The results are in for both the San Jose and San Diego pension reform initiatives. The results are VERY SIGNIFICANT IMO from a macroeconomic perspective.
San Jose “Measure B” [1] that allows the city to alter existing pension terms and conditions is winning ~70% for/30% against. One of the main features of this measure is that it requires increased employee contributions, up to 16% of salary, if the pension fund returns are below plan. If the employee does not want to pay the additional amount of salary to maintain the same benefit, he can choose to NOT increase contributions, but the pension amount will be reduced.
Unions have already stated they will challenge this in court, so it is not clear when/if it will be implemented.
San Diego “Proposition B” [2] is winning ~ 67% for/33% against. One of the main features of this measure is that it requires that all new employees will have 401k’s instead of defined benefit pensions. It
BOTTOM LINES, assuming these withstand the court challenges:
1) Expect many more California municipalities to let voters decides on altering public employee pension plans. It is not clear to me if this will spread to other states or not.
2) Public employees should plan on reduced pensions going forward. The effect will be greatest for new employees, but pensions for existing employees are no longer sacrosanct.
3) Municipal bond holders should have higher confidence their bonds will be paid off on time and in full.
4) Taxpayers will have lower tax increases going forward, specifically to fund pension shortfalls.
yod
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