Reforming Defined-Benefit Pension Systems in Bakersfield and Kern County

It’s relatively rare in public service to have the opportunity to implement similar reforms in different units of government-especially on challenging public policy issues like the reform of public sector pension systems. However, current Kern County (California) Supervisor and former Bakersfield City Councilman Zack Scrivner can claim this as an accomplishment.

As a city councilman, Scrivner spearheaded Measure D, a ballot measure approved by Bakersfield voters in 2010 that reformed the city’s pension system for newly hired public safety employees. Scrivner continued those efforts at the county level after being elected to the Kern County Board of Supervisors in 2010, having successfully negotiated for comprehensive pension and healthcare contribution reform with county public employee unions in 2012.

Reason Foundation Director of Government Reform Leonard Gilroy recently interviewed Scrivner on the rationale for the city and county pension reforms, the similarities and differences between them, lessons learned, and much more.

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Leonard Gilroy, Reason Foundation: You were ahead of the curve on reforming public sector pensions, starting to raise the issue in Bakersfield back in the mid-2000s before many people had any idea that public sector pensions were posing such a challenge with regard to their long-term solvency. Further, Bakersfield is generally considered to be fairly conservative, so many might be surprised that pensions were an issue there. What prompted you to initiate your push for reform?

Zack Scrivner, Kern County (CA) Supervisor: Really it was on the campaign trail. The most important part of the campaign is when you’re meeting with people and asking them for support, and you start to get an idea about what people are concerned about. When you’re going door to door, you’re talking to the residents in the district you’re running in about issues that are important to them around the dinner table-things like crime, graffiti, and potholes.

Likewise, when you’re meeting with people in the business community, you have similar conversations about the things that they’re concerned about. A supporter of my campaign who was a long-time friend of the family was having breakfast with me one day and suggested that I should really start digging into the public pension problem if I won. I knew a little bit about that issue, because at that time, in 2004, I was working for the Assembly Republican leader Kevin McCarthy in the California state legislature. I was aware of some of the issues with the California Public Employees’ Retirement System (CalPERS) at the state-level and how the public employee pension costs were impacting the state budget at the time.

So when I got elected to the Bakersfield city council, I asked for the city manager to give me some information on the city’s CalPERS pension costs. What I discovered was pretty startling. It was something that I later learned was the norm for other cities and counties that had followed the state’s mistake in raising public employee pensions to the “3% at 50” [Editor’s note: a retirement benefit plan in which public workers are able to retire at age 50 with the percentage of final pension compensation being calculated as 3% per year multiplied by the number of years of service] for public safety employees and “3% at 60” for non-safety employees.

Back in the mid-1990s, the city’s retirement costs were overfunded. In June of 1999, the pension fund had an excess of $94 million, and we weren’t having to make payments to CalPERS. But by the time the city council had raised those pension benefits in 2002 from “2% at 50” to “3% at 50” for public safety employees and “2% at 55” to “3% at 60” for non-safety employees, that surplus of $94 million turned into a $27 million unfunded liability.

And that number kept rising. By the time I was in office in 2005, that unfunded liability had reached $93 million. So there was a complete swing of over $180 million as a result of the increased pension benefits.

And in terms of the costs-what the city was paying into CalPERS-the city went from paying nothing to making a $4 million annual payment in the early 2000s. That rose to an approximately $15 million annual payment by the time I got into office in 2005, and when I left six years later, that payment was in the neighborhood of $25 million per year. That was impacting our budget tremendously, despite the fact that we had had a housing boom and the economy was robust at the time.

When I saw that, I thought back to all of the people I had talked to on the campaign trail and the issues they were concerned about-graffiti in their neighborhoods, the potholes, and the fact that there weren’t enough police officers on the street. And I saw this as directly impacting the city’s ability to provide a level of service in government that my constituents expected and, I felt, deserved.

