The Week in Public Finance: Pension Buyouts, a New Way to Pay for Family Leave and More

A roundup of money (and other) news governments can use.
by | March 11, 2016

For previous editions of "The Week in Public Finance," click here.

San Jose’s Never-Ending Pension Battle

A former San Jose, Calif., councilman who was instrumental in convincing voters to approve pension changes in that city four years ago is now filing papers in court to protect his legislation.

Pete Constant, who's now a senior fellow with the libertarian-leaning Reason Foundation, is challenging San Jose officials’ request pending before a judge to strike down Measure B. City officials are now in talks with unions to abandon it in favor of other changes they're negotiating that wouldn't require voter approval.

By doing so, Constant said in a press release Wednesday, the city will “abandon its obligation to defend Measure B and is poised to sell-out the voters.”

The ballot measure was controversial because it proposed changing the city’s charter to allow cuts to worker pensions. Voters in 2012 approved it by more than two-thirds. A similar proposal in San Diego was also approved by voters that year. Both measures received national attention because some believed other cities would follow suit as a way to cut pension benefits and control skyrocketing payments.

But a judge eventually struck down the San Jose cuts that applied to current employees, meaning they only applied to new city employees. Unions continued to pressure the city, and it suffered a mini-exodus of its employees and police officers because of the pension battle. Because of all that, San Jose’s new mayor has promised to reach a compromise with unions.

Public Retiree Buyouts?

In other pension news, Philadelphia’s controller has a different idea for addressing the city's mounting unfunded liabilities. The city's pension plan is less than 50 percent funded and has a $5.7 billion unfunded liability. Controller Alan Butkovitz says the city could offer a lump-sum payment to employees in exchange for getting off the retirement system’s books.

The payment would be just a portion of what the employee would have received for the duration of the retirement. But Butkovitz said it could provide a cash windfall that employees can use to start a business, pay off a loan or invest in their own retirements.

"There's a persistent concern in the city about getting control of pension costs, and a lot of things have been tried that were nibbling around the edges," he told the Philadelphia Inquirer’s Claudia Vargas. "So, it seems like the environment is ripe for ideas that would actually result in significant savings.”

Still, the proposal isn’t easy to pass.

Other governments, such as Nashville,Tenn., have considered buyouts. But they have ultimately abandoned the idea, mostly out of concern that large cash payments would severely drain -- if not deplete -- the pension fund. Finding the money to cover all the buyouts would be a challenge for Philadelphia, especially as the city has one of the worst-funded school systems in the nation.

A New Way to Pay for Family Leave?

Connecticut may be the next state to offer paid family leave to its workers, and its financing method could serve as a new model for other states.

Three states -- California, New Jersey and Rhode Island -- offer state-run programs for employees who need to take time off to care for a family member or newborn. But they are all financed through an existing disability leave program, which most states -- including Connecticut -- don’t have.

Connecticut’s proposed legislation would establish a Family and Medical Leave Compensation Trust Fund, which would be funded through a small percentage withdrawal (to be determined) from all workers’ paychecks. It would be run by the state Labor Department. (A similar proposal is pending in the District of Columbia.) The leave would be equivalent to 66 percent of the employee's average weekly earnings, up to a maximum of $1,000 a week for six weeks.

Comptroller Kevin Lembo was among those who testified this week in support of the bill, saying a “paid family and medical leave program would enable workers to continue to contribute to the economy during times they would normally be unable to do so and also avoid additional strain on limited state government social program resources.”

The idea has gained more traction in recent years, thanks in part to the U.S. Department of Labor giving states money to study the issue.