Last October, Governor Jerry Brown announced a 12 point statewide pension reform plan. While there was plenty for both sides in the debate to dispute, there was no doubt it was a serious framework for putting public pensions in our state back on a sustainable path. State GOP lawmakers backed the plan, even though most would have preferred more draconian changes.
It is now May. Six months have passed. With the “May revise” state budget proposal due out from the Governor in a few days, no one seems to know when — or even if — the reform package will come to a vote.
According to the Los Angeles Times, “Senate leader Darrell Steinberg (D-Sacramento) was noncommittal.” Their story quoted him as saying, “It’s our obligation to deliver comprehensive pension reform this session. When exactly, whether it is before or after the budget, I don’t know. It depends upon conversations with the governor and the Assembly as well.”
Press speculation attributes the stalemate to budget and election politics. Democrats have a majority in both houses and now bear responsibility for the hard decisions necessary to balance the budget. To do so without further harsh cuts to education and aid to the poor, the Governor’s tax proposal must win voter approval in November. That leaves Democratic leaders in a difficult spot. Voters want pension reform. But powerful public employee unions are key to financing the Governor’s tax campaign.
Finding a compromise shouldn’t be impossible, especially if legislative leaders focus on what’s best for the state, not just short term polls and politics. In the long run, failure to reform pensions will devastate the very interests Democrats care most about protecting. Unless rising pension costs can be stabilized, deep and painful cuts will need to be made to public services — and retirement security for public employees will be jeopardized.
Many unions seem to finally understand this. While emphasizing that change should come at the bargaining table instead of through legislative reform, they are increasingly conceding the necessity of reform. In fact, they argue, it is because unions are making concessions in negotiations that sweeping changes in the law are not needed.
Their view has merit, but the case for statewide change is more compelling. CalPERS has bowed to the reality of continuing global economic turmoil by lowering its expected rate of investment earnings, shaving it from 7.75 to 7.5 per cent a year. Long overdue, this adjustment will hit State and local budgets beginning next year. During the global expansion, CalPERS did indeed rack up impressive profits. But year after year of stratospheric gains is simply unrealistic. CalPERS has recently acknowledged that for the first nine months of this fiscal year, their overall return has been an anemic 1.9%. With the sluggish American economy, the darkening picture in Europe and even the Chinese revising growth numbers downward, the ability for the giant fund to pile up massive gains is a pipedream. That means the cost of meeting pension obligations will continue to soar.
There is still time for lawmakers to take action. Finding the right political balance may be tricky, but the greatest risk is for the Legislature to fail to deliver what Steinberg acknowledged was their “obligation to deliver comprehensive pension reform this session.”
According to the Field Poll, voters by a wide margin think the Governor’s pension reform plan “strikes the right balance” (51% vs 14% who don’t think it goes far enough and 24% who think it goes too far.) The Governor himself is twice as popular as the State Legislature (45% approval for Brown vs. a measly 22% for the Legislature.) More ominously, another Field Poll shows support slipping for retaining a full-time legislature. The last time the Field Poll asked the question, voters backed a full-time legislature by 19 points (52-33%) but recently it was just 6 (45-39%).
In other words, if the legislature doesn’t do its job, it may find itself out of a job.
That’s why it’s important for them to look beyond the political jockeying in Sacramento and take the long view and high road. Sensible pension reform protects vital state and local services from additional drastic cuts — and ensures sustainable pension security for current and retired public employees. Delay only compounds the financial cost.
Now’s the time to act.
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