California is about to repeat its worst pension mistake | Opinion
California has a habit of forgetting its own fiscal history. Assembly Bill 1383, currently moving through the Legislature, is the latest proof.
The bill, authored by Assemblymember Tina McKinnor, D-Inglewood, would roll back key protections established by the Public Employees’ Pension Reform Act of 2013 (PEPRA). It would lower the retirement age for public safety workers from 57 to 55, create a new and more expensive 3%-at-age-55 benefit formula and expand the salary ceiling used to calculate pension payouts.
Most recklessly, it would allow unions and government managers to quietly negotiate away the requirement that employees contribute equally to the cost of their own pensions. The bill provides no new funding to cover these changes, despite creating billions in additional long-term pension obligations.
We’ve been here before: In 1999, Senate Bill 400 significantly enriched pension formulas for state workers and granted contribution “holidays” to employers and employees alike. CalPERS was healthily funded at the time. Lawmakers bet that good times would last and handed out benefits without bothering to seriously analyze what it would cost Californians to pay for them.
Then the dot-com bubble burst, with the Great Recession hitting hard. More than $100 billion in unfunded pension debt landed on California’s books. Stockton, Vallejo and San Bernardino filed for bankruptcy. Even former Gov. Gray Davis, who signed SB 400, called it a mistake.
PEPRA was California’s hard-won bipartisan response to that disaster and established guardrails against a repeat fiscal crisis. It raised retirement ages, capped pensionable compensation, required a three-year average for final salary calculations, banned pension holidays and mandated that employees share equally in the cost of their own benefits.
It wasn’t perfect, but PEPRA was a serious, meaningful commitment that California would not make the same ruinous mistake again.
AB 1383 proposes to break that commitment.
Preliminary estimates show the bill would add billions in costs over the next few decades, and that assumes CalPERS hits its target investment return of 6.8% every year — which it has not reliably done.
Those costs fall on every city, county, school district and special district that participates in CalPERS. They fall on local governments already paying billions annually just to service $179 billion in existing CalPERS unfunded liabilities.
Think about what that means for your city: Every dollar a local government sends to CalPERS to cover expanded pension costs is a dollar that doesn’t go to fixing roads, staffing fire stations or keeping recreation centers open. Pension obligations aren’t optional for city councils, they are constitutionally guaranteed. When they go underfunded, services get cut. It’s called “service insolvency.”
Supporters of AB 1383 argue that public safety workers deserve better retirement benefits to address recruitment and retention challenges. That argument deserves a fair hearing and a direct answer. California’s firefighters and police officers do vital, dangerous work and they deserve competitive compensation. But PEPRA’s safety formulas — 2% to 2.7% at age 57 — already represent some of the most generous defined benefit pensions available to public employees anywhere in the country. And encouraging them to retire earlier doesn’t help their retention problems.
If the Legislature believes public safety pay needs to improve, they could do so responsibly by raising base salaries, offering signing bonuses and improving equipment and working conditions. Those approaches are transparent, negotiated publicly and don’t create $14 billion in long-term obligations for future generations of taxpayers.
Even more troubling is the way that AB 1383 would allow unions and government agencies to negotiate without any public notice, public hearing or independent fiscal review. Taxpayers get no seat at that table. That is not transparent governance. It’s the same behind-the-scenes deal-making that made PEPRA necessary in the first place.
Before AB 1383 advances another step, the Legislature should commission a full, independent actuarial analysis of its long-term costs. Californians deserve to fully understand the bill’s price tag well into the future. Legislators should demand a rigorous 30-year projection that accounts for realistic investment return scenarios, demographic trends, the compounding cost of lowering the retirement age and other catastrophic scenarios.
Let Californians see the real numbers before their elected representatives take another vote.
Lance Christensen is vice president of government affairs at the California Policy Center. He previously served as director of the Pension Reform Project at Reason Foundation and as a finance budget analyst in the California Department of Finance.