By: Steven Greenhut
At a League of California Cities event in Sacramento, Gov. Jerry Brown promised local officials struggling under the weight of pay and benefit costs that he would, indeed, put forward pension-reform proposals in the coming weeks. Yet I see little evidence so far that the new governor is interested in significantly reforming the underfunded and overly generous pension plans enjoyed by the public sector union employees whose independent campaign expenditures played a key role in Brown's winning the governor's office.
"It's going to be a continuing process as we understand exactly what the stock market provides and what the stock market doesn't provide," Brown said at the meeting, as reported by Business Week. That's hardly a resounding call for pension reform, even as the state struggles with an unfunded pension liability – a debt that must be paid before most other government programs – estimated at a half-trillion dollars, according to a recent Stanford University study.
By his own words, Brown appears concerned mainly about assuring that pension-fund performance is in line with economic returns on investment. I've yet to hear him talk about the fairness of the current system, in which public employees retire at early ages, often with millionaires' pensions, while those in the private sector must work 15 years or more longer and retire with far less, or who must depend on a Social Security system that resembles an unsustainable Ponzi scheme.
By his actions so far, Brown appears unserious about pension reform. At his recent news conference announcing his budget, he punted on pension reform, which is probably the biggest financial mess facing the state. Reporters asked about that, and, in his typically ornery way, he suggested that we go to his Web site and look at his plan. That plan isn't bad, as it calls for an end to pension-spiking abuses, a two-tiered system with lower benefits for new employees, an end to retroactive increases (recall Orange County's ongoing lawsuit against retroactivity, which gives employees near retirement age a gift of public funds by spiking pensions going back to their date of hire), an increase in employee contributions and some good-government reforms to increase oversight of pension institutions such as the scandal-plagued California Public Employees' Retirement System.
Great, but there's a huge difference between including something on a campaign Web site and including it in a budget. On Jan. 13, some of the state's most prominent tax fighters attended a summit in Sacramento sponsored by the Howard Jarvis Taxpayers Association. In a luncheon talk, I detailed the depth of the state's pension crisis, along with Marcia Fritz, president of the California Foundation for Fiscal Responsibility, the group best-known for publishing a database revealing how many state employees receive pensions of at least $100,000.
Fritz told the audience that during the campaign she had advised both Brown and GOP candidate Meg Whitman on pension-reform issues, and she gave Brown a list of several minor things he could do to save money on pensions – the low-hanging fruit that wouldn't elicit much blowback from the unions.
He could easily have included these elements in his plan and saved millions of dollars. Yet he chose not to include any of them. Fritz is an auditor, and when she audits companies she says she looks for little things to know whether the company is serious about getting its books in order. Looking at these little things – or rather the way Brown and Co. refused to take even the tiniest step toward pension reform in the budget – she is convinced that Brown is not serious about pension reform.
For instance, she suggested that the administration change the way Cal Fire wants to include planned overtime as part of its pensionable benefit package. CalPERS is about to retroactively increase these pension benefits – which Brown could easily stop. Prison guards, who sometimes can retire at age 50 with guaranteed six-figure pensions, also receive an additional 401(k) program, which could easily be stopped.
Fritz also pointed to a loophole that allows public school teachers who work part time through job sharing to earn full retirement credit for their time. She also suggested changes to the state's absurd airtime purchases, whereby public employees can pay upfront for larger long-term pension benefits at about 50 cents on the dollar.
"Not a single one made it into his budget," she said. "He didn't try very hard."
Fritz also noted that Brown's plan for education funding doesn't even mention that the California State Teachers Retirement System, in lowering its asssumed rate of return from 8 percent to 7.7 percent, has doubled its pension liability. The state is vastly underfunding teacher pensions, and contributions need to go up – but Brown completely avoided the issue, by pretending in his budget that the system is funded adequately. That's a $4 billion issue.
This raises serious questions about Brown's claim that he's doing everything he can. This certainly is not an honest approach to budgeting. Brown is presenting Californians with a phony choice of cutting programs or raising taxes. But what about all these significant reforms that could save billions of dollars? What about contracting out, privatization, the reduction in excess staffing and the elimination of all those highly paid and mostly bogus commissions? What about pension reform?
Jerry Brown is coming into office with a lot of highly publicized – and some praiseworthy – activity, as he pushes ahead what he calls an honest budget, free from the usual gimmicks, and makes cuts in his office budget, cell-phone use by state employees, redevelopment agencies and so forth. Many of us fear that Brown merely is setting us up for tax-increase extensions, by claiming that he's doing everything he can to fix things, and there are no other choices left for California voters.
Is Brown a real reformer or a phony? The answer will come when he unveils his pension-reform proposals.