Chuck Reed, former San Jose Mayor turned national pension reform advocate, is gearing up a new California pension reform measure for a big fight on the 2018 statewide ballot, according to a new exclusive interview.
“We are spending so much more on retirement benefits. That’s essentially the Department of the Past that is getting all the money. The Department of the Future which is our kids, are suffering,” Reed said about the mounting pension debt and related costs in California.
“Unfortunately, many public officials care more about the public employee unions than any other constituency,” Reed says.
“The public employee unions are just too strong in the California State Legislature to get anything moving of any kind of substance on pension reform,” Reed said.
“The official party line is that California is running a surplus…Of course in order to reach that conclusion you have to ignore the increase in liabilities for pensions,” Reed continued.
Reed says the current plans are to wait until after the 2016 election cycle and the current plan is for 2018. Reed said his reform coalition, which is capable of committing the millions of dollars to pass a statewide pension reform measure, believes 2018 will be better due to changes in the economy and voter turnout, among other considerations.
Reed acknowledges that it is very expensive to go to the ballot and win, particularly in the face of the most powerful and financially well-heeled political interest in California–the state’s public employee unions. He said his coalition is ready for a big fight, because it is in the public’s interest and California governments need pension relief now.
“We are waiting…The plan is go to California voters to amend the California Constitution to empower local governments to do somethings that they can’t do now to help them try to solve their own pension problems. Right now, everyone is stuck, particularly CalPERS agencies,” Reed says.
“We need to empower local governments to solve their own problems,” Reed says.
Reed said the official government numbers report about $400 billion in total unfunded pension liabilities for California governments.
But recent figures released by the Stanford Institute for Economic Policy Research (SIEPR) finds the actual liabilities to be far higher–an estimated $1.3 trillion statewide in unfunded pension and retiree health care liabilities for California governments. That is roughly three times the official estimates.
To illustrate, the California Public Employees’ Retirement System (CalPERS) and the California School Employees’ Retirement Systems (CalSTRS) officially lost $25 billion in 2015 alone, but the actual losses are projected to be more than double, approaching $50 billion or more. Both agencies are on pace to lose another $50 billion in 2016, according to preliminary estimates by Bond Buyer and other experts.
The differences in the officials figures versus the new Stanford figures stems from an artificially high discount rate that public retirement systems use, compared to the rate that a consensus of economists believe is reasonable.
SIEPR economist Joe Nation says this “government math” is responsible for dramatically underestimating the pension problem and that his new market rate estimates are based on assumptions used by a consensus of leading economists. Nation has constructed a statewide database of pension liabilities for every local and state jurisdiction in the state(www.pensiontracker.org), which is based on official data reported by California agencies with adjustments made for more reasonable return assumptions. Both sets of numbers are reported on Pension Tracker.
“I think there are no signs that the California Legislature will take action. But there are plenty of signs that they won’t take action,” Reed says.
“The Governor has to take the lead,” noting that Governor Jerry Brown (D) succeeded in getting a modest pension reform measure through the legislature in 2012-13 which currently shaves about 5% off of the state’s rising pension costs (known as the California Public Employees Pension Reform Act or PEPRA).
The savings are “still pretty big numbers, but nowhere near the 100% problem,” Reed says.
“The State of California is heavily influenced by the public employee unions. And their position is that nothing needs to be done. Everything will be fine. Don’t worry,” Reed says.
“But when we are looking at $400 billion in unfunded liabilities–business people worry,” Reed said responding to a question on why the California business community is concerned about the pension issue.
Reed agreed that the pension reform issue should be the “centerpiece of a progressive Democrat agenda” but concluded that it’s unlikely to be, because progressive Democrats are heavily influenced by the public employee unions,” Reed stated.
“Those of us who care about other issues, who don’t think that the public employee unions are the Democratic Party’s most important constituency. I don’t. Worry about other things. l Like the cost of higher education, like the cost of providing benefits for people who are poor, people who are on welfare…The money is being absorbed by pensions and prisons,” Reed said.
Part of The Inside Source briefing series is a project of the Kersten Institute for Governance and Public Policy which is intended to shed light on important public policy issues.