It's rare that a politician will say something that is praiseworthy and anger-inducing in the same breath. Nevertheless, Gov. Jerry Brown accomplished that unusual feat when he released his May revised budget, and told cities that the state government isn't in a position to help them with their soaring pension costs. "They have to handle that themselves," he explained during a briefing in the state Capitol.
His rationale for refusing to bail out hard-pressed local governments is compelling, concise and worthy of applause: "A lot of cities signed up for pensions they can't afford."
Why should taxpayers throughout the state pay more in taxes—or tolerate fewer services or more debt—to help those city governments that were fiscally irresponsible? They knew the risks, ignored the warnings and retroactively boosted pensions by as much as 50 percent over the past 15 years, yet now city officials are complaining about their tough fiscal position.
Cry me a river. I've heard many city officials speak about the continuing problems they face as the California Public Employees' Retirement System slams them with fee increases to pay for rising pension liabilities. CalPERS has imposed five increases on localities in the past few years and the pension system still is funded at a troubling 70-percent level. CalPERSis the same as it always has been—a union-controlled pension fund that's far more interested in ginning up pension payouts for government retirees than ensuring the solvency of cities. Why did it take so long for city officials to notice?
After the state Legislature passed a pension-increase plan in 1999, known as Senate Bill 400, cities throughout the state eagerly embraced CalPERS' grandiose predictions that it wouldn't cost taxpayers a dime. The legislation granted 50-percent retroactive pension increases to the California Highway Patrol. But its backers had an end game. Once CHP got the boost, most city and county public-safety agencies (police, fire, prisons) would have to pass increases, too. And then each city's miscellaneous workers would receive the old public-safety formula. They knew what they were doing.
Defenders of the legislation claim that it didn't force localities to increase pensions, but that it merely allowed them to do so. That gets to the governor's point. No one forced these cities to make irresponsible decisions. In many cases, local governments tripped all over themselves to increase benefits based on such flimsy promises. In conservative Orange County, Republican supervisors eagerly granted the new "3 percent at 50" pension deal for county sheriffs, then followed with a hike for the rest of the county workforce. The supervisors dismissed warnings that such a plan would backfire.
I cannot recall any city council or board of supervisors anywhere in the state complaining too stridently about this new, cost-free pension giveaway. It reminds me of a scene from the classic movie, "Willie Wonka and the Chocolate Factory." When a child touring his factory jumps into a vat of chocolate and he clearly wants to see what will happen, Wonka deadpans: "Help. Stop. Police. Don't." Do we really think many officials wanted to stop these unsustainable increases?
Now that the pension-boosting legislation has actually backfired, these same officials describe the blowback in the passive voice, pretending it was some unforeseen act of God rather than a direct result of their pandering to local public-sector unions. So Brown is totally correct here. Tough luck. These officials voted for these increases. Now they need to live with the results. The state, which is busy wasting tax dollars in numerous other ways, already has been contributing more than its fair share of the state's own pension shortfalls.
Now for the infuriating part of Brown's statement. Implicit in the governor's message is the notion that the state government couldn't have done anything more to help local governments as they face service "crowd out"—cutbacks in basic services as pension costs eat up a larger share of their budgets. The governor passed an exceedingly modest pension-reform measure in 2012. His team also wrote a noteworthy legal brief to the California Supreme Court earlier this year arguing that the justices should revamp the "California Rule," which limits the ability of governments to reduce pension benefits for current employees going forward.
Beyond that, Brown has basically punted on the issue. And he often has made things worse. The most recent example came last week when he struck a deal with the prison-guards' union to grant them "their biggest raise since the recession," according to a Sacramento Bee report. Large salary increases result in even higher pension obligations. Throughout his governorship, Brown has agreed to pay deals that make the pension problem much worse, which no doubt is a reflection of his career-long political ties with the state's public-sector unions.
After Brown's comments, the San Diego Union-Tribune argued that while his remarks had "surface logic," it was "the state government's actions in 1999 that directly led to the pension tsunami now eating up 15 percent or more of the budget in many cities." The newspaper also noted that Brown's pension reform act hasn't "had nearly the positive effect he promised." Brown "should have kept pushing the Legislature and CalPERS for pension policies that are much fairer to taxpayers." The governor—despite his deep understanding of the pension issue—has essentially been AWOL on the matter as it has escalated into a crisis.
So city officials deserved a good, hard dose of fiscal reality. But it's too bad the governor didn't recognize the other reality: the state government could have done far more to fix the pension system. Brown's ties to organized labor would have enabled him to pull a "Nixon goes to China" and leave a lasting legacy of fundamental pension reform, but chose to leave the problem for his successor. The cities deserve no pity, but Brown could have taken actions to ease their pain.
Steven Greenhut is Western region director for the R Street Institute. Write to him at email@example.com. This column was first published by the California Policy Center.