Years ago, when my family went to a popular Mexican restaurant, my young son started reaching for a raw habanero pepper. I told him not to put it in his mouthbut, in a typical act of offspring defiance, he started chewing on it. Suffice it to say, he never did that again.
If an 8-year-old can learn from his mistakes, why can’t legislators? Two bills relating to public employee pension benefits illustrate the point.
In the 1990s, on the heels of winning the Cold War and so-called “peace dividend,” the economy was roaring. The California Public Employees’ Retirement System was fully funded (in fact, they had more money than they needed) as the stock market, fueled by what we now know was the dot.com bubble, hit new all-time highs.
As a result, elected officials with the backing of public sector labor organizations, believed they could increase benefits with few negative consequences. The ever-rising stock market would cover the difference. Then the bubble burst. First in 2001. Then the bottom fell out in 2008.
CalPERS, no longer floating in cash, suddenly found itself only able to cover about 70 percent of its obligations. The state, cities, counties and special districts who had made absurd deals with their employees now faced declining tax revenue and increasing unfunded pension liabilities.
This exposed the inherent problem with defined benefit pension plans. The deals that the state made with public-sector labor unions were irreversible, even though the promise was made under the assumption that the market’s upward trajectory would go on forever.
When reality kicked in, services were cut and tax increases were placed on the ballot. A few cities went bankrupt, others considered disincorporating altogether. Then came the Public Employees’ Pension Reform Act (PEPRA), signed by Gov. Jerry Brown. It capped benefits, raised retirement ages, prohibited retroactive increases and tried to put an end to other shenanigans like “pension spiking” that allowed employees to game the system to pad their retirement pay.
The reforms were extremely modest, and necessary to stave off insolvency. But even then, our state and local pension systems remain underfunded. “In 2004, the gap between what California’s retirement systems owed workers and how much money they actually had was $51 billion. In 2013, when PEPRA passed, it was $198.3 billion,” according to a recent report in the Orange County Register. “In 2023, it had ballooned to $351.7 billion” even with PEPRA.
And the benefits remain excellent.
“Many public safety employees under PEPRA are eligible to retire at age 57 with 2.7% of their pay for each year worked. That means a firefighter earning $150,000 a year could retire after 30 years of service with a retirement check equal to about 80% of his pay,” the Register notes. “That’s about $120,000 a year, for the rest of his life.”
That’s what makes Assembly Bills 569 and 1383 so perplexing. AB 569 would allow cities to offer “supplemental” retirement plans. AB 1383 would lower the retirement age to 55 and increase the percentage of pay to 3 percent, or 90% of their final average salary.
It would be reckless to undo PEPRA’s positive, albeit modest, reforms but both bills somehow made it out of the Assembly’s Public Employment and Retirement committee with unanimous support (including by the two Republican members).
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Why teachers should ally with Trump to dismantle DEI State lawmakers are pushing unnecessary public pension bills that would increase taxpayers’ costs and debt You can ride in an autonomous vehicle. One bill says your lunch can’t. Darrell Issa: Rogue rulings are a credibility crisis for our courts When California politicians ignore policy risks, failure and scandal often result Does no one in the legislature remember what it was like before PEPRA? At least the cities, counties and special districts remember. They are all opposing AB 1383. They noted in their opposition that CalPERS recently lost $15 billion because of market volatility and that local agencies will have to pay the differenceif they miss their investment targets.“[This bill] would compound costs for local governments and do nothing to offset the costs,” they wrote.Local governments, in no uncertain terms, are advising that the Legislature pass on taking a second bite. The question is whether they will listen. If they don’t, it’s taxpayers who’ll be left with a bad taste in their mouths.
Jon Coupal is president of the Howard Jarvis Taxpayers Association.
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