There’s no getting away from the pension issue these days or from the fact that the state’s pension system is on the brink of disaster unless pensions for state and local workers are pared back dramatically. The only people in denial these days are the Brown administration and the state’s legislative leaders, as their response to a prestigious government report makes clear.

The well-respected and non-partisan Little Hoover Commission drew some conclusions that even many pension reformers have been reluctant to make – namely, that pensions must be reduced for current employees. The state’s unfunded liabilities, or pension debt, is estimated as high as a half-trillion dollars. That is the amount taxpayers will owe to make good on pension for current retirees and employees. Most of the debate has centered on reducing formulas for new hires, but as Little Hoover explained, that won’t put a dent in the problem.

“The state and local governments need the authority to restructure future, unearned retirement benefits for their employees,” according to the report. “The Legislature should pass legislation giving this explicit authority to state and local government agencies. While this legislation may entail the courts having to revisit prior court decisions, failure to seek this authority will prevent the Legislature from having the tools it needs to address the magnitude of the pension shortfall facing state and local governments.”

In the private sector, when companies were forced to honestly account for their pension debt – they don’t have the luxury to hide it the way that governments do – they had to reduce benefits for current employees going forward. A worker is made whole up to today, but must accept a lower benefit starting tomorrow. In the government world, where union-owned politicians rather than businessmen make these deals, once a pension deal is struck there is no changing it for the life of that employee and that employee’s spouse. That’s the key reason taxpayers feel powerless as the pension situation pushes the state toward the cliff.

The report offered a dose of reality for a state government still in denial. Democratic leaders and union officials (is there a difference these days?) insist that the pension mess merely is the fault of a bad economy and they love to blame Wall Street. But Little Hoover explained it more accurately, comparing the situation to the housing boom and bust: “Treated like another speculative house during the boom, the state allowed public agencies and employees to pull equity in the form of increased retirement benefits from the pension funds whose value was inflated by optimistic market retirement estimates.”

The results, according to Little Hoover, are that “pension costs will crush government.” This certainly should get the attention of progressive Democrats who claim to care about public services, although the reality is that these Democrats believe that Californians are woefully under-taxed and that massive tax increases on business and “the wealthy” will fix things. Good luck with that.

This is a battle over the future of California, as communities spend more than a third of their budgets on pensions (plus even more for other retirement costs for public employees, such as health care), which means “an intensifying fight for diminishing resources from which government can pay for schools, police officers, libraries and health services.” And because public employees “appear to have little incentive to push for reforms,” they, too, will suffer, as they look at cutbacks in public services. Per the report, “A pension cannot grow without a job attached to it.” Maybe that reality eventually will get the unions’ attention.

Yet I’m convinced that the state’s public employee unions will take the state over the cliff rather than pare back their generous benefits. What happens when these pension costs push the state toward insolvency and the dominant political players refuse to give in? We might get to watch this unfold, and the result is unlikely to be pretty.

Little Hoover hit on the real problems: Governments are in the position of paying employees for more years in retirement than they worked thanks to the very low retirement ages creating, in essence, a shadow workforce that costs as much as the real workforce but doesn’t do any work! Police, fire and other public safety pensions must be addressed – California politicians cannot make a devil’s bargain and put the biggest part of the problem off the table, as did Wisconsin Gov. Scott Walker, who made a craven political calculation.

The report noted that the system lacks oversight and accountability. Shockingly, “As pension portfolios shrunk and tax revenues plunged, nearly 200 public agencies in CalPERS (California Public Employees’ Retirement System) continued to increase retirement benefits for current workers.” So much for the idea that elected officials will fix this problem at the bargaining table, as Democrats allege. Elected officials continued to run up debt on pension promises despite all the evidence of disaster, and most would do the same thing today if they could.

The report calls for uniformity in determining pensions as a way to stop the pension spiking that has agitated the public. It calls for a cap of $80,000 to $90,000 on the salary used to determine pensions, which is still too high, but a good idea. It calls for honest accounting. It calls for a hybrid model of retirement that combines defined benefits with a 401/k-style plan, and multiple other sensible ideas that reduce the abuses and the size of the pensions.

According to news reports, some Democrats attacked the commission and the governor’s office issued a meaningless statement: “The governor agrees that California faces serious challenges, which is why he rolled out a comprehensive framework to reform pensions during his campaign.” The unions certainly got a good deal when they spent record amounts electing this governor.

The truth is out there. As I’ve argued before, with the current leadership, matters must get far worse before we see serious action.

