Gov. Brown’s pension non-reform

Aug. 30, 2012

By John Seiler

As the smoke and the rhetoric have settled, you know pension reform is weak when: a) It’s criticized by an analysis in the Los Angeles Times. c) Ridiculed by the paper’s liberal columnist George Skelton. And c) praised by the California Public Employees Pension System.

The plan was crafted by Gov. Jerry Brown and Democratic lawmakers in the state Legislature and announced Tuesday. The main aspect of it is that there’s no move — at all — toward 401(k)-style pensions for public employees. Brown’s original 12-point proposal, from October 2011, called for a “hybrid” plan for non-safety employees that would be half continuing the current system, called “defined benefit,” in which benefits are guaranteed by taxpayers; and half a 401(k)-style plan called “defined contribution,” because it would guarantee a certain payment into the plan, but payouts would depend on market performance.

Without such a reform — or, better yet, a 100 percent “defined contribution” plan — any reform is a Band-Aid on a knife wound through the heart.

The Brown-Legislature “reform” does contain some minor good elements, reported the Bee, including “higher contributions from existing employees and imposes pension caps and raises the retirement age for new workers.”

The main problem is that it would save, at most, $60 billion. Yet the state’s unfunded pension liability is $500 billion, according to a Stanford University study headed by Joe Nation, the former liberal Democratic assemblyman but an honest man good with numbers. So the “reform” would fill just 12 percent of the pension black hole, leaving 88 percent unfilled.

Reform 2043

“This should more accurately be called the ‘Public Employees Pension Reform Act of 2043,’ since it will be at least three decades before it even begins to have any effect on state or local finances,” Jack Dean told me; he publishes, which reports on national public pension news.

“I printed out a hard copy of the first summary I received by email and then circled every instance of phrases like ‘for new employees’ and ‘going forward’ — because all of those items fail to address the huge unfunded liability that has already started to drown local governments. Unfortunately, one of those phrases appeared in just about every item on the list.

“Banning retroactive pension increases is a sound move but doesn’t help, either, since most unions have already gotten the maximum increases they sought — all of them retroactive.

“And finally, the University of California system with its huge unfunded liability isn’t even included in the legislation.

“If I were to grade this legislation I’d give it an A for creativity and a D for lack of substantive content.”

Times analysis

The Los Angeles Times’ sober analysis of the “reform” found:

“SACRAMENTO — Even by the most ambitious forecasts, the plan Gov. Jerry Brown and fellow Democrats are championing to contain government worker pensions in California could leave state taxpayers awash in debt to public employees.

“The governor’s plan, announced Tuesday, is unlikely to save cities on the brink of bankruptcy. The relief his proposal would provide to the strained state budget is modest.

“Analysts who study the issue say far more aggressive action — including reduction of benefits for hundreds of thousands of current employees left untouched by Brown’s proposal — will be needed to get runaway retirement costs under control.

“Taxpayers still face the prospect of major bailouts to cover retirement promises made to public employees whether lawmakers pass the plan as expected Friday or not.”

Skelton doesn’t like

Then there’s the political angle. The Legislature and Brown obviously are cooking up this reform, to be passed on the very last day of the Legislature’s session, as a talking point for their campaign to pass Proposition 30, his $8.5 billion tax increase on the November ballot. Here’s Skelton:

“SACRAMENTO — What Gov. Jerry Brown said recently about his proposed tax hike was complete balderdash. And I’m betting he was the first to know it….

“The wily old politician proved that his comment was hogwash Tuesday when he flew to Los Angeles, the state’s biggest media market, to trumpet a new legislative compromise aimed at controlling public pension costs.

“Brown had proclaimed that his soak-the-rich tax initiative on the November ballot was not about pensions or scandals or anything else except forcing the wealthy to pay more to avoid draconian cuts in education funding.”This is what the testy governor told pesky reporters Aug. 15 as he kicked off his campaign for Proposition 30, which would raise the sales tax slightly for everyone and the income tax sharply for individuals making more than $250,000 and couples earning over $500,000:

“This is not about any other issue. It’s not about the environment, it’s not about pensions, it’s not about parks. It’s about one simple question: Shall those who’ve been blessed beyond imagination give back 1 or 2 or 3 percent for the next seven years, or shall we take billions out of our schools and colleges to the detriment of the kids.”

“OK, technically, he’s correct. On paper. From a policy standpoint.

“But from a political perspective and looking into the minds of many voters, the question is about much more. It’s about whether they should send Sacramento more tax money.”

That’s exactly right. All government money is fungible. If Brown can get his tax increase passed and spends the money on education, then other money that would have gone to education can be spent on something else — like pensions.

Conversely, if Prop. 30 loses, then he has to cut more spending. Parents will holler about cuts in education, so those cuts won’t be as deep as advertised — and cuts then will be made in other areas, including perhaps pensions.

CalPERS likes

Finally, if CalPERS likes a reform, you know it didn’t go far enough. It said in a statement:

“CalPERS believes that the proposal includes significant changes that will help to protect and ensure the sustainability of the retirement fund, reduce abuse and add protections, ease administration, and moderate pension costs over time….

“It is important to note that public employees have already made significant concessions over the last few years.”

Well, isn’t that special.

CalPERS continued:

“Through collective bargaining agreements, most State employees are now paying 2 to 4 percent more from their paychecks toward pensions for a total of 8 to 11 percent of their compensation and thus saving the State nearly $400 million annually. The Committee’s proposals would return the benefit levels for all new public employees in California to pre-SB 400 levels from 1999.”

That’s doubtful. SB 400 was one of the pension-spiking bills that drove the state off the bankruptcy cliff. There’s no way the public-employee unions, which control the Democrats in the Legislature, would allow anything but cosmetic reforms. And, once the election passes in a little over two months, the next Legislature could reverse anything passed on Friday.

Now, with this week’s “reforms” so pathetic, there’s nothing to keep the state’s fiscal Cadillac from crashing on the rocks below.

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