Lawmakers might undermine California’s landmark public pension reform

Thirteen years ago, a minor political miracle occurred in California’s Capitol.

A Democrat-dominated Legislature passed and a Democratic governor, Jerry Brown, signed a significant overhaul of state and local public employee pension systems.

It was a miracle because the reform was universally opposed by public employee unions, which were and still are the Capitol’s most potent political interests with long-standing ties to Democrats.

The overhaul, championed by Brown, made it into law because the state was then recovering from a very severe recession that had devastated government finances, and pension obligations — which had expanded sharply during the prior Gray Davis governorship — had become unsustainable burdens.

Mandatory pension payments into the California Public Employee Retirement System had been factors in the bankruptcies of two cities, and unfunded obligations for future benefits totaled many tens of billions of dollars.

The legislation capped benefits, increased retirement ages, blocked maneuvers that artificially increased some pensions, created a two-tier system that maintained benefits for current workers but limited them for future hires, and required workers to pay for at least half of pension costs.

“This is the biggest rollback to public pension benefits in the history of California pensions,” Brown said as he signed the bill. “We’re lowering benefits to what they were before I was governor the first time and reducing costs by up to $55 billion in PERS and billions more in other local pension systems. Under the new rules, employers and employees alike are going to contribute their fair share of the costs, resulting in a more sustainable system.”

Not surprisingly, some unions challenged aspects of the reform, particularly those outlawing pension-spiking maneuvers, but Brown fought back and won in the state Supreme Court. However the court refused to take a further step Brown sought, eliminating the “California rule” that prohibits reducing benefits for workers once they are enrolled in the system.

This bit of political history forms the background of new legislation that would, if passed by the Legislature and signed by Gov. Gavin Newsom, begin to undo what the 2012 reform wrought.

Assemblymember Catherine Stefani, a San Francisco Democrat, is carrying the legislation, Assembly Bill 569, which would repeal one of the major provisions of the reform banning local governments from enacting “supplemental retirement benefits” for their workers.

Stefani and the Teamsters Union, the measure’s sponsor, contend that Brown’s reform leaves workers without sufficient pension benefits to offset California’s notoriously high costs of living and makes it difficult for local governments to fill vacancies.

“It simply gives local governments and their employees another option at the bargaining table, one that might make the difference between losing or keeping a talented worker,” Stefani told the Assembly Public Employment and Retirement Committee last week.

The bill whipped through the committee on a 7-0 vote, including the committee’s two Republicans, Tom Lackey and Juan Alanis, both of whom are former police officers.

While the bill’s advocates say that it would merely be permissive, giving local governments the option to increase benefits, its practical effect would be to gut one of the reform’s most important safeguards. It would restore the ability of local government unions to put political pressure on city councils, county boards of supervisors and other local officials to expand benefits for the workers who have been hired since the reform was enacted, long a sore point for unions.

It’s amazing that such a major change in pension law would begin moving through the process without, so far, any opposition or even comment from the local governments that it would affect.