Costs of Public Pensions Targeted in Three States

Politics Reuters

Efforts to tackle the costs of public pensions advanced on Tuesday in three Western U.S. states, led by a top Arizona lawmaker unveiling a plan to overhaul his state's pension system.

Continue Reading Below

At the same, a bipartisan group of Washington state officials presented a plan on funding state pension systems and a California activist said a statewide pension reform initiative would be in print in April or May, the first step to putting it to voters in June 2012.

California lawmakers may also take up pension changes as part of talks with Governor Jerry Brown to balance the state's $25.4 billion deficit.

As in California, state officials across the nation are contending with ongoing weak revenue, and some states face so much pressure to fund pensions systems it may hurt their credit ratings, Moody's Investors Service said last month.

State finances are also of growing concern in Congress, where some lawmakers are discussing the need for legislation that would allow state governments to declare bankruptcy. That could help them clamp down on labor costs.

Arizona House Speaker Kirk Adams said states must urgently tackle pension costs to prevent more fiscal chaos.

Continue Reading Below

"We're headed off the cliff," he told Reuters in a telephone interview.

Adams proposed on Tuesday cutting the state's pension costs by having current and new police officers, firefighters, prison employees and elected official split the cost of pension contributions with employers as do other government workers.

Adams would also repeal cost-of-living adjustments for retired public employees and require most new state employees to be at least in their early 60s before they could draw pension payments.

Additionally, the Republican lawmaker would require Arizona's Board of Investment to conduct a study on having 401(K)-style defined-contribution plans take the place of traditional defined-benefit pensions for new public employees -- an idea bitterly opposed by public employee unions.

Adams said he expects Arizona's pension expenses would be sharply reduced under his plan, which he expects to be hotly contested in the legislature.

"There will be significant long term savings, likely I believe in the hundreds of millions of dollars," he said.

In Washington state, officials led by State Treasurer James McIntire said they would push for a constitutional amendment to require state contributions to pension plans be sufficient to fund at least 80 percent of their long-term benefit costs.

Meanwhile in California, Dan Pellissier is mulling a number of options for a statewide ballot measure proposing to overhaul the state's pensions system for public employees.

One option may be a cap on pensions for new public employees at the median household income, said Pellissier, president of California Pension Reform.

Another option may be to draft an initiative going after existing pension benefits, which many analysts say would face high legal hurdles.

Pellissier, however, said voters may be ready to challenge that. "We're now in a place where you have near saturation awareness of the pension issue," he said.