Given the political realities under California's Capitol dome, the pension measure awaiting final action in the Legislature today is probably the best reform package that could have been achieved. Nevertheless, lawmakers need to vet this measure as carefully as they can before they approve it and the public should be under no illusions. The changes enacted do not end the pension crisis that afflicts the state, local governments and school districts.
A preliminary calculation by state pension official actuaries pegs the savings in the reform measure at $40 billion to $60 billion over the next three decades. That's not nearly enough to erase the unfunded pension liabilities for the state and local governments, conservatively estimated at $164 billion.
Still, the local governments harmed the most by burgeoning pension costs California's cities and counties support the bill. "It's not perfect" the League of California Cities press release concluded, but is still "a substantial step forward." Marcia Fritz, longtime pension reform advocate and president of the California Foundation for Fiscal Responsibility, called the compromise "an important step to reform California's dangerously underfunded pensions systems."
Local governments are most supportive of provisions in the bill that give government employers greater flexibility to negotiate higher contribution rates from current workers. Those are the only provisions that offer immediate budget relief to distressed cities and counties.
How much relief depends on a jurisdiction's ability to negotiate more concessions out of current workers at the bargaining table. That will vary from jurisdiction to jurisdiction but changes in bargaining laws contained in the pension bill give cities and counties greater leverage. For example, under current law, if one bargaining unit in the miscellaneous workers category refuses to agree to higher pension contributions, a city cannot impose higher rates on any other bargaining unit, even though the others had approved the higher rate. The bill would allow cities to cut different deals.
Most of the measure's largest reforms more modest pension formulas, higher retirement ages, anti-spiking provisions, caps on pensionable incomes apply to new workers only and will not produce substantial savings for a generation.
For the 20 counties whose pension systems are governed under the 1937 Retirement Act, Sacramento County among them, the bill appears to offers some limited restrictions on pension spiking for current workers. However, critics who have examined the bill closely warn there is ambiguous language in the measure that may exacerbate spiking. That claim needs to be thoroughly investigated, and if found to be valid, fixed before the bill is voted on.
The deal legislators are likely to approve today does not nullify more sweeping local pension reform measures voters approved in San Diego and San Jose this past June. However, those votes may influence future actions on pensions at the state level. On Wednesday, Gov. Jerry Brown said he is watching the lawsuits that have been filed by unions against those city measures. If the cities prevail it may "open up new avenues for future changes," the governor said.
That's good to know. The legislative reform package is just the beginning of a necessary effort to right-size public pensions in California. More may be needed.