California Family Minute

November 2, 2011

Real Pension Reform or Political Ploy? 

However, government pensions are taking more of each year’s budget, and California taxpayers are on the hook for hundreds of billions of dollars in unfunded liabilities. The public-employee pension system – generously funded by legislators and local governments in boon economic times – is strained by ballooning obligations to current and future retirees. Cities are strapped even more, with rising pension costs eating up dollars needed for public safety and schools. Experts predicted last year that by 2015 one-third of Los Angeles’ budget would go to funding retirement unless changes are made, and San Francisco’s pension obligation is growing by $100 million annually. 

The system – subject to the ups and downs of the stock market – is no longer sustainable, and Californians cannot expect any real fix to our budget problems without meaningful pension reform. The start of the 2012 legislative session may be two months away, but last week Gov. Jerry Brown fired the opening salvo – offering a 12-point plan for meaningful pension reform. 

Brown’s proposal would crack down on well-documented abuses like “spiking” (inflating pensions with overtime and other benefits) and employees who retire with a pension only to return to state employment as well-paid consultants. However, the bulk of Brown’s proposals – including raising the retirement age and moving to a hybrid blend of Social Security, a small guaranteed pension, and a professionally managed 401(k)-type component – would apply only to new hires. Current employees would be required to contribute at least half the cost of their benefits – a factor more for some local government workers who pay nothing. Brown estimates the state would see savings of $4 billion to $11 billion, as the plan is implemented over the next 30 years. 

The plan was met with skepticism in the Legislature – cautious optimism from Republicans and suspicion from Democrats. Republicans, who support pension reform, offered many of the same proposals earlier in the year during budget negotiations, but the governor was unable to gain agreement from his key allies: Democrats and public-employee union leaders. 

The question on many minds is whether Brown is serious about working for pension reform, as he suggests – or if this is mainly political posturing, buying him goodwill with California voters – a majority of whom say “the amount of money state and local governments spend on public employee pension or retirement systems is a big problem.” Thad Kousser, a political science professor at the University of California, San Diego, suggested, “He looks great asking for it. This is kind of like Obama's jobs bill. He can take a stand, even though he knows it may be dead on arrival."

Though Brown vowed to push the plan – and hopes to place components of the plan on the November 2012 ballot – hope is weak that the plan would pass the Legislature intact. As he entered office this term, Brown billed himself as experienced – able to challenge the status quo, work across the aisle, and get the job done. Yet he failed miserably on one major goal – a realistic, bipartisan, balanced budget – unable to draw on support from even his own Democratic majority for the budget or other policy goals. The governor, however, expressed optimism that the Legislature would rise to the occasion on pension reform, and suggested that – as they consider his proposal – Democrats should consider broadening their political goals. Real pension reform on the ballot may provide a goodwill gesture to voters who might then be willing to consider tax increases and a measure to limit unions’ ability to use dues for political campaigns – both of which likely appear on the November 2012 ballot.