San Jose Mercury News: Governor's allies are biggest foes in pension reform

Brown's own allies are his biggest foes in pension reform fight

By Steven Harmon and John Woolfolk

Staff writers

San Jose Mercury NewsPosted: 10/27/2011 04:04:59 PM PDT

SACRAMENTO -- Democratic Gov. Jerry Brown turned the Capitol upside down Thursday when he unveiled his sweeping plan to overhaul California's pension system.

Republicans and business leaders loved it. The governor's natural allies -- public employee unions -- hated it and could very well kill it.

"It's quite possible for labor to shut the whole thing down," said Jack Pitney, a political science professor at Claremont McKenna College. "The question is whether they just say no or they're willing to compromise."

Proposals to require state workers to pay more into their pensions and retire a lot later were just a couple of proposals labor leaders said were non-starters, particularly in light of earlier collective bargaining agreements to increase state workers' pension contributions from 5 percent to as much as 11 percent of their salary.

Causing the most concern in labor circles is Brown's proposal to require both current and new employees to pay at least half the cost of their pensions.

"We are disappointed that the governor is proposing pension changes that will undermine retirement security for public employees," said David Low, chairman of the labor-backed Californians for Retirement Security.
Allan Clark, president of the California School Employees Association, agreed with Low that some of the proposals go too far.

"Let me be clear about one thing: There is no Armageddon looming for our pension fund and no reason to question the long-term sustainability'' of the California Public Employees Retirement System, Clark said.

"Despite a ruthless campaign by out-of-state billionaires to generate sensational headlines based on faulty assumptions, CalPERS is not bankrupting the state."


Republicans expressed elation that Brown's plan mirrored proposals they'd put forward during negotiations over tax extensions that the governor wanted to put on the ballot last spring. Ultimately, talks broke down when Brown could not persuade labor and Democratic leaders to accept the GOP demands.

"I say we put it before the Legislature right now and vote on it," said Sen. Tom Harman, R-Huntington Beach. "Once the unions and special interests start hitting the halls of the Capitol, this proposal will only get weaker. The governor should call a special session of the Legislature. It's that important. Do it today."

Brown argued that his proposal is needed to avoid the potential fiscal disaster of unfunded liabilities that the state and many local governments are facing.

"We ought to protect defined benefits, but to protect them we've got to make them secure," Brown said at his news conference. "We're not on a sustainable path. Employee groups don't want to go this route; other groups want to go further. I tried to do something that is legal, that'll save a helluva a lot of money going forward and that I think is fair."

Many Democrats responded with tepid enthusiasm, indicating that they will come up with their own reform proposals. A joint legislative conference committee held the first of several scheduled hearings on pension reforms this week.

"The governor is proposing a provocative set of reforms, and I intend to approach them with an open mind," said Senate President Pro Tem Darrell Steinberg. "The abuses that a small number of people take advantage of absolutely must be resolved. But we can't forget that the vast majority of public sector employees are middle-class workers, and their average pensions are far from exorbitant."

Brown suggested that, as they react to his pension proposal, Democrats in the Legislature should think about their broader political goals, such as winning voter approval of tax increases in November 2012.

"It'll be up to the Legislature to rise above the pressures and enact real pension reform, particularly if they're desirous of having a favorable reaction on the part of the electorate," Brown said. "November could have some very profoundly impactful measures on the ballot. I'd say the Legislature is well-advised to take this very seriously and get it all enacted and get it on the ballot in November when there will be other things on it that they're quite interested in."

Assembly GOP Leader Connie Conway, R-Visalia, called for the entire package to be placed before voters so the reforms can't get gutted by future legislatures or governors.

"Assembly Republicans hope that he will encourage his fellow Democrats in the Legislature, as well as his union allies, to follow suit," Conway said.

California Chamber of Commerce President Allan Zaremberg called Brown's plan bold and substantive.
"The Legislature should embrace this common sense plan," he said. "Addressing pension and health care costs will allow state and local governments to fund programs critical to our economy, including higher education, K-12, public safety and the courts."

Added Dan Pellissier, president of California Pension Reform, a group that wants to put a measure before voters to cut pension costs: "I'm pleasantly surprised. It went beyond the low-hanging fruit. The governor seems to be proposing some aggressive steps that would make a difference."

San Jose Mayor Chuck Reed said the governor's proposal is very helpful to the city's pension reform effort. Reed, who spoke personally with Brown this week, noted that many of the governor's proposals mirror some of his own, such as having employees pay half their pension costs and a "hybrid" plan for new workers with higher retirement ages, smaller guaranteed benefits, a 401(k)-type savings plan and Social Security.

If the governor's plan were imposed on San Jose, Reed said, it wouldn't do enough to solve the city's problems. Reed said a key area where the city is seeking savings is reducing annual 3 percent cost-of-living raises to retirees. Brown's plan is silent on cost-of-living increases.

But state Finance Department spokesman H.D. Palmer said the governor expects his plan to set an upper limit for government retirement plans that would not prohibit cities from enacting tougher reforms they believe are needed to achieve greater cost savings.

In any case, Reed said San Jose still must push forward with its own plan because it's facing an 11th straight budget shortfall of at least $78 million and hoping to get $60 million in savings from reforms in a spring ballot measure.

"He's not doing everything we need to do," Reed said. But "many elements of this will be helpful."

Brown's proposal is in many ways similar to steps the federal government took a quarter-century ago when it faced mounting liabilities in its own pension plan. The federal government in 1986 switched new workers to a hybrid retirement system that combined a smaller guaranteed pension with a 401(k)-type savings plan and Social Security.

While that plan is considered solvent, Republicans in Congress are calling for the elimination of its defined-benefit provisions to further reduce costs and bring it in line with private-sector plans.

Require current and new employees to contribute at least 50 percent of their retirement costs.

Form a mandatory "hybrid" risk-sharing pension plan for new employees. It would include a smaller guaranteed benefit, a 401(k)-style plan and Social Security.

Raise the retirement age from 55 to 67 for new, non-public-safety employees.

Calculate pension benefits for new employees based on the highest average annual compensation for three years, rather than the last year of employment, as it does now. Benefits would be calculated based on regular, recurring pay and would not include special bonuses, unused vacation time or overtime.

Bar all employees from buying service credits to beef up their pensions.

Add two independent "public members" with financial expertise to the board of the California Public Employee Retirement System.

Require new state employees to work for 15 years to become eligible for any state-funded health care premiums and 25 years to qualify for the maximum state contribution to those premiums.

Source: The Associated Press