $280 million annually for school districts.”

AB 2835 would especially pose logistical problems for schools because the 30 minute orientation sessions would be held during the work day. Colleges, which have numerous collective bargaining units, would be especially affected.  As the Association of California Community College Administrators points out, allowing each collective bargaining unit 30 minutes to make a presentation, “will result in a significant length of time, which will require colleges to hire additional staff to cover classes and other critical campus safety services during the orientations.”

Not surprisingly, the bill is backed by a gaggle of labor organizations. In addition to CTA, the California Faculty Association, California Nurses Association and SEIU are behind it. The opposition includes the California School Boards Association, the League of California Cities and the Association of California School Administrators.

Just as onerous as the cost and disruptiveness will be the quality of the orientation session. This is going to be a hard sales pitch, plain and simple. Or, in less polite terms, indoctrination. I guarantee that the results of a study released in April by the Heritage Foundation – which found that between 1957 and 2011, mandatory collective bargaining costs a family of four between $2,300 and $3,000 a year – will not be a topic of discussion.

Also missing from the pitch will be a recent study by Cornell researcher Michael Lovenheim. He found that “laws requiring school districts to engage in collective bargaining with teachers unions lead students to be less successful in the labor market in adulthood. Students who spent all 12 years of grade school in a state with a duty-to-bargain law earned an average of $795 less per year and worked half an hour less per week as adults than students who were not exposed to collective-bargaining laws.”

Will the orientation stress that collective bargaining creates significant potential for polarization between employees and managers? Or that it decreases flexibility and requires longer time needed for decision making? Or that it protects the status quo, thereby inhibiting innovation and change? Or that it restricts management’s ability to deal directly with individual employees? Nah.

AB 2835 was birthed when CTA leaders were frightened that the Friedrichs decision was going to go against them and decided they needed to deliver a sales pitch to teachers who would no longer be forced to pay money to the union as a condition of employment. But with Antonin Scalia’s death and the Supreme Court’s subsequent refusal to rehear the case, this bill is irrelevant; CTA and the smaller California Federation of Teachers still have a captive audience. Just about every public school teacher in the state will continue to be forced to pay a union if they want a job in a public school. But if CTA and other unions still insist on trying to convince prospective members of their value, they should do it after hours and not ding the taxpayer in the process.

The bill sailed through the California State Assembly and now rests in the State Senate where it must be voted on by August 31sttomorrow, for it to become law. So, if you live in the Beholden State, please contact your state senator immediately and keep your fingers crossed. And should the bill become law, prepare for even more money to be transferred from your wallet to the unions’ already healthy coffers.

Larry Sand, a former classroom teacher, is the president of the non-profit California Teachers Empowerment Network – a non-partisan, non-political group dedicated to providing teachers and the general public with reliable and balanced information about professional affiliations and positions on educational issues. The views presented here are strictly his own.

Unions “Using Political Leverage to Punish Those Exercising Rights” in California Constitution

On October 13, 2013, California Governor Jerry Brown signed Senate Bill 7, which cuts off state funds designated for construction to any California city that exercises its right under the California Constitution to establish its own policies concerning government-mandated wage rates (so-called “prevailing wages”) on contracts. This was a major victory for the State Building and Construction Trades Council of California, the construction union umbrella lobbying organization that sponsored the bill.

There are 121 California cities that govern their own municipal affairs through a charter, a mini-constitution authorized in Article XI of the California Constitution. In its letter unsuccessfully requesting for a gubernatorial veto, the League of California Cities declared that “using political leverage to punish those exercising rights provided by the Constitution is unjust” and a veto was needed to “protect the integrity of our Constitution and the communities operating in lawful compliance with it.” (Coming from the professional association of California city officials, these statements cannot be easily brushed off by California Democrats and their union allies as irrelevant “Tea Party” rhetoric.)

In California, the “Progressive” movement is determined not to let the structural protections of constitutional government impede the quest for democratic socialism and societal justice. Passing Senate Bill 7 through the state legislature and getting it signed is the type of government activism that earns praise from the national news media, as it compares the State of California favorably against the “gridlock” in Washington, D.C.

