Detroit has pretty much been ground zero in the rust belt for a long time. Once upon a time it was Motor City, the center of the thriving American automobile industry. With the decline of that industry the fortunes of Detroit have gone with it. There has been a very substantial decline in the population as people have moved out of the city for a variety of reasons. Many of them have relocated to other parts of the country in search of job opportunities. This has devastated the city's tax base. Much of the city looks like the economic disaster area that is riddled with abandoned buildings and neighborhoods in obvious decline.
The Michigan state government is under Republican control and the governor has put Detroit city government under the control of an appointed emergency manager. He is attempting to take the city into a federal bankruptcy proceeding. One of his stated objectives is to obtain court authorization to make significant reductions to the public employee pension programs. The unions who represent those employees are attempting to use state law to block such action in federal bankruptcy court. Whether or not this actually happens or how it happens is yet to be determined. However, given Detroit's serious financial problems nobody is really surprised that this is happening.
Now let us hop across the country to San Jose, California, heart of Silicon Valley. It would be difficult to think of another American city that presents a more dramatic contrast with Detroit. Detroit represents the old economy, San Jose the new. Everything looks shinny and new. It's unemployment rate is less than half that of Detroit. There are poor people here, many of them Latino migrants. Somebody has to cut the techies' grass and flip their burgers. However, this is not not a city that is in a general economic crisis like Detroit.
And yet, the City of San Jose is making a concerted effort to cut the pension plans of it public employees and is at war with the unions in a court battle.
After a five-day trial last month, a judge is looking at 13 issues in suits filed by unions and retirees against a San Jose pension reform. The big one is whether pensions earned by current workers can be cut.The California state constitution has provisions similar to the Michigan constitution that protect the pension benefits of public employees. Measure B was placed on the ballot with the endorsement of Democratic Mayor Chuck Reed and he is supporting it vigorously.
Measure B, approved by 70 percent of San Jose voters last year, challenges the widely held view that a series of court rulings mean pensions promised state and local government workers on the date of hire become a “vested right” that cannot be cut.
Most attempts to reduce pension costs, including a statewide reform pushed through the Legislature by Gov. Brown last year, spare current workers but give new hires a lower pension, delaying savings for years or decades.
There are a number of other California cities making efforts to cut back pension programs. Some of them have entered bankruptcy proceedings. There are legal issues being debated about the power of a federal bankruptcy judge to cut the pensions of municipal employees.
There are several factors that have increased the pressure on public pension plans. The economic crash of 2008 brought several years of declining tax revenues and declining investment returns on the assets of the pension trust funds. CalPERS the state pension agency gave local governments payment deferrals during the financial crisis. Now those back payments have to be made up. The infamous prop 13 has long reduced the property tax base of local governments. The relief that this provides to home owners is very politically popular and likely untouchable. However, it also provides the same reductions on commercial property.
Public employee unions have been able to negotiate increases to pension benefits in exchange for keeping increases in present salary to a bare minimum. This created future liabilities that are beginning to come due.
“These costs will exceed 25 percent of the general fund by 2017-18,” Mayor Chuck Reed said in his June budget message, “unless we implement the additional employee contributions and lower-cost pension option for our current employees, and get all new employees into the Tier II plan, as approved in Measure B.”Politically most of California is under Democratic control. Until a recent special election they had a 2/3 super majority in both houses of the legislature and well as all of the state house offices. Yet, they seem to be unable to take action on these issues. You really can't bill this as a Tea Party attack on public employees. The public unions have a fair amount of political clout with the legislature, but they do not enjoy broad public support when initiatives show up on the ballot.
Reed and Santa Ana Mayor Miguel Pulido are pushing a proposal for a constitutional amendment that would give cities clear power to change the pension plans of current employees and not just new hires. Political prospects for getting the legislature to put it on the ballot do not look promising. That leaves the possibility of using an initiative proposition to put it there. That seems like a definite possibility. That is how Prop 13 came about.