Dave Low

Viewpoints: State's approach to pensions doesn't compare to Detroit

Published: Friday, Aug. 9, 2013 - 12:00 am | Page 11A
Last Modified: Monday, Aug. 12, 2013 - 8:32 am

When overseers in the city of Detroit, in filing for bankruptcy protection, pointed the finger at public employee pensions, it sent the sky-is-falling folks here in California into a tizzy, working overtime to draw parallels between the Motor City and the Golden State. But comparing Detroit to California is like, well, comparing a Ford Taurus to an iPad.

Los Angeles Mayor Eric Garcetti told news reporters recently, "We're nowhere close to being Detroit … We've got robust industries, they rely on one or two. We have arguably 10 or 12 primary industries here. And we've done the hard work with pension reform that Detroit didn't." His point deserves to be underscored.

Detroit is a single-industry town of fewer than 700,000 people that lives and dies on the number of American-made automobiles sold each year. California, on the other hand, is home to more than 38 million people, some of the nation's largest and most diverse cities, and an innovation economy that on its own is the eighth largest in the world, greater than Italy's or Russia's. We have the tech industry in Silicon Valley, the entertainment industry in Hollywood, the world's salad bowl in the Central Valley, biotech in San Diego – and that's just the beginning.

California's approach to pensions, however, wasn't simply to cross our fingers and hope for those industries to save the day. We did the hard work. Public employee unions in nearly 400 municipalities throughout the state sat down at the bargaining table and made concessions. Gov. Jerry Brown signed pension changes into law that represents a reduction of as much of $100 billion to public employees' benefits.

None of that has stopped the Wall Street billionaires behind a small-but-well-funded anti-pension campaign from trying to use the Michigan city's financial problems for their own political purposes. In doing so, they are unfairly bashing the teachers, first responders and other middle-class public servants who have already done more than their fair share to help cities in California balance their books.

They want people to see Detroit and think of San Bernardino and Stockton. However, San Bernardino's problems were caused by years of mismanagement, not by public pensions that represented less than 4 percent of the city's budget hole when it considered bankruptcy. Stockton's fiscal crisis has far more to do with lavish spending and borrowing to construct a waterfront entertainment center than it does with modest retirement benefits promised to public workers.

In a recent ruling criticizing Wall Street creditors in the Stockton case, U.S. Bankruptcy Judge Christopher Klein agreed that the bankruptcy was not driven by pensions, saying a host of decisions and circumstances led to the city's financial woes, including developments and tax breaks that could not be sustained because of the housing crisis and recession.

On top of that, California's statewide public pension systems are healthy. Both CalPERS and CalSTRS just posted double-digit annual percentage returns on their investments. Each had forecast returns of just 7.5 percent, which the critics had said was far too optimistic. Over the longer term, it's clear the systems are sound – CalPERS for example has earned an average of 8 percent a year on its portfolio over the past two decades despite the recession. It's also sitting on 70 percent of the money it will need to fund retirement benefits over the coming 30 years.

The good news is that California voters understand that cutting pensions of current public workers would amount to broken promises. According to public opinion surveys, Californians overwhelmingly support the pensions earned by teachers who make such little in salary over their careers, and by police officers and firefighters whose jobs protecting our community are inherently dangerous. Californians also know that these pensions are modest; the average public worker in California retires on just $26,000 a year. That's not luxurious.

Even in Detroit, financial services agency Standard & Poor's says the city "has been in a state of financial and economic distress for quite some time" and that its bankruptcy "filing was not unexpected." What's happening in Detroit doesn't parallel what's happening in other parts of the country, and certainly not here in California.

It's simply not believable to compare four wheels and a chassis to a tablet computer, and those trying to do so either fundamentally misunderstand California or have ulterior motives. In either case, it's time to stop scapegoating public workers for politicians' failures.

Dave Low is chairman of Californians for Retirement Security, a coalition representing 1.5 million public employees and retirees.

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