Is Governor Brown’s pension reform “just right?” Unions claim it’s too hot. Some reformers claim it’s too cold.

I’m with Goldilocks; the measure represents real progress considering the tightly constrained legal and political environment within which the Governor had to work. It’s a sure-footed “second step” (the “first step” being Gov. Schwarzenegger’s 2010 collective bargaining agreements that set in motion these union give-backs).

Ignore crocodile tears from the union bosses. They dodged a bullet when the Governor dropped his bid for a defined contribution element as part of a hybrid pension plan. But while fighting successfully on that front, unions gave up ground on several important principles:

According to the chief actuary of the California Public Employees Retirement System, these changes will reduce costs (and the unfunded actuarial liabilities) by $40 billion to $60 billion over 30 years.

True, this is merely a down payment on the large unfunded liabilities facing state and local pension systems, which are probably much larger than advertised, given optimistic investment scenarios used by pension fund managers. But the value of very short-term increases in contribution rates by employees, compounded over many years, will materially increase the health of the pension funds and reduce pressure for even higher taxpayer contributions.

What was left undone? Clearly, the really hard stuff – both politically and legally.

The good news is that bold jurisdictions like San Jose, San Diego and Orange County are testing the boundaries on hybrid, defined contribution plans and benefit changes for existing employees. This makes sense since local government budgets comprise a higher percentage (say, 75% to 80%) of compensation costs than the state budget. They need to fix these problems locally or they go bankrupt.

This is where the Governor can take reform to the next level. Should he accomplish his productive “second step,” he should leverage that success with the successes of the vanguard of cities and counties to lead a ballot measure to not only enshrine progress so far, but also to address the unfinished business that is constrained by the daunting political, legal and constitutional barriers that the Legislature is incapable of addressing.

Follow Loren on Twitter at @KayeLoren.