No one thinks the pension reform package announced by the Governor and Legislative Leadership is perfect. In fact, describing the proposed reforms as ‘comprehensive’ is a brazen and intentional fallacy. But is a partial solution better or worse than no solution at all?
With less than 96 hours left before the constitutional deadline to pass legislation, the Governor’s office and the legislature were desperate to put something forward. According to polls, not addressing pension reform would be a slow, tragic death sentence for the Proposition 30.
So what they did was agree on an oxymoronic, partially comprehensive package of reforms. They chose not to address healthcare benefits, despite the massive proportional increase in their costs. They chose not to seek greater protections against future legislatures repealing their reforms. They chose not to pursue a hybrid-style plan.
They chose a package that allowed grandstanding, despite the lack of real, immediate-term savings for the state.
But the danger of incomplete pension reform is that it can offer protection from continuing the debate and achieving lasting reform.
The outstanding and unresolved issues facing pensions will likely be reintroduced during the 2013-2014 legislative session. Whether a measure addresses retiree healthcare or broaches the concept of a hybrid-style plan, undoubtedly legislators will stand up and protest. They’ll point to the previous year’s reforms as reason enough to not reopen the issue. The argument will be that it will take time to realize savings, so further action will be unnecessary.
The danger of incomplete action is that it inhibits further action.
So what are we left with? The package of reforms that will be voted upon – and likely approved – on Friday will establish a second-tier pension for all new hires at the state and local level (although the State does not have the authority to impose its pension terms on charter cities and counties). Public Safety employees will earn a maximum of 2.7 percent at 57. Miscellaneous employees can earn a maximum of 2.5 percent at 67. And these new pensions are prohibited from being retroactively increased.
If these new benefits are in place for the next 30 years, this legislature should be commended for helping to save what is being estimated to be as much as $60 billion.
But AB 340, also known as the Pension Reform Plan of 2013, will likely not see its third decade. It may not see its second. It took 13 years to overturn SB 400 – which received near-universal support. AB 340 is going to be hotly contest.
When the economy recovers and the CalPERS portfolio regains its losses, AB 340 will be eviscerated.
Term limits will inevitably force the Capitol to re-invent itself time and time again. The only establishment with institutional memory in Sacramento will continue to be the special interests. They will work with their legislators to repeal provisions of AB 340 and restore SB 400 style pensions.
On Friday, the debate over pension reform in Sacramento will die a premature death while its modest successes may live on feebly.