The Capitol is a kind of sleepy place in the fall. As the change in the color of the leaves can be described as a riot, the scene in and around the dome is usually anything but.
This week has proven to be different. Governor Brown has finally come out with his pension reform proposal.
In a letter to Legislators on Tuesday, Governor Brown stated that public pensions are of “paramount importance . . . to both taxpayers and public employees . . .” and that all must “do our best to make sure that we have a system that is fair and truly sustainable . . .”. In a news release he announced that he would propose sweeping rollbacks to public employee pension benefits. He indicated in a meeting with labor leaders that they likely would not like many of his proposals.
So how did he do?
As Mike Genest, former California Director of Finance and part of California Pension Reform, stated, the Governor’s “proposal is more substantial than I expected”. I also applaud the Governor and welcome the possibility for a legislated solution to make the necessary changes to our constitution and state law, always my preferred approach.
The Governor’s proposal is a twelve-point plan. He addresses many of the abuses on which there is wide agreement: the elimination of spiking of benefits by inflating final years’ pay through various gimmicks, limiting post-retirement employment, forcing felons to forfeit pension benefits and prohibiting retroactive pension increases. He further proposes to prohibit pension holidays and retroactive pension increases as well as the widely criticized practice of purchasing service credits, or “airtime”. He proposes to increase the independence and expertise of the CalPERS Board, as is included in every reform proposal.
A significant part of Governor Brown’s proposal is his adoption of a “hybrid” plan that includes a defined benefit component, which gives the employee a level of comfort that there will be funds for them when they retire; plus a defined contribution 401 (k)-type component that helps put a cap on the taxpayers’ obligation. The latter will impose a very real limitation on the creation of unfunded liabilities, which is the main culprit of our current problem.
Also of real significance, he proposes to require that all employees pay at least 50% of the cost of their pension contributions. And, finally, he proposes to increase retirement ages from the current 50 for public safety workers and 55 for all others to the Social Security norm of 67 with a lower but unspecified age for public safety personnel.
As I stated, I applaud the Governor for what could be a seriously bold and effective plan. The problem is that, for the most part, it only affects new employees. As has been stated by the Legislature’s own Little Hoover Commission and Legislative Analyst’s Office, the current system is too expensive and addressing new employees only will not be enough to meaningfully rein in costs in the near term nor sufficiently reduce unfunded liabilities. For the sake of public safety, education and essential safety net services, I encourage Governor Brown to become much more aggressive and include reasonable additional adjustments to current employees.
The Governor was absolutely right about one thing: many labor leaders are not pleased. Dave Low, Chairman of the public employee union backed Californians for Retirement Security, and other labor leaders have been telling us for years that neither constitutional amendments nor legislation is needed to address the growing pension crisis. Instead, their answer has been and is negotiations between the unions and the government. But in his press release Thursday Mr. Low indicated most of the Governor’s proposals were off the table. If items such as retirement age, cost sharing and pension structure are off the table, it is self evident that collective bargaining will not provide us with the “sweeping rollbacks” that the Governor is striving to obtain and are necessary if we are to save our pension system.
As the Governor has stated, it is time to fix our pension systems. I invite him to become much more aggressive with his proposals and in his approach. I continue to prefer the Legislature’s active involvement in solving this problem, but if that cannot result in real reform, an independent citizens’ initiative, which provides the necessary changes to our constitution and our statutes, will be the only viable path to solving this very serious problem.