Top California lawmaker sees pension reform deal Tuesday

SACRAMENTO, California Mon Aug 27, 2012 7:45pm EDT

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SACRAMENTO, California (Reuters) - Democrats who control California's legislature aim to hammer out a pension overhaul deal by Tuesday, improving the odds for voter approval of Governor Jerry Brown's November tax measure.

State Senate President Darrell Steinberg told reporters in the state capital Sacramento that a committee of lawmakers would vote on Tuesday on a package of bills based on Brown's pension proposals.

Lawmakers end this year's session on Friday and Brown, a Democrat, wants to show voters the state's leaders are intent on curbing retirement expenses. That would raise government credibility -- and chances for a temporary tax hike he is pushing, Brown and his allies believe.

Pension costs have become a major concern for voters in California and across the nation. California cities Stockton and San Bernardino recently filed for bankruptcy protection from their creditors, and both had substantial pension burdens.

"I'm confident there will be a deal tomorrow," Steinberg said. The state Assembly and Senate will not be able to amend the conference committee deal, and he predicted Democrats with majorities in both houses would approve it on Friday.

Democratic legislators have been cool to some of Brown's key proposals such as higher retirement ages, increased pension contributions by employees and "hybrid" pensions combining features of traditional pensions and 401(k)-style accounts.

Hybrid plans will not be included in the package the legislative committee will vote on, but a cap on salaries used to determine pension payments will be in the bill, Steinberg said.

Steinberg did not mention changing retirement age, but he did suggest there would be a step toward Brown's proposal that employees share equally in pension contribution costs now shouldered mostly by employers.

"It deals with formulas, it deals with mandatory contributions -- additional contributions -- by current employees, it deals with all of the abuse issues, it deals with more of a wide range of issues that have been discussed and debated for some time," Steinberg said.

"There are going to be some people - people in organized labor, frankly - that are not going to be thrilled with it," he added.

A spokesman for Brown declined to comment on ongoing talks between the governor's office and lawmakers.

Taxpayers without pensions are increasingly cranky about having to support government employees in retirement, said Bob Stern, past president of the Center for the Governmental Studies: "There is a bit of pension envy."

Brown last year rolled out his plan to overhaul pensions for government workers in the most populous U.S. state, a move that made many Democratic lawmakers allied with public employee unions nervous.

CONVINCING VOTERS

Overhauling pensions would give Brown a major selling point for his tax measure, said Dan Schnur, director of the Unruh Institute of Politics at the University of Southern California.

"It's his single best chance between now and November to convince voters the state government can be trusted with their dollars," Schnur said. Polls show the measure ahead, but support is expected to wane by election day.

The state budget Brown signed in June closed a $15.7 billion deficit in part based on assumed revenue from voters approving his ballot measure. If voters reject it, California will need to cut more spending, including more than $5 billion from popular education programs, to keep its books balanced.

Brown's tax measure would increase the state sales tax to 7.5 percent from 7.25 percent for four years and raise income taxes on Californians making more than $250,000 a year for seven years.

(Reporting By Suzanne Hurt in Sacramento, California; Writing by Jim Christie; Editing by Peter Henderson and Cynthia Osterman)

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