Senate Bill 7 has a practical fiscal impact as well as a constitutional significance. Out of California’s 121 cities governed under a charter, 43 do not require construction companies to pay state-mandated prevailing wages on any city contracts, and 10 do not require construction companies to pay state-mandated prevailing wages on some kinds of city contracts. The cities of El Cajon, Bakersfield, and Newport Beach are the most recent cities to establish their own prevailing wage policies. Meanwhile, unions have successfully lobbied the city councils in San Diego and Mountain View in recent months to abandon their own wage rate policies and submit to state prevailing wage law.

A couple dozen “general law” cities have recently proposed charters to voters or plan to propose charters to voters. Evading the costly state prevailing wage mandate for construction contracts has been a primary motivation for these cities, and construction unions have been aggressive in lobbying and campaigning to undermine these local efforts. In 2012, voters in the cities of Auburn, Costa Mesa, Escondido, and Grover Beach rejected proposed charters.

It’s likely that a charter city or group of charter cities will file a lawsuit in 2014 to strike down Senate Bill 7, along with two similar laws implemented by Senate Bill 922 in 2011 and Senate Bill 829 in 2012. These two laws, also sponsored by the State Building and Construction Trades Council of California, cut off state construction funds to charter cities that adopt Fair and Open Competition policies prohibiting the cities from entering into contracts requiring construction companies to sign a Project Labor Agreement with unions.


Sources

Article XI of the California Constitution

Senate Bill 7 (2013) – to be California Labor Code Section 1782

League of California Cities – SB 7 (Steinberg) Undermining Constitutional Exercise of Municipal Affairs – Request for Veto

Information on Charters from League of California Cities (includes list of 121 charter cities)

State Building and Construction Trades Council of California, AFL-CIO v. City of Vista et al. – California Supreme Court decision of July 2, 2012 upholding constitutional right of charter cities to establish their own policies concerning government-mandated wage rates for municipal construction contracts.

Are Charter Cities Taking Advantage of State-Mandated Construction Wage Rate (“Prevailing Wage”) Exemptions? (3rd edition – Summer 2012) – the most comprehensive report ever published on California prevailing wage and charter city policies and an inspiration for advocates of fiscal responsibility and local control. (A 4th edition is in the works.)

Senate Bill 922 (2011) and Senate Bill 829 (2012) – punishing charter cities with prohibitions on city contracts that mandate Project Labor Agreements.

State-mandated prevailing wages for construction trades in all geographic regions of California

State Building & Construction Trades Council of California

News and Opinion Leading Up to and Following Gov. Brown Signing Senate Bill 7

SB 7: Cities Stand to Lose Home Rule over Municipal Affairs – www.PublicCEO.com – September 9, 2013

Three Bad Bills that Gov. Jerry Brown Should Veto – editorial – Sacramento Bee – September 9, 2013

Legislative Sampler: 2 to Sign, 2 to Veto – editorial – Riverside Press-Enterprise – September 18, 2013

Has Labor Leader Overreached? – columnist Dan Morain – Sacramento Bee – October 9, 2013 (The answer is “no.”)

Prevailing Wage Bill Deserves a Veto – editorial – UT San Diego – October 4, 2013

Governor Should Veto Wage Bill – editorial – Modesto Bee – October 11, 2013

If Gov. Brown Doesn’t Like Intrusion, He Should Veto SB 7 – editorial – Sacramento Bee – October 12, 2013

Jerry Brown Signs Prevailing Wage Bill for Charter Cities – Sacramento Bee – October 13, 2013

Governor Brown Signs Union-Backed Senate Bill 7 and Continues Erosion of Constitutional Checks and Balances – www.FlashReport.org – October 13, 2013

Brown Signs Prevailing Wage Bill – Capitol Weekly – October 14, 2013

Brown Signs Prevailing Wage Bill for Cities – Central Valley Business Journal – October 14, 2013

Governor Signs Prevailing wage Bill for Charter Cities – Sacramento Business Journal – October 14, 2013

Gov. Brown Signs SB 7 to Neuter Charter Cities – www.CalWatchdog.com – October 14, 2013

