There’s no getting away from the pension issue these days or from the fact that the state’s pension system is on the brink of disaster unless pensions for state and local workers are pared back dramatically. The only people in denial these days are the Brown administration and the state’s legislative leaders, as their response to a prestigious government report makes clear.
The well-respected and nonpartisan Little Hoover Commission drew some conclusions that even many pension reformers have been reluctant to make — namely, that pensions must be reduced for current employees. “The state and local governments need the authority to restructure future, unearned retirement benefits for their employees,” according to the report.
In the private sector, when companies were forced to honestly account for their pension debt — they don’t have the luxury to hide it the way that governments do — they had to reduce benefits for current employees going forward. A worker is made whole up to today, but must accept a lower benefit starting tomorrow. In the government world, where union-owned politicians rather than businessmen make these deals, once a pension deal is struck there is no changing it for the life of that employee and that employee’s spouse.
The report offered a dose of reality for a state government still in denial. Democratic leaders and union officials (is there a difference these days?) insist that the pension mess merely is the fault of a bad economy and they love to blame Wall Street. But Little Hoover explained it more accurately, comparing the situation to the housing boom and bust: “Treated like another speculative house during the boom, the state allowed public agencies and employees to pull equity in the form of increased retirement benefits from the pension funds whose value was inflated by optimistic market retirement estimates.”
The results, according to Little Hoover, are that “pension costs will crush government.” This certainly should get the attention of progressive Democrats who claim to care about public services, although the reality is that these Democrats believe that Californians are woefully undertaxed and that massive tax increases on business and “the wealthy” will fix things.
This is a battle over the future of California, as communities spend more than one-third of their budgets on pensions (plus even more for other retirement costs for public employees, such as health care), which means “an intensifying fight for diminishing resources from which government can pay for schools, police officers, libraries and health services.” And because public employees “appear to have little incentive to push for reforms,” they, too, will suffer, as they look at cutbacks in public services. Per the report, “A pension cannot grow without a job attached to it.” Maybe that reality eventually will get the unions’ attention.
The report calls for uniformity in determining pensions as a way to stop the pension spiking that has agitated the public. It calls for a cap of $80,000 to $90,000 on the salary used to determine pensions, which is still too high, but a good idea. It calls for multiple other sensible ideas that reduce the abuses and the size of the pensions.
According to news reports, some Democrats attacked the commission and the governor’s office issued a meaningless statement. The truth is out there. As I’ve argued before, with the current leadership, matters must get far worse before we see serious action.
Steven Greenhut is editor of www.calwatchdog.com, write to him at sgreenhut@calwatchdog.