LEGISLATIVE REPORT: PENSION LAW AND POLICY
By Michael Karsch
Wow, we have a new year and a new governor! Californians may see some changes in their state. One local newspaper (the Pasadena Star-News) editorialized that the new year should see three things: reduced barriers to housing development, pension reform, and the end of high-speed rail.
The editorial’s part on pension reform expressed hope for the State Supreme Court to reject the arguments of Cal Fire Local 2881 in that union’s challenge to pension reforms passed in 2012. It urged for reforms in pensions particularly for new employees to help sustain the pension system. As I have written earlier, the State Supreme Court appeared willing to consider the wisdom of the purchase of Air Time by workers seeking to boost their pensions.
Our new governor, Gavin Newsom, has left some indications of how he will approach government pension reform. The Sacramento Bee reported at the end of January that he has said he will protect public pensions, “…yet his record and some key appointments to his cabinet says he’s open to reducing benefits to government workers if money is scarce.” There are six union contracts at the state level that will be open for renewal in July, hence that is the deadline for signs to be made how he will deal with the possibilities. There is a surplus in the state budget ($10 billion), and the reserve funds are flush. Despite those good signs, at the local cities who use CalPERS for their employees’ pensions (the City of Los Angeles does not; we have our own pensions) are afraid of rising costs that CalPERS imposes on them to cover the liability of the pensions (CalPERS is only 70 percent funded). Hoped-for investment proceeds of 7 percent have been considerably lower, hence the need to make up the difference with higher costs of member cities. Gov. Newsom was formerly the mayor of San Francisco. In 2010 he supported an initiative to hike up his city’s workers’ contributions to their pension system. As a member of the UC Board of Regents in 2016, our governor voted for a 401(k) style of pension for new University of California workers. He has said, however, that he supports the California Rule.
Gov. Newsom’s new staffing shows some inclination for pension reform. He has kept an aide to Gov. Jerry Brown who helped rewrite the state pension reform bill in 2012, and she (Ana Metosantos) is his Cabinet Secretary. Another holdover from the Brown pension reform is Rei Onishi, who sought future benefit reductions. On the other hand, his cabinet includes Angie Wei, a veteran of the California Labor Federation.
There may be some dark clouds of the future ability of the state to continue to have revenue surpluses. The current surplus is due mostly to the personal income tax, according to a mid-January report by the California Policy Center. The income tax is the biggest of the state’s income sources. But much of this could be vulnerable as the wealthy cash out their bonuses and houses to move elsewhere. How long can the wealthy continue to make killings in capital gains when selling stock and real estate? The Policy Center notes that the total government debt in California is more than $1.5 trillion, of which $846 billion is in the form of unfunded pension liabilities.