PolitiCal

On politics in the Golden State

Category: Pensions

Your bill for California's debt: $2,559

 State Treasurer Bill LockyerThe golden rule in state government used to be that if more than 6% of the budget was being consumed by paying back bonds and other debt, there was too much borrowing going on.

It’s been some time since California hit that target.

On Monday, State Treasurer Bill Lockyer released the latest report detailing the state’s debt and outlook for the future. It’s going to be expensive.

Paying down the state’s ever growing credit card bill ate up 7.9% of the state budget in the fiscal year that just ended. California is on track to spend 8.9%, or about $8.6 billion, of the state general fund budget in the current fiscal year.

An easier way to digest the numbers is in terms of how much debt that amounts to for each Californian. The answer? A lot.

The Wall Street credit rating agency Moody’s says paying down the state government debt accumulated to date will cost each of us $2,559.

The only Americans facing a bigger payback are New Yorkers. Each of them owes $3,208.

Lockyer didn’t dwell on these numbers in his report, which is used by Wall Street to help judge the state’s creditworthiness. Instead, he noted some of the actions legislators and the governor took to start chipping away at the problem. Rolling back pensions, for example, will not get the state out of the woods, but it could save billions of dollars in the long run. 

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Photo: State Treasurer Bill Lockyer, shown in 2010, released a report detailing the state’s debt and outlook for the future. Credit: Armando Arorizo / Bloomberg

New poll finds voters split over pension changes

Many California voters say the changes in the state pension system that Gov. Jerry Brown recently signed into law are enough, for now, to curb public employee retirement benefits, according to a new USC Dornsife/Los Angeles Times poll.

But those surveyed were divided on whether further action is needed.

Brown pushed a series of changes through the Legislature that raise the retirement age and cap pensions for new employees, among other adjustments. The changes drew criticism from labor unions, who said the plan went too far and harmed workers' retirement security, and conservative activists, who said more needed to be done to save the state money and stabilize the public pension systems.

When told of the plan, 31% of respondents said it struck an appropriate balance, while 30% said it did not go far enough. Twenty percent of those surveyed said the changes went too far in cutting public retirement benefits.

After hearing arguments from both sides, 45% of respondents called the new rules a good first step, while 39% said more needs to be done.

Dan Schnur, director of the Jesse M. Unruh Institute of Politics at USC, said curtailing pensions was necessary for Brown, who needs public support to pass his proposed tax increases, contained in Proposition 30, this fall. To that end, he said, Brown seems to have done enough, at least for the moment, to ease voters' minds about the government's responsibility with public money.

"There's not wild enthusiasm for this plan," Schnur said, "but it does appear that it passes the smell test with voters."

But he warned that the pension issue continues to be volatile and is not likely to go away. The governor "may not have solved this issue, but this poll shows that he's at least calmed the waters," Schnur said.

Brown has said he wants to do more to rein in growing costs associated with retiree payouts. Specifically, the governor said, he wants to alter the health benefits available to public workers after they stop working. His original plan for overhauling pensions would have curbed those benefits, but he decided to delay that push at the urging of Democratic lawmakers.

The USC Dornsife College of Letters, Arts and Sciences/Los Angeles Times poll surveyed 1,504 registered voters from Sept. 17-23. The research was conducted by Greenberg Quinlan Rosner, a Democratic firm, and the Republican company American Viewpoint. The survey has a margin of error of 2.9 percentage points.

Look for more findings from the survey in the coming days.

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Photo: Gov. Jerry Brown visits Los Angeles in August to speak on pension reform. Credit: Nick Ut / Associated Press

California unions assail public pension changes

JerryBrownPensionConference
As Gov. Jerry Brown signed legislation Wednesday aimed at overhauling the state's overburdened public pension system, he acknowledged that further action may be needed in the future, saying "government, like a battleship in the ocean, turns slowly."

Labor unions representing California's public employees reacted swiftly, arguing that they were already taking fire.

Willie Pelote, political director of the Assn. of Federal, State, County and Municipal Employees, said Brown's signature on the pension legislation "made his disdain for a secure future for public employees crystal clear."

The changes require public employees hired starting next year to work longer before they retire with full benefits, place a cap on their pension benefits and restrict what is counted to prevent abuses. Current employees will have to pay at least 50% of the contribution toward their retirement plan.

Pelotesaid the legislation did not consider the concessions public employee unions have made in contract negotiations over the past few years. He contended that Brown's "real intent is to take public retirement funds and hand them over to the same Wall Street gamblers who drove our economy into a ditch."

To be sure, the pension legislation Brown signed Wednesday spared unions from some elements they had decried in his original proposal, including a requirement that new employees squirrel away a substantial portion of their retirement money in 401(k)-style accounts.

Business groups applauded the governor's action, but called on him to use the initiative process to win more changes.

"This legislation paves the way for the additional reforms necessary to help solve the state’s ongoing fiscal crisis but much more remains to be done," said Rob Lapsley, president of the California Business Roundtable.