Prevailing Wage Law Could Raise Costs – UT San Diego – October 14, 2013

Unions Smile, Cities Frown at Prevailing Wage Law – Bakersfield Californian – October 14, 2013

Modesto Fears Harm from New Prevailing Wage Law – Modesto Bee – October 14, 2013

California Construction Unions Get Two Big Wins – columnist Dan Walters – Sacramento Bee – October 15, 2013

Charter Could Cost City Funding – Newport Beach/Costa Mesa Daily Pilot – October 16, 2013

Wage Law Costs Cities More Than Money – op-ed by El Cajon Acting Mayor Bill Wells – UT San Diego – October 25, 2013


Kevin Dayton is the President & CEO of Labor Issues Solutions, LLC, and is the author of frequent postings about generally unreported California state and local policy issues at www.laborissuessolutions.com. Follow him on Twitter at @DaytonPubPolicy.

 

With Senate Bill 7, California Unions Advance Plot to Neuter City Charters

More than 30 California cities are likely to defy top union officials by asking their citizens in 2014 to vote on enacting a “home rule” charter for local control.

Cities want to free their purely municipal affairs from costly union-backed state mandates, for reasons revealed in these recent articles:

Unions Rise to Defense of “Prevailing Wage” Rates Jeopardizing Hotel Project in Redding – www.LaborIssuesSolutions.com – February 15, 2013 and Redding Needs a Charter to End Nonsense Definition of Private Hotel as a “Public Works” Project – www.LaborIssuesSolutions.com – January 31, 2013.

Stanford Professor Warns Costa Mesa about Pension DebtOrange County Register – February 27, 2013 and City’s Pension Outlook Called ‘Stark’ – Newport Beach/Costa Mesa Daily Pilot – February 27, 2013. (With the failure of the Measure V charter in November 2012, Costa Mesa is now in the union paradigm with a proposed solution to raise taxes.)

A Former Mayor of a Southern California City Provides an Intellectual Argument for City Charters and Local Government Authority – www.LaborIssuesSolutions.com – February 19, 2013 (a commentary on Reasons to Consider Becoming a Charter City – San Diego Union-Tribune – February 19, 2013).

For a powerful example of how charter cities are saving money and being more cost-effective in their city operations and services, see Are Charter Cities Taking Advantage of State-Mandated Construction Wage Rate (“Prevailing Wage”) Exemptions? Cities recognize that exercising the power of a charter can free their municipal affairs from the grip of the state legislature and the special interest groups entrenched at the capitol. A staff report about city charters to the Murrieta City Council for its October 2, 2012 meeting was blunt about the need for cities to enact charters:

…a knowledgeable, involved electorate should both propel and constrain the direction of its own city. Local control has always been a paramount matter of residents, businesses and the Murrieta City Council. Yet state legislators and previous gubernatorial administrations continue to impose far greater mandates, while at the same time hindering the ability of local governments to operate successfully. With little ability to protest, local governments have watched as the state government continues to balance its budget deficits on the backs of fiscally responsible local jurisdictions…The voice of cities in Sacramento has become mute due to a combination of special interest groups, influential political campaign contributions and tone-deaf lawmakers passing unfunded mandates. This process has left cities with little ability to petition the state government…

A city charter is a unique document that acts like a constitution for a city adopting it. Overall, this puts more control into the hands of the residents instead of state legislators and gives a community greater independence to determine its own destiny. Cities typically enter the process to become a charter city to become more autonomous. A charter city has more flexibility and has ultimate authority over municipal affairs. The charter city provision of the state Constitution, commonly referred to as the “home-rule” provision, is based on the principle that a city, rather than the state, is in the best position to know what it needs and how to satisfy those needs. The home-rule provision allows charter cities to conduct their own business and control their own affairs. Therefore, a charter maximizes local control. Such benefits of a charter city are greater flexibility on public works contracts and other changes in the procurement process, more control over economic development practices, and less reliance on the state.

Right now there are 121 charter cities in California, up from 107 in 2007. But there are aggressive opponents who regard cities’ exercise of their charter authority (as cited above from the Murrieta staff report) to be an attack on their hegemony. In 2011 and 2012, unions spent jaw-dropping amounts per voter on campaigns to convince voters to reject reasonable proposed charters.

