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To say Jerry Brown has not been an ally of pension reformers would be an understatement. In his capacity as attorney general, a post he filled from 2006 until becoming governor in January, Brown consistently did the unions’ bidding. In October 2009 he sued State Street Bank and Trust to the tune of $200 million for supposedly marking up the prices of interbank foreign currency trades made on behalf of two large and powerful pension funds, the California Public Employee Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS). In 2010, when Orange County sued its sheriff’s deputies over a $500 million retroactive pension liability accumulated after a 2001 upgrade that had not been put up for a legally required popular vote, Brown weighed in with an amicus brief—on behalf of the deputies union. And throughout Brown’s tenure as the Golden State’s top cop, while the city of Bell’s now-ousted-and-indicted city manager Robert Rizzo was racking up a $1 million annual compensation package and a commensurately inflated pension commitment, Brown ignored the crime. He didn’t respond until the middle of 2010, after popular outrage and intense coverage by the Los Angeles Times forced him to intervene (with a lawsuit that now appears to be falling apart).
Yet it is to Jerry Brown that Republicans, Democrats, and California’s 4.3 million non-major-party voters now turn. “Jerry Brown is cocky enough to say, ‘Hold on guys,’ ” says Orange County Supervisor John Moorlach. “Any movement would be helpful.”
The Republican supervisor has reason to doubt that Brown will try to tame California’s pension beast. It was Moorlach’s board of supervisors that Attorney General Brown chose to stand against in their suit over retroactive government employee benefits. Yet Moorlach hopes Brown’s involvement in that case may have opened his eyes. It may be wishful thinking, he acknowledges, but he thinks executive responsibility could change Brown’s attitude.
“Now the Democrats have to deliver,” Moorlach says. “They have to lead, and they have to pay for their initiatives, and I think that’s why you’re starting to see these guys standing up. From our lawsuit Jerry Brown has figured out what we’re doing and why retroactively increasing benefits is a bad idea. If Jerry could bring in just a defined-contribution component to these plans, bring the camel’s nose into the tent, if he could just get the ball rolling on that a little bit.…”
Moorlach alludes to a striking feature of the current pension reform movement: It is a revolt led by the supporters of big government. At every level, Californians want assertive government. Republican farmers demand cheap water and more than $2 billion a year in subsidies. Unionized TV and movie productions command incentives such as $500 million in tax credits. In popular referenda during the last five years, California voters have voted themselves nearly $100 billion in bonded debt. The acceptable question is no longer whether to spend but what to spend it on.
This is why the most aggressive lobbying for pension reform is coming not from fiscal conservatives but from progressives, who see the logarithmic cascade of pension liability as a threat to public parks, environmental programs, and rail transit.
Jeff Adachi, an attorney who has spent most of his career in government work, sees the problem strictly in terms of spending priorities. “Right now in San Francisco we’re spending a billion dollars a year on benefits,” he says. “That’s one out of every six dollars we spend. Within five years that’s going to double, to one out of every three dollars. I believe it’s already that ratio in Los Angeles.”
Adachi’s allies on Prop. B included Willie Brown, a Democrat who was mayor of San Francisco from 1996 to 2004 and speaker of the California State Assembly from 1981 to 1995, and the Green Party’s Matt Gonzalez, former president of the San Francisco Board of Supervisors and Ralph Nader’s 2008 vice presidential candidate. Marcia Fritz, the head of the reform group, begins our conversation by saying how pleased she is at the Democrats’ statewide sweep in the elections.
Similarly, Chuck Reed, the reform-minded mayor of San Jose, is a Democrat with a thirst for a Major League ballpark, an ambitious “Green Vision,” and a background in pro-tenant law and restrictive land use policy. The list of progressive Democrats trying to reform pension spending goes all the way up to the most progressive Democrat in Sacramento: Republican ex-governor Schwarzenegger, who in 2006 muscled through Assembly Bill 32, the nation’s first (and probably last) statewide attempt to stop global warming, and who won voter approval in 2008 for $9 billion in bond debt to build a fanciful high-speed rail line.
All of these people see money intended for infrastructure, stimulus, and earthly glory going instead to a public-employee bishopric. The pension fight is properly understood not as a liberal-conservative issue but as a class struggle within the Democratic Party.
Which Side Is Jerry On?
So it was dramatically appropriate, if credibility-straining, that Jerry Brown—who arguably created the problem in 1978 by signing the Dills Act, which gave California’s public employees the power of collective bargaining—emerged as the more serious critic of public employee compensation in the 2010 gubernatorial campaign.
The difference was evident in the two major candidates’ platforms. Republican neophyte Meg Whitman offered one page on solving the state’s pension crisis, and her flagship proposal—moving new hires into a defined-contribution system akin to a 401(k) plan—was unworkable. More than 50 percent of California government employees (all public safety workers and teachers, along with about half of all miscellaneous workers) are free from the Social Security system. Instead, their retirement benefits come from a defined-benefit package. In contrast with a “defined contribution” plan such as a 401(k) or IRA—in which the person contributes to his or her own retirement and receives benefits based on the size of the total fund at retirement—a defined benefit package promises a specific payout that is calculated based on salary and is payable whether or not there’s enough money in the fund.
In this, as in many other aspects of public employee compensation, California is out of sync with the rest of the country, where about 70 percent of government workers are subject to Social Security withholding. But the bottom line is that in the absence of Social Security, a 401(k) alone cannot solve the problem, and it didn’t inspire confidence that the Republican candidate for governor, in her platform and on the stump, seemed unaware of this.
Brown, by contrast, offered four pages of pension reform detail, including a formula to prevent pension spiking (in which a government employee can rack up excessive overtime in his or her last year and thus boost a pension payout that is calculated based on an employee’s final-year compensation); an increase in the percentage of annual salary an employee must contribute; and (surprisingly, given his amicus brief in the San Diego case) an end to retroactive application of benefit enhancements.