CARSON — Economically battered California has promised government retirees billions of dollars in future benefits that it might not be able to pay, and legislators Wednesday kicked off a new round of talks to contain rising pension costs that are causing havoc across the state.
The discussions got under way as Gov. Jerry Brown finalized details of a retooled proposal to stabilize public pension systems, after earlier negotiations stalled in Sacramento gridlock.
The recession pummeled government pension funds, whose investments tumbled in value with the stock market and real estate prices. In March, the California State Teachers’ Retirement System reported that it had 71 percent of the assets needed to cover long-term retirement costs for its 852,000 members and family members, with an estimated shortfall of $56 billion.
At a hearing in Carson, near Los Angeles, Santa Monica City Manager Rod Gould told a Senate-Assembly panel that pension costs are eating into municipal budgets and projections that the trend will continue “are turning out to be true.”
As costs accumulate, cities and counties “will have to further reduce services and staffing,” warned Gould, speaking on behalf of the League of California Cities.
In a letter to legislative leaders Tuesday, Brown said the state needs pension systems that are “truly sustainable over the long-time horizon.”
Brown was expected to again propose changes to public employee pensions that would increase the retirement age for new employees, eliminate so-called pension “spiking,” which allows employees to boost their payouts before retirement by including overtime and other benefits, and end the practice of buying “airtime” or additional service credits.
Brown proposed changes to the system last spring, including caps on pension pay, but his plan stalled during budget negotiations with legislative Republicans who wanted more sweeping changes, including putting permanent reforms on the ballot and asking employees to contribute more of their health and pension costs.
Estimates for the gap between what is owed to current and future public retirees, and what will be available to pay them, have varied widely with the fluctuating economy.
A report last year by the Stanford Institute for Economic Policy Research said that retirement funds for 2.6 million California teachers, state workers and university employees together faced long-term gaps of over $500 billion. The California Public Employees’ Retirement System has $75 billion in unfunded future pension liabilities, and the state is on the hook for an estimated $51.8 billion in unfunded retiree health care costs.
Union representatives warned the panel that cutting too deeply into pensions could lead to talent drain. Faced with financial pressures, many unions around the state have started paying more into pension and benefit funds, including in Los Angeles, the nation’s second-largest city.
Generous retirement benefits approved years ago have come under scrutiny, as have rules that allow many workers to begin taking retirement pay years before they become senior citizens.
Union officials said a typical state worker earns an annual pension of about $31,000, but benefits can vary widely. A highway patrolman with 28 years of service can take home a pension of over $90,000, said David Lamoureux, a deputy chief actuary with the state Public Employees’ Retirement System. According to one tally cited by Republicans, more than 9,000 state employees are receiving six-figure pensions.
It appeared there was wide agreement that the practice of pension “spiking” — boosting a final year’s salary with overtime to increase retirement payments — should be banned. Capping payments is also being considered, but it wasn’t clear at what level.
“I just hope that we don’t overreact and go too far,” said Aaron Read, representing state firefighters and the California Association of Highway Patrolmen.