Published August 31, 2012
California lawmakers were poised to pass a sweeping pension reform measure and a flurry of other bills on Friday as they prepared to break until after the fall elections.
The pension law, unveiled by Governor Jerry Brown on Tuesday after months of talks with fellow Democrats who control the legislature, would put new limits on pensions for future state and local government to save tens of billions of dollars in retirement-related spending.
Brown intends to promote those savings to help sell voters on his November measure to raise the state's sales tax and boost income taxes on wealthy Californians. Revenue from the measure would prevent further immediate cuts in spending on education programs and bolster the state's finances in coming years.
The tax measure has a modest lead in polls but support for tax initiatives in the California typically wanes as election day nears. Brown needs to hammer home to voters how he has tackled pressing fiscal concerns to rally them behind tax increases, analysts say.
Pension costs are one of those concerns--and not just in California. State and local governments around the country have struggled with lean revenue, requiring them to slash spending on services but at the same time honor promises to retirees.
Brown and top Democrats hailed the reforms in the legislation to be voted on Friday. The California Public Employees' Retirement System, the largest U.S. public pension fund, said the plan could cut $40 billion to $60 billion in pension expenses for government employers over 30 years.
Public employee unions panned the agreement, complaining that Democrats who are routinely their legislative allies had sold them out by agreeing to the proposal.
But others said the changes do not go far enough, noting they do not include Brown's proposal for "hybrid" pensions combining features of traditional pensions and 401(k)-style retirement accounts.
"I hope people acknowledge there is much, much more work to be done," said Joe Nation, a former Democratic member of the state Assembly who now teaches public policy at Stanford University. "It's better than moving backwards but this barely moves the ball forward."
Nation in recent years has overseen studies warning California and its local governments face unfunded pension liabilities that stretch into the hundreds of billions of dollars.
Pension costs are contributing to the financial hardship that pushed Stockton and San Bernardino, two sizeable California cities, to file for bankruptcy this year.
Tackling unfunded pension liabilities will require changes that effect the retirement benefits of current public-sector employees, not just the future employees targeted in the bill, according to Nation.
"Because we are so under water right now there just really has to be more," Nation said.
California lawmakers must vote on the pension bill by midnight Friday, the close of the legislative session.
The legislation will require new public-sector workers to split payments to their pension accounts at least evenly with employers.
Current employees would also be responsible for half their contributions as talks phase in higher payments. Savings to the state from its employees paying more toward their pensions will be used to reduce its unfunded pension liability.
The legislation also will raise retirement ages for new employees and impose new formulas for calculating pensions. That will leave the newly hired with less generous benefits than current workers.
The legislature will also be considering a workers-compensation reform measure.