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Los Angeles gears up for ballot battle over city pensions

By Jim Christie

SAN FRANCISCO (Reuters) - Pension changes recently endorsed by the Los Angeles city council don't go far enough for former Mayor Richard Riordan, who aims to put more aggressive fixes on the city's May 2013 ballot.

A referendum, if 250,000 signatures are collected by the end of the year, will spice up the political campaign to replace the city's Democratic mayor as public pensions have become a hot political topic in California and across the nation.

The overhaul backed by the leaders of the second-largest U.S. city includes raising the retirement age for new non-safety workers to 65 from 55 and new formulas to reduce their pension payments. New hires also face higher contributions to help with unfunded pension liabilities.

The changes are estimated to save Los Angeles $4 billion over 30 years, with savings of $30 million to $70 million over the next five years.

Riordan, a former lawyer and businessman turned politician, does not buy these estimates.

The assumed savings rely on shaky assumptions on future investment returns at the city's pensions funds, said Alex Rubalcava, an adviser to the former Republican mayor.

Rubalcava added that the council did not touch the pensions of future police officers, firefighters and utility employees, leaving Los Angeles open for whopping future pension costs.

"The city is in such financial peril that what the city council has proposed is not enough," Rubalcava said.

By contrast, 82-year-old Riordan proposes increased personal pension contributions by current city employees and not counting their salary increases toward pensions until the city's three pension funds are funded.

For future city employees, Riordan proposes that 401(k)-style accounts, similar to private-sector retirement accounts, replace defined-benefit schemes.

Local unions are up in arms.

"It's not a pension plan," said Maria Elena Durazo, Los Angeles County Federation of Labor AFL-CIO executive secretary-treasurer. "It's an anti-worker-having-secure-retirement plan."

FOLLOWING SAN DIEGO, SAN JOSE

Durazo has to set aside her outrage for a few more days as California unions are busy campaigning against Proposition 32, a measure on the state's November ballot that would bar using money from union members' payroll-deducted dues for politics.

That money has helped labor cement its influence in the legislature and gain pull in local politics, including in Los Angeles, California's largest city.

"Right now we have to defeat Prop 32," Durazo said. "Right now we have to keep our eyes on the prize."

Once that battle is over, Los Angeles' unions will begin to combat Riordan, who has warned for two years that the cash-strapped city risks bankruptcy due to rising retiree expenses.

U.S. public employees have traditionally been paid less than private-sector workers but were often compensated with pensions and health benefits in retirement. Their costs are under growing scrutiny as state and local governments contend with ongoing budget troubles exposed during the recent recession.

Two landmark elections this year in California suggest voters are open to tackling pension expenses.

Voters in San Diego and San Jose, the state's second- and third-largest cities respectively, overwhelmingly backed measures in June aimed at reining in pension spending, sending a message to Governor Jerry Brown and fellow Democrats who control the legislature. They followed with an agreement on some state pension reforms.

The mayors of San Diego and San Jose pushed the pension measures with a blunt message: without change, guaranteed pension payments would consume more and more of each city's budget, leaving less for services, which have been slashed in recent years as revenue plunged.

Los Angeles voters can expect a similar message. "We paid very close attention to what both San Diego and San Jose had done," said Rubalcava. He said that Los Angeles' annual contribution to its pension funds has swelled to $1.2 billion from $220 million over the past decade.

A brutal struggle will take shape if Riordan's measure gets on the May ballot, said Raphael Sonenshein of the Pat Brown Institute at California State University, Los Angeles.

"It would be a furious campaign," he said. "It (Los Angeles) is a very strong labor town but labor doesn't always win."

(Reporting By Jim Christie; Editing by Tiziana Barghini and Eric Walsh)

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