Pension reforms enacted in 2011 have shielded California’s taxpayers from a looming fiscal crisis, but public-sector unions are now pressing to reverse them.
During my adult years, Republicans have repeatedly pitched the same message: vote for them to curb outrageous government spending and restore fiscal discipline. Yet with Republicans controlling both chambers of Congress and the presidency, the federal government has reached a fiscal milestone: about $40 trillion in debt. By every measure, the nation keeps setting new spending records.
Publicly held debt—now approaching World War II-era levels at roughly 100% of the country’s annual GDP—was just 31.5% of GDP in 2001, The Wall Street Journal reported. Both parties deserve blame, with each side spending freely on different priorities. I’m calling out Republicans because of their tired refrain about reigning in spending. Anyone who believes them at this point is gullible.
This column isn’t about the federal fiscal cliff, but the one looming in California. Democrats bear the bulk of the criticism given that they control every state constitutional office and have maintained supermajorities in the Legislature for years. Four years ago, California enjoyed an astonishing $97.5 billion surplus, but today the supposedly “balanced” budget faces a stubborn structural deficit, according to the Legislative Analyst’s Office.
California Republicans voice their usual complaints about runaway spending, yet when it matters they eagerly side with Democrats in substantially increasing the budget. I’m not excusing the Democrats, but at least we don’t have to listen to their chatter about budget restraint.
The latest budget-busting measure in Sacramento is Assembly Bill 1383. It amounts to a union giveaway and would erase the reforms that former Gov. Jerry Brown put in place during the 2011 budget crisis. At that time, pension costs for public employees—especially those in public safety—consumed larger portions of the state budget and pushed localities toward bankruptcy. The bill may be modest in scope, but it would be a step backward, in this view.
Because of what’s known as the California Rule, governments here cannot reduce pension benefits for current workers. No lawmakers ever proposed slashing existing retiree benefits or even trimming the accrued benefits of current employees. Yet in the private sector, firms can reduce future pension formulas—i.e., starting tomorrow. California forbids such changes for public employees, so that constraint ties lawmakers’ hands as pension debts climb.
Brown argued that the state could regain control of its rising pension liabilities by trimming the formulas for new hires only. The logic made sense: within about 15 years, the state would be on a sustainable path as lower-formula new hires replaced higher-formula workers and retirees passed away. The reforms are now doing their job, but the unions want to gut Public Employee Pension Reform Act savings by lowering the retirement age and expanding the cap on pensionable benefits. Just as PEPRA is functioning, lawmakers want to undermine it.
The premise is a myth. As the Reason Foundation notes, California is not facing a public-safety retention crisis. The retention rate remains in line with historical patterns. There are still long lines for firefighter jobs. One only needs to consult Transparent California to see the eye-popping pay and benefit levels—often well above $500,000—earned by California police officers and firefighters. The new benefit structure will cost the state dearly and will impose a heavier burden on local governments, which have been slashing services and raising taxes to cover rising pension costs.
In 1999, Senate Bill 400 triggered the 2011 crisis by dramatically increasing California Highway Patrol pensions. Unions and their allied lawmakers knew that after boosting CHP pensions by as much as 50 percent retroactively, most other state and local agencies would follow suit. Likewise, AB 1383’s supporters emphasize police, but they understand these changes will spread. During the SB 400 debate, CalPERS claimed SB 400 wouldn’t cost taxpayers a dime—but they were off by billions and billions of dimes.
California Democrats are the party of government and unions, so their support is predictable—but where is the party of fiscal responsibility? Republicans don’t hold much sway, but they could be sounding the fiscal alarm bells before the state again lands in another fiscal crisis. Instead, they are hurrying to back AB 1383.
Most Republicans also support Assembly Bill 1054, which would permit highly compensated employees to retire with sizable lump-sum payouts. Deferred Retirement Option Plans allow retirees to continue working after they reach retirement age. The existence of DROPs points to the underlying reason for any alleged retention problem: retirement formulas are so generous that they incentivize early retirement, even if workers would prefer to keep working.
The only “no” votes on AB 1383 thus far are Assemblyman Carl DeMaio (R–San Diego) and Assemblyman David Tangipa (R–Fresno). DeMaio is the sole “no” on AB 1054. If any other Republican legislators spout about fiscal responsibility, you can simply laugh.
This column was first published in The Orange County Register.
