Reason Foundation

Perhaps the powers that be in Sacramento are finally waking up to the fact that the state's public pension system is in need of serious reform.

First, at a seminar in August, California Public Employees' Retirement System (CalPERS) chief actuary Ron Seeling admitted that the cost of pension benefits for state employees is "unsustainable."

Now state Treasurer Bill Lockyer is warning that, without significant reform, pensions will "bankrupt the state."

At a recent joint hearing of the Select Committee on Improving State Government, Lockyer scolded legislators and offered a pessimistic view on the prospect of reforming the pension system: "It's impossible for this legislature to reform the pension system, and if we don't do it we bankrupt the state. And I don't think anybody can do it here because of who elected you." (See about 45 seconds into the video below.)

Lockyer again alluded to the influence of the state employees' labor unions in stifling pension reform in an interview following the hearing. As reported by Ed Mendel of the Calpensions blog, Lockyer spoke of the pressures to satisfy the special interests and major campaign contributors that help elect politicians, saying, "That sense of obligation is always too strong to ever do anything that is going to seriously affect, in an adverse way, the folks who helped elect you."

He, additionally, spoke of the prospect of offering reduced benefits to future state hires, creating a "two-tier" system: "People talk about a two-tier system as a way to do it," Lockyer said. "I think that's ultimately inevitable. But I don't know that it's ever possible legally or politically to do takeaways (of promised benefits)."

An initiative that would create such a two-tier system is currently being drafted by the California Foundation for Fiscal Responsibility (CFFR), a group focused on public pension reform and the organization responsible for collecting and publicizing the "$100,000 Pension Club." (According to CFFR's searchable databases, there are 6,133 retired state and local employees collecting pensions of at least $100,000 through CalPERS, and an additional 3,090 retired educators collecting such generous pensions through the California State Teachers' Retirement System (CalSTRS).)

Lockyer does not like the odds of a pension reform initiative passing, however. With another nod to the power of well-funded labor campaigns, he noted that such an effort would be difficult "when affected interests can dominate the airwaves with their point of view."

California, like many other state and local governments, is being held hostage by its employee labor unions. The state's labor costs are too high and its unions too powerful. When politicians can be bought by labor unions, and then return the favor by imposing pension obligations that will not be realized until long after they are out of office, that is a recipe for fiscal disaster. Even with significant reform, such as a shift to a 401(k)-style defined contribution retirement system comparable to benefits received in the private sector for all new employees, it will take California many, many years to recover from the past and present costs of state employee compensation (if, indeed, it is ever able to recover). Without it, the state will be doomed to perpetual budget crises and broken government.