PUBLIC-PENSION COSTS DECIMATE BUDGETS POLL SHOWS 7 IN 10 VOTERS CALL PLANS A PROBLEM FOR STATE, LOCAL GOVERNMENT.

Byline: Keith Richman 

IN recent months, Californians have learned what fiscally responsible leaders have known for years - public-employee-pension costs are devastating government budgets throughout California, threatening priorities such as education, transportation, public safety and health care.

Recently the respected Public Policy Institute of California released a poll showing seven in 10 voters believe public pensions are a problem for state and local governments. If special interests kill pension modernization in the Legislature, California voters will need to restore fiscal responsibility and government accountability.

The cost of state defined-benefit retirement plans has risen from $160 million in 2000 to $2.6 billion this year, heading to an estimated $3.5 billion in 2009. These unsustainable increases are more than this year's budget diversions from local governments and state highway funding combined.

At the same time, the state's two major pension funds, CalPERS and CalSTRS, each has a deficit exceeding $20 billion and the state is floating a $900 million pension obligation bond to help cover its debts. These huge deficits were caused by greatly enhanced benefits, fiscal mismanagement and falling investment values.

Large pension debts also affect local budgets and services. Los Angeles County's pension system faces a $4 billion deficit; having on hand only 87 percent of money needed to make future pension payments. In addition, Los Angeles County taxpayers face decades of payments on $2.3 billion in pension obligation bonds. Indeed, the more than $336 million a year in debt service could otherwise be used to reduce congestion, enhance public safety and support the county's public health system. Many cities and counties throughout the state are making similar trade-offs as they struggle to pay for current pension costs and pension bonds.

Fortunately, a fiscally responsible solution to unsustainable pension costs is familiar to most Californians. We must modernize our public employee retirement plans by adopting the defined contribution 401(k)-type programs currently used by most private employers and many public agencies. This well-proven approach will help eliminate deficits, lower costs and improve budget predictability. I have introduced a constitutional amendment to close the current public-employee defined-benefit programs to new employees starting July 1, 2007.

With required contribution amounts determined by stock market returns, benefit levels and life expectancy, it is hard to predict how much money will be needed to fund the current defined benefits programs. By their very design, the more predictable defined contribution 401(k)-type plans are always in balance, eliminating huge obligations for future budgets and taxpayers to cover.

Under my proposal, each unit of government would design its own benefits package within constitutional limits set at levels comparable to those found in the private sector. They could work with either public or private investment managers to offer plans that maximize returns, reduce risk and help employees avoid common mistakes that undermine retirement goals. Separate disability and survivor benefits, currently a part of most defined-benefit plans, would need to be included in all public employee collective bargaining agreements.

The recent PPIC survey showed California voters support pension modernization by a hefty 64-26 percentage margin. Sadly, the special interests respond to a common-sense solution and broad public support with their typical scare-mongering campaign designed to maintain the failing status quo.

Newspapers and political leaders have been flooded with letters, columns and quotes spreading misinformation from calculating political operatives and their dupes. This important reform deserves a truthful debate and serious legislative deliberation. In the nearly three months since I introduced the legislation, neither has emerged and time is running short.

Until then, two facts must be clearly understood - proponents of pension modernization value public employees' service, and commitments to retirees and current employees will always be honored. As a matter of fairness and law, any changes will apply only to new employees.

Should this shameful special-interest campaign block legislative action on a responsible solution, I will join Gov. Arnold Schwarzenegger and the Howard Jarvis Taxpayers Association in a direct appeal to voters. Sadly, given the special-interest-dominated Legislature's dismal record on fiscal responsibility and government accountability, taxpayers will probably need to protect themselves once again.