BART, Pensions, and Pick-Ups

The Bay Area Rapid Transit (BART) system is one of the largest transportation systems in the state of California, servicing about 400,000 Bay Area residents daily. With over 3,000 employees, last year BART had an operating budget of $722.6 million. While BART employees are among the highest paid public employees in the state, for four and a half days in July, BART employees engaged in a work stoppage as contract negotiations between BART and the two large unions representing BART employees–Service Employees International Union Local 1021 and Amalgamated Transit Union Local 1555–fell apart. At issue are employee compensation, pension benefits, and retiree health care.

Last year, BART spent 57.9% of it’s operating budget on compensation, pension and retiree health benefits. Rising costs have led them to propose modest reforms, such as having BART employees contribute 5% of their salaries to go towards their pension plans and have employees contribute more than the current $92 a month for health benefits. In response, the unions proposed a 20.1% pay (down from an initial “offer” of 23%) increase over three years and balked at the pension contribution proposal. As negotiations are currently ongoing amidst a 60-day “cooling-off” period, the issues at stake have state- and nation-wide implications.

The most recent proposals have been summarized by the San Francisco Chronicle:

BART’s four-year offer

– A 9 percent raise over four years.

– Employees contribute 2 percent to their pension the first year, and 3, 4 and 5 percent in subsequent years. They now make no pension payments.

– BART will cap its health insurance payment at the lowest cost of either a Kaiser or Blue Shield Access + family plan. Any employee wishing to pick a more expensive plan must pay the difference.

The unions’ three-year offer

– A 15 percent raise over three years.

– Employees would contribute 7 percent of their pension costs each year. In exchange, BART would offer a 6.5 percent raise the first year, on top of the 15 percent raise over three years.

– Union employees’ $92 monthly health insurance premium could increase by no more than 5 percent a year.

The increasing rate of pay for public employees, coupled with the rising costs of unaffordable retirement benefits, have contributed to these perks consuming larger portions of budgets. Consequently, taxpayers are paying more for less.

Taxpayers are footing the bill for some of the most lavish compensation and retirement programs in the state. Last year, the average BART employee made $76,551. When executives are included, the average salary rises to $83,000. According to the Mercury News, the average BART employee (executives included) is “nearly $30,000 more than employees at Los Angeles’ transit line, and nearly $10,000 more than those at San Francisco Muni.” For comparison, in 2010, the median household income in San Francisco was $71,745; all told, the median household income in Bay Area counties ranged from $67,169-83,867. While the unions are currently “offering” to agree to an 8% pay increase over four years (increasing union member pay to over $80,000), the reality is that taxpayers are currently in a situation where they are paying for public employees who often make far more than they do.

Unlike most people, BART employees haven’t had to contribute to their pension plans. One of the more perverse benefits has been the “pick-up” of employee pension contributions. According to a recent investigative report, 51 Bay Area governments engage in the practice of not only contributing to the public pension system but also covering the contributions that employees should be making. In 2012, taxpayers paid “$17 million covering what employees were supposed to be contributing to their pensions,” for the BART system. Governments across California are recognizing the unsustainability of this practice, such as Ventura County, recently struck a deal with SEIU to end the practice of “pick-ups” in 2014. The most recent line of proposals put forward by the BART-employee unions suggest they have at least been paying more attention to the realities that the system currently faces.

According to a California Common Sense report, “overall annual retirement costs nearly quadrupled from 2000 to present day, growing from $13.1 million to $58.0 million. Retirement benefits grew from 3% of BARTâ??s operating budget in 2000 to 8% of its operating budget last year.” Presently, BART’s pension fund is only 90% funded using the best-case estimates. Under the assumption that the rate of return on pension investments is 7.5% annually for thirty years, BART currently reports a shortfall of $187 million for the pension fund. However, if you assume rates of return more in line with those used by the private sector, such as a 5.5% rate of return over thirty years, then the unfunded liability rises to $797 million. That is $797 million that the status quo BART pension system does not have; hence, the need for reforms.

It is unclear how the BART-employee conflict will resolve itself. That the unions have at least recognized that employees should be contributing some amount is at the very least a step in the right direction. Even if whatever comes from the strike is only a short-term solution to a long-term problem, the situation signals that government agencies are at least finally getting around to addressing fiscal realities.