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California's pension powder keg

The state's obligations are outstripping its ability to pay. Now is a good time to put reforms back on the table.

August 13, 2009

This page was not exactly enthusiastic when Gov. Arnold Schwarzenegger staged his end-of-June budget "squeeze," in which he presented the Legislature with a last-minute shopping list of cuts and reforms. The tactic sent Democratic lawmakers into a tizzy, as expected, and blew the deadline for avoiding state IOUs, also as expected. Nor was it possible to get excited over most of the items on the list: pointlessly fingerprinting in-home care recipients, extinguishing cost-of-living adjustments for children on welfare and similar gutting of human services. But one item seemed quite worthy: a state employee pension overhaul. If there had to be a squeeze, public pension reform came closest to making the exercise worthwhile.

That's because California's pension liabilities are outpacing the state's ability to pay. Obligations have grown substantially since 1999, when Gov. Gray Davis signed a pension-sweetening bill that, in retrospect, made financial sense only in a dream world in which California Public Employee Retirement System investments become more lucrative each year. Instead, CalPERS estimates this year's losses at close to 30%. Meanwhile, costs for the current fiscal year are expected to reach $3 billion, of which more than half is to come from the state's general fund.

The governor deleted pension reform from his squeeze play in favor of more easily achievable cutbacks, but it's still on the table, and he wants to move forward with it. Can he? Democrats remain angry over his budget tactics and even angrier over his legally questionable July vetoes. Schwarzenegger has a cheerful, hold-no-grudges approach to governing, but that may do him little good when it's time to get buy-in from the Legislature.

Let's hope pension reform doesn't become the same duel to the death that has killed other state improvement proposals. California deserves better than a fight between anti-government shouters branding public employees freeloaders and uncompromising union leaders ready to call out their troops to preserve the status quo.

Let workers and others argue over whether defined-benefit plans for state employees are overly generous or unnecessarily stingy; the immediate problem is that, at their current levels, they are not fiscally responsible. The governor's plan to roll back benefits for new employees to more rational pre-1999 levels is a reasonable starting point for reform. Without at least this modest change, obligations to retirees will eat up all the discretionary money for the human services and other programs that Californians want to keep. Schwarzenegger and the unions, as well as Democratic lawmakers, have to make the best of the legislative session's final weeks when they commence on Monday.

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