I remember one time when I went on a Monday morning news show where we were talking about city budget issues, and I said that one thing we needed to do was to get to get a handle on these public employee pension costs. And I gave them the same numbers I just discussed, and the next thing I knew, the public employee unions were after me big-time. They had not supported me in my race, but the extent of the vitriol was pretty astounding. I suppose I was naïve in thinking that you could kick a hornets’ nest like that and not get that sort of backlash. But I kept at it.

You mentioned how Bakersfield is conservative, and that’s true. But politicians who touted themselves as being fiscally conservative-up and down the state-they also curried union support, especially the public safety support because they want to be able to claim that the police and firefighters support them. So even though we had a city council that had five out of seven of the members as Republicans, you had Republicans that were closely tied to the unions that had helped them in their campaigns, and they wanted to keep it that way.

So I got a tremendous amount of resistance, and there was no one else on the city council that wanted to talk about pension reform. They just wanted to blame it on the stock market, claim that at some point it was going to turn around, and argue that these safety workers were putting their lives on the line and so they deserved the benefits they were given.

And while I appreciate as much as anyone the kind of work that a policeman or firefighter has to do, to me it’s not a question of what these workers deserve in their retirement, but rather it’s a question of what we as taxpayers can afford. And it was clear to me that we couldn’t afford it, and we were going to have to change it.

Over the course of the next six years I kept banging that pension drum, and I started to get more and more support from people in the community, because at the same time there were news articles coming out in the Wall Street Journal or columns by Dan Walters in the Sacramento Bee where they were talking about pension problems in Sacramento or other places around the country. The public awareness started to increase.

So I continued with what I was doing. Whenever we were in budget discussions I’d raise the issue. And we also had opportunities along the way during contract negotiations to start talking to the unions. We were actually able to negotiate a contract in 2008 with our SEIU (Service Employees International Union) that reduced the pensions from “3% at 60” to “2.7% at 55,” which wasn’t a huge change, but it was certainly a big step in the right direction. It was the first time to my knowledge that any public employee union contract was negotiated in the state that actually dialed back retirement benefits.

But the police officers’ union and the firefighters’ union-which were the other two unions we had in Bakersfield-refused to budge on the “3% at 50” issue, so we reached an impasse with them. At that time, we had another election, and we got a new councilman who was very fiscally conservative, and he had realized that we needed to do something about the pensions as well. So then I had an ally, and we continued to beat that drum. And as we did that, two other members out of a seven-member council gravitated towards us on the issue. With a majority of the council interested in reform, we were then able to make some progress.

Ultimately, in 2010 I proposed to the council that we put a measure on the ballot-Measure D-to scale back the public safety pensions to what they had been before the benefits had been increased a few years earlier. Given the impasse we had with the safety unions, we felt like we were in a good legal position to go to the ballot.

There was a nonprofit group that started called Kern Citizens for Sustainable Government made up a few young, successful businessmen that ran a small campaign and spent about $6,000 or $7,000 talking about the pension crisis in general. Separately-we weren’t coordinated-we spent about the same amount of money advocating for Measure D. By contrast, the unions spent $60,000 against the measure, doing radio ads and placing signs around town, etc. But by that time, the public was very aware of the pension problem, and the measure passed by a 55-45 margin.

Gilroy: Can you describe the key components of Measure D?

Scrivner: Measure D only affects newly hired public safety employees, and it says that any employee hired after January 1, 2011 would be in the “2% at 50” retirement tier-instead of the “3% at 50” tier that we had previously.

And it also said that they were required to pay the employee’s share of their retirement costs for their entire career, which is 9% of payroll. Before that, employees would start by paying 4% for the first five years-with the city picking up the other 5%-and then after five years the city would pick up the entire 9%. Measure D required that new hires would be responsible for picking up the full 9%.

I wanted to be thoughtful in selecting the actual reforms. We could have gone to “2% at 55,” which is the lowest pension tier for public safety allowed by CalPERS. But I didn’t want to do that because we were going to the voters with a ballot measure-which meant that public perception was going to be a factor-and I didn’t want the unions to be able to say that they were going to have the lowest pension benefits in the state of California if the measure passed. Had that been the case, they still would have had a very good retirement plan, but technically speaking, they would have the lowest one offered by CalPERS.

