Gov. Gavin Newsom won election with support from the state’s unions, pledging to at least one of them that he would protect public employee pensions, yet his record and a couple of his key cabinet appointees suggest he’s open to reducing benefits for government workers if money becomes scarce.
California public employees will soon get a sense of his priorities for labor. Six union contracts are open or expiring in July and Newsom at a January press conference hinted strongly that he won’t be a pushover.
“Just a 1 percent increase in (the state prison union) budget is about a $50 million impact to the general fund, it just puts it into perspective,” Newsom said when he unveiled his budget plan.
Newsom is beginning his term as governor with an unprecedented state surplus and full “rainy day” reserves that are intended to cushion recession cutbacks. Those circumstances helped unions win hefty raises at the bargaining table with former Gov. Jerry Brown last year, including a 5 percent raise for correctional officers.
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But outside of the Capitol, local governments are wary of rising pension costs that could double what some cities pay into the California Public Employees’ Retirement System by 2024, according to a League of California Cities survey. CalPERS itself is underfunded, with only about 70 percent of the money it would need to pay all the benefits it owes.
Newsom was San Francisco’s mayor during the last recession, and he supported a 2010 initiative that led to city employees paying more money to fund their retirements.
Later, he was a member of the University of California Board of Regents when it in 2016 created an alternate retirement program that lets new workers choose a 401(k) style plan instead of a pension. Unions last year fought and killed a proposal that would have created a similar option for state workers.
Newsom has appointed Ana Matosantos, who helped former Gov. Jerry Brown engineer reforms that reduced pension benefits in 2012, to the high-ranking position of cabinet secretary. And he has retained as deputy legal affairs secretary Rei Onishi, who defended a piece of the reforms in court in a manner that raised the prospect of future benefit reductions.
The appointments convey that Newsom has high-ranking leaders who’d know how to implement benefit reductions if the economy sours.
A labor leader in the cabinet
Former San Jose Mayor and pension reform advocate Chuck Reed said Newsom has capable advisers in Matosantos and Onishi.
“They’ll get the boss the right information and the right recommendations, and it’ll be up to the governor to decide what he does with it,” Reed said.
On the other hand, unions could be encouraged by Newsom’s high-level appointment of Angie Wei, the former California Labor Federation chief of staff, to a cabinet position focused on policy.
Wei worked at the California Labor Federation for 18 years. She was the architect of a 2002 paid family leave law, played a big role in California’s law to increase the minimum wage to $15 per hour and helped get paid sick leave for every resident, said Steve Smith, the organization’s spokesman.
“We feel strongly that (Newsom) has put together a really solid team to do the kind of policy work that California needs to continue — advancing workers’ rights, job creation, all the things that we find important,” Smith said of Newsom’s appointments.
Other union leaders also are happy with Newsom’s cabinet and the direction he set in his first budget. Newsom wants to put almost $8 billion beyond what’s required into CalPERS and the California State Teachers’ Retirement System, paying down debt ahead of schedule.
Matosantos was finance director from 2009 to 2013, holding the position under both Republican Gov. Arnold Schwarzenegger and Brown, a Democrat. She advised the governors on fiscal policy during the Great Recession, when Schwarzenegger instituted public worker furloughs.
She served under Brown as he steered to passage the Public Employees’ Pension Reform Act, which changed retirement formulas in a way that required workers hired after Jan. 1, 2013, to pay more money to fund their pensions and to work longer before retirement.
Brown’s pension law also eliminated a benefit known as air time that had been offered to public employees. It allowed them to buy years of credit toward their pension, which boosted their earnings in retirement.
A fight over pension ‘air time’
Union Cal Fire 2881 sued the administration, arguing employees hired before 2013 should still be able to purchase air time. The state Supreme Court has heard oral arguments in the air time case and could issue a decision in the coming months.
Underlying the lawsuits are questions over a set of legal precedents known as the California Rule. The rule has been understood to protect public workers from any reductions in benefits without offering new benefits to compensate for the loss.
Onishi has been defending the pension law from the Cal Fire union challenge, sometimes using language that stresses that governments must be able to reconsider pension benefits for current employees.
The legal team sometimes used strong language to describe the union positions, writing in one footnote:
“Many legal experts have criticized the rigid inflexibility of the union’s position, pointing out that it is contrary to contract clause principles, inconsistent with general contract and economic theory, and effectively depresses the salaries and benefits of new generations of public employees.”
Dave Low, president of the California School Employees Association, said his organization isn’t concerned by the past work of Matosantos and Onishi.
“We think that the staff are going to be reflective of the governor,” he said. “We don’t think they are going to drive the agenda, we think Gavin’s going to drive the agenda.”
Newsom told the California Professional Firefighters in an endorsement meeting that he would honor the California Rule even if courts overturn it.
Newsom “strongly believes changes in pension systems should be done with input and buy-in from workers and those who represent them — not something that is done unilaterally,” his spokesman Nathan Click told Bloomberg in February.
Daniel Mitchell, a UCLA professor emeritus who is an expert in public employee labor unions, said Newsom is likely keeping Matosantos on for her finance expertise, not for any policy leanings. He suggested Newsom’s retention of Onishi, combined with his appointment of Wei, could mean he thinks compromise is more attainable than it has been made out to be.
“Right now, the positions are that either you have the California Rule rigidly interpreted or you let a judge say what a ‘reasonable’ pension would be,” Mitchell said in an email. “If it looks like the latter is where things are going in the courts, public sector unions might well prefer some kind of more specific protection. In short, the issue might turn out to be ripe for negotiation and political compromise.”