Archive for the ‘Brown’ Category

Pension reform: Will Brown make GOP an offer?

June 20, 2011

Senate Republicans willing to cast key votes to put a tax measure on the ballot, if there also are measures for pension reform and a spending limit, seem to be waiting for Gov. Brown to make an offer.

A pension reform proposal released by the Republicans last week appears to be a list of basic concepts that are more like a starting point for negotiations than a ballot-ready plan. For example, whether the reforms cover CalSTRS is undecided.

Much of the 20-point Republican proposal is similar to a 12-point pension reform issued in March by Brown — notably a pension benefit cap and a “hybrid” plan for new hires combining a lower pension with a 401(k)-style individual investment plan.

The governor’s news release said the 12 points had been discussed with Republicans, but talks broke down over other issues. “Brown intends to introduce these pension reforms with or without Republican support,” said the March news release.

Now might be a good time for the governor to introduce those pension reforms.

Last week “What now?” was the big question after Brown vetoed a Democratic-drawn budget. He said borrowing and suspect maneuvers would continue a long-running deficit and add to $35 billion in budgetary debt built up during the last decade.

Brown wants to close the remaining $9.6 billion deficit (after $11 billion in cuts and other action) by extending temporary tax increases before they expire July 1 and then, as promised in his campaign, place the taxes on the ballot for voter approval.

But he needs at least four Republicans, two in each legislative house, for the two-thirds vote required to extend the taxes and place them on the ballot in a special election later this year.

“We need four Republican votes, and in the next several days I’m going to do everything I can,” Brown said at a news conference after the budget veto. “I’ll move heaven and earth to get those votes.”

The four GOP senators, who also issued spending limit and regulatory proposals last week, are said to be willing to vote to place taxes on the ballot if their conditions are met, but not to extend the taxes before they expire July 1.

The conventional wisdom is that voters are more likely to approve an extension of taxes already in place, rather than what would be viewed as a “tax increase” if the sales and vehicle license fee taxes expire July 1.

Another question is how voters would react to a balanced package with tax revenue and spending cuts and controls, billed as a way for the state to end a decade of deficits and debt and begin to work its way out of the red and back to solvency.

But Democratic legislators, generally opposed to a pension overhaul and spending limit, reportedly are leaning toward papering over the budget gap until a stand-alone tax increase initiative can be placed on the November ballot next year.

It’s not clear whether Brown’s insistence on a gimmick-free budget, backed up by the swift budget veto last week, would be enough to get Democrats to vote to place pension reform and a spending limit on the ballot to avoid more deep budget cuts.

A major Democratic ally, public employee unions, usually says that any major pension reform should be done through collective bargaining, not imposed by law. Bargaining results have been mixed.

The standard bargaining reform raises the employee’s payment into the pension fund, allowing employers to reduce their costs by a similar amount, and gives new hires a lower pension, producing long-term employer savings.

New state worker contracts, for example, raised most employee contributions from 5 to 8 percent of pay to a new range of 8 to 11 percent. Employer contributions are about 17 to 28 percent of pay.

The new contracts have cut the state payment to the California Public Employees Retirement System to $3.5 billion in the fiscal year beginning July 1, down from what was once expected to be $3.9 billion in the current year.

Before the new contracts, CalPERS expected the employer contribution for most state workers, now 17 percent of pay, to increase to about 25 percent in a few years and stay there for a decade.

Most of the increase was due to huge investment losses in the recession and stock market crash. Since the last of the new contracts were approved last month, there has been no updated estimate of future state CalPERS costs.

“Public pensions equal just three percent of California’s budget and overhauling its public pension system will not make a dent in current shortfalls, nor will it spare other programs such as schools and parks,” a labor coalition news release said last week.

As previously reported, under a revised state budget proposed by Brown last month spending on state worker retirement is about 6 percent of the $88.8 billion deficit-ridden general fund:

CalPERS $3.6 billion (general fund $2.1 billion), California State Teachers Retirement System $1.3 billion (all gf), retiree health $1.6 billion (gf $1.5 billion), Social Security $632 million (gf $297 million) and Medicare $218 million (gf $102 million).

When critics talk about the need for cost-cutting pension reforms, they often point to the “unfunded liability,” the projected cost of retirement benefits promised current workers in the future for which no money has been set aside.

The revised budget lists $181 billion in “unfunded liabilities” for the state retirement system: retiree health $59.9 billion, state workers $48.6 billion, teachers $56 billion, UC employees $12.9 billion and judges $3.6 billion.

The debt estimates assume that pension fund investments earn an average of 7.5 to 7.75 percent in the decades ahead. If as critics advocate a lower forecast based on risk-free bond rates is used, the state pension debt is more than $500 billion.

Pension debate at the Capitol tends to focus on the two big state systems, CalPERS and CalSTRS. But most of the urgent pension problem is in local government, where employee costs are a much larger part of the budget.

The mayor of the largest CalPERS city, Bob Foster of Long Beach, said in March that pension contributions for police and firefighters, now 28 percent of pay, are expected to be 45 cents in three years and “could easily get to the 60 or 65 or 70 cents level.”

The news release last week from the labor coalition, Californians for Retirement Security, said public employees in nearly 180 cities, counties and special districts have agreed to pay more toward their pensions.

The Little Hoover Commission reported in February that nearly 200 cities, counties and districts raised pension benefits after the stock market crash hit pension funds, calling into “question the willingness and ability” of local officials to cut costs.

What’s happening in most local governments may be unreported or no change. CalPERS serves 1,543 government agencies. Among the more than 80 other public retirement systems in California are those run by the five largest cities and 21 counties.

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 20 Jun 11


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