About the author: Steven Greenhut is the editor-in-chief of Cal Watchdog, an independent, Sacramento-based journalism venture providing original investigative reports and news stories covering California state government. Greenhut was deputy editor and columnist for The Orange County Register for 11 years. He is author of the new book, “Plunder! How Public Employee Unions are Raiding Treasuries, Controlling Our Lives and Bankrupting the Nation.”

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    8 Responses to Unions Ignore Pension Realities

    1. Tough Love says:

      Quoting … “That’s the key reason taxpayers feel powerless as the pension situation pushes the state toward the cliff.”

      The Taxpayers are “powerless” only up to the State border, and that’s what those citizens and businesses who can pay will do. They’ll simply move away.

      California will be left with working civil servants and welfare recipients. Even their retirees will move away to escape the ever-increasing tax burden.

      At some point (not in the distant future), the entire Plan will go “Prichard AL”.

    2. Skippingdog says:

      TL -

      In the past you’ve actually proposed coherent thoughts and potentially rational solutions to the pension funding challenges faced by California and other states. Now, you’re here suggesting that people and businesses will move out of the state rather than pay for their obligations? Where will they go? Texas has a proportionally greater public debt than California, as do most other states that actually have any people in them. Places like North Dakota may appear to be an improvement over your New Jersey home, but you’d be hard-pressed to convince any Californian of that.

      As a closer you wave the dinky bankrupt town of Prichard in the old south as an example of what you predict will happen to California and other large states? Please. At least keep your alarmist rants within the realm of rational discussion, as you have generally done previously, rather than go down the path of some of our more shrill co-posters on these threads.

    3. Skippingdog says:

      TL -

      In the past you\’ve actually proposed coherent thoughts and potentially rational solutions to the pension funding challenges faced by California and other states. Now, you\’re here suggesting that people and businesses will move out of the state rather than pay for their obligations? Where will they go? Texas has a proportionally greater public debt than California, as do most other states that actually have any people in them. Places like North Dakota may appear to be an improvement over your New Jersey home, but you\’d be hard-pressed to convince any Californian of that.

      As a closer you wave the dinky bankrupt town of Prichard in the old south as an example of what you predict will happen to California and other large states? Please. At least keep your alarmist rants within the realm of rational discussion, as you have generally done previously, rather than go down the path of some of our more shrill co-posters on these threads.

    4. Tough Love says:

      Skipping Dog,

      California seems hopeless because of the stranglehold the Unions have over the legislature. Add Gov. Brown into this mix, and it seems nothing OF SUBSTANCE will happen until you’ve rolled over the edge of that cliff.

      Since I understand the #s and know there are few alternatives to the Little Hoover Committee recommendations (especially and necessarily including future year pension accrual reductions for Current workers), to path to take is clear to me. What I’m not sure of is whether the Union leadership as well as it’s members understand the dire circumstances they are in or just don’t care, thinking “someone” (in their view like the Federal Gov’t) will make them hole, ala the GM AWU workers.

      With the Republicans controlling the House, public sentiment waning for Public Sector unions with their extravagant pensions & benefits, and the lack of support (for such a bailout) from more financially responsible States, I don’t think a bailout (without VERY painful conditions) is in the cards.

      If the stalemate In CA continues, and taxes get raised, wouldn’t YOU agree that a ramp-up of the exodus from CA will happen ? Sure lots of States have problems, but only a handful anywhere near that of CA.

      OK, the Prichard Al comment was bit much, but while a complete run to zero assets in CalPers is a long way off, a run down to an asset level equal to the contributions of current workers is not so far off. At THAT point, don’t you think THEY (those still working) will say enough-is-enough … and that CalPERS isn’t going to give THEIR contributions to current retirees leaving THEM with nothing AND a loss of their own contributions.

    5. Rex The Wonder Dog! says:

      Skippy, the gravy train ride is over, the Little Hoover Commission just said so !!!

    6. CSainte says:

      Tough Love

      2% of the General Fund goes to pensions.

      “the pension situation pushes the state toward the cliff.”

      Please explain this.

    7. Tough Love says:

      Charles, I don’t know whether your 2% is correct or not. What I know is that this % is based on what the State is “PAYING”, not what it “SHOULD BE” paying to fully fund the Plans over the working careers of Plan members.

      As an engineer you should understand the concept. It’s akin to paying for a Bridge over it useful lifetime, not still having a balance due after the bridge is long gone.

    8. Tough Love says:

      Charles, I don\’t know whether your 2% is correct or not. What I know is that this % is based on what the State is \"PAYING\", not what it \"SHOULD BE\" paying to fully fund the Plans over the working careers of Plan members.

      As an engineer you should understand the concept. It\’s akin to paying for a Bridge over it useful lifetime, not still having a balance due after the bridge is long gone.

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