Governor Drops Pension Revamp

Gov. Arnold Schwarzenegger retreated Thursday from his ambitious plan to convert the state pension system to private accounts, part of his sweeping agenda for change in state government.

Opponents immediately cast Schwarzenegger’s abandonment of the current proposal as a political defeat, a sign that he was backing away from his bold call in January’s State of the State speech for an overhaul of state government.

The agenda he outlined then included automatic controls on state spending, teacher pay based on merit rather than on seniority, a new method of determining voting districts and the pension switch that he said would curb state costs.

Conceding that the proposed ballot initiative he had embraced to revamp public pensions was flawed, Schwarzenegger said he was abandoning pursuit of the idea until at least June 2006.

He will strive instead to overhaul the pension system through negotiations with lawmakers, he said. But “we will have reform,” the governor added. “Come next year, we will have the pension reforms, and we will bring stability to the pensions.”

The initiative would have stripped public employees of death and disability benefits, according to an analysis by state Atty. Gen. Bill Lockyer.

That prospect enraged police, firefighters and other law enforcement groups, a formidable coalition that promised to mobilize against the measure in a possible special election this fall.

Schwarzenegger indicated Thursday that he still might call a special election if lawmakers refused to adopt the other parts of his agenda.

“After talking a lot about blowing up the boxes of government and having to retreat on that, and having to retreat on this, I hope the governor is getting the message that bipartisanship and working with the Legislature is the recipe for success,” said state Controller Steve Westly, a Democrat who campaigned with Schwarzenegger last year in favor of initiatives on state borrowing and balanced budgets.

Just days ago, the governor’s aides and political allies had said the pension initiative enjoyed public support. People were lining up in impressive numbers to sign petitions aimed at putting it on the ballot, they said.

But for weeks, Schwarzenegger and his aides have heard complaints as they met with widows of slain officers and public safety management groups, trying to build support for his pension ideas. The groups bluntly told the administration that they wanted Schwarzenegger to disavow the initiative.

“We asked him to drop the whole initiative. That was our main focus -- to completely throw this thing out,” said Linda Soubirous, whose husband, a Riverside County sheriff’s deputy, was killed in 1993, leaving her with a 1-year-old child and a baby on the way.

Schwarzenegger said at a news conference Thursday, “It was very clear that the main thing that troubled them was that there is a danger that death and disability benefits are at risk.”

But without the threat of an initiative to serve as a prod to the Legislature, he loses a weapon that he has successfully deployed in the past to motivate Democratic lawmakers to bargain. He is already signaling that he may make concessions.

Early on, Schwarzenegger called for ending a pension system that depends on guaranteed benefits, in favor of a 401(k)-style retirement program. His plan echoed what President Bush proposed for revamping Social Security.

But in talks with law enforcement officials in recent weeks, the governor’s aides have distributed a two-page list of discussion points that include preserving parts of the set-benefits system. The document mentions “hybrid” plans that would offer benefits based on both an employee’s length of service and investment returns.

It also cites possible “reforms” that include changing the age at which people could collect retirement benefits.

One change that Schwarzenegger championed in his State of the State speech was set aside months ago.

The governor said he would redeem a promise to “blow up” the “boxes” of state government by doing away with 88 boards and commissions that he deemed duplicative or unnecessary. In February, the administration withdrew the proposal, conceding that it could benefit from “further review.”

Ever the optimist, Schwarzenegger said Thursday that he was not worried that his agenda might have derailed. “We are right on target with our reforms,” he said.

The tactical retreat underscores the complexities of Schwarzenegger’s reliance on the ballot to address what he sees as California’s problems, said some political analysts. Schwarzenegger has used the ballot to exploit his sagging personal popularity and to gain leverage over the Democratic-controlled Legislature.

“In January he came out with very complex initiatives all at the same time,” said Elizabeth Garrett, a professor at USC’s law school. “Any one of those would be difficult to pursue through the ballot box. Doing all simultaneously would be impossible.”

Times staff writer Robert Salladay contributed to this report.