The Public Policy

Jerry Brown Starts to Get It Right

Finally he's proposed a public pension reform plan that goes in the right direction. 

By 11.11.11

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When he was elected California's oldest governor last November, Jerry Brown wasn't the same man as "Governor Moonbeam," the state's youngest governor (1975-83). In the meanwhile he'd spent time in a Zen monastery, run for president, and served as state attorney general and, most importantly, as an effective mayor of Oakland where he had to deal with the reality of everyday problems.

More than a few longtime Brown watchers among Republicans thought he might be the only person who, as governor, could get the state's largest special interest, the public employee unions, to swallow hard and accept reform of the state's deficit-laden pension system.

For most of the year he has tacked a little left, then a little right to get things done. Now, he has finally proposed a public pension reform plan that definitely goes in the right direction -- if only he can sell it to a legislature top-heavy with Democrats. Many of these Democrats are indebted to the lobbyists of the public employee unions. Brown, of course, knows this.

Some of the features in Brown's 12-point plan are these: 

Increasing the retirement age from 55 to 67 (with a lower age to be spelled out for public safety workers).

• Replacing the current "defined benefit" pensions with a hybrid program that includes a defined benefit component, but also a 401(k)-like defined contribution component to which the employee would pay. This would have the effect of reducing the creation of unfunded liabilities.

• Prohibiting retroactive pension increases.

• Ending "spiking" in which an employee's salary is inflated in his/her final years in order to swell the size of the pension.

• Requiring all employees to contribute at least 50 percent of the cost of their pensions (they now pay nothing).

Unaccountably, the Brown plan omits any reference to the separate California State Teachers Retirement System (CalSTRS), which has its own $56 billion unfunded liability. It will soon be rattling a tin cup in the capitol for a handout which, by law, must be approved by both the legislature and governor. 

Democratic legislators gave the introduction of Brown's plan a tepid response, which was warmer than the wary one given by the public employee unions. They argue, as they long have done, that collective bargaining is the right way to deal with such matters. Translation: stand pat. 

The state's nonpartisan Legislative Analyst's Office, on the other hand, praised the Brown plan, especially the 401(k)-style savings plan and the rise in the retirement age.

What are Brown's chances with the legislature? The plan will get its first review by a legislative committee on December 1. A relatively small issue such as prevention of "spiking" might pass, but resistance will be very strong against making other features apply to current employees. Chances are better for some of the more sweeping changes to apply only to new hires. Yet, if the reforms only affect new employees, it will take years for substantial savings to be felt, while the shortfall is here now -- $500 billion worth.

Brown is no stranger to maneuvering. He has raised the suggestion of asking the legislature to put on the November 2012 ballot a referendum to provide new rules for the 3,000-plus public pension plans in the state. In other words, let the people decide. To make this happen, he would need a two-thirds vote of the legislature. 

Meanwhile, two groups of Republican activists are considering ballot initiatives to make more sweeping reforms than Brown has proposed. The very threat of a successful signature-gathering campaign resulting in a citizens' initiative may be enough to scare the legislature into accepting much of Brown's plan or, alternatively, his referendum idea. The unions remember Proposition 13 in 1978 and how it upended the state's property taxing, If there is anything they fear it is the possibility of a citizen initiative qualifying for the ballot and being voted on by millions of voters sick of deficits, recessions, and overly generous public employee pensions.

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About the Author
Peter Hannaford was closely associated with the late President Reagan for a number of years. He is a member of the board of the Committee on the Present Danger. His latest book is “Presidential Retreats.”