Instead I advocated for “2% at 50” because we could then make a strong argument that all we were doing was going back to what we had before the pension costs and the unfunded liability skyrocketed. We had a pension plan back then that the city was able to afford, and it’s a very good pension plan. So we were just proposing to go back to that plan for just the new hires; we weren’t going to touch the existing employees’ and retirees’ plans. That was one thing that the unions always tried to do-they tried to say that we were going to “take their retirement away,” which of course wasn’t the case, because state law and contract law would preclude us from being able to do that even if we wanted to. That’s not what I was proposing. The other advantage was that the 2% at 50 minimized the risk to the city for a collective bargaining violation.

After Measure D passed, the police union filed a lawsuit claiming that we had violated the collective bargaining rules by making these changes, but that challenge was ultimately dismissed.

Gilroy: How much of an understanding of the pension situation did your council colleagues-who put Measure D on the Bakersfield ballot-have when you started talking to them to make the case for reform? What convinced them to ultimately support your efforts?

Scrivner: In the beginning, there was very little understanding of it. I don’t think you really had members who understood what kind of financial crisis it really was, but there were a couple of members on the board with financial backgrounds who understood the issue. And there were others who didn’t really have much understanding of the issue at all, and even less understanding of the complexities of it and how certain things in the actuarial process affect the ultimate bill that we had to pay.

But by banging the drum and having more and more people in the business sector of the community showing their support for what I was trying to do, the political pressure started to build on the council. And once I got that second person on the council who joined me in talking about this issue, then we were able to get a majority on the council who saw it as a problem.

When I was elected in 2004, I was only elected to a two-year term because I was finishing the term for someone who had retired. So I had to run again in 2006, and my campaign was almost entirely about the pension argument. The unions actually put an ad in the newspaper soliciting an opponent for me. Three people answered the ad, and they picked one of them. I got over 60% of the vote in a district that is only 39% Republican. The other councilman I mentioned who joined me as a champion of pension reform was also elected at the same time, and despite the unions spending over $100,000 against us, we both won. So that was a real test case for where the public is on this issue, which made a big difference.

That really changed the way the council looked at the issue because most politicians felt like you really needed to have the unions’ support or else you just weren’t going to win. That’s changed now as people have started to understand that the unions are out for pay and benefits for their members, and taxpayers have soured to their arguments with the economic recession.

Gilroy: How did you make the case to voters?

Scrivner: I felt the most effective thing to do was to talk to voters about the things that were most important to them and how these pension costs were impacting our ability to deliver those services to them. You started to get a realization that there were these public employees now retiring with well over $100,000 per year in pension payments and that the costs of the benefits had skyrocketed so quickly. We were in a situation where it was virtually unsustainable. I talked about the way in which we went from a $94 million surplus to a $100 million deficit in 10 years since the benefits were increased by 50%. That’s what you get when you go from a “2% at 50” to a “3% at 50”-that’s a 50% increase in benefits.

And we talked about how much we expected to save from the ballot measure and how much we thought we’d be able to deliver for public safety, roads, parks and other critical services. I think that people also liked the idea and could relate to employees actually having to pay into their own retirement. When the average taxpayer in a regular retirement plan-who has to contribute to their retirement every month out of their paycheck-finds out that government employees didn’t have to pay anything into their retirement, there’s obviously some fairness issues that creep into the voters’ minds.

Gilroy: Many pension reform efforts across the country exempt sworn public safety officers, with politicians fearing a backlash from safety unions and the general public. But in Bakersfield, Measure D was aimed at scaling back the pension benefits for new hires in public safety. Can you explain the rationale for that? What resistance did you encounter?

Scrivner: As I explained earlier, we had already negotiated some pension reforms with the unions regarding general employees, but not for the public safety employees. And I knew that it was going to be harder to address public safety because the public tends to view police and firefighters as heroes.

