Despite some encouraging details in Gov. Jerry Brown’s recently announced pension-reform proposal, there’s virtually no chance the state will seriously reform — or even seriously attempt to reform — a system creaking under the weight of about $500 billion in unfunded liabilities.
The proposal isn’t bad. It doesn’t go far enough to fix the problem yet if implemented in its entirety, but it goes further than most pension reform advocates had expected from a Democratic governor who is a union ally. But the plan probably is dead on arrival in the Legislature. One might even argue that Brown is being cynical here — offering reasonably tough reform proposals that he knows will go nowhere. Then he can claim that he has tried to fix the problem but could not surmount the insurmountable.
On the budget, Brown has ended up like Arnold Schwarzenegger — kicking the can down the road. But he did pull out the stops for his tax-hike ideas. They are bad ideas, but he tried to get them approved. What are the chances he will try equally as hard on the pension matter given that these good ideas seem to go against his political nature? The ballpark chances are somewhere around zero.
On taxes, Brown only needed to overcome Republican opposition and win over a few legislators, but he failed. On pensions, he needs to shift the thinking of his entire party, including the two top Democratic leaders who have spent years working in the government employee union movement. As the Sacramento Bee reported, these leaders avoided the news conference and reacted “warily.”
You can’t really win over these defenders of the current system. The unions are trying to protect lavish compensation packages for themselves and their members and their legislative allies are supporting their benefactors. “It is difficult to get a man to understand something when his salary depends on his not understanding it,” Upton Sinclair once wrote. How is Brown going to promote renewed understanding of the pension debt in light of this reality?
Regarding specifics, Brown would require public employees, including existing employees, to begin sharing in the cost of their own retirements. Another key component of the Brown plan is a hybrid system that combines a defined-benefit plan public employees currently enjoy (a guaranteed amount of benefits) with the 401(k)-style defined-contribution plan combined with Social Security that’s common in the private sector. Unfortunately, Brown would require a study to come up with the specifics and the devil always is in the details.
Brown would increase retirement ages, which is a great idea. He would require that pensions be based on the final three years’ work rather than on the absurd California-only policy of basing retirement pay on the final year. He would strip pensions from felons and require that pensions be based on regular pay rather than on pay and the padded benefits often included in the formula. He would stop the scam called “airtime,” in which public employees can buy additional retirement benefits often for pennies on the dollar. He would also ban the practice of granting pension increases retroactively.
These are all good reforms. But most of these items apply only to new hires, which does virtually nothing for the current pension debt because it doesn’t do much about current employees, who need to start accumulating pension benefits at a lower rate.
The real questions are more political than technical, though. Will the governor use his political capital on behalf of this proposal? Will Democrats in the Legislature face the pension mess and agree to these reforms? Probably not and definitely no. Only a naïve person would put much faith on Brown’s plan becoming reality.
Gov. Brown’s decent pension plan is a long shot
Steven Greenhut
Despite some encouraging details in Gov. Jerry Brown’s recently announced pension-reform proposal, there’s virtually no chance the state will seriously reform — or even seriously attempt to reform — a system creaking under the weight of about $500 billion in unfunded liabilities.
The proposal isn’t bad. It doesn’t go far enough to fix the problem yet if implemented in its entirety, but it goes further than most pension reform advocates had expected from a Democratic governor who is a union ally. But the plan probably is dead on arrival in the Legislature. One might even argue that Brown is being cynical here — offering reasonably tough reform proposals that he knows will go nowhere. Then he can claim that he has tried to fix the problem but could not surmount the insurmountable.
On the budget, Brown has ended up like Arnold Schwarzenegger — kicking the can down the road. But he did pull out the stops for his tax-hike ideas. They are bad ideas, but he tried to get them approved. What are the chances he will try equally as hard on the pension matter given that these good ideas seem to go against his political nature? The ballpark chances are somewhere around zero.
On taxes, Brown only needed to overcome Republican opposition and win over a few legislators, but he failed. On pensions, he needs to shift the thinking of his entire party, including the two top Democratic leaders who have spent years working in the government employee union movement. As the Sacramento Bee reported, these leaders avoided the news conference and reacted “warily.”
You can’t really win over these defenders of the current system. The unions are trying to protect lavish compensation packages for themselves and their members and their legislative allies are supporting their benefactors. “It is difficult to get a man to understand something when his salary depends on his not understanding it,” Upton Sinclair once wrote. How is Brown going to promote renewed understanding of the pension debt in light of this reality?
Regarding specifics, Brown would require public employees, including existing employees, to begin sharing in the cost of their own retirements. Another key component of the Brown plan is a hybrid system that combines a defined-benefit plan public employees currently enjoy (a guaranteed amount of benefits) with the 401(k)-style defined-contribution plan combined with Social Security that’s common in the private sector. Unfortunately, Brown would require a study to come up with the specifics and the devil always is in the details.
Brown would increase retirement ages, which is a great idea. He would require that pensions be based on the final three years’ work rather than on the absurd California-only policy of basing retirement pay on the final year. He would strip pensions from felons and require that pensions be based on regular pay rather than on pay and the padded benefits often included in the formula. He would stop the scam called “airtime,” in which public employees can buy additional retirement benefits often for pennies on the dollar. He would also ban the practice of granting pension increases retroactively.
These are all good reforms. But most of these items apply only to new hires, which does virtually nothing for the current pension debt because it doesn’t do much about current employees, who need to start accumulating pension benefits at a lower rate.
The real questions are more political than technical, though. Will the governor use his political capital on behalf of this proposal? Will Democrats in the Legislature face the pension mess and agree to these reforms? Probably not and definitely no. Only a naïve person would put much faith on Brown’s plan becoming reality.
Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.