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Photo: California Gov. Jerry Brown visits Los Angeles in August to speak on pension reform. Credit: Nick Ut / Associated Press

Brown says pension change 'not perfect,' a move in right direction

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Gov. Jerry Brown touted a cost-cutting measure on public pensions as historic for California, but acknowledged "it’s not perfect" and that further action may be required in the future.

Brown signed AB 340 in Los Angeles and told reporters in his unique way that it is a significant bipartisan accomplishment that will save billions of dollars.

"It’s the biggest pension reform ever in the history of the California pension system and, yes, it’s not everything," Brown volunteered. "It’s not perfect, because we don’t deal with perfection in politics. We deal with imperfection. And we have never done it quite so perfectly as we’ve done this particular imperfection."

Brown, who is eligible for a public pension himself, said the changes were needed, in part, because people are living longer. "This pension reform, its raising people’s age when they can retire," Brown said. "I have to say, speaking as a 74-year-old, I want to see people working longer, a lot longer, because I intend to do the same."

Asked why many of the changes do not affect current state workers, Brown said court precedents limit what can be done, as does the requirement to go through the legislative process. "We’re taking as bold a step as the process would allow," Brown said. "And where more is needed down the road, then more will be proposed."

The governor said it was a "hard-fought" battle to get most of his proposals through the Legislature.

"Government, like a battleship in the ocean, turns slowly, but we are turning today and we are turning in a very positive direction," Brown said.

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Photo: Gov. Jerry Brown was in a jovial mood in Los Angeles on Wednesday after signing a bill that will reduce the state's pension costs. Credit: Luis Sinco / Los Angeles Times

Gov. Jerry Brown signs cost-cutting measure for public pensions

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Gov. Jerry Brown signed legislation Wednesday aimed at cutting costs of public pensions by billions of dollars in the coming decades to create "a more sustainable system,'' but even some supporters say it falls short of what needs to be done to protect the retirement systems’ long-term solvency.

Brown signed the measure in Los Angeles surrounded by legislative leaders who scaled back the cost-cutting changes originally proposed by the governor last year.

“This is the biggest rollback to public pension benefits in the history of California pensions,” Brown said in a statement, adding benefits are being lowered "to what they were before I was governor the first time.''

The changes require public employees hired starting next year to work longer before they retire with full benefits, place a cap on their pension benefits and restrict what is counted to prevent abuses. Current employees will have to pay at least 50% of the contribution toward their retirement plan.

The state’s largest public pension plan, the California Public Employees Retirement System, estimates the pension changes will save between $42 billion and $55 billion over 30 years for the state and other employers who pay into the plan.  In addition, the California State Teachers' Retirement System estimates its savings will reach $22.7 billion over 30 years. California’s various public pension systems estimate they are obligated to pay out about $164 billion in benefits in future decades more than there is funding to cover them.

"It was a meager reform that falls far short of solving California's brutal pension math problem," said Dan Pellissier,  president of the group California Pension Reform, on Wednesday. 

The pension legislation is supported by reform advocate Marcia Fritz, president of the California Foundation for Fiscal Responsibility, but she said more is needed. "It's the first statewide reform legislation that moves the pension needle the other way in the state's history," Fritz said, but added, "Municipalities will remain fiscally distressed for decades without more reforms.’’

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Photo: Gov. Jerry Brown discusses pension reform during a press conference last month. On Wednesday, he signed legislation to enact many of the changes he proposed. Credit:  Kevork Djansezian/Getty Images.

Teacher retirement system fails to curb spiking, controller finds

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California’s teacher retirement system does not adequately audit proposed pension benefits to prevent spiking and has missed opportunities to reduce possible abuses, the state controller found in a review released Wednesday.

The California State Teachers’ Retirement System (CalSTRS) has also failed to adequately use electronic databases designed to identify cases where large increases in compensation in the last year on the job unreasonably spike pension benefits for retirees, according to state Controller John Chiang.

"Starting with more rigorous auditing and better use of existing technology, CalSTRS must fortify its ability and resolve to crack down on those seeking unjust enrichment at the expense of their fellow educators and taxpayers," Chiang said in a statement.

The review found that there are 1,900 school districts and public agencies that are part of CalSTRS, but the pension agency averages only 40 audits a year.

One executive for the San Francisco Unified School District received a 26% pay increase six months prior to retirement, and another executive saw a 20% boost in income a year before drawing a pension, Chiang said. In both cases, the district was unable to provide any documentation supporting those raises, he said.

His office also found documentation lacking to support raises provided to officials in the San Diego Unified School District. CalSTRS CEO Jack Ehnes said the agency has taken steps to reduce abuses, including the creation of a toll-free line for whistleblowers.

“CalSTRS takes pension spiking very seriously and places a high priority on improving processes to reduce the likelihood of pension abuse attempts,'' Ehnes said in a statement. ``CalSTRS agrees with the Controller’s recommendations and will take additional actions to further strengthen its controls. In fact, many of the recommendations in the report have been initiated within the last year.”

Chiang's office is conducting a similar review of the California Public Employees' Retirement System, he noted. The Legislature last week sent Gov. Jerry Brown a bill aimed at preventing the spiking of pensions by basing retirement benefits on the average salary for an employee's three best years.

