Will Pension Reform Come from the Legislature?

Joel Fox
Editor of Fox & Hounds and President of the Small Business Action Committee

California Pension Reform announced that it will not move forward to qualify one of the two initiatives it filed this year, blaming a “false and misleading” title and summary from the Attorney General that stunted fundraising and made it doubtful an initiative would pass.

That switches the focus for pension reform to the legislature.

Supporters of pension reform doubt the legislature will consider serious pension reform.  Jack Dean, vice president of California Pension Reform and editor of the website Pension Tsunami said, “Without the threat of a real reform initiative designed by taxpayer advocates, I don’t see the legislature doing anything about truly reforming our public pension system. Without California Pension Reform, Jerry Brown’s plan is DOA in the legislature.”

The public employee unions have supported some minor reforms but object to any significant changes to the system that would move the major liability for fully funding pensions away from the taxpayers. It is not a secret that the public employees have great sway over the legislative majority.

Yet, the public and the governor are demanding reform. A PPIC poll in December found that 83% called the public employee pension system a problem. Constant media attention has placed a spotlight on the affect pension costs have on state and local budgets.

As stated previously here, Los Angeles city retirement costs, which currently take up more than 10 percent of the budget, are projected to take one-third of the budget by 2015. A grand jury in San Diego said pensions could require half the general fund by 2025. A year ago, a grand jury in San Francisco reported that pension and health care costs would increase from $413 million in the fiscal year to nearly $1 billion in just five years and “threaten to move resources from other needs of the city.”

Services cuts and tax increases are threatened to help balance budgets because pension obligations are chomping away at budgets and investment revenue is not there to meet obligations. One recent example: CalSTRS board adopted a lower earnings forecast. The pension funds will be thirsting for more revenue.

Public workers could also feel a squeeze if government officials turn to long-term pay freezes, work force layoffs, or outsourcing jobs to offset budget resources dedicated to retirement costs.

Governor Jerry Brown has asked the legislature to work on a 12-point pension reform plan. Brown is aware that voters considering his tax increase proposal want to see results on pension reform.

Some Republican oriented business groups have told the governor they would consider supporting his tax proposal if pension and or spending reforms were achieved at the same time.

Now it is up to the legislature to provide solid reforms.

Sometimes it takes a two-by-four to get the legislature to act. That was the circumstance with workers comp reform when, with an initiative hanging over their heads, legislators passed workers comp legislation.

With the pension initiative threat off the boards, the legislature will likely be slower to act. In turn, no pension reform will add roadblocks to the governor’s effort to get his tax measure approved by a disgruntled electorate.

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