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June 2012 Edition

The Case for Statewide Reform of County Pension Funds

The Time to Act is NOW!

III. The Collapse of Statewide Reform in 2012

2012 was shaping up to be one of the most intense political years in California since Prop 13. Governor Jerry Brown rolled out his 12 point pension reform plan on 10/27 and announced he would seek a significant tax increase on the same ballot. A few days later "Californians for Pension Reform" tossed their hat into the ring with two possible pension reform initiatives.

3 Way Chess I figured we would watch a 3-player chess game in 2012 with the “Labour” wing of the Democratic Party on the “Left”, CPR appealing to the “Right” and disaffected Moderates, and Jerry trying to construct a majority in the middle. Many political observers believe that without some sort of credible pension reform the tax increase will go down in flames.

Then the CPR effort collapsed. I’ve heard several explanations, but for whatever reasons the CPR reforms are not on the November ballot.

This leaves Jerry Brown’s reform proposals as the only reform agenda on the statewide agenda today.

However – the State Legislature set up a Conference Committee of members of the state assembly and senate to hold hearings on public pension issues and prepare legislation. As should be expected there is a lot of controversy about how this Committee has operated and what it may do.

 

We don’t yet know what the Committee will propose. One of the Girard Millernation’s top experts in public finance and especially about the huge unfunded public pension debt is Girard Miller. In a recent article titled “Cash-Balance Pension Plans: A Wolf in Sheep’s Clothing?” (click to see) Miller reported:

Across the country, the pension reform debates have spurred a lot of talk about how to fix the mess created by runaway defined benefits plans that promised more than they could deliver. So it's no wonder that pension skeptics are suspicious about the latest scheme to emerge from traditional pension advocates, notably the labor groups and many in the actuarial community, who have proposed "cash balance" plan s as the new panacea.

Rumor has it that a long-awaited back-room pension reform deal is expected to emerge next month from the Democrat-dominated California legislature and that it will include a cash-balance plan. So now seems a good time to explain the issues that should be aired before the legislators approve a bill — apparently without public hearing — in a last-minute fait accompli to beat the November ballot deadline.

For those unfamiliar with cash balance plans, they are sometimes known as "defined-benefit plans in drag". Cash balance plans offer some of the features of both defined-contribution (DC) and defined-benefit (DB) plans.

We’ll soon find out if the Conference Committee indeed submits a “Cash-Balance” proposal.

A Lifelong Democrat's Complaint About His State Party's Leaders

I say this as a life-long Democrat who has come to the sad conclusion that the statewide leadership of my Party is the most responsible group for our hugely destructive and massively irresponsible unfunded public retirement debt. They opened the floodgates that converted a sustainable public retirement system into today’s boat anchor tied around our State’s neck. I believe most continue to refuse to face the problem honestly.

Whatever you think of public employee unions, they have obtained a position of too-much unquestioned power within my Party. Too many statewide Democratic politicians have subordinated the larger good of the people to the astonishingly self-serving and utterly myopic political demands of union leadership. They persist in defending the crazy system they created that is inevitably leading to the destruction of the ability of government to do the things that make most Democrats members of the Party.

The Party’s leadership seems oblivious to how alienated non-public employee rank and file Democrats are becoming. More and more Democrats see the refusal of their Party’s statewide leadership to face facts as the price demanded by public employee unions for their support.

 

The worse the unfunded public pension debt grows – the more the Democratic coalition in California will tear apart.

I hope I’m wrong – but I very much doubt the Democrats in the Legislature will support the reforms so desperately needed. I fear they will apply the proverbial “lipstick on a pig” in their legislation – make it look like reform but avoid the core reforms so badly needed.

Statewide Democratic leaders don’t need to act this way. My number one pension reform hero in the Rhode Island Treasurer Gina