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Finally, Some Good News on California Public Pensions

Adam Summers
July 28, 2007, 10:51pm

There have been a couple of developments recently that should give California taxpayers some hope in the fight against ever-rising public pension costs. The first was the Third District Court of Appeal decision that upheld a previous ruling that the $560 million pension obligation bond authorized by Gov. Schwarzenegger and the State Legislature in 2004 was invalid because it was not approved by the public or a two-thirds supermajority in the Legislature. (Read the court's decision here.) According to Harold Johnson, an attorney for the Pacific Legal Foundation, which fought the bonds, "It's a big victory and a sobering message for the spendthrifts in the Legislature. They can't use the credit card to cover ongoing costs of government." (See a good Orange County Register story about the decision here.) The second piece of good news came in the form of a public pension reform initiative proposed by the California Foundation for Fiscal Responsibility, which was formed by former Assemblyman Keith Richman, author of the failed 2005 pension reform proposal. The CFFR's initiative focuses on improving the state's traditional defined-benefit (DB) system, rather than switching to a defined-contribution (DC) plan like the 2005 proposal. It would amend the state constitution to limit pension and retiree benefit levels (although these limits could be overturned by a supermajority vote), and would apply to local government agencies as well as the state. Here are some of the details: The proposal is expected to produce cost savings of at least $500 billion (that's "billion" with a "B"!) over 30 years. The savings come largely from encouraging employees to work longer, which affords them greater income in the long run and reduces the amount of time (and costs) the government must pay for their post-retirement health benefits.

Adam Summers is Senior Policy Analyst

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