But we had already gone through the collective bargaining process with the public safety unions and had declared an impasse, and that’s the point at which you can even make a decision to actually impose pension reforms on the employees. But I preferred to take the issue to the voters instead, because I was concerned about what would happen on the city council in the future. Let’s say the unions successfully ran people for city council that got elected and were able to undo everything we did. By taking the issue to the voters, in the future if you want to change it you have to take the issue back to the voters.

Look at San Francisco, which people tend to think of as a very liberal city. But many years back, their voters passed a measure saying that you had to go to the voters to raise retirement benefits for city employees. It’s my understanding that San Francisco hasn’t seen the same kind of problems with pensions that other places have had. So I wanted to have that same kind of safeguard, the assurance that you’d have to go back to the taxpayers if you wanted to undo the reforms we were seeking.

I should also mention that one of the arguments you tend to hear from the unions is that we won’t be able to hire qualified people if you reform pensions because we won’t be able to compete. Well, the year after Measure D passed and after I had become a Kern County supervisor, the Bakersfield city manager told me that they had just completed their first police recruitment since Measure D and that they had 1,000 applicants. So much for the argument that pension reform was going to discourage people from applying for the job.

People want to be cops because they want to be cops, and people want to be firefighters because they want to be firefighters. You obviously have to have a pay and benefits package that will allow you to recruit and retain, but you don’t need to make people millionaires when they retire, and that’s essentially what “3% at 50” does.

Gilroy: What have been the key outcomes so far?

Scrivner: Before Measure D passed, we had an analysis that showed that the measure would save about $1.5 million, but by year 10, the cumulative savings would be around $7.5 million.

After the measure passed, we found out that the projected savings would be much higher. In November of 2010, I received a memo written by our city finance director citing data that had come from CalPERS. That memo basically said that CalPERS had looked at the savings from Measure D-going to the lower benefit tier and also requiring that the new hires pay into the system-and the cumulative effect of that was somewhat modest in the beginning, but after the first 10 years was projected to save the city $10.5 million. After 20 years, it was projected to save the city over $50 million in total cumulative savings. And after 30 years that total cumulative savings was projected to be $129 million.

So because of Measure D, the city will save nearly $130 million over the next three decades. Those are big dollars in this type of fiscal climate for a city whose general fund operating budget is not that high.

Gilroy: Let’s fast forward to Kern County, where after you became a county supervisor in 2011 you were able to achieve some reforms to public safety pensions not at the ballot box, but rather through direct negotiation with unions. Can you describe this process?

Scrivner: I was running for the county Board of Supervisors at the same time that the Measure D campaign was going on. The public safety unions-spearheaded mainly by the Kern County firefighters’ union-they spent a quarter of a million dollars against me. And that was more than all five of my opponents combined. When I ran, the issue that I ran on was pension reform, as well as the fact that my general election opponent-a former sheriff’s deputy and president of his union who had served as a supervisor back in 2000 when they voted to increase the retirement benefits-was closely tied to the public safety unions.

When I won, I had a meeting with one of the public safety unions, and they said, “Measure D passed, you won, we see the writing on the wall.” They acknowledged that “3% at 50” was no longer supported by voters in Kern County,and they asked what I was after. I responded that I wanted the same thing as with Measure D-to have new hires back at the “2% at 50” tier. It took us a year of negotiations to get there, and there were a lot of issues to address. For example, we wanted all employees-even current ones-to pay into their own retirement, and we also wanted them to pay the employee’s share of the healthcare premium, which was 20%.

So, that’s what we ultimately got in the three-year contract. We went back to “2% at 50,” we got employees contributing about a third of their retirement costs, and we got the employee contribution to healthcare premiums. We got that agreement with the nine public safety unions serving Kern County, and we got it in return for a 2% pay raise in the second year of a three-year contract.

I think that you had a dramatic shift in what the unions believed to be public perception. For a long time, they were able to get pretty much whatever they wanted because they had a good reputation with the public and politicians more than eager to give it to them. I think that’s changed now.

Gilroy: Looking back, would you have done anything differently in either Bakersfield or Kern County? Are there additional reforms that were left on the table that you think still need to be put into place?

