Big Trouble in Little Hoover

Why does the nonpartisan, good-government consensus sound so radical?


Who's got a solution to the government employee pension crisis that's bolder than Wisconsin Gov. Scott Walker's, more extreme than New Jersey Gov. Chris Christie's? What rabid extremists want to renege on existing contracts and squeeze the hard-working teachers, cops, and firefighters of America's most populous state?

Would you believe…the Little Hoover Commission?

If you are part of the growing percentage of Americans who choose to live outside the state of California, you probably haven't heard of Little Hoover. But this oversight agency is the closest the Golden State comes to gray eminence. Created in 1962, the commission makes measured and judicious suggestions on the governance of the state. The panel's 13 members are chosen by a scrupulous process, described over four pages of the California code, that limits overt partisanship and emphasizes separation of powers. The commission's judgments are generally considered as reliable as a Moffat & Company gold coin.

So Little Hoover's February report, Public Pensions for Retirement Security, came as a shock. Even the most far-reaching state governors have focused their plans for reduced pension benefits mostly on new hires. While a few (such as New Jersey's Christie) have imposed later retirement dates, all have stayed within currently accepted legal practice for the ways existing government employees accrue retirement benefits. Broadly speaking, this means the reform proposals are confined to asking current workers to contribute more to their plans, not tampering with final payouts or accrual rates.

Little Hoover, by contrast, concludes that another two-tiered system—in which new hires come in with a less generous retirement package—will be inadequate. The report argues repeatedly that the state must find a way to pare back existing contracts. "The state and local governments need…to restructure future, unearned retirement benefits for their employees," it states. "The Legislature must pass legislation giving this explicit authority to state and local government agencies." The commission acknowledges that any such law "may entail the courts having to revisit prior court decisions."

And where many Republicans—including Wisconsin's Walker and California 2010 gubernatorial nominee Meg Whitman—have made a point of excluding cops and firefighters from their pension reform plans, Little Hoover states: "Public safety pensions cannot be exempted from the discussion because of political inconvenience."

The things Little Hoover suggests are not just too extreme for conservative Republicans. They're unacceptable even to some libertarians. In a post on the Wisconsin union standoff at the Bleeding Heart Libertarians blog, Georgia State philosopher Andrew Jason Cohen warns against making it "permissible to unilaterally change the contracts of state employees."

The professor may be speaking too abstractly (key phrase: "To be honest, I've not read the actual legislation under consideration"), but he raises a real point. Sanctity of contract may seem like a quaint notion in the age of the GM bailout and government-mandated mortgage cramdowns. But it's central to consensual exchange. Believers in limited government can't just ignore contract—though some have tried. When I interviewed the California Libertarian Party's gubernatorial candidate, Dale F. Ogden, last year, he suggested tearing up public worker contracts. "The state of California under our constitution is a sovereign entity," Ogden said, "and like any other banana republic, which is how it's been run, we can repudiate our debt." That argument won't persuade judges any more than it will win voters.

There is an interesting legal question about whether public-sector pension promises are truly binding. In private-sector work, you are entitled to retirement benefits that have already been accrued but not to future benefits that you may get if you stay in your job. A series of California court decisions has supported—without specifically protecting—future benefit gains for public employees. There actually is not a body of precedent for locking in future accrual rates. The 1978 California Supreme Court decision Betts v. Board of Administration suggests the opposite view, saying, "An employee's vested contractual pension rights may be modified prior to retirement for the purpose of keeping a pension system flexible."

There has, however, been a long history of politically motivated presumption that government employee benefits can only be ratcheted up, never down. In 2006, for example, then-Attorney General Bill Lockyer drew on the language of Betts to rule that the California Public Employee Retirement System (CalPERS) could grant retroactive, unfunded benefits to state and local workers. It's telling that nobody has tested the legal environment for rolling benefits in the other direction. 

How telling? Little Hoover reports are generally accorded the type of respect given to lifetime achievement award winners or the Guardians of Oa in the Green Lantern universe: Everybody praises the commission, then ignores its findings. In the case of the pension report, however, Little Hoover generated a firestorm. While the Los Angeles Times editorial board endorsed the report, the heads of CalPERS and the pension fund for California teachers both dismissed the findings and—gliding over the legal complexities described above—declared the rolling back of future accrual rates to be prima facie illegal. State Sen. Alex Padilla (D–Los Angeles) sniffed, "We're not interested in spinning our wheels." And Bill Lockyer, who thanks to term-limit musical chairs is now filling the office of treasurer, issued a passionate, six-page attack on the report, accusing it of everything from intemperate language to "distorting" and taking "liberties" with the testimony of one expert witness. I contacted the witness in question, an actuary, who said he had no complaints with the commission's use of his words or his meaning. 

Maybe the truth hurts worst when it comes from one of your own. For all its highly praised independence, the Little Hoover Commission is a product of California's political establishment, not a think tank full of anti-government ideologues. That its recommendations are in fact more radical than the plans proposed by avowed small-government types suggests how large the government employee pension problem is—and how unserious are most proposals to fix it. 

Senior Editor Tim Cavanaugh (tim.cavanaugh@reason.com) writes from Los Angeles.