Pension Board OKs Davis Plan on Pay Hikes

A plan by the administration of Gov. Gray Davis to essentially borrow $200 million from the state’s pension fund so government employees can keep pay hikes amid the budget crisis was approved by the board of the California Public Employees Retirement System on Wednesday.

The board agreed to a proposal under which the majority of unionized state employees will not have to make their annual retirement fund contribution this year -- effectively replacing a 5% raise that they had previously agreed to defer. The state instead will make the pension contribution for them, but over 15 years, through principal and interest payments that will not begin until 2005.

Republican lawmakers and taxpayer groups have charged that the deals prove that Davis is pandering to the unions as he courts their support in fighting the election that threatens to recall him from office. Other critics of the deals, such as state Treasurer Phil Angelides, have said that the state has already pushed too many budget costs into the future, and should not borrow to grant pay raises for state workers.

Angelides’ delegate was the sole member of the 13-person CalPERS board to vote against the proposal, although three abstained.

“I could not in good conscience support the proposal,” Angelides said. “It’s a deferral of costs, which isn’t really a savings. The current budget does too much of that already.... In essence, this would result in more borrowing.”

Marty Morgenstern, the state’s personnel director and a CalPERS board member, abstained from voting. The board representatives from local governments and the Cal State University system also abstained.

In presenting the proposal to the board, Morgenstern said that state employees lag local government workers in wages and that they have not had a raise in several years.

What state workers have been given in lieu of raises is the kind of relief from making payments to the pension fund that CalPERS again approved Wednesday. They have been getting de facto raises that way since 2001.

Morgenstern said the deal approved Wednesday actually will save the state $195 million because employees have agreed to postpone raises that they are owed this year. By not paying the raises, the state can use the money to pay down the budget deficit, he said. Yet the employees covered, who include 90,000 members of the California State Employees Assn., will not see their take-home pay reduced as a result of not having to make the pension contribution.

It is just a fraction of the $1.1 billion Davis must cut from the state payroll to keep this year’s budget in balance. State officials have warned that thousands of state workers could still be laid off to save money. Wall Street analysts are skeptical, however, that Davis has the political will to follow through with layoffs, especially if the recall is delayed until March, as a panel of federal judges has ordered, pending further appeals.

Angelides suggested that the unions could have given a little more back to help the state with its budget problems.