Scrivner: Now that things have changed here in Kern County, and new hires have to pay into their retirement, I believe that we have our retirement system in a position where it’s sustainable. It will take about a decade to see substantial improvements from our reforms, but the improvements in our costs and funding ratio will surely happen. You would certainly have impacts if there was a stock market crash, but actuarial smoothing and blending helps to cushion that blow.

We have a big issue that we still need to address here at the county within our own retirement plan-the Kern County Employees’ Retirement System-with a provision called the supplemental retirement benefit reserve (SRBR). We’re one of only three counties that adopted SRBR back in the 1980s. If your retirement plan performs above the expected rate of return-which for us is 7.75%-then about 40% of the excess earnings gets siphoned off into that SRBR fund. What that does is provide for additional cost of living increases over and above the normal rate, which I believe is 2% a year. The retirement board can make a determination from year to year on whether or not they want to allocate a supplemental cost of living increase.

But the effect of SRBR is this: in good years, 40% of excess earnings are siphoned off, and it doesn’t go in to bolster the main pension fund. But in bad years where you perform below the rate of return, the SRBR isn’t affected at all. The result of that is that the SRBR is currently 170% funded, yet the regular retirement fund that goes to pay the benefits to retirees every month is only funded at 61%, and it’s projected to drop. But the SEIU-our main union-will not agree to let us shift funds from the SRBR to the main fund. So we would have to go to Sacramento to change that, and SEIU won’t support it unless we give them a pay raise, and we can’t afford to do that right now. So the struggle goes on. I should note that the other unions are generally supportive, and our firefighter union has been publicly supportive of the change, which I applaud and appreciate.

SRBR reform is the next thing that we really have to fix for the overall health of the fund, and we’re going to continue to try and talk to the unions and get them to see that it’s for everyone’s benefit that we fix that. The way we want to fix it is to say that if SRBR is 120% funded, then all excess earnings go into the regular fund to try and shore it up. And if that drops below 120%, then it reverts back to the old system. Another option-which another county did-is to eliminate SRBR for all new hires, so if we continue to get nowhere on this issue that’s something we could consider.

Gilroy: What lessons learned would you offer to those officials looking to make similar reforms in their jurisdictions?

Scrivner: They need to be ready for a struggle, because the unions are a powerful force within this state with collective bargaining and the way in which they’re able to raise money out of the paychecks of their members for political purposes. They’re a force to be reckoned with, so that part can be very difficult unless you’re somehow able to get the unions on board with the reforms you’re trying to achieve. But that’s going to impact how dramatic those reforms would be.

You have to be prepared for a potentially long and dedicated effort at public education to inform your voters. Trying to explain the issue in a way that’s simple and easy for folks to understand is very important, but it can also be very hard for a subject as complicated as pensions.

I also think that explaining to voters what they’re not receiving in government services because of the costs of public pensions is effective-those services that voters and families are concerned about when they’re sitting around the dinner table talking about what’s going on in their local government.

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Zack Scrivner is Kern County’s Second District Supervisor, proudly serving the communities of Bakersfield, Boron, Caliente, California City, Mojave, Rosamond and Tehachapi. Elected to the Board in 2010, Zack served as Chairman of the Board in 2012, and represents the Board of Supervisors on Kern Council of Governments, Kern Land Agency Formation Commission (Chairman 2013), and the Kern Economic Development Corporation. Before his election to the Board of Supervisors, Zack served six years on the Bakersfield City Council, representing Ward 7.

Zack’s priorities are economic and private-sector job growth, in the areas of aerospace, alternative energy, manufacturing and logistics, as well as tough fiscal management of taxpayer dollars in county government.

Zack is a member of the Rotary Club of Tehachapi and is a founding board member of the Kern County Wounded Heroes Fund, a non-profit volunteer organization that provides support to wounded service members and their families.

Zack and his wife, Christina, live in Tehachapi with their four children, Zachary (7), Robert (4) and Jane (2) and Jacqueline (6 weeks).

Other articles in Reason Foundation’s Innovators in Action 2014 series are available online here.