Two ways California can begin taking steps to fiscal reform

This year, California has broken its own record when it comes to missing the budget deadline. Unfortunately, this is not the worst of it. We will find ourselves in the same position next year if we don’t fix our broken budget process.

Last month, at the San Francisco Chamber of Commerce’s annual CitySummit event attended by nearly 400 local business leaders to discuss economic recovery, Gov. Arnold Schwarzenegger highlighted two proposals that would help prevent another budget crisis. During his remarks, the governor made it clear that the critical need to reform the state’s fiscal house was tied directly to efforts to jump-start our local economy.

One such reform is the creation of a rainy-day fund that the state could rely on during times of financial hardship. This new savings fund would help control spending and establish a reserve to stabilize the budget during times of economic crisis. Every September, the state would be required to deposit 3 percent of the current-year revenue into the fund until it reaches 12.5 percent of the general fund for that year.

If this system had been in effect since 1998, the state would have saved $12.3 billion by 2008-09 — a solid fiscal base in today’s turbulent economic times.

Another important reform involves changing the pension system. This year, California will spend $3.9 billion on employee pensions, a number 2,500 percent higher than it was only a decade ago. However, four new measures proposed by the governor will help stop pension debt from growing and ensure that pensions no longer take a disproportionate share of the state’s general-fund budget.

The first measure would reduce the expansion of pension benefits adopted in 1999 without proper review and research into the financial pressure it would cause the state. This would not impact current retirees, only new employees.

In addition, CalPERS would be more closely monitored to ensure it’s investing and allocating pension-fund money appropriately. The reform also includes a 5 percent increase in employee contributions toward retirement benefits.

Finally, retirement rates would be recalculated based on the highest three years of pay rather than the single highest year.

Both a rainy-day fund and pension reform are vital to securing the finances of California, and that is why the San Francisco Chamber of Commerce supports the governor’s efforts.

Until these systems are reformed, California will be at a competitive disadvantage not only with other states, but with our Pacific Rim neighbors. Now is the time to create an atmosphere of financial prudence at all levels of the state, which is crucial to encourage businesses to start, grow and remain in California.

Jim Lazarus is senior vice president of public policy at the San Francisco Chamber of Commerce. 

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