Charters were defeated in Rancho Palos Verdes, Auburn, Costa Mesa, Escondido, and Grover Beach, to the dismay of civic leaders whose local grassroots efforts were rolled over by well-funded union-backed professional campaign operations. Unions are now ready to crush California’s federalist rebellion once and for all in 2013 and 2014.

As one strategy, they are infiltrating and trying to neutralize the League of California Cities as an organization that provides information to cities looking at charters. A union-affiliated group called www.SmartCitiesPrevail.org is trying to influence the League of California Cities through sponsorship, partnership, and participation in the League’s Transportation, Communication & Public Works Committee.

Unions are aggressively opposing charters when proposed on the local level and are trying to derail proposals through charter review commissions (a strategy that worked for unions in Elk Grove, Redding, and other cities). See the newspaper articles listed below for evidence.

Union lobbyists also have a bill now in the California State Legislature (Senate Bill 7) introduced by Senate leader Darrell Steinberg and a Republican State Senator, Anthony Cannella. It will cut off state funding for cities that use their constitutional charter authority to establish their own policies concerning state-mandated construction wage rates. (See Bill Introduced in State Senate to Suppress Authority of California’s Charter Cities to Establish Their Own Policies on Government-Mandated Construction Wage Rates – www.LaborIssuesSolutions.com – February 20, 2013.)

This bill adopts the same concept of crushing charter city authority as did the union-backed Senate Bill 922 in 2011 and Senate Bill 829 in 2012 (two bills pushed by Senator Michael Rubio, who just resigned to take a lobbying position with Chevron). These two laws cut off state money to charter cities that adopt policies prohibiting those cities from requiring construction contractors to sign a Project Labor Agreement with unions as a condition of work.

Threatening to withhold money as a tactic to force a government to submit to centralized authority may remind you of warnings in the dissent in the U.S. Supreme Court decision in June 2012 concerning the constitutionality of Obamacare:

Structural protections – notably, the restraints imposed by federalism and separation of powers – are less romantic and have less obvious a connection to personal freedom…The fragmentation of power produced by the structure of our Government is central to liberty, and when we destroy it, we place liberty at peril…[The] practice of attaching conditions to federal funds greatly increases federal power…This formidable power, if not checked in any way, would present a grave threat to the system of federalism created by our Constitution…Coercing States to accept conditions risks the destruction of the “unique role of the States in our system.”

While the same principles would seemingly apply to the relationship of state and local governments, forces at the state capitol seem to prefer an overbearing centralized government that can solve problems with broad strokes of alleged social justice.

With bills such as SB 922, SB 829, and SB 7 deemed as acceptable modes of governance by the legislative supermajority and the governor, I anticipate a union-backed effort in the future to repeal outright the section of the California Constitution (Article XI, Section 3) that allows cities to govern their own municipal affairs under a charter. It would be an effective way to eliminate another one of the diminishing number of checks and balances that interfere with utopian schemes planned under the benevolent and enlightened one-party state.

Then there is the strange case of Republican Senator Anthony Cannella, who is so proud of undermining local control and raising costs for taxpayers that he used the Senate Republican Caucus communications operation to proclaim his legislative achievement to a gullible press. Here’s a Tweet:

It didn’t go unanswered. I responded with this Tweet:

Senator Cannella may not realize (or may not care) that he represents two cities – Modesto and Merced – that use their charter authority to set their own policies concerning government-mandated construction wage rates (so-called “prevailing wages”). Here is the Modesto policy, set by a 1995 resolution: Modesto Prevailing Wage Policy and Staff Report. Here is the Merced practice: Merced Exempts Rental Housing Preparation from State-Mandated Government Wage Rates (Prevailing Wage). Oh well, sometimes the union lobbyists in Sacramento are a more important constituency than the people back home in the Central Valley.

With the help of Senators Steinberg and Cannella, union lobbyists intend to direct their legislative puppets from Los Angeles and San Francisco to suppress the small and medium-sized cities trying to determine their own financial destinies. To protect union power, these cities must submit to centralized power exercised by the state legislature and Governor Jerry Brown.

