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Our View: CA pension reform shows promise

Posted: September 9, 2012 2:00 a.m.
Updated: September 9, 2012 2:00 a.m.

We are encouraged by a recent agreement between Gov. Jerry Brown and the state Legislature over government employee pension reforms that are slated to take effect Jan. 1. Although the governor did not get some of the important features in his original 12-point proposal there is general bipartisan consensus that the current agreement is a “step in the right direction.”

Missing from the agreement were significant features like dealing with rising retiree health care costs, developing a smaller pension plan that would include a 401(k) component and Social Security benefits and requiring a provision to include independent members who have professional financial expertise overseeing the state’s primary pension fund.

The pension reform agreement would place a cap on pensionable salaries, increase the retirement age and increase the annual contributions government employees make each year to their pension funds to 50 percent. The agreement also takes aim at several pension abuses including “spiking” that increase pension payments.

The governor is seen as doing a delicate balancing act on pension reform because he needs the support of government employee unions for the passage of the Proposition 30 tax increase measure. The public employee unions in California have become very powerful political forces in Sacramento and spend significant amounts of money lobbying for their interests. They are opposing these reforms. But promoting what is in the general public good in difficult times and against formidable adversaries is what leaders are supposed to do.

We embrace the importance of unions in the private sector. They have played an important and valuable role in the marketplace. We are less high on the broader value of public employee unions.

Work performed by employees in the private sector has an economic value in the marketplace. When employees are notably not well compensated, companies feel the wrath of union organizing and pushback. When union or non-union workers are overcompensated against the market value of their work they can succumb to competitive market forces and be priced out of their jobs. A union electrician will make more money than a union service worker because the economic value of the work in the marketplace is different — not because one or the other is working harder or in some other way more deserving.

The value of work performed by public sector workers and unions is less about its marketplace or real value and more about its political value. The issue is not about the importance of their contributions but how to determine the economic value of them. Further, we are not talking about the cost of their contributions when they are working but rather about the cost to the taxpayer when they are no longer working.

Today more than half of all union members in the nation are government employees and the level of their politician-approved pensions and benefits is stressing government and taxpayers at all levels. As government budgets come under more and more scrutiny, taxpayers and private sector workers have become more aware of the sometime astonishing differences between public and private sector benefits. States like Wisconsin and others have moved to trim the differences and temper the organizations that produce them.

Currently California public employee pensions and benefits are under-funded by hundreds of billions of dollars. Public employee pension fund performance is down significantly and a general resistance to more taxes is prevalent.

There will be a day of reckoning involving the deficits caused by all of this and a staggering tax bill. While we appreciate the initial attempts at pension reform this should only be the beginning. The governor’s plan will help with future costs and deficits, but it has little impact on the current one. No matter how difficult reform is, the consequences of not doing it are more severe.


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