Richard Riordan Pension Reform Surprise
Richard Riordan, former mayor of L.A.
Richard Riordan says his favorite quote is from a famous rabbi named Hillel the Elder, who died in the year 10 AD.
"If not now, when?" recites Riordan, "and if not me, whom?"
It's a somewhat mangled and self-centered version of the quote, the second part of which is, "If I am not for myself, who will be for me?" But the wealthy former mayor, who was the top single donor to both Democrats and Republicans in California when he decided to run for mayor after the Rodney King riots happened on Mayor Tom Bradley's watch, has long seen himself as uniquely positioned to lead the city.
"God has put me on Earth to save the city of L.A.," he says, with his usual tongue-in-cheek. "And I hope She knows what She's doing."
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Like an aging prizefighter with a lot of kick left, the 82-year-old Riordan is emerging from a quieter period in which the dedicated Catholic wrote his memoirs and helped rescue the Inner City Education Foundation. Now he's introducing a ballot measure he promises can save Los Angeles from an existential threat — the city employee pension bubble.
"We're at the tipping point right now," Riordan says. "If the city does not change its pension system quickly — and I mean this year — we will be doomed to bankruptcy within three years. And probably sooner."
In 2001, the city paid about $220 million for workers' retirement benefits. Today, that has exploded by $1 billion, to $1.2 billion, he says. If it continues to grow at that rate, he argues, Los Angeles could pay out $2 billion to $3 billion by 2017, sucking away half the city budget. Since the other half goes to police and fire — hard-to-cut departments — L.A. could be left with little or nothing for parks, libraries, street maintenance, trash removal and other essentials.
In his worst-case scenario, Riordan says the city's existing pension deals will push the city into a Chapter 11 bankruptcy.
As a scene-stealing mayoral candidate in 1992, Riordan enraged the City Council by proposing similarly radical changes via ballot measure. He threatened to slap term limits upon the entrenched 15 council members as well as the future mayor — a deft strategy that forced fuming City Council members to place their own, less restrictive term limits before voters. Riordan declared victory and embraced his own limited term in office.
Later, the former private equity investor bullied hotly opposed members of the City Council into signing off on a city charter rewrite process that transformed civic life in L.A. Thousands of residents streamed into well-attended debates and hearings. The resulting city charter, approved by voters in 1999, streamlined government, created the participatory neighborhood council system and strengthened the office of mayor.
"This is very consistent with his approach," says Raphael Sonenshein of the Pat Brown Institute for Public Affairs. "This is one of the things he's good at."
Riordan has created a lightning-rod issue for the May 21, 2013, mayoral election, which had threatened to be duller than a quilting bee.
"If the unions didn't like [Mayor Antonio Villaraigosa's] nickel-and-dime pension [reform], they're gonna go absolutely ballistic over this one," observes Jack Humphreville, a citizen budget watcher.
Riordan and two other wealthy civic leaders and longtime friends — David Fleming and billionaire Eli Broad — will fund the petition campaign to gather at least 254,000 verified voter signatures. Their actual goal is 380,000 by Dec. 7.
Their proposed changes to the city charter include such salable ideas as closing the huge gap between what the average Department of Water and Power worker pays into his own retirement account each year —about $6,000 — and what taxpayers and the city must pay into that same person's retirement account per year — a staggering $50,000 on average, Riordan says.
Riordan has modeled his characteristically bold proposal on dramatic city-pension reforms overwhelmingly approved in July by voters in heavily liberal, Democrat-dominated San Jose and the more moderate, Democrat-dominated city of San Diego.
The Riordan plan does three key things: forces people to contribute far more cash to their own retirement plans; places all future city hires — but not current employees — into a 401(k)-style system mimicking the private sector; and freezes automatic pension increases (now tied to salary increases) if the pension fund investments aren't doing well.
Although L.A. residents don't realize it, on payday at City Hall, taxpayers provide the bulk of money funneled into city workers' retirement funds — not just for DWP workers but for all 50,000 or so city workers' pension funds.
Each account then is invested. Under union agreements, city employees are promised a set amount for their pension checks when they finally retire.
That's when taxpayers often are quietly tapped a second time: If investments don't do as well as hoped (currently, the Villaraigosa administration is praying for an optimistic 7.75 percent return), taxpayers cover the shortfalls.
Many agree that Villaraigosa's 7.75 percent estimate is far too optimistic — investment genius Warren Buffett thinks it should be more like 6 percent for most cities. As David Fleming notes, "All the risk is on the taxpayer."
Riordan's proposal also would eliminate "pension spiking," in which city employees arrange for special "raises" in their final year of work, letting them pad their retirement payouts until they die. It also would bar "double dipping" — city workers who "retire," often at the top of their game, only to move to another local government job, drawing both a pension and a salary from taxpayers.
The City Council, which has avoided deep pension reforms — and could lash out at Riordan — counts two notorious double dippers in its ranks.
Dennis Zine draws $102,692 in "retirement" from his previous job as an LAPD traffic cop, plus he's paid a hefty $178,789 salary as a perfectly robust member of the Los Angeles City Council. Bernard Parks, former LAPD chief, gets a yearly "retirement" pension of $290,607, but he's not really retired — he's paid $178,789 in his busy job on the council.
Public servants Zine ($281,481 total) and Parks ($469,396 total) may be part of the nation's 1 percent.
The City Council recently approved Villaraigosa's plan to raise the city retirement age to 65 from 55, an extremely early age that encouraged topnotch, healthy people to become double dippers. But the mayor's fix applies only to new hires, not to the sea of 50,000 workers. And Villaraigosa and the City Council exempted cops, firefighters and, interestingly, DWP workers — whose powerful union strikes fear in the hearts of City Council members.
Villaraigosa claims he's saving $30 million to $70 million — pocket change, really. But even this mild reform prompted public-employee unions to cry betrayal, comparing Villaraigosa, a liberal Democrat and former teachers union organizer, with Wisconsin's Republican Gov. Scott Walker.
"Some will say that workers are being attacked," says Jonathan Wilcox, a Republican campaign strategist on Riordan's launch team. "But that's not true. ... Workers of the city and those who need services have everything to lose if we don't turn back from the brink."
"I don't think it's a very well thought-out plan," disagrees Service Employees International Union Local 721 president Bob Schoonover. "I don't think it's going to accomplish what [Riordan] thinks."
On Monday, an SEIU Local 721 press release declared: "One of the richest men in the city has just declared war on working people."
Schoonover warns that under Riordan's reform, new hires at City Hall would begin paying their investments into a 401(k)-type plan, meaning that a long-existing revenue stream from new employees could no longer be tapped to pay other workers' retirement checks.
Riordan quips: "It sounds to me like [Bernie] Madoff got out of prison and came up with that one." He admits that Schoonover is probably right about the lost revenue to the existing pension pool. But he says the existing approach can't sustain itself.
"The bottom line is, new employees are unlikely to see a penny of the pension money they put in," Riordan says. "With a 401(k), new employees will at least have control of their money. Even if the city goes bankrupt."
Schoonover downplays talk of bankruptcy, saying, "We go through bumps in the road — and, given, this is a really big bump. But there's no reason to think that the pension system is in really big trouble. Pension liability is due over a long period of time. It's not due tomorrow."
But some veteran political observers are using apocalyptic metaphors to describe L.A.'s pension liabilities: a time bomb, an asteroid, a black hole. Warns Fleming: "If we don't do anything, this town's gonna look like Detroit."
The question is whether Los Angeles voters will follow San Jose and San Diego in approving dramatic changes next May.