The perils of state pensions
No question: California public employee pensions are a big problem -- especially for Democratic politicians.
Republicans pound them on the issue, claiming it’s emblematic of the majority party’s extravagant spending and subservience to patron labor unions.
Voters lean toward the Republican side. A Field Poll in October found strong sentiment for reducing retirement benefits for future state and local government employees.
In fact, 56% believed the pension system should be scrapped entirely and replaced with a 401(k)-type retirement savings plan for new hires. That’s also favored by both Republican candidates for governor, Meg Whitman and Insurance Commissioner Steve Poizner, although they’d allow public-safety employees to keep their pensions.
Field Poll Director Mark DiCamillo says that public retirement benefits are “becoming a bigger deal” for voters as the state budget deficit seems to get more intractable.
“Most voters think they can have their cake and eat it too,” DiCamillo says. “They think cuts in basic services can be avoided if there are eliminations of waste and inefficiencies. And under that umbrella, in voters’ minds, are some of the higher end public pensions.”
Even Democrats who agree that pension “reforms” are needed -- and many do -- are skittish about losing labor support, particularly in an election year.
State Atty. Gen. Jerry Brown is one Democrat in a particular dilemma.
The gubernatorial candidate is in a unique position to lead the way toward less generous state retirement benefits, if elected. That’s because as governor in the 1970s, Brown empowered public employees in the first place with collective bargaining rights. So he could pull off a “Nixon goes to China” move on pensions.
To signal that intention during the gubernatorial campaign would cast him as “fiscally prudent” and shroud the image of a “tax and spend liberal” that Republicans already are drawing. Brown, however, is heavily dependent on unions, not merely for campaign money but for thousands of volunteer ground troops. He can’t afford for labor to turn cold on him as he runs against a mega-rich, self-financing GOP opponent, most likely former EBay chief Whitman.
That’s probably why Brown seems to be saying less and less about the volatile issue.
A year ago he was fairly candid. “One cannot be a Democratic candidate without having good relationships with public-sector unions,” Brown said in an interview. “That’s a fact.”
But he added that the unions “are going to have to come around” and help solve the budget crises of state and local governments. They’ve “been asking more of government than the voters can be convinced to finance,” he said. “That’s a fundamental problem. They’re going to have to start contributing more” to their pensions.
Two months ago, as he formally announced his candidacy, Brown told me that “the unions will have to rise to the occasion like everyone else.”
Wages and benefits, he said, “have to be adjusted to fit economic times. We’re going to have to look at every aspect of state spending.”
But recently, as both the issue and the campaign have heated up, Brown merely has been saying that government has to make sure public retirement benefits “are actuarially sound.”
Of course, that’s truly the pertinent policy question. Republicans contend that the benefits are “unsustainable.” Democrats say: “Not so fast. We’re not sure.” And the big California Public Employees’ Retirement System flatly denies it’s in trouble.
But CalPERS has been infamously wrong before. Back in 1999, when then-Gov. Gray Davis negotiated an overly generous retirement boost for public employees and the Democratic Legislature signed off, CalPERS contended that state costs would not increase for “at least the next decade.”
Depending on whose figures you use, costs have ballooned 2,000% or merely doubled.
The 2,000% is in actual dollars but starts from an extremely low base: when the stock market was booming and the pension fund didn’t need state contributions. The doubling represents the state contribution per average worker salary, starting from the fiscal year that CalPERS was referring to: 1998-99.
Whatever. Gov. Arnold Schwarzenegger calls it “the single biggest threat to the fiscal health and to California’s future.”
He advocates returning the pension system to its pre-1999 structure for new employees.
The governor supports a similar, but slightly different proposal by state Senate Republican leader Dennis Hollingsworth of Murrieta.
It would raise the full retirement age for most state workers to 65. It’s now 62. CHP officers, firefighters and prison guards would have to wait until 57 instead of only 50.
Everyone’s retirement pay would be reduced.
“This will require some fortitude,” Hollingsworth says of his legislation. “It will require legislators to tell people ‘No.’ ”
But Democrats say this is an issue for collective bargaining between the governor and the unions.
The governor’s negotiators respond that they’re trying, but the unions are inclined to sit back and rely on Democratic protection.
“It’s like trying to date somebody who doesn’t want to go out with you,” says Lynelle Jolley, spokesperson for the Department of Personnel Administration, the negotiating agency. “You can send them chocolates and flowers, but if they don’t want to date you, it doesn’t matter.”
Democrats also contend this is mostly about politics.
But even if the pensions are sustainable fiscally -- a doubtful premise -- they’re certainly not politically. There’s too much pension envy out there in the private sector. And it’s a political problem Democrats should remedy.