By Peter Henderson
SAN FRANCISCO, June 8 California's Democratic
Governor Jerry Brown heard a clarion call for his party to take
on state pensions in the overwhelming passage of retirement
reforms by the second and third biggest cities in the state, San
Diego and San Jose.
The message did not resonate as strongly in the statehouse
where fellow Democrats rule, though.
In California, a reliably blue state, the pensions issue is
set to trigger a fundamental struggle within the Democratic
Party over what needs to be done and how fast - a struggle that
could have national implications as some other states have worse
pension funding problems.
The result may be that voters have to force any changes they
want through the state's initiative process.
The liberal capital of the Silicon Valley, San Jose, voted
on Tuesday to force employees, including police and
firefighters, to pay sharply more for retirement or see a sharp
drop in benefits.
More conservative San Diego by a similar margin passed a
measure to put new employees on a 401(k)-style plan in which the
city guarantees how much it will contribute to retirement plans,
not how much retirees will get.
Brown, a restless and unpredictable politician with an
independent streak, took the vote as a sign the state was ready
to jump on his 12-point plan to narrow a pension shortfall
estimated to be as high as half a trillion dollars in a state
that has struggled in recent years to close budget deficits.
He would put new state employees on a plan that forces them
to shoulder some financial market risk, raise the retirement age
- to 67 from as little as 55 for many employees - and raise the
financial experience of state retirement boards, among other
"The pension vote in San Jose, which is a more liberal city
than the state as a whole, is a very powerful signal that
pension reform is an imperative. It's really important," Brown
said in a San Francisco Chronicle video interview.
"Right now, I want to lock this budget down. But people
should have confidence that pensions and their reform are on the
agenda, right at the top."
At least part of Brown's plan would need a statewide vote,
however, and the governor has only three weeks to convince the
legislature to put a measure on the November ballot - the
deadline is June 28.
"I think there's a pretty strong case to be made for the
need for the people to speak on this," said Marty Morgenstern,
secretary of the Labor and Workforce Development Agency, which
oversees state labor relations. The budget must be passed first,
he said, but "I wouldn't rule out going to the voters through
the legislature. ... It would have to be real quick."
DODGING AN EARTHQUAKE
California's Democratic legislators indicated they did not
feel an earthquake coming from San Jose, though, and they are
working on a different schedule than Brown.
While Brown emphasizes reform, other Democrats focus on
eliminating tricks used to boost pensions - such as working more
overtime to boost income in years when future benefits are
assessed - and say taxpayer savings must be balanced with
ensuring a fair retirement.
"It doesn't change a thing for me. My opinion is the same.
We know we need to get pension reform done before the end of the
legislative session and we will get it done," the head of the
state senate, Senate President pro Tem Darrell Steinberg, said
in an email statement from his spokesman.
Legislators are discussing a law, not a ballot measure for
voter approval, said Warren Furutani, an assembly member who
co-heads a joint committee that will craft pension legislation
and send it directly to the floors of both houses before the
current session ends in August.
He said he had not come to a decision on whether to accept
the governor's "hybrid" plan to share market risk with retirees,
and said there was a lot left to do, such as taking care of
workers not covered by federal Social Security because of their
state government jobs.
Brown is also pushing a temporary tax package that will go
before voters in November, and he has argued that his party,
which backs the plan, can improve its credibility with voters by
moving on pension reform.
That does not fly with all his allies.
"My instincts tell me that it would not be a major boost,"
responded Dave Low, chair of the union coalition Californians
for Retirement Security. Key proposals by the governor to raise
the retirement age to 67 and introduce the hybrid plan are
problematic, he said. And while citizen interest in pension
reform has risen, it's still relatively low, he said.
Between the budget and competing issues, there might not be
time for pensions. "The thing with Sacramento is there are a lot
of urgent issues," he said in reference to the state capital.
The ultimate response by Brown could be to go straight to
the people with a pension initiative, following the path he's
taken this year with a tax ballot measure that avoids the
legislature. Low argues that the economy may have improved
enough by the time of the next election that pensions will not
be as pressing an issue.
Backing a ballot measure in those circumstances would be a
waste of time, he said: "I don't see why somebody would want to
pour money into that rat hole."
San Jose Mayor Chuck Reed, a Democrat, does not expect his
party to act. "I personally think they will not do anything.
This will happen by statewide ballot initiative," he said.
Pension shortfalls are huge, but they only capture the
attention of voters when costs start to hobble their government.
The state's annual payments are growing from a reasonably small
base, but in San Jose, a quarter of the budget now goes to
Democrats and Republicans alike could not ignore that, Reed
said. "In San Jose it was impossible to convince people that
this was not a problem," he said.