December 29, 2006

Governor creates pension task force

California Gov. Arnold Schwarzenegger signs an order creating the Public Employee Post-Employment Benefits Commission in his hospital room in Santa Monica on Thursday.

Keith Matheny
The Desert Sun
December 29, 2006

As President Bush did with the Iraq Study Group, Gov. Arnold Schwarzenegger is turning to a new assembly of minds for new ideas to address a worsening problem.

The new group's task: find solutions for California's fast-growing, budget-sapping public employee retirement benefit costs.

The new commission Schwarzenegger created will have six members appointed by the governor; three by the Assembly speaker and three by the president pro tem of the state Senate. The Democrats control both the Assembly and Senate. State Sen. Jim Battin, R-La Quinta, applauded the governor's move.

"You've got to sit down and have a realistic conversation," he said. "We cannot continue to operate the way we are. It will eventually bankrupt the state."

The group is to provide to the governor and Legislature by Jan. 1, 2008, a report that:

Identifies the full amount of unfunded post-retirement health care and dental benefits for which California governments are liable. It's estimated at $40 billion to $70 billion;

Evaluate and compare various approaches to address governments' unfunded retiree health care and pension obligations;

Propose a plan for addressing the unfunded obligations.

State Sen. Denise Moreno Ducheny, D-San Diego, the incoming chairwoman of the Senate Budget Committee, is cautiously optimistic about what may come from the new commission.

"I always get a little nervous when we're forming another commission," she said.

But employee pensions and retiree health care, she said, "is an issue we really need to look at.

"If we get good people and they hear good information, hopefully they will come up with something that they can present to us in the Legislature that we can use intelligently."

Costs dramatically rise
California state employees' pensions went from costing $160 million annually in 2001 to $2.6 billion this year. Unfunded pension liabilities for the California Public Employee Retirement Service, or CalPERS, and the California State Teachers Retirement Service, or CalSTRS, are at $49 billion.

A new accounting rule going into effect next year will require governments to more fully disclose their long-term retiree health care obligations. A state Legislative Analyst's Office report from February estimates that will reveal an unfunded liability of between $40 billion and $70 billion for state workers and their dependants.

The report recommends that the state set aside $6 billion a year, in addition to the $1 billion it currently spends on such costs.

Schwarzenegger, in his January 2005 State of the State address, touted as a cost-saving measure a state constitutional amendment to transition state employee pensions away from traditional, defined benefit plans to defined contribution plans such as 401(k)'s.

That effort was shouted down within a half-year, with critics including public employee unions arguing the reforms would wipe out orphan and widow death benefits for firefighters and police officers, an assertion Schwarzenegger and proponents denied.

Striking a more moderate tone since defeat of his special election measures in 2005, Schwarzenegger is now re-engaging the issue of public employee retirement costs with Democrats and union officials at the table.

"The governor wanted to continue looking at this issue very seriously, and wanted to do it in a bipartisan way," said Adam Mendelsohn, Schwarzenegger's deputy chief of staff for communications.

Union officials Thursday expressed willingness to work toward solutions.

Joe Kerr, president of the Orange County Professional Firefighters Association, noted that to address his department's retiree health care debt, the county contributed an additional $7 million; the union contributed $1 million; and employees agreed to forgo an annual 3 percent cost of living adjustment.

"It comes down to assisting your employer in being around, because if your employer isn't going to be around, it doesn't help employees any," Kerr said.

Though the commission is tasked with considering all options in dealing with the escalating benefits cost, one won't be supported by Schwarzenegger, Mendelsohn said - tax increases.

There's only two paths to take to reduce retiree health care liabilities: contribute more money or reduce the costs by reducing the benefits provided, said Jason Dickerson, the principal fiscal and policy analyst for the state Legislative Analyst's Office.

Both approaches are difficult and have political ramifications, he said.

"There are no easy answers here," he said. "These are difficult changes with a lot of dollars involved both for governments and public employees' families."

The Palm Springs City Council just last week agreed to use about $20 million in bonds to pay for its city's unfunded liabilities.

Riverside County borrowed $400 million through bonds to help pay off its retirement costs.

The complete story

Alarming numbers
# The skyrocketing costs of retirement benefits for public employees will be a yearlong topic of discussion for a new commission formed by Gov. Arnold Schwarzenegger. Among the issues causing concern - including some first reported in a Desert Sun investigation published earlier this month:
# State retirement systems for government workers and teachers, CalPERS and CalSTRS, have a combined unfunded pension liability of $49 billion.
# California may owe between $40 billion and $70 billion in promised but currently unfunded long-term retiree health care for state workers. New accounting standards will soon require a full accounting for the long-term debt.
# Coachella Valley cities' pension savings were wiped out when the stock market crashed around 2000. Now they face a collective $51 million unfunded liability.
Cathedral City's population has increased almost 70 percent since 1990. Its emergency fire calls tripled in that time. The cost to run the city fire department jumped almost $1.7 million in the past five years alone.
# Yet the city's number of firefighters has remained virtually unchanged for nearly two decades because the costs of benefits prohibits them from hiring more staff.
# Palm Springs and Cathedral City fire departments often run engines with only two firefighters, instead of the recommended four or five. It can cause delays in responding to emergencies.
Coachella Valley's three school districts have a combined $114.5 million retiree health care liability.

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