Last year, Gov. Jerry Brown proposed a 12-point plan to reform public pensions at both the state and local level. Republican legislators backed the changes early on and introduced them in legislation, but Democrats continue to negotiate with the governor.
They’ve got until the end of August to finish the job. Reaching a compromise on public pensions won’t be easy, but there’s extra incentive this year to get it done.
A rollback of public employee pensions would help Brown convince Californians to make a sacrifice of their own. He’s asking voters to approve a temporary tax hike in November.
Proposition 30’s 0.25 percent sales tax increase and additional income tax on higher-earners would generate billions for schools and public safety over seven years.
At a kickoff event for his tax initiative this week, Brown refused to say much about the pension reform negotiations.
“I hope to do as much as I can … and you’ll find out probably in the next week or so, how far we got,” he said. “The bottom line is, whatever we can get, we’ll get.”
Brown wants existing employees to contribute at least half the cost of their retirement. Most state employees currently pay 8 percent.
He also wants to raise the retirement age for future employees and perhaps shift them into a “hybrid” pension plan, part of it guaranteed by the employer (known as a “defined benefit”), and part 401(k), where the payout depends on how well investments perform.
The Department of Finance estimates doing that could save the state between $4-$11B over 30 years.
That’s a lot riskier for workers. Senate President pro Tem Darrell Steinberg wants to make sure whatever deal they reach won’t compromise people’s retirement security.
“Part of what we’re trying to fight for and maintain here is a robust defined benefit pension plan," he said. "That’s what we’re trying to do here. I believe in that.”
Steinberg said he agrees with most of the governor’s reforms in principle, but making them work in practice is the hard part. Brown wants the bulk of pension reform to apply to local governments, school and water districts and other public employers. The idea is that state-mandated reform would give local officials some insulation from political pressures, but they could also lose some control.
Steinberg said there are a lot of questions to resolve still.
“Whether or not you have a hybrid, the extent to which all of these changes apply to local governments, what parts and what is left to collective bargaining at the local level,” he said.
The governor’s plan to increase retirement ages is also a point of fierce debate — how much and for which workers.
"Raising the retirement age, that is the single biggest thing we can do to work down the pension exposure under the current laws,” said Stuart Drown with the Little Hoover Commission.
Higher retirement ages get people to work longer, so they put more into their pensions, and working longer means people will be retired for a shorter period of time.
Drown’s agency researches and recommends ways to improve government. Two years ago the commission recommended a number of the pension changes now being hashed out in closed-door meetings between the administration, Democrats and labor representatives.
Drown thinks this could be the month when some of those changes become law. It’s now or never, he said.
“This is the most teed up it’s ever been," he said. "There are so many things leaning on this.”
Any final deal will have to be in print by Aug. 28 to give lawmakers a couple of days to read the details before they vote on the changes.