Reason Writers Around Town: One Step Toward California Pension Reform
Reason Foundation's Adam Summers writing in today's Orange County Register:
The nonpartisan state Legislative Analyst's Office recently confirmed that California's budget is built around billions of dollars in accounting gimmicks, overly optimistic assumptions and improbable handouts from the federal government. It projects a $25.4 billion deficit over the next 19 months and deficits of $20 billion for each of the next five years.
What's even scarier is that those figures do not include the state's enormous unfunded pension promises to state workers, recently pegged at up to roughly $500 billion – roughly $36,000 for every household in California. Throw in the $50 billion or so in unfunded retiree health care liabilities, a $10 billion unemployment insurance fund debt, and the state's $152 billion in general obligation bond debt, and you start to get a fuller sense of the state's true financial problems.
California's public pension and retiree health and dental care spending has quintupled since fiscal year 1998-99, increasing to $5 billion in 2009. And retirement spending is expected to triple again – to $15 billion – within a decade. The coming wave of baby boomer retirements and steadily increasing health care costs ensure that this burden will continue to grow rapidly. California will be spending more and more for state retirees' benefits, leaving less and less for other budget items such as public safety, education, and transportation.
The state budget passed in October takes state pension benefits back to 1999 levels – for future/new state employees – and the Schwarzenegger administration estimates the tweak will save up to $100 billion over time. That's a minor fix at best.
The state has tried this before. In 1991, California created a second tier of lower benefits in an effort to stem rising public pension costs. Less than a decade later, the Legislature passed, with virtually no opposition, the infamous Senate Bill 400, which not only massively increased state employees' pension benefits but also made those increases retroactive. It would simply be too easy for legislators, with the support and pressure of government workers' unions, to do it again.
California needs to switch to a defined-contribution system for all new employees, as the private sector has been doing for decades.
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