Fleeting hope for fiscal reform

Feb. 28, 2010

Anyone who thinks that gubernatorial candidate Meg Whitman offers much hope for fixing the state’s structural fiscal mess should now wonder whether the billionaire former eBay executive might end up being nothing more than another Arnold Schwarzenegger —- a governor who sometimes talks a good game but who ultimately is too timid to take on the vested interests that are destroying our once golden state.

Whitman (and Schwarzenegger) last week backed away from any support for a proposed initiative for the November ballot that would have instituted a second-tier pension for government employees. Politicians and actuaries from all political perspectives admit that the current situation —- with its 15,000 government retirees receiving more than $100,000 a year in cost-of-living-adjusted pensions —- is unsustainable and could lead to insolvency for the state.

The state is in deep doo-doo. More people are recognizing this. Current pensions cannot be touched —- they are vested benefits and the courts have ruled that they must be paid for, come hell or higher taxes. But the state at least needs to institute a second tier of lower pension benefits for new employees to shore up the crumbling system.

The California Foundation for Fiscal Responsibility was circulating a measure that would do just that. If anything, the plan was overly generous in that it maintained a defined-benefit-style plan whereby the retiree is promised a set benefit amount rather than shifting government employees to the defined-contribution, 401(k)-style pension that most private-sector employees receive.

Whitman and Schwarzenegger have both talked somewhat about the state’s pension crisis.

In a speech to the Sacramento Valley Republican Party last month, Whitman said, “There is no question that we have a situation on our hands that is very challenging and I’ll point to the unfunded liabilities as one of our problems. … The private sector cannot afford this and we cannot afford this, either.”

Our governor —- who has alternately proposed and backed away from specific pension reform ideas —- last month said that “We are about to get run over by a locomotive,” in a reference to the pension liabilities faced by the state.

But, according to a Sacramento Bee article last week, Schwarzenegger did what he typically does —- found some reason to back away from real reform once he faces opposition to his proposals. Marcia Fritz, president of the fiscal responsibility foundation, told me that Whitman and her campaign simply stopped returning phone calls, even though a top aide had previously pledged an endorsement and financial backing for the pension-reform measure.

The business community helped sabotage the pension-reform effort, she added.

California business leaders —- known more as deal cutters than reformers —- unsurprisingly found that they didn’t have the stomach to directly take on the unions, even in the current climate where more people are recognizing the level or problems caused by public-employee enrichment schemes. The business community, she said, was fearful that such an initiative would energize union voters in November, when Whitman hopes to be propelled into the governor’s office.

There’s always an excuse to avoid these types of tough but necessary fights.

“When are we going to fight the war?” asked Fritz.

It’s a good question. The timing is right. The public is agitated at the high level of debt, taxes and pension liabilities. Apparently, the Whitman forces believe that they must first win the race before tackling tough issues, but I have never seen a candidate who avoids tough issues in a campaign to later embrace those issues once in power.

Last week, the well-respected Howard Jarvis Taxpayers Association endorsed Whitman as “the only reliable fiscal conservative in the race, and her commitment to cutting spending and eliminating waste, fraud and abuse is the way to restore prosperity to the Golden State.” That’s a great endorsement, but then she does this.

Most disturbingly, Fritz claims that the Whitman campaign actually torpedoed the initiative by leading CFFR to believe that support and money was coming, but then never delivering. That leaves nothing for CFFR to do but to pull back the initiative from this election cycle.

“There is no question Meg supports the goal of reforming California’s bloated pension liability,” said Whitman spokesman Tucker Bounds. “She supports the goal, but there may be a difference of opinion about the tools and way forward.”

And not much reform will come from the Capitol. The Assembly is considering a bill that could significantly add to the state’s financial burden for retirees.

Basically, if firefighters or certain peace officers develop cancer, it is presumed to be job-related, and that unleashes a torrent of payments and benefits. Despite the abuses inherent in the current system, AB2253 —- which is even co-authored by six Republicans, including Curt Hagman of Chino Hills —- would extend the presumption to these government retirees to up to 15 years after their termination. So many people develop cancer late in life, that this will spark an enormous increase in costs to taxpayers at a time when the state needs to reduce rather than expand benefits.

This bill and the Whitman/Schwarzenegger sell-out give you an idea of what a rough road is ahead for reform even though the political climate becomes more hospitable to serious reform. Yet as I write about this problem, I invariably get a response that goes something like this one from an annoyed (but very polite) government retiree e-mailer:

“My father always said, ‘If you bring me a problem, bring me a solution.’ You’ve identified the problem and used some egregious examples to get people’s attention. Now, what do you want to do about it?”

Well, suppose you have a friend who spent his last 10 years running up debt, drinking to excess and making every bad decision imaginable. He is down on his luck and one step away from living on a park bench. You’ve been lecturing him for years and he has mocked you and ignored you. Now that even he understands the fruits of his decisions, he turns to you and says, “If you’re so smart, then what’s the answer?”

Had the friend —- or the state government —- listened to oft-repeated fiscally responsible advice, there would be no current crisis. But no. And even now, as we point to reasonable solutions such as second-tier pension systems, the unions and their backers intimidate potential reformers and candidates into backing down from addressing the problem.

Yet we’re the ones who are supposed to fix the problem. Talk about gumption.

And at least now you know why I have little optimism and am thinking about lobbying the Sacramento city government to replace its nice “welcome” signs with signs that read, “Abandon hope all ye who enter here.”

–Steven Greenhut