In the meantime, the local federalist rebellion continues. In addition to the cities of Temecula and Murrieta, the following California cities are now publicly moving forward on asking their citizens to approve a charter in 2014 (with several more soon to begin public discussion):

Costa Mesa

Outsourcing Back in for Costa MesaOrange County Register (editorial) – February 6, 2013

…passage of Measure V would have made the privatization task easier. But the union outspent Measure V proponents by more than seven-to-one. However, Mr. [Councilman Jim] Righeimer said he hopes a new charter measure will be put on the June 2014 ballot…Within 60 days the council will hold a study session on how to set up the independent committee for the new charter measure.

Escondido

Escondido Mayor Touts Urban Renewal, Embracing DiversitySan Diego Union-Tribune – February 20, 2013

Delivering his annual State of the City address to nearly 300 residents and business leaders gathered at the city’s arts center… [Mayor Sam] Abed said he also wants the city to take another shot at becoming a charter city, which would increase Escondido’s independence from Sacramento and reduce the cost of some city construction projects.

Moreno Valley

Moreno Valley: City to Explore Becoming Charter City – Riverside Press-Enterprise – February 26, 2013

The Moreno Valley City Council on Tuesday, Feb. 26, unanimously approved establishing a subcommittee that would explore becoming a charter city and appointing two council members to it.

Moreno Valley: Charter City Committee Could Be Created  – Riverside Press-Enterprise – February 25, 2013

The Moreno Valley City Council on Tuesday, Feb. 26, is to follow through on plans to determine whether to become a charter city. The council is set to vote on whether to establish a charter exploratory subcommittee and appoint two council members to it.

Buellton

Buellton Continues “Home Rule’ Talk – Santa Ynez Valley News – February 7, 2013

The idea of changing Buellton to a “home-rule” city is on hold again after City Council members decided to set up a workshop for more discussion about a draft plan…City Manager John Kunkel said the committee wants voters to be comfortable with the measure and, if the council wants to have a dialogue with unions, there is no rush.

Charting Best Path to Buellton’s Future – Santa Ynez Valley News (editorial) – February 7, 2013

…being a charter city does mean that local elected officials and voters can make more of their own decisions, and are therefore better able to tailor policy to fit specific local needs…Being a charter city also lets local government off the hook for paying a prevailing wage. Labor unions don’t like that possibility…

Arroyo Grande
Arroyo Grande Considering City Charter – www.CalCoastNews.com – January 28, 2013

The Arroyo Grande City Council has created a committee to explore the idea of becoming a charter city in order to cut costs…Many union members oppose city charters because they allow exemptions from state-mandated prevailing wage agreements. City staff says adopting a charter could save Arroyo Grande $50,000 to $300,000 annually.

Study Under Way to Find Out if Arroyo Grande Should Try to Become a Charter CitySan Luis Obispo Tribune – January 27, 2013

A committee has been convened to study whether Arroyo Grande should try to become a charter city, a move that officials say could save money and give it more local control. The idea, however, faces stiff opposition from local union members…

California cities have two choices about their financial futures: enact a charter as an way to become more cost-efficient, or raise taxes. Guess which choice the unions want?

Kevin Dayton is the President and CEO of Labor Issues Solutions, LLC and is the author of frequent postings about generally unreported California state and local policy issues at www.laborissuessolutions.com.

Mysterious Union Slush Fund Spends $100,000 Against Costa Mesa Charter

As explained by the League of California Cities, the California Constitution gives cities the authority to enact “charters” and thereby manage their purely municipal affairs without interference from the state. Cities have been increasingly eager to seek charters in recent years in order to free themselves from costly state mandates. Since 2007, voters have increased the number of charter cities from 107 to 121, and voters in three more cities will have the opportunity to consider approving charters on November 6, 2012.

