Calpensions

Gov. Arnold Schwarzenegger said in his weekly radio address yesterday that Republican legislators, who tried to block his pension reform bill this month, may have “sold out” to the prison guard union for campaign contributions.

The reform rolled back a major state worker pension increase, SB 400 in 1999, that touched off a round of local government pension increases critics say are unaffordable and eat up funds needed for other programs.

Schwarzenegger said his state-worker pension reforms, obtained after a record state budget deadlock that went 100 days into the new fiscal year, will save $100 billion in the decades to come.

“They also pave the way for local governments to follow suit because pension reform is necessary at every level of government,” Schwarzenegger said. “In fact, in San Jose and San Francisco there are initiatives on the ballot that include many of the same reforms we just passed.”

The governor’s reforms require state workers to pay more each year toward their pensions, give new hires lower pensions, curb the “spiking” or boosting of pensions by manipulating final pay, and direct CalPERS to reveal cost risks when raising state payments to the pension fund.

Schwarzenegger has been trying to roll back state-worker pensions since shortly after taking office in a recall election in 2003. Now before he leaves office early in January, the Legislature may only return for swearing-in ceremonies after the election.

In his radio address yesterday, the outgoing governor said Democratic and Republican legislators are both “in bed” with the public employee unions, singling out Republicans “hidden under the sheets” who preach fiscal responsibility.

The governor said he was sitting in his office at 2 a.m. on Oct. 8 watching the budget bills pass. When the pension bill stalled, he said he was surprised to hear that it lacked support needed from minority Republicans for the required two-thirds vote.

Among the Republicans blocking the pension bill, the governor said, were Senators Bob Dutton of Rancho Cucamonga and Sam Blakeslee of San Luis Obispo and Assemblymen Kevin Jeffries of Lake Elsinore and Paul Cook of Yucca Valley.

“They held eloquent speeches on the floor saying, ‘This is terrible. We can’t hurt the CCPOA, the prison guard union. This is unfair to them,’” the governor said.

The California Correctional Peace Officers Association has been without a contract since 2007 and has not been holding formal bargaining talks with the Schwarzenegger administration.

A breakthrough came when the Highway Patrol union, which negotiated the trendsetting safety formula in SB 400, agreed to a rollback earlier this year along with five other smaller unions.

The giant Service Employees International Union Local 1000 agreed to a rollback shortly before the budget passed, leaving the prison guards as the lone holdout among major state worker unions.

Schwarzenegger said the Republican blockade on the pension bill was bypassed by getting a signature from Secretary of State Debra Bowen at her home at 3 a.m., clearing the way for a legislative special session.

The governor said the special session allowed the pension bill to be passed on a majority vote, rather than a two-thirds vote, with Democrats providing all the votes expected from them.

After the pension bill passed, several Republicans, including Assemblymen Jeff Miller of Mission Viejo and Dan Logue of Linda, changed their votes so the official record would not reflect their opposition.

“Not only did they try to block reform, but then they did not even have the courage to publicly stand behind their action,” said the governor. “They were worried that when they went back to their districts people would find out they sided with labor rather than with the taxpayers.”

Schwarzenegger said the Republican legislators mentioned in his address received a total of more than $75,000 in campaign contributions from the prison guard union.

“Maybe these Republicans sold out simply because they got campaign contributions from the state prison guards union,” the governor said in his radio address. “I don’t know. You figure it out.”

The governor’s pension adviser, David Crane, also pulled no punches at a hearing in San Francisco last week held by the Governmental Accounting Standards Board, which is considering an overhaul of public pension rules.

The board is proposing changes in the way public retirement systems report their long-term debt for pensions promised state and local government workers. The rules for reporting the value of pension fund assets also could change.

GASB hearing in San Francisco

Critics contend that the current accounting rules allow pension funds to conceal massive debts. Some think a rule change could trigger major cost hikes, another blow to retirement systems already hit by a historic stock market crash that eroded their assets.

Crane told the GASB hearing that legislators who voted for the SB 400 pension increase in 1999 were unaware of the risk of soaring state costs if investment earnings fell short. He said many didn’t understand that the pension increase created state debt.

“I can tell you there are 14 legislators in our state Legislature right now who were there in 1999, who tell me to a person had they known the truth in 1999 they would never have supported that pension increase,” he said.

One of the issues facing the board is whether pension funds should continue using their annual earnings forecast, now often about 8 percent, to offset the projected cost of their future pension obligations.

A number of economists, disagreeing with pension fund actuaries, argue that a lower “risk-free” bond earnings rate should be used because the pensions are guaranteed by government.

Crane cited a report from Alicia Munnell and others at the Center for Retirement Research at Boston College in June saying that the SB 400 sponsor, the California Public Employees Retirement System, reported having 128 percent of the assets needed to pay for liabilities.

But if a risk-free discount rate had been used, said Munnell’s report, CalPERS would have had only 88 percent of the assets needed to cover liabilities, making approval of a major benefit increase less likely.

Later in the board hearing the chief actuary of the California State Teachers Retirement System, Rick Reed, who was with CalPERS in 1999, said he disagreed with Crane’s view that the SB 400 cost risk was kept secret.

“We did tell not only the board, individual legislators who called, individual employers what would happen if we didn’t earn, at the time, the 8.25 percent interest,” said Reed.

“So those ranges were given,” he said. “They were public. I’m not saying who knew, who didn’t know. That’s sort of up to them. But anybody that called me, we gave them the range.”

Crane and others have previously pointed out that CalPERS gave legislators a 17-page brochure saying the SB 400 benefit increase would be covered by investment earnings at no cost to taxpayers.

The legislative analyses of SB 400 say CalPERS said the benefit increases would leave state costs little changed for a decade. But state payments to CalPERS that dropped from $1.2 billion in 1997 to $150 million in 2000 have soared to about $3.9 billion this year.

Internal memos show that the CalPERS board was given hypothetical scenarios in 1999 showing that if earnings averaged the forecast 7.75 percent state costs would be little changed for a decade.

But if the earnings averaged 4.4 percent, costs could soar to $3.95 billion in 2010, which turned out to be remarkably accurate. The new state budget requires CalPERS to give the Legislature a full range of earnings forecasts in the future.

“We just passed legislation as part of our budget that requires CalPERS to report this kind of information regardless,” Crane told the GASB hearing. “They need to have that information, and I can tell you I and others, once we are out of office, will be pushing for this even stronger than we are now.”

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at https://calpensions.com/ Posted 17 Oct 10

This entry was posted on October 17, 2010 at 7:37 am and is filed under Arnold, Reforms, SB 400. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.