News from the Placer DSA

Pushing public workers out of pension plans with guaranteed payouts could save taxpayers billions each year — but perhaps not until the folks reading this story are grizzled and gray, according to new analyses by the nonpartisan Legislative Analyst’s Office. In the short-term, the LAO said, pension reform could actually cost governments, and the taxpayers who fund them, more. We’ve been telling you about the two versions of an aggressive initiative filed by California Pension Reform (whose VP is Fullerton’s own Jack Dean), which are in the signature-gathering stage and aiming for the November ballot. The LAO chewed them over and had this to say: HYBRID MILEAGE The version that would put in place a hybrid retirement plan for new hires — a 401k-type guaranteed pay-in system (like the one private workers have) mixed with a guaranteed-payout system (like the one most public workers have) would result in “Potentially Large Retirement Benefit Savings Over the Long Term” of “billions of dollars per year.” But over the next 20 to 30 years, government costs could actually increase by up to $1 billion per year. How? Because removing new workers from the traditional guaranteed-payout plan means they won’t be kicking much money into said plan, which would shortchange investments and earnings, while doing nothing to reduce what is actually owed. And so the employers — i.e., governments — would have to fill in the blanks. 401-K STYLE The version that would create a straight 401-K style retirement system for new hires after July 2013 would stifle cash flow into the traditional plan even more acutely. “In the short and medium term (perhaps over the next two or three decades), these changes could result in public employers having to contribute up to several billion dollars more per year (in current dollars) to cover pension costs of current and past employees.” YOU SAY POTATO, I SAY…VODKA? The California Pension Reform proposals go a lot farther than the plan put forward by Gov. Jerry Brown – but not nearly as far as the Little Hoover Commission said is necessary to keep the state from sinking. Each of the sparring parties in the pension war treats the LAO’s analyses as a bit of candy delivered on a shiny plate. “We are pleased that the LAO recognizes that both versions of our initiative would end pension system abuses, reduce the long term cost of government employee pensions by billions of dollars each year, and require that independent experts make up majorities on state pension boards,” said Dan Pellissier, president of California Pension Reform, in a statement on its web site. “Californians are ready to vote for this type of pension reform to help get our fiscal affairs back on track.” Californians for Retirement Security, a coalition of more than 1.6 million retired and current public employees that is fighting the proposals, pointedly notes that Pellissier was an aide to former Gov. Arnold Schwarzenegger. “The LAO hit the nail on the head about these sloppily-drafted and extreme ballot measures being advanced by right-wing Republicans,” said Steven Maviglio, the organization’s spokesman, in a prepared statement. “These unworkable initiatives will be an economic disaster for our state, be tied up in the courts for years, result in no significant savings for decades, and squeeze California’s middle class even more. It’s exactly why the Legislature should do what the LAO suggested last month: take the time to craft a proposal that will be legal, stop abuses, and result in real savings without decimating the retirement security of millions of hardworking Californians.” GOING UP Public employers — state and local governments — paid a total of about $14 billion to pension systems to cover benefit costs in 2008-09, including several billion dollars for unfunded liability costs, the LAO said. Looking at just the state’s situation: The state is now spending $4.8 billion a year on pensions, which is 5.7 percent of its general fund budget. Over the next few years, that’s expected to grow to $14.6 billion, consuming 17.3 percent of its general fund. What do you think?