Here are web links to the three proposed charters and the support and opposition web sites for the three proposed charters:

1. City of Escondido (San Diego County) – population 146,032

2. City of Costa Mesa (Orange County) – population 111,600

3. City of Grover Beach (San Luis Obispo County) – population 13,275

  • Charter Proposal as Presented on City Web Site: Measure I-12
  • Yes on I-12 Web Site: Vote Yes on Measure I-12
  • No on I-12 Web Site: http://www.protectgroverbeach.com

The most aggressive opponents of proposed charters are unions, particularly construction trade unions. (See Who Defeated the City of Auburn’s Proposed Charter, and How Was It Done? Answer: Three Union Entities, by Spending $56.40 Per NO Vote.) As confirmed by a California Supreme Court decision in July 2012 (State Building and Construction Trades Council of California, AFL-CIO v. City of Vista), charter cities have the right to establish their own policies concerning government-mandated construction wage rates (so-called “prevailing wages”).

In almost all cases, the state determines the wage rate by adding up all of the employer payments (including payments that are not employee compensation) indicated within the union collective bargaining agreement that applies to a specific trade within the specific geographical region that falls within the jurisdiction of the union agreement. The state does not survey contractors or workers to determine an average or median wage, nor does it consider regional wage statistics calculated by the California Economic Development Department. As a result, state-mandated construction wage rates in California are often much higher than the actual wage rates in a locality. But with a charter, a city can set its own rates for its own projects.

For a comprehensive 92-page guide about government-mandated construction wage rates in California and the status of prevailing wage policies in California’s 121 charter cities, see the recently-published 3rd edition of Are Charter Cities Taking Advantage of State Mandated Construction Wage Rate (“Prevailing Wage”) Exemptions?

As listed above, voters in the City of Costa Mesa have the opportunity on November 6, 2012 to consider Measure V, which would enact a charter. Mailboxes are stuffed daily with slick full-color productions telling the citizens of Costa Mesa how awful life will be if the city frees itself from the benevolent California State Legislature and adopts its own mini-constitution.  (See some of these mailers below.)

ONE entity has spent $100,000 against Measure V as of September 30. (At the rate those mailers are pouring in, it’s likely much more has been spent in October.)

The donor is the California Construction Industry Labor-Management Cooperative Trust. Have you ever heard of it?

The secretive California Construction Industry Labor-Management Cooperative Trust is the sole direct contributor (of at least $100,000) to the No on V campaign in Costa Mesa.

What is the California Construction Industry Labor-Management Cooperative Trust? Where does it spend its money? How does it get its money?

If you want a more detailed but still shadowy idea of how this group spends its ill-gotten money, you can read my May 31, 2012 article Where the California Construction Industry Labor-Management Cooperative Trust Spends Its Money: Now We See How Unions Spread It. But here is a list of the top recipients:

  1. $1,095,000 – Taxpayers to Preserve Community Jobs, No on Measure A, sponsored by labor and management organizations (June 5, 2012 election in City of San Diego)
  2. $770,000 – UCLA Labor Center (aka UCLA Center for Labor Research and Education), part of the University of California Miguel Contreras Labor Program
  3. $250,000 – No 98/Yes 99 – A Committee of City and County Associations, Taxpayers and Environmental Groups, League of California Cities, Californians for Neighborhood Protection, Coalition of Conservationists
  4. $164,550 – “Other” (?)
  5. $100,000 – Apollo Alliance
  6. $100,000 – Paxton-Patterson Construction Lab/Shop in San Joaquin County
  7. $50,000 – Taxpayers to Preserve Community Jobs, No On Measure G, sponsored by labor and management organizations (June 8, 2010 election in City of Chula Vista)

But what’s more interesting is the source of at least some of this money, if not all of it.

A Mysterious Union Slush Fund, Authorized by an Obscure 1978 Federal Law to Encourage Better Relationships Between Unions and Manufacturers, Gave $100,000 to No on Measure V

The California Construction Industry Labor-Management Cooperative Trust contributed a total of $100,000 to the No on Measure V campaign. This is an extraordinarily high amount for a political contribution from one entity, especially concerning a local ballot measure! The head of the California Construction Industry Labor-Management Cooperative Trust is Bob Balgenorth, who is also head of the State Building and Construction Trades Council of California, based in Sacramento.

