Friday, August 31, 2012

Pension reform bill isn't great, but it's a good start - Modesto Bee

Given the political realities in Sacramento, the pension measure awaiting final action in the Legislature today is probably the best reform package that could have been achieved this year.

Still, it isn't very good. The changes will not end the pension crisis that afflicts the state, local governments and school districts.

A preliminary calculation by state pension official actuaries pegs the savings in the reform measure at $40 billion to $60 billion over 30 years. That's not nearly enough to erase the unfunded pension liabilities for the state and local governments, conservatively estimated at $164 billion.

Still, the local governments harmed most by burgeoning pension costs â€" California's cities and counties â€" support the bill. "It's not perfect," a League of California Cities news release concluded, but still "a substantial step forward."

Marcia Fritz, a longtime pension reform advocate and president of the California Foundation for Fiscal Responsibility, called the compromise "an important step to reform California's dangerously underfunded pensions systems."

Local governments are most supportive of provisions that give government employers greater flexibility to negotiate higher contribution rates from current workers. Those are the only provisions that offer the potential for any immediate budget relief to distressed cities and counties.

How much relief depends on a jurisdiction's ability to squeeze more concessions out of current workers at the bargaining table. That will vary from jurisdiction to jurisdiction, but changes in bargaining laws contained in the pension bill give cities and counties greater leverage.

For example, under current law, if one bargaining unit in the miscellaneous workers category refuses to agree to higher pension contribution rates, a city cannot impose higher rates on any other bargaining unit â€" even though the others had approved the higher rate. The proposed reforms would allow cities to cut different deals with different bargaining units.

Most of the measure's largest reforms â€" more modest pension formulas, higher retirement ages, anti-spiking provisions, caps on pensionable incomes â€" apply only to new workers and will not produce substantial savings for a generation.

For the 20 counties whose pension systems are governed under the 1937 Retirement Act, Stanislaus and Merced counties among them, the bill appears to offer some limited restrictions on pension spiking for current workers. However, critics warn there is ambiguous language in the measure that may exacerbate spiking. That claim needs to be thoroughly investigated, and if found valid, fixed before the bill is voted on.

The legislative reform package is just the beginning of a necessary effort to right-size public pensions in California. More will be needed.

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