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Photo: State Controller John Chiang, shown during an event last year, issued a report Wednesday that found the state teacher's retirement system is not doing enough to prevent pension spiking. Credit: Jonathan Alcorn / Bloomberg.

 

California Legislature sends governor package to cut costs of public pensions

Sen. Bob Dutton and Sen. Darrell Steinberg

The state Senate late Friday gave final legislative approval to a package of cost-cutting measures for the public pension system in California.

Following action earlier in the Assembly, the Senate voted 38-1 to send the pension changes to Gov. Jerry Brown, who had asked for much more but has said he would sign the compromise measure agreed to by lawmakers.

"I think it is a very significant step for California," said Senate President Pro Tem Darrell Steinberg (D-Sacramento). "It actually changes the pension system going forward by requiring people to work longer before they get the maximum pension, recognizing that people are living longer."

The package requires current employees to  pay 50% of the cost of their pension and caps the salary used to count benefits at $110,000, Steinberg noted after the 38-1 vote by the Senate. It also requires public employees who are not in public safety jobs to work to age 67 to get full retirement benefits.

Most Republicans voted for the pension bill while saying it was just a small step forward."Sadly, it falls far short of the 'historic' reform promised by the governor," said Sen. Tom Harman (R-Huntington Beach).

Brown welcomed the legislative approval. 

“With strong bipartisan support, the state Legislature today passed the biggest rollback of public pensions in California history,'' Brown said in a statement. "This sweeping pension reform package will save tens of billions of taxpayer dollars and make the system more sustainable for the long term.'' 

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Photo: State Sen. Bob Dutton (R-Rancho Cucamonga), left, and Senate President Pro Tem Darrell Steinberg (D-Sacramento), confer during the Senate session Tuesday. Credit: Rich Pedroncelli/Associated Press

 

Critics say pension fix will require more than Jerry Brown's plan

Lawmakers are expected to vote Friday on Gov. Jerry Brown's public pension proposal -- a plan that requires new workers to work longer and asks all employees to pay more of their own retirement.

The plan has angered labor unions, who say the governor's proposal unfairly targets public employees and circumvents the collective bargaining process.

Others say Brown's decision to back off curbing healthcare benefits for retirees and avoid cutting payouts for current employees means more will have to be done to rein in public pension costs.

As The Times' Evan Halper and Anthony York reported:

"Pension officials predict that Brown's plan, which has yet to be thoroughly vetted by actuaries, would save state and local governments $40 billion to $60 billion over the next three decades — much more than the governor projected. But the shortfall faced by the big state pension funds is much larger than that.

"Officials at California's retirement systems, which are counting on investment returns that many experts say are wildly optimistic, acknowledge that workers have been guaranteed about $164 billion more in retirement payouts than there will be cash available to pay.

"Some of the country's most respected investment gurus, including Berkshire Hathaway Chairman Warren Buffet and Vanguard founder John Bogle, say the burden on taxpayers will be much larger."

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CalPERS board set to discuss Jerry Brown's pension plan today

The nation's largest public pension system will meet Wednesday to discuss the proposed pension changes for state workers unveiled by Gov. Jerry Brown, but is not expected to have a full financial breakdown of the plan.

The board of the California Public Employees Retirement System is scheduled to meet at 1 p.m. in Sacramento. The agency has offered a preliminary analysis of the plan online.

But analysts found potential legal hurdles to the governor's efforts to end the right of current employees to purchase pension credits for time they have not actually worked. And they said state officials may not be able to prevent current workers who are convicted of a felony from collecting retirement benefits, as the proposal calls for.

Those efforts "may be subject to challenge based on an argument that they impair the vested rights of existing employees," the analysis states.

While the plan caps the amount of salary a worker can use on which to base a guaranteed pension, the analysis found a local government can establish an additional 401(k)-style plan for any salary a worker makes above the $110,000 cap.

"The employer may provide a contribution to a defined contribution plan for compensation in excess of the limitation as specified," the analysis states.

The analysis concedes CalPERS will not be able to complete a full appraisal of the proposal before lawmakers are expected to vote on it Friday, stating, "A much more detailed review and vetting will be needed for full understanding and implementation."

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California legislative panel advances plan to cut public pension costs

A joint legislative committee on Tuesday night approved a package of sweeping changes to public pensions  in California aimed at saving taxpayers tens of billions of dollars in the coming decades.

The conference committee voted to send the changes to the two houses, where they will be voted on as AB 340 by midnight Friday, the end of the legislative session.

"We’ve put together a comprehensive plan on pension reform, and I think it's going to make great changes for the benefit of the people of California and its budget," said Assemblyman Warren Furutani (D-Gardena), co-chair of the Assembly-Senate Conference Committee on Public Employee Pensions.

The 10-point plan raises the age of retirement for new employees, requires new and current workers to contribute half of the cost of their pensions and includes a $110,000 cap on the salary that will be used to calculate pensions.

Republican members, including  Sen. Mimi Walters (R-Laguna Niguel) abstained from the vote, complaining that they had just received the 38-page bill language an hour before the hearing.

 "I feel like we are being jammed on this," Walters, the vice chairwoman, told the panel. "I think it would be extremely irresponsible for us to vote on this today."

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