We will know very shortly how serious the California Legislature is about pension reform.
This week, a conference committee is scheduled to release its long-awaited legislative proposal for reforming public employee pensions in California. California’s businesses are watching closely.
Our organizations – which represent hundreds of Bay Area and Silicon Valley employers, along with many other business leaders across California – embraced the 12-point pension reform plan Gov. Jerry Brown announced last October because we believe California must act to approve comprehensive and meaningful public pension reform.
Unfortunately, the governor’s plan has become the victim of political racquetball. And now, the Legislature is looking at an alternative solution that we suspect will produce watered-down results that will provide just enough reform to allow lawmakers to applaud. This is simply unacceptable and will not result in the structural public pension reform plan our state needs.
The governor and the Legislature should look carefully at the mood of voters as they stake their ground on this issue. In San Jose and San Diego, voters overwhelmingly approved reform measures on the June ballot that include many of the same provisions that appear in the governor’s 12-point plan. Other cities are now looking at similar measures, but a statewide solution would be much less disruptive and costly than piecemeal reform.
There is good reason for business to be concerned. The state’s rising pension costs are already doing significant damage to the public schools and universities that educate our children and our future workforce and to the public safety services on which we all rely. With our state in a near-constant budget tailspin, recruiting top talent for our companies is a very hard sell. Moreover, pension costs are already preventing investment in economic development initiatives that would otherwise help reduce our state’s 10.8 percent unemployment rate.
The unsustainable pension obligations grew out of a system that encouraged political leaders to commit to overly generous pensions with taxpayers bearing the lion’s share of the risk. Public officials and union leaders fell prey to unrealistic assumptions about investment returns as they looked for ways to compensate employees without taking hits to current-year budgets. There is plenty of blame to go around, but blame will not solve this problem.
Brown’s plan provides a good starting point for getting pensions back under control. It outlines some painful rollbacks, asks current and future public employees to contribute more to their pensions and eliminates abuses that have driven up costs.
We are not dealing in ideology or abstractions. Even as we face enormous unfunded pension liabilities – which even conservative estimates put at more than $100 billion – the costs of pensions are eating away at education and social service programs. Retirement costs from the general fund have more than tripled from about 1.5 percent in 2000-01 to 5.7 percent in 2011-12 – an increase that is consuming billions of dollars as funding for K-12 education, the UC and CSU systems and social services are being slashed. Pension costs have grown even faster for cities and counties, forcing layoffs of police officers and firefighters even as libraries are shuttered and critical social services wither.
Significant reform is within our reach with strong leadership. Statewide polling shows that voters want to see progress on the pension issue if the governor hopes for their support to pass his tax measure in November – another good incentive to move forward with his 12-point plan.
The eyes of California’s business leaders are now on our state legislators, who are under heavy pressure from unions to veer away from Brown’s proposal in favor of the status quo. It is our great hope that they find political strength in the votes in San Diego and San Jose. The structural issues at the heart of the pension problem, including the retirement age, the distribution of risk between employees and taxpayers, and the way public pensions systems are governed, must be addressed now.
MNLABOR 