3 billion a year!!

Commission launches effort to improve pension system
By Harrison Sheppard Sacramento Bureau
dailynews.com
3/10/07

Warning that runaway pension benefits could steal money earmarked for schools, police and roads, a California commission on Friday launched the first statewide effort to overhaul the employee pension system.

California's retirement systems for state employees and teachers have a combined unfunded pension liability of about $49 billion for pensions and $70 billion for health benefits.

Combined, the liabilities already are costing taxpayers more than $3 billion a year - money that could instead be paying for programs like schools and public safety if the benefits were properly self-funded.

"I think the leaders have recognized that rising obligations of this type remain one of the biggest problems facing governments everywhere, particularly in California," said commission Chairman Gerald Parsky.

"As these costs rise and need to be met, it means that less money may be available for other programs that have very high priorities - such as education, public safety and environmental protection."

The panel, appointed by Gov. Arnold Schwarzenegger and state legislators, will spend the next nine months studying the scope of the pension and health benefit issue and proposing possible solutions to state policymakers.

Parsky, a Los Angeles-based investor and Republican fundraiser, said the group will protect benefits promised to state employees, but will need to find ways to reduce future costs so the government can continue to adequately fund other programs.

Local governments and school districts are facing similar multibillion-dollar deficits. Los Angeles Unified School District is facing a long-term liability of at least $10 billion for retiree health benefits alone.

Schwarzenegger's previous effort to reform the state pension system in 2005 fell flat when his proposal to shift to a 401(k)-style plan ran into heavy opposition from public employee unions.

Firefighters and police officers, in particular, were incensed that the proposal appeared to cut benefits for widows - an element that Schwarzenegger said was unintended, but which led him to drop the plan rather than risk placing it on a ballot.

Public unions are expected once again to be a major force in the debate, but this time Schwarzenegger has included them in the decision-making process.

The state commission has at least five representatives of public employee unions, including one appointed by Schwarzenegger and four appointed by the Legislature.

"Clearly two years ago we were at war and there was no input from public employees," said Lou Paulson, president of California Professional Firefighters. "Having this commission \ there's going to be folks out talking about it and there will be hearings and everybody will at least get some input.

"Last time it was, `This is the system and this is the way it's going to be."'

The commission is expected to consider a variety of proposals - including a controversial plan suggested Friday by a nonprofit foundation established by former San Fernando Valley Assemblyman Keith Richman.

Marcia Fritz, an accountant and vice president of Richman's California Foundation for Fiscal Responsibility, said the group believes raising the state employee retirement age could create substantial savings.

Currently, state employees are eligible to retire by age 55, and public safety employees can retire at 50. Richman's group is proposing to raise the ages to 65 for regular employees and 55 for public safety employees.

The move would save millions of dollars by delaying thousands of people from entering the pension system.

"We hope the commission clearly hears the tick of this fiscal time bomb and finds a responsible way to limit its damage to future budgets and programs," Fritz said.

Public employee unions are likely to oppose that plan, however. On Friday, union members in the audience laughed and jeered when Richman's name was mentioned during the hearing.

Richman also was one of the driving forces behind the failed effort to move to a 401(k) system two years ago.

Officially, however, union leaders were more diplomatic at this early stage, saying they would like to hear more details of the plan before critiquing it.

The commission plans to hold up to five public hearings statewide by May 31. It will then work on a report and analysis of the scope of the pension and health benefits problem and recommend solutions by Jan. 1.

harrison.sheppard@dailynews.com

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