Because of the so-called California Rule, governments here cannot reduce pension benefits for existing employees. No lawmakers ever proposed slashing existing retiree benefits or even cutting the accrued benefits of current employees. But in the private sector, companies can reduce the pension formulas going forward — i.e., starting tomorrow. California forbids such changes for public employees, which ties lawmakers’ hands as pension debts soar.
Brown argued the state can get control of its soaring pension debts by reducing the formulas for new hires only. The thinking was sound: In around 15 years, the state would be on a sustainable path as lower-formula new hires would replace higher-formula workers and retirees would pass away. The reforms are now doing their job, but the unions want to gut Public Employee Pension Reform Act savings by lowering the retirement age and increasing the pensionable benefits cap. Just as PEPRA is working, lawmakers want to gut it.
The premise is based on a myth. As the Reason Foundation notes, California is not facing a public-safety retention crisis. The rate is similar to what it always has been. There are still long lines for firefighter jobs. One need only look at Transparent California to see the eye-popping pay and benefit levels — often well above $500,000 — earned by California police and firefighters. The new benefit will cost the state dearly and fall particularly hard on local governments, which have been cutting services and raising taxes to pay their escalating pension bills.
In 1999, Senate Bill 400 sparked that 2011 crisis by dramatically increasing California Highway Patrol pensions. Unions and their allied lawmakers knew that after boosting CHP pensions by as much as 50% retroactively, most other state and local agencies would follow suit. Likewise, AB1383’s supporters focus on police, but they know these changes will spread. During the SB400 debate, the California Public Employees’ Retirement System (CalPERS) claimed SB400 wouldn’t cost taxpayers a dime — but they were off by billions and billions of dimes.
California Democrats are the party of government and unions, so their support is wrong but expected. But where is the party of fiscal responsibility? Republicans don’t have much power, but they could have sounded the fiscal alarm bells before the state embarked on yet another fiscal disaster. They could have echoed Jerry Brown, who routinely warned that recession is always around the corner. Instead, many Republicans tripped over themselves to support AB1383.
Most Republicans also voted for Assembly Bill 1054, which will allow these highly compensated employees to retire with giant lump-sum payouts. Deferred Retirement Option Plans allow retirees to keep working after they hit their retirement agents. The existence of DROPs points to the real reason for any alleged retention crisis: Retirement formulas are so generous that they incentivize public employees to retire early, even if they want to keep working.
Though there were a few handfuls of abstentions, the only “no” votes on AB1383 through the entire legislative process were from Assemblyman Carl DeMaio, R-San Diego, Assemblywoman Diane Dixon, R-Newport Beach, and Assemblyman David Tangipa, R-Fresno. DeMaio and Dixon were the only “no” votes on AB1054, which also is headed to the governor. If any other legislators ever prattle about fiscal responsibility, you can just laugh out loud.
Steven Greenhut is director of the Pacific Research Institute’s Free Cities Center. The is a condensed version of a column first published by the Southern California News Group.
