September 06, 2012
By Judy Lin and Juliet Williams
The state Legislature approved a package of changes to California’s public employee pension system on Friday August 31, that is expected to save taxpayers billions of dollars, even as Republican lawmakers said much more needs to be done to fix a system with massive liabilities.
The main pension bill, AB340, passed 49-8 in the Assembly and 38-1 in the state Senate. Gov. Jerry Brown negotiated the reforms with the Legislature’s Democratic leadership.
The legislation will increase the retirement age for new employees, cap the annual payout at $132,120, eliminate numerous abuses of the system and require workers who are not contributing half of their retirement costs to pay more.
Brown said he supports the legislation even though it falls short of the 12-point reform proposal he offered last October.
“This is the most far-reaching pension reform in the history of California,” he told reporters before the final legislative vote.
He said the package was a difficult compromise with many “contentious parties.”
Lawmakers voted even as companion legislation was hustled up to make key fixes in the hastily written bill, which was taken up on the final day of the legislative session.
Some Republican lawmakers complained the process was rushed and preferred to delay a vote until the drafting mistakes were fixed. But several GOP lawmakers voted for it while saying the Legislature also needs to do much more to address the unfunded public pension liability of roughly $165 billion in the state's two main systems.
“What we have before us is not pension reform, but a pension change,” said Sen. Mimi Walters, a Republican from the Orange County community of Lake Forest. “While I will support this measure today, it is my hope that our vote will be the beginning of achieving real reform and taking on the challenge of our unfunded pension liability.”
She and other Republicans also noted that none of the changes was enshrined in the state constitution, meaning they can be changed by a majority vote of a future legislature.
Brown announced the pension package 10 months after he released a more comprehensive reform proposal that would have gone much further than the approach approved Friday.
Underlying the negotiations was staunch opposition from public employee labor unions that are supporting Brown’s November ballot proposal to temporarily raise sales taxes and taxes on high-income earners.
While some union leaders expressed dismay over the final bill, Democrats appeased their labor allies by removing some of the most important elements of Brown’s original proposal, such as instituting a hybrid pension plan that would have included a 401(k)-style savings vehicle.
Republican Assemblyman Jim Nielsen said the bill was an example of “the Legislature at its worst: last-minute scrambling around on a major, major issue.”
“The governor can sign it and say, ‘We did pension reform. Hooray! Now support the tax increase.’ I think this only gives more reason to say no to the tax increase, that the Legislature that spends their money proceeds in this kind of manner,” Nielsen said.
The state’s main pension fund, the California Public Employees’ Retirement System, estimated the pension plan will save the system between $42 billion to $55 billion over 30 years. Lawmakers were told by the California State Teachers’ Retirement System that the teachers’ system would save an estimated $12 billion over 30 years, although it was still conducting an analysis.
Republicans say the proposal tackles only a fraction of state and local government retirement obligations.
Some Democratic lawmakers closely aligned with labor opposed the legislation, saying it could be the first step toward rolling back collective bargaining rights.
“This is a slippery slope,” said Democratic Assemblyman Sandre Swanson, who opposed the bill.
Brown rejected those arguments, noting that some of the provisions that greatly expanded public employee pensions also were done through the legislative process.
Still, the package fell short of Brown's original proposal. In addition to the lack of a hybrid retirement system that would make public employees bear some of the investment risk, nothing was done to reduce skyrocketing retiree health care costs.
And the union-dominated board that oversees operations of the California Public Employees’ Retirement System, the nation’s largest public pension fund, will not face reforms or independent oversight of its decisions, as Brown had sought.
Senate President Pro Tem Darrell Steinberg, who negotiated the deal with Brown, took issue with lawmakers who characterized the changes as a small or modest step.
The Sacramento Democrat noted that both labor unions and pension-reform advocates criticized the deal, but said surveys show the majority of Californians do not want to eliminate defined-benefit pensions for government workers.
“As this debate has gone on, I, for one, am tired of public employees being the sole and, I think, unfair focus of the state’s problems,” Steinberg told his colleagues on the Senate floor. “People who enter the public service are public servants, and you have great public employees, mediocre, and the rest, just like you have in the private sector.”