Dan Walters

Observations on California and its politics

Dan Walters: Public pension reform unlikely, but problem isn’t going away

03/31/2014 12:00 AM

03/30/2014 5:59 PM

San Jose Mayor Chuck Reed’s chances of enacting a comprehensive public pension reform ballot measure were scant even before Attorney General Kamala Harris gave it an unfriendly official summary.

He faced the essential dilemma of all would-be pension reformers: They have no natural allies among the political interest groups that might put up the many millions of dollars a successful ballot measure drive would require, but must contend with public employee unions – foes with bottomless wells of campaign money.

When Harris’ office issued a summary that characterized the proposal in negative terms closely paralleling the unions’ position, and Reed couldn’t persuade a judge to alter it, he backed off.

While Reed says he may try again for 2016, there’s no reason to believe he would be any more successful then. Pension reform that substantially goes beyond the largely superficial changes made by Gov. Jerry Brown and the Legislature a couple of years ago is not doable anytime soon.

That doesn’t mean, of course, that the problem vanishes. But it’s mostly one affecting San Jose and other cities because they devote such large portions of their budgets to high-salaried police and firefighters with the highest pension benefits.

Cities are being forced to set aside ever-higher amounts for police and fire pensions in trust funds and since they have little ability to raise revenues, they must either cut other services or run deficits.

Three cities have already been driven into bankruptcy, in large measure because of their hefty pension payments, and several others are teetering on the brink of insolvency.

Moody’s Investors Services, a major credit-rating firm, says the suspension of Reed’s measure is a “credit negative” for California’s local governments due to rapidly growing retirement costs “with few tools to address them.”

In other words, even if local governments aren’t driven into bankruptcy by their escalating pension costs, they’ll likely face higher costs for borrowing as their credit ratings suffer.

The true costs of future retirement obligations have been masked by traditional government accounting, which doesn’t count them as bond-like debts.

However, Moody’s says they are, and the Governmental Accounting Standards Board last week refused to back down from its 2012 decree that they must be reported as debts on government balance sheets.

“Among other improvements, net pension liabilities will be reported on the balance sheet, providing citizens and other users of these financial reports with a clearer picture of the size and nature of the financial obligations to current and former employees for past services rendered,” former GASB Chairman Robert H. Attmore said when the decree was published in 2012.

Perhaps when voters see mounting pension debts in black and white, it will make a difference.

About This Blog

Dan Walters' column appears in dozens of California newspapers. He joined the Sacramento Union’s Capitol bureau in 1975 and in 1981 began writing the state’s only daily newspaper column devoted to California political, economic and social events. He and the column moved to The Sacramento Bee in 1984. Contact him at dwalters@sacbee.com or 916-321-1195. Twitter: @WaltersBee


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