It’s likely that California voters will be treated – or subjected – next year to a vitriolic campaign over public employee pensions.
Backers of a proposed ballot measure, which would require voter approval of future pension increases, contend that too-generous benefits are diverting money from other vital public services such as police and fire protection.
Its opponents – unions, mainly – portray it as a right-wing hit on the retirement security of middle-class public employees.
The measure is still awaiting an official title and summary from Attorney General Kamala Harris, whose handling of a previous reform proposal led to its abandonment, before signature-gathering can begin.
Meanwhile, however, the debate has already been joined. And Monday’s revelation that the California Public Employees’ Retirement System earned an anemic 2.4 percent on its investments in the past year, less than a third of its 7.5 percent target, will provide more fodder.
The battle has been brewing for years, ever since then-Gov. Gray Davis and the Legislature boosted state benefits in 1999.
They acted on assurances – later shown to be fallacious – from CalPERS that its high-flying investment earnings would cover the cost of the added benefits without burdening taxpayers.
Most local governments, especially big cities and urban counties, emulated the state’s action on the same assurances, but as a severe recession hammered the state less than a decade later, pension funds saw their investments, particularly the riskiest ones, plummet.
CalPERS, the nation’s largest pension fund, saw its value plummet by 25 percent in one year alone.
The losses sharply increased “unfunded liabilities,” essentially the gap between long-term obligations and projected assets, and ever since then, state and local pension funds’ positions have been on a roller coaster. Some years have seen impressive gains and some have been paltry at best.
Eventually, CalPERS sharply increased its mandatory contributions from the state and its local government clients to cover losses, dramatically raising pension costs.
Pension obligations figured prominently in the bankruptcies of three cities. Voters in two major cities, San Jose and San Diego, passed ballot measures aimed at reining in pension increases. Gov. Jerry Brown and the Legislature also enacted a mild pension reform measure.
“We try not to get too fixated or excited by any one-year return, whether it’s 18 percent from last year or a 2.4 percent return this year,” CalPERS investment chief Ted Eliopoulos told the pension’s governing board Monday.
He said the fund had averaged 10.9 percent over the previous three years and 10.7 percent over the past five.
That said, the huge pension fund’s recent retreat from risky investments – trading upside potential for stability – will make closing its unfunded liability gap more problematic. CalPERS has slightly more than 75 percent of what it would need to pay its pension obligations.