August 16, 2010 / 8:43 PM / in 7 years

Ex-governor says California must reform pensions

LOS ANGELES (Reuters) - Former California Governor Gray Davis, who was ousted by Arnold Schwarzenegger in 2003 and often blamed for ballooning state worker pay and benefits, believes getting public pensions under control will be the biggest challenge facing the next governor.

Davis, who now advises Schwarzenegger informally and backs fellow Democrat Jerry Brown over Republican Meg Whitman in the 2010 governor’s race, said California must also impose a spending cap and “rainy-day fund” to get back into the black and improve its credit rating.

“That’s the biggest challenge for the next governor, to help the public understand that we have to live within our means,” Davis said in an interview.

“I liken it to going to a restaurant where there’s an all-you-can-eat special. Everything on the menu looks great but if you eat everything you’ll die,” Davis said.

He was turned out of office 10 months into his second term in a recall election that vaulted Schwarzenegger to power.

Schwarzenegger, a Republican, and the Democrat-controlled state legislature must close a $19 billion budget gap, much of it tied up in state worker salaries and pensions that have exploded in recent years.

California now pays $6.4 billion a year into its state employee pension system and will be paying $104 billion per year within the next decade, according to Schwarzenegger.

The Stanford Institute for Economic Policy Research estimates that three big public pension funds face a shortfall of more than half a trillion dollars over the next 16 years.

Passing a state budget has become an epic annual struggle, with Democrats short of the super-majority they need to approve budgets and tax increases without support from Republicans.

Democrats have resisted cutting government payrolls and pensions, while Republicans have dug in against tax hikes. And because many state election districts have been deliberately drawn to be “safe” for one party or the other, legislators have little motivation to compromise.

“If you’re a Democrat and you’re asked to cut spending on schools, health care and the environment, and if you do that in a significant way, you’ll get a very well-funded primary opponent (in the next election cycle),” Davis said, adding that Republicans who vote for tax increases face the same fate.

‘THE MATH WAS WRONG’

Davis said a reform passed by voters in 2008 that puts redistricting in the hands of an independent body, along with a change to an open primary system, will be crucial to ending gridlock in Sacramento, the state capital.

“It has just slowly disintegrated to the point where essentially (the legislature) can’t deal with the big, challenging issues and that’s not right,” he said.

“With ... the open primary and redistricting reform, at least 20 percent of the legislature will have its interests properly aligned and they will be punished (by voters) if they don’t solve big problems,” he said. “Right now the legislature is punished if they do solve big problems. But help is on the way for the next governor.”

Though Davis is often vilified for handing out pay raises and generous pensions to state workers, he says revenues were booming in California at the time.

“The evidence seemed to suggest the state was wealthy enough to afford it,” he said. “It was part ideology and part math and the point is the math was wrong big time.”

But during the current situation, where a deep recession has been followed by a slow, sickly economic recovery, Davis said it was time to scale back.

“Pension reform is essential. You just can’t afford the benefits that have been promised because all the actuarial studies turned out to be wildly optimistic,” he said. “We have no choice now and if I was governor I would be doing exactly what Arnold is trying to do, which is require people to contribute more to their pensions.”

“Pension reform is going to occur because people understand that elected officials and state employees cannot live demonstrably better than the rest of California.”

Davis, who was Jerry Brown’s chief of staff when Brown was governor from 1975 to 1983, says his ex-boss will best grapple with California’s out-of-control pensions and budget woes.

He dismissed complaints by some that Brown, who is at a severe fund-raising disadvantage to the billionaire Whitman, a former eBay CEO, had gotten off to a slow start in the race.

“Jerry knows as much about politics as anyone alive, so despite all the nervousness by the Democratic activists, 80 percent of the public is not going to tune in until after Labor Day,” Davis said.

Editing by Alan Elsner

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