State pension reform no long-term fix State still left with up to $500 billion in future debt

Gov. Jerry Brown, right, meets with Assembly Speaker John Perez, D-Los Angeles, left, and Senate Speaker Darrell Steinberg, D-Sacramento, after the Legislature approved a workers compensation reform plan at the Capitol in Sacramento, Calif., Friday, Aug. 31, 2012. The measure, SB 863, by Sen. Kevin de Leon, was passed in the Senate 34-4 and in the Assembly 68-4 and will go to the Governor who supported the measure.(AP Photo/Rich Pedroncelli) less Gov. Jerry Brown, right, meets with Assembly Speaker John Perez, D-Los Angeles, left, and Senate Speaker Darrell Steinberg, D-Sacramento, after the Legislature approved a workers compensation reform plan at the ... more Photo: Rich Pedroncelli, Associated Press Photo: Rich Pedroncelli, Associated Press Image 1 of / 4 Caption Close State pension reform no long-term fix 1 / 4 Back to Gallery

Sacramento --

The pension deal Gov. Jerry Brown cut with Democratic lawmakers is expected to help solve some of the majority party's short-term political problems, but it won't fix the pension system's long-term debt.

While the bill approved Friday could save the state $55 billion over three decades, according to CalPERS, estimates of the pension system's long-term shortfalls range from $90 billion to $500 billion.

Unions criticized the overhaul for its cuts to retiree payouts, while business groups and others pushing for reform say it's only a start and the state must do much more. Others, including some GOP lawmakers, ridiculed the plan as window dressing that could easily be reversed by lawmakers in the future.

The changes largely affect newly hired public employees while leaving many benefits intact for the current workforce. For example, most public workers hired after Jan. 1 will have to wait until age 62 to retire with full benefits, while those hired in 2012 or earlier can still retire at 55 with full benefits. Additionally, the bill imposes a maximum payout for new employees, while allowing current workers to keep their pensions.

David Crane, a Stanford lecturer and president of Govern for California, a nonpartisan government-reform group, said lawmakers need to take action on the pensions of current employees.

Controversial idea

Crane, a vocal critic of the pension system, suggests freezing and guaranteeing the benefits current employees have earned to date and, in future years, increasing employee contributions and reducing cost-of-living adjustments.

That prospect is controversial - unions argue it is illegal - but when Brown announced the pension deal last week, he said actions in some cities could result in a court ruling that such changes are allowed.

He told reporters: "Pension law is not static. And there will be cases coming out of San Jose, San Diego and Stockton that may reshape pension law over the next several years. And if so, that will open new avenues for further changes."

Those cities are looking at changes to benefits for current employees, with Stockton going that route because of bankruptcy and the others as a result of ballot measures passed in November.

To Crane and others, the changes Brown is expected to sign into law are but a small step.

"In a world where the state of California will be spending over $500 billion on retirement costs over the next 30 years, it's a step of some sort, but it's not a very big step," Crane said.

One thing everyone can agree on is that Brown and Democrats needed to take some action on public employee pensions to have any hope of winning voter approval of their November ballot measure, Proposition 30, which raises income taxes for the wealthy and increases the state sales tax to balance the budget. Without it, Brown and other Democrats say, they will make deep cuts to public education and other services.

GOP criticism

GOP lawmakers and others had been criticizing Democrats for seeking higher taxes while failing to take on the spiraling costs of public pensions, saying the majority party is beholden to unions.

"Pension reform had to happen before November ... it's hard to go to voters and say, 'Give us more money but we couldn't figure out how to solve this,' " said Michael Shires, a professor of public policy at Pepperdine University. "It could have been worse, and the (unions criticizing the plan) are fully cognizant of that."

Labor leaders protested loudly about the pension changes, but observers said they knew what was coming - and, for political reasons, decided not to try to kill the deal.

"Sometimes political logic dictates that when you really win, you want to make it seem like you are losing so that it looks like a compromise," said Thad Kousser, a political science professor at UC San Diego. "By all signs, you don't get a majority of votes in the Assembly unless the unions have decided they are willing to cut this deal. They want to show voters how much this hurts, that they are giving something up."

Persuading voters that the unions don't have the Capitol in their grip is important not just for Brown's tax proposal, Kousser said, but also for labor's campaign against Proposition 32, which would seriously curb their power by banning unions from using automatic payroll deductions to fund political campaigns.

If labor leaders did give the most significant - and controversial - details of the pension deal a thumbs-up behind closed doors, they weren't letting on in public last week.

Less than an hour after Brown unveiled the details Tuesday - including limiting annual payouts, raising the retirement age and forcing workers to split the cost of retirement benefits with taxpayers - unions slammed the bill as a "jam job" that reneges on 40 years of precedence.

"It goes well beyond what's necessary to stabilize the pension system. ... There's no rationale other than to lower benefits for future employees. I think it's a reaction to the political landscape," said Terry Brennand, a lobbyist for the state's largest public employee union, SEIU.

Marcia Fritz, president of the California Foundation for Fiscal Responsibility - a group that has been pushing to rein in pension costs for years - said unions have been in the loop, if not at the negotiating table "the whole time."

Labor's lesser role

She said the fact that Democrats were able to push through some of the biggest cost savings, such as raising the retirement age, "shows that labor doesn't 100 percent control California."

And though she said the bill won't ultimately be enough to ensure the retirement system's long-term stability, Fritz praised Brown and Democratic legislative leaders for setting statewide standards that will have "a big bang at the local level."

"We didn't get a home run, but I think we got a score with a walk," she said.