This is NOT a traditional Political Action Committee. It is an arcane type of union trust authorized by the obscure Labor-Management Cooperation Act of 1978, a law signed by President Jimmy Carter and implemented by the Federal Mediation and Conciliation Service. Inspired by the decline of unionized manufacturing in the Northeast, this federal law was meant to help industrial management and union officials build better personal relationships and cooperate against the threat of outside competition. There are no federal or state regulations specifically addressed toward these trusts, and these trusts do not have any reporting requirements to the U.S. Department of Labor’s Office of Labor-Management Standards. This is an ambiguous and forgotten law that’s ripe for abuse.

It’s Not Union Members that Give the Money to the California Construction Industry Labor-Management Cooperative Trust: It’s Utility Ratepayers and Contractors Working for Extorted Power Plant Owners

Since the 1990s, whenever an energy company or public utility submits an application to the California Energy Commission seeking approval of a new power plant, an organization called California Unions for Reliable Energy (CURE) often “intervenes” in the licensing process. Represented by the South San Francisco law firm Adams Broadwell Joseph & Cardozo, CURE submits massive data requests and environmental objections to the California Energy Commission. The applicant by law is required to answer CURE’s submissions, at significant cost and delay. The chairman of California Unions for Reliable Energy (CURE) is Bob Balgenorth (see above).

If the power plant owner agrees to require its construction contractors to sign a Project Labor Agreement with the State Building and Construction Trades Council of California or its regional affiliates, CURE’s objections fade away and the power plant proceeds unhindered through the licensing process. If the company or utility does not surrender to CURE’s demand, then CURE’s interference and lawsuits continue.

This racket – sometimes called “greenmail” because it’s the use of the California Environmental Quality Act (CEQA) and federal environmental laws to pressure developers to sign Project Labor Agreements – is well-known to the energy industry in California and has been extensively reported in the news media over the past dozen years. (For example, see Labor Coalition’s Tactics on Renewable Energy Projects Are Criticized – Los Angeles Times – February 5, 2011.)

For cases in which the power plant applicant succumbs to CURE’s harassment, the Project Labor Agreement that the power plant owner signs usually contains a provision requiring the owner or its contractors to make a lump-sum payment or series of payments to the California Construction Industry Labor-Management Cooperative Trust.

For example, the Project Labor Agreement signed by the Northern California Power Agency (a conglomerate of publicly-owned utilities) for the construction of the Lodi Energy Center required the agency to shell out $90,000 to the California Construction Industry Labor-Management Cooperative Trust. That amount was dutifully mailed to Bob Balgenorth on August 17, 2010. (For more on this payment, see High Energy: Lodi Center Designed to be a Powerhouse for Chunk of State – Stockton Record – October 4, 2011; also, the union rebuttal on the California Building Trades Council web site – ABC Falsehoods Refuted in Letter to Stockton Record – a denial that the California Construction Industry Labor-Management Cooperative Trust is used for political contributions.)

And Section 13.1 of the Project Labor Agreement signed by the Southern California Public Power Authority (another conglomerate of publicly-owned utilities) for the construction of the City of Anaheim’s Canyon Power Plant required the agency to shell out $65,000 to the California Construction Industry Labor-Management Cooperative Trust.

The California Construction Industry Labor-Management Cooperative Trust reports these payments as “membership dues” to the Internal Revenue Service. Which brings up a question: are the local elected officials who serve as commissioners for the Northern California Power Agency and the Southern California Public Power Authority exercising their responsibilities as “members” to approve $100,000 in political contributions to the No on Measure V campaign in Costa Mesa?

But Wait a Minute…Is It Legal to Have Utility Ratepayers Fund a Mysterious Union Trust Fund that Contributes to Political Campaigns, Such as No on Measure V in Costa Mesa?

In 2009, an internal committee of the Northern California Power Agency discussed whether or not a payment to the California Construction Industry Labor-Management Cooperative Trust was an illegal gift of public funds. (Note the original amount to the California Construction Industry Labor-Management Cooperative Trust was supposed to be $150,000, but aggressive opposition to the Project Labor Agreement forced the unions to cut it down to $90,000 in order to win approval from the board of commissioners.)

To solve this uncertainty, in May 2011 State Senator Mark Leno (D-San Francisco) added a cryptic amendment at the request of union lobbyists and lawyers to the end of a large unrelated public utilities bill (Senate Bill 790) regarding “community choice aggregation.” It added Section 3260 to the Public Utilities Code: “Nothing in this division prohibits payments pursuant to an agreement authorized by the National Labor Relations Act (29 U.S.C. Sec. 151 et seq.), or payments permitted by the federal Labor Management Cooperation Act of 1978 (29 U.S.C. Secs. 173, 175a, and 186). Nothing in this division restricts any use permitted by federal law of money paid pursuant to these acts.”

No one in the California State Legislature – apparently not even Senator Leno – initially knew what this strange new provision meant. In the end, a few legislators such as Assemblywoman Shannon Grove (R-Bakersfield) came to understand and reveal in floor debate that it authorized public utilities to pass on the costs of payments to labor-management cooperation committees to ratepayers. Governor Brown signed the bill into law with the language tacked on the end.

It’s a tangled conspiracy. Especially intriguing is that one union official is the head of the State Building and Construction Trades Council of California, the California Construction Industry Labor-Management Cooperative Trust, and California Unions for Reliable Energy. For more information, see the investigative report of the Coalition for Fair Employment in Construction at this September 23, 2011 post at www.TheTruthaboutPLAs.comA Genuine California Union Conspiracy: Senate Bill 790 and the California Building Trades Council’s Ratepayer Funded Political Slush Fund

Confused about the Conspiracy? Here’s a Chart.

A public utility or private energy company applies to the California Energy Commission for approval to build a power plant.

California Unions for Reliable Energy (CURE) uses its “intervenor” status at the California Energy Commission to submit massive data requests and environmental complaints about the proposed power plant, as a result gumming up the licensing process and causing costly and lengthy delays for the applicant.

 ↓

Applicant for prospective power plant surrenders and agrees to sign a Project Labor Agreement with the State Building and Construction Trades Council of California or its regional affiliates. California Unions for Reliable Energy releases its grip of legal paperwork and the project moves forward unimpeded and acclaimed as environmentally sound.

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The Project Labor Agreement contains a required payment or payments to the California Construction Industry Labor-Management Cooperative TrustCalifornia Public Utilities Code Section 3260 – enacted by Senate Bill 790 in 2011 – allows public utilities to pass costs through to ratepayers.

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The California Construction Industry Labor-Management Cooperative Trust reports those payments to the IRS as “Membership Dues,” creating questions about the rights inherent for dues-paying members.

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The California Construction Industry Labor-Management Cooperative Trust makes contributions to political campaigns, such as $100,000 to fund 100% of the No on Measure V anti-charter campaign (Committee for Costa Mesa’s Future, No on V, sponsored by labor and management organizations) in the City of Costa Mesa in 2012.

Solutions

Is there any way this racket can be stopped? Yes. The U.S. Department of Labor’s Office of Labor Management Standards could promulgate regulations that establish restrictions and reporting guidelines for committees authorized by the Labor-Management Cooperation Act of 1978. Even better, Congress could pass legislation amending or repealing the law, and the President could sign it.

In the meantime, enjoy some of the No on V mailers below, brought to you by the California Construction Industry Labor-Management Cooperative Trust!

Is this a photo of a typical meeting of the board of directors of the California Construction Industry Labor Management Cooperative Trust?

If the union officials running the California Construction Industry Labor-Management Cooperative Trust had read Are Charter Cities Taking Advantage of State-Mandated Construction Wage Rate (“Prevailing Wage”) Exemptions?, they would have known that Mammoth Lakes is NOT a charter city.

They should have used a photo of Los Angeles and a photo of the state capitol to show who calls the shots when a California city doesn’t operate under a charter.

Is this the joint in Sacramento where the board of directors of the California Construction Industry Labor Management Cooperative Trust goes for drinks after deciding to spend more money against the proposed Costa Mesa charter?

OK, I get it. If you’re concerned about crushing debt, government mismanagement, and lack of public accountability, vote against the charter and leave your municipal affairs to the prudent and responsible leaders of the California State Legislature.

Kevin Dayton is the President & CEO of Labor Issues Solutions, LLC, and is the author of frequent postings about generally unreported California state and local policy issues at www.laborissuessolutions.com.