In this campaign year, everyone seems to be talking tough about pension costs.
In the governor’s race, Meg Whitman and Jerry Brown are competing to be seen as the candidate who will be more effective in controlling pension costs. In the state Legislature, lawmakers have been pushing a crackdown on so-called worst-case pension abusers, using former Bell City Administrator Robert Rizzo, who was set to receive an annual pension of about $1 million, as their prime example. And Gov. Arnold Schwarzenegger has negotiated deals with several unions to restrain pension costs for newly hired workers.
Seriously tackling pension costs, however, would mean reversing a two-decade trend of steadily offering more generous benefits, a pattern that has sent the taxpayers’ potential liability soaring.
The Bell scandal has been both a boon and a distraction to the campaign, pension-reform advocates say. Examples like Rizzo’s have helped attract public attention to pension problems, but they have also allowed lawmakers to focus on fixing rare, egregious problems rather than tackling issues that cost the pension system far more money, but also touch far more people. Schwarzenegger said as much last month when he vetoed most of the Bell-inspired pension reforms, arguing that they did not go far enough to fix a broken system.
Until recently, few lawmakers were willing to talk publicly about rolling back pension costs. Instead, legislators and governors of both parties were approving pension changes that inflated long-term costs.
Higher benefits were approved at a time when CalPERS, the state’s pension giant, had overflowing funds because of a healthy economy and thriving markets that boosted the value of its investments. But when the market tanked, the value of the pension funds declined sharply. Because the funds are legally obligated to pay retirees their promised benefits, taxpayers are on the hook for any shortfall.
The trend toward ever-higher pension promises dates to at least 1990 when, under Republican Gov. George Deukmejian, a little-noticed rule change allowed California’s public workers to base retirement benefits on their final year’s pay, making it easier to spike pensions, analysts say. Nearly every other public pension system in the nation requires pensions to be based on a three-year average.
At the end of the decade, Democratic Gov. Gray Davis signed a bill giving California Highway Patrol officers and other public safety workers a retroactive 50% increase in pensions.
Civilian government workers followed with a 33% pension increase, opening the floodgates for a slew of other requests. Among the changes was a series of laws expanding the list of maladies for which police and firefighters can take medical retirement, which provides half their pension tax-free. The changes made it easier for a police chief nearing retirement to claim lower- back pain, a hernia or virtually any kind of heart trouble and retire on a disability pension.
Other legislation passed in recent years eased the way for firefighters to claim they had contracted tuberculosis, meningitis, staph infections, hernias, heart trouble, blood-borne diseases, biochemical exposure and pneumonia on the job. These so-called presumptions make it harder for cities to fight worker’s compensation claims that often lead to disability pensions.
Legislation passed in 2001 widened the category of “safety” employees to include workers who inspect milk, dispatch CHP calls and make sure hair salons are licensed. All now get 25% higher retirement benefits. A 2007 state report estimated the annual cost at $8.9 million.
Abuse of public safety disability pensions is the “forgotten child” of the gubernatorial pension debate, said Jason Sisney, director of finance in the state Legislative Analyst’s Office.
The flurry of pension-related legislative activity continued until the state ran into deep financial trouble with the economic downturn in 2007.
Court decisions that will be difficult to reverse have added to the costs, mandating that such things as uniform allowances, leave time and other extra-salary costs be included in retirement calculations.
Voters, too, have been complicit.
In 2005, Schwarzenegger pitched a ballot initiative that would have lessened pension costs by creating 401(k)-style retirements for new state workers, similar to pensions in private industry. He scrapped the ballot measure after polling showed that voters — influenced by TV ads sponsored by police and firefighter unions — would not support it.
The result is a state pension system that is among the most generous in the nation. Since 1999, police and firefighters in state and local governments have been able to retire as early as 50 with 90% of their final paychecks for life. Non-safety employees who work until 55 are eligible for 80% to 85% of their highest pay if they’ve put in enough years. Public pensions typically include annual cost-of-living increases.
The contracts for state workers recently negotiated by the Schwarzenegger administration return benefits to pre-1999 levels for some workers. But the changes apply only to new hires.
Some Sacramento veterans pin the out-of-balance system on labor’s outsized influence on legislators. Although unions are tied more closely with Democratic legislators, both parties are involved. Schwarzenegger said the reforms he recently pushed through were almost scuttled at the last moment by Republican legislators who refused to change pensions for prison guards.
“For a long time now, public employee unions have run Sacramento. Period,” said Joe Nation, a former Democratic assemblyman who supports pension reforms. “And they’ve punished anyone who stepped out of line.”
Not true, said Terry Brennand, a spokesman for the Service Employees International Union, one of the state’s largest. If labor was in charge of the capitol, lawmakers would not have contemplated the proposed rollbacks in pensions. Public employees understand that the state is in tough economic times and work together with the governor and legislators when changes are needed, Brennand said.
“Nothing is ever easy to give up,” he said. “But we get it. When you are in tough times, you give things up. This time it involved pensions.”
Whatever approach a new governor takes must factor in the unions’ power, said John Moorlach, an Orange County supervisor who has pushed for pension reforms. He believes Schwarzenegger was on the right track in forcing reforms during contracts talks.
“You have to do it at the negotiating table,” Moorlach said. “The employees aren’t bad people. They are taking advantage of a system that has been given to them.”