Analysis: California's Brown sidelines budget, eyes pensions

SAN FRANCISCO Fri Apr 1, 2011 4:23pm EDT

California Governor Jerry Brown introduces his budget proposal in Sacramento, California January 10, 2011. REUTERS/Max Whittaker

California Governor Jerry Brown introduces his budget proposal in Sacramento, California January 10, 2011.

Credit: Reuters/Max Whittaker

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SAN FRANCISCO (Reuters) - California Governor Jerry Brown is nearly halfway to closing a state budget gap of nearly $27 billion, but the state's partisan divide has derailed his original plan for plugging the remainder of the shortfall and it's not clear what will take its place.

An answer may, however, start with taking on public pensions as the 72-year-old Democrat, now looking to a May deadline for a revised budget plan, tries to tackle an issue that was a stumbling block in budget talks with Republican lawmakers and has become a serious concern among voters.

What is clear is that critical budget talks between Brown and Republicans are off until further notice and voters will not be going to the polls in June to take up a measure he had been urging that would have extended temporary income tax increases due to expire this year.

He called a halt to talks on Tuesday, blaming Republicans for driving them into a ditch with demands that would "materially undermine any semblance of a balanced budget."

State Senate Republican Leader Bob Dutton shot back on Thursday, saying hard feelings had poisoned talks.

Dutton said that at one point he had been called into the governor's office, where "I was yelled at more than I was talked to, and mostly by Mrs. Brown, not even Governor Brown."

The result is that Brown's plan to fill about half the $27 billion budget hole with tax extensions to be voted on by voters in a special June election will not get the needed support of a handful of Republicans.

"The June ballot is dead," said Larry Gerston, a political scientist at San Jose State University. "They've run out of time."

PENSION CHANGES

Brown on Thursday released a plan aimed at making changes to public pensions. Some of its elements would tackle provisions that critics, notably Republicans in the legislature, say fuel unsustainable retirement expenses.

A statement from Brown's office said he is also developing proposals for a cap on pension benefits and for "hybrid" retirement plans that are part traditional pension and part defined-contribution plans similar to private-sector 401(k)s.

Both are ideas Republicans have suggested and that a former Republican lawmaker and a former aide to Brown's Republican predecessor, Arnold Schwarzenegger, are considering putting to voters in ballot initiatives.

"Brown intends to introduce these pension reforms with or without Republican support," the statement said, clearly trying to portray Brown as on top of an issue nationally associated with Republicans, following their battles with public employees in Wisconsin and other states.

It could also be Brown's way of extending an olive branch to Republican lawmakers, who enjoy a strong hand on public pensions, said Gerston: "He's showing his hand to Republicans and saying 'What will you will give me?'"

By explicitly embracing the pension issue, Brown could regain control of the broader state budget debate with a topic resonating with voters. They are seeing public services cut as local officials scramble to pay for rising retirement costs of government employees covered by local pension funds or through the California Public Employees' Retirement System.

Costa Mesa, California, for instance, garnered national attention last month when a city worker committed suicide after learning he might be sacked in mass lay-offs. Costa Mesa officials had decided to nearly halve the city's work force to free up funds for pension costs. These run about $15 million in a $93 million budget and may reach $25 million over the next five years, said City Councilman Jim Righeimer.

Survey results released recently by the Public Policy Institute of California showed 57 percent of likely voters saying public pensions should be reined in to help balance the state budget. By contrast, 46 percent of likely voters favor a tax measure, down 8 percentage points from January.

"The public seems to have become increasingly aware that the 800-pound gorilla in the budget debate is the cost of public employee pensions," said Steven Frates, research director at the Davenport Institute at Pepperdine University's School of Public Policy.

(Editing by Eric Walsh)

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