Conversations on Politics, Policy in the Golden State

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By Chuck Reed

California Faces Higher Taxes, Fewer Services
Without Pension Reform

California�s economy is looking up. The unemployment rate is down and most industrial sectors are growing. Yet, even in these good times, governments statewide are raising taxes and fees, boosting tuition and cutting services, all in order to pay for rising retirement costs.

Between 2003 and 2013, annual pension costs for California governments jumped from $6.4 billion to $17.5 billion, and are still rising. The California Public Employees' Retirement System (CalPERS) and the California State Teachers' Retirement System (CalSTRS) agencies are absorbing massive increases in contributions.

The state controller reports more than $240 billion in unfunded liabilities for state and local pension obligations. California Common Sense, a non-partisan policy group, calculates nearly $160 billion of unfunded liabilities for retiree health care obligations. This $400 billion in retirement debt is driving massive cost increases, which in turn are driving cuts in services and tax increases.

Without reform, California faces a future of higher taxes and fewer services. Some local governments already face service delivery insolvency and bankruptcy. More will join them in the next recession, and public employees, retirees, residents and taxpayers will suffer, as they did in Vallejo, Stockton and San Bernardino.

CalPERS and other opponents of pension reform tell us not to worry because over 20 years (1994-2014) CalPERS has earned more than 7.5 percent per year on its investments. But look at what happened to the CalPERS unfunded liabilities during that time: Unfunded liabilities grew by more than 150% per year. According to its Comprehensive Annual Financial Reports, the CalPERS� unfunded liability grew from $3 billion to $93 billion in the same 20-year period. So when CalPERS tells you not to worry, you should think twice.

The only realistic solution to this crisis is through pension reform, and we can begin by following some simple principles:

• All workers deserve safe and secure futures and retirement plans should place employees on a path to a secure retirement, regardless of tenure. 
• Retirement benefits should be fair, sustainable and predictable for current and future public employees.
• Benefits should be fully funded as they are earned, and incentives to underfund commitments should be eliminated.

It is time to reform pensions to give struggling government employers a way to pay retirees and employees every penny of the benefits they have earned, while providing reasonable services to their residents and taxpayers.

Chuck Reed is the former Mayor of San Jose and is a board member of the Retirement Security Initiative, a nonprofit bipartisan advocacy organization. The opinions in this article are presented in the spirit of spurring discussion and reflect those of the author and not necessarily the treasurer, his office or the State of California.

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By Dave Low

Why Chuck Reed�s Pension Attacks
Won�t Work and Won�t Pass

Former San Jose Mayor Chuck Reed�s and former San Diego City Councilmember Carl DeMaio�s statewide ballot pension measures have stumbled several times during the past six years and are doomed to fail in the future.

There are several reasons why:

• Their proposals are too extreme. Rather than solving problems, Reed & DeMaio make things worse, penalizing teachers, police, firefighters, school bus drivers and other public employees by either eliminating defined benefit pensions or cutting benefits so severely that these workers cannot retire with dignity.
• Reed and DeMaio rely on false or flawed data. They base their attacks on the less than 2% of public employees receiving six-figure pensions, ignoring the fact that 98% of public employees receive pensions averaging $30,000 a year.
• Reed and DeMaio also ignore the fact that teachers, police and firefighters do not receive Social Security.
• The vast majority of Americans with only a 401K style plan don’t have enough saved to retire with dignity. Many will end up on social assistance.
• In San Jose, Reed’s pension attacks were based on fabricated data. The result was a mass exodus of public safety employees and increased crime rates. Reed’s plan was scuttled by his hand-picked successor, who negotiated a compromise pension agreement at the bargaining table.
• While voters generally support pension changes, when they see the details of the Reed/DeMaio proposals, they oppose them by large margins. Statewide ballot measures need to start in the high sixty percentiles to be successful; the Reed/DeMaio measures never crack 45 percent.

Public employee pensions are a promise made in exchange for a career of service. They should be a promise kept. CalPERS and CalSTRS studies document the positive economic impact of pension spending. Eliminating retirement security is not only bad for workers; it is bad for the economy.

Rather than feeding off the anger towards workers who have pensions, Reed and DeMaio should be working to increase retirement security for all workers.

Dave Low is chairman of Californians for Retirement Security. The opinions in this article are presented in the spirit of spurring discussion and reflect those of the author and not necessarily the treasurer, his office or the State of California.