Pension Reform, Take 2

Gov. Arnold Schwarzenegger’s decision to quit trying to privatize the state’s public employee pension system may be the most encouraging thing to happen in Sacramento this year. With luck and political will, this concession will lead to negotiation of other Schwarzenegger plans and eliminate the need for a costly and contentious special statewide election this fall.

Now that Schwarzenegger has budged, Assembly Speaker Fabian Nunez (D-Los Angeles) can’t stick to his position that there’s not much room for negotiation on employee pensions. The state’s annual contribution to the public retirement fund soared from $160 million in 2000 to $2.6 billion now, in part because pensions were extravagantly sweetened from budget surpluses during the stock market boom of the late 1990s. These costs must be brought back in line with today’s more spartan reality.

Schwarzenegger told a news conference at the Capitol on Thursday that he always preferred to negotiate his whole government reform plan “inside this building” with Democrats who control the Legislature rather than to try to write his program into law through a series of ballot initiatives. He’s said that before, but left the impression that he preferred the campaign trail and the talk-radio circuit. Perhaps he’s also reading polls that show his popularity dropping this year.

The governor was joined at the news conference by representatives of police, fire and sheriff’s employees, who had complained that a provision of his pension initiative might eliminate death and disability benefits for officers and their families. Schwarzenegger didn’t think so, and said that was not his intent. But the issue turned California’s influential public safety community against the plan. And although Schwarzenegger didn’t say so, there has been no stampede to support converting the public employees pension system to a 401(k)-style plan. The idea was caught in the cold back draft from President Bush’s fading proposal to set up private Social Security accounts.

Of the ballot initiative on pensions, Schwarzenegger said, “Let’s pull it back and do it better,” even though about 400,000 of the needed 600,000 signatures have been collected. The experience reflects a common flaw in the initiative process. Once a petition is written and put in circulation, it cannot be changed. Schwarzenegger said he would field a new initiative for the June 2006 ballot if he cannot work a legislative deal.

Schwarzenegger’s action Thursday also indicated the lack of urgency for a special election on his entire reform plan. As long as he and the Legislature can negotiate a successful budget this summer, it will do no substantial damage to his larger agenda to postpone the vote from November to next June.