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Government: Gov. Brown shifts pension reform into gear

Gov. Jerry Brown
What are the odds that Gov. Jerry Brown will win the Legislature's and the public's support for his 12-point pension-reform proposal? Considering that at least three leading Republicans praised it today, I'd say the chances are slim indeed.

The proposal calls for several changes in retirement benefits that public-employee unions are likely to oppose: all public employees would be required to cover at least half the annual cost of their future retirement benefits (instead of leaving that issue to collective bargaining); pensions for new employees would be cut in half, replaced in part by 401(k) plans and in part by Social Security benefits (except for teachers and public-safety employees, who don't contribute to Social Security -- their pensions would be cut by a third, with the rest taking the form of a 401(k) plan); and non-public-safety employees would have to wait until age 67 to retire with full benefits.

These steps would noticeably reduce the value of the state's pension benefits, particularly for new employees. More important, perhaps, the proposal would take many aspects of retirement benefits off the bargaining table and set them into law.

That's why several unions responded to the plan, umm, unenthusiastically. For example, SEIU Local 1000 put out a statementnoting its support for several smaller changes and curbs to pension abuses, but also arguing that the average public employee pension of $26,000 "hardly can be called extravagant." After saying Brown's proposal "starts the conversation on retirement security," the union said "any reform proposal must address security for the private sector." Hunh?

Similarly, Allan Clark, president of the California School Employees Assn., said his union "has been pushing for responsible reforms to prevent abuse and fraud in our pension system." He added: "However, some of the governor’s proposals go too far and run the risk of undermining retirement security for thousands of California school bus drivers, special education aides, custodians, school cafeteria workers and their families."

The threshold issue is how serious the problem of unfunded liabilities is for state and local pension plans. Republicans like to cite a report claiming that the plans are up to half a billion dollars short. That estimate, though, is based on the "riskless" assumption that the plans' investments will earn half as much they have historically. That's excessively pessimistic.

On the other extreme, labor lobbyists argue that the funds' steep losses after the dot-com and housing bubbles burst will be overcome as the market rallies. That seems just as unrealistic.

The key thing to watch will be the comments from top Democrats in the Legislature. If they talk about the outsized returns that CalPERS and CalSTRS made in 2009 and 2010, that suggests they'll dismiss Brown's proposal as too harsh. But if they focus on the Little Hoover Commission's alarming reportabout trends in pension obligations, or on the increased pension-fund contributions that state and local governments have been forced to make in the wake of their investments' staggering losses, that's a sign Brown's plan has a chance.

By the way, the endorsements from Republicans Tom Harmon of Huntington Beach and Bill Emmerson of Hemet, although seemingly enthusiastic, were not unconditional. They want the changes to be made well-nigh irreversible. Here's how Emmerson put it: "Show me the supermajority legislative vote and the Constitutional protections through a vote of the people to ensure the Democrats won’t weaken this historic reform. Put it before me, and if that’s all there, I’m in. I’ll vote for it."

RELATED:

A starting point on pensions

Newton: A meeting of California minds

Gov. Brown says no to labor on child care

-- Jon Healey

Credit: AP Photo / Rich Pedroncelli

 

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