Gov. Jerry Brown warned this week that public agencies in California are on a track to “fiscal oblivion” if they’re barred from adjusting retirement benefits for their employees.
He issued the warning in an interview with The Sacramento Bee three weeks after his attorneys defended his 2012 pension law at the California Supreme Court against a challenge from the union that represents state firefighters.
The lawsuit is a test of the legal precedent known as the California Rule, which bars government agencies from reducing promised retirement benefits without offering some kind of new compensation.
Brown in his first term as governor signed laws that expanded collective bargaining rights for unions, including ones that represent government workers. Unions now have a significant voice in state politics, and have fought efforts to adjust pension obligations.
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Brown took office amid the Great Recession in his second run leading the state, and signed the law in 2012 that reduced potential retirement earnings for government workers hired after Jan. 1, 2013 and required them to kick in more money from their pay checks to fund their pensions.
The law ended especially generous retirement formulas that state agencies began offering in the dot com boom, including ones that allowed public safety employees to retire at 50 with pensions that gave them 3 percent of the final salary for each year of employment. Brown in the interview called those formulas an “overreach.”
Cal Fire Local 2881, the Cal Fire union, is challenging the law by trying to force state government to reinstate a perk called air time that Brown’s law prohibited. Air time allowed government employees to buy up to five years of service credit for their pensions, swelling their retirement income as if they had worked over that time.
The union argues that Brown can’t eliminate the perk without breaking the so-called California Rule and unleashing “chaos” by making formerly rock-solid pension promises appear uncertain.
Brown contends that position is a shackle for California government that could over time suppress employee wages and jeopardize government services.
”In order to maintain the defined benefit, there has to be the power of management to make modifications,” he said. “If we do it right, people who have a pension and what they’ve earned will never be changed. But you can’t say that five minutes after you sign your employment application, for the next 30 or 35 years that not one benefit can be changed. That’s a one-way ratchet to fiscal oblivion.”
Local government agencies and some school districts are struggling to keep up with climbing bills from the California Public Employees’ Retirement System, known as CalPERS, and California State Teachers’ Retirement System, known as CalSTRS.
Both pension funds have acknowledged that expect to earn less money over time from their investment portfolio, causing them to raise the rates they charges to government agencies. Both funds have assets worth about 70 percent of what they owe over time to California public employees and retirees.
“These are very valuable pensions, very generous,” Brown said. “But they’ve got to be managed and there will be modifications. You have to be able to modify some of the benefit structures that were put in place without fully taking into account the cost.”
Union leaders counter that government agencies have authority to negotiate concessions that have public employees paying more money than required to fund their pensions. They want each agency to bargain for those concessions independently rather than end the California Rule and weaken unions’ position across the state.
The California Supreme Court is expected to release a decision in the case in early 2019.