Gov. creates panel to study pension costs

Nearly two years after Gov. Arnold Schwarzenegger abandoned his bid to curb government worker retirement benefits, he cautiously waded back into the issue of runaway pension costs Thursday by creating a commission to study the issue.

The move comes as some estimates show that the state has promised its government workers at least $100 billion more in cash payments and healthcare benefits than its pension funds are projected to be able to cover. That amount is roughly equal to what the state will spend from its general fund this year on all government services -- including schools, healthcare, transportation and prisons.

Schwarzenegger, in a written statement, called the spiraling pension costs “one of the biggest problems facing governments everywhere.”

But administration officials said the governor did not intend to push for any major reforms that would address that problem until the 12-member commission -- to be appointed by the governor and legislative leaders -- finished its work in January 2008.

That news frustrated fiscal conservatives, who have long warned that retirement costs threaten the state’s financial stability. Some characterized the governor’s move as a political stunt.

“I don’t think spending another year studying this issue is the answer,” said Carl DeMaio, president of the Performance Institute, a San Diego nonprofit that advocates for greater efficiencies in government. “It is a waste of time. It is politics as usual. It is studying a problem we already know how to solve.

“We don’t need another study,” DeMaio said. “We need the political will to fix this.”

The governor has had little to say about California’s runaway pension costs since his botched attempt to rein them in by shifting new government employees into 401(k)-style plans. Schwarzenegger abandoned that proposal after opponents seized on an opinion from the attorney general’s office that said that the plan endangered death and disability benefits for police and firefighters.

The state cannot reduce benefits already promised to government workers on the payroll. Those are contractually guaranteed.

Scaling back benefits offered to new workers is one way to narrow the funding gap, but such proposals face strong union opposition, as do proposals that would increase state employees’ contributions to their pensions. And lawmakers are loath to propose raising taxes or cutting funding for government services to cover the tab for government retirement benefits that are far more generous than what most taxpayers get from employers.

Even so, other state and local governments have begun to make such moves while California, which is grappling with a larger deficit than any other state, has yet to take action. Lawmakers have so far decided to ignore the advice of their chief budget expert, nonpartisan Legislative Analyst Elizabeth G. Hill, who has urged them to set aside as much as $6 billion per year to cover the cost of unanticipated retiree healthcare expenses, which her office estimates account for as much as $70 billion of the state’s pension deficit.

The mere announcement of a commission to study the issue was enough to cause consternation in the Capitol.

Assembly Speaker Fabian Nunez (D-Los Angeles) issued a curt statement saying that although the governor’s proposal “makes sense,” it “should not be viewed by any stretch as an attack” on the state’s retirement system.

“We’re cautiously optimistic,” said Yvonne Walker, vice president for bargaining at Service Employees International Union Local 1000. “But the devil is in the details.”

California Teachers Assn. President Barbara Kerr said the union had not yet decided whether it would join the commission if invited. “I know our views will be heard one way or another,” she said.

Failure to narrow the deficit considerably before the conclusion of the current legislative session in 2008 could create problems for the state on Wall Street. Rating agencies are monitoring the issue closely, and have made clear that they expect the state to devise a concrete plan. Should the agencies lower the state’s bond rating, it could add hundreds of millions of dollars to any attempt to sell bonds to cover the cost of highway construction and other improvements.

“It is critically important that we don’t just put in place politically expedient solutions without really addressing the problem,” said Keith Richman, a former Republican assemblyman from Northridge who is establishing a foundation to study pension issues. “The sooner we take action, the better.”

evan.halper@latimes.com

Times staff writer Joe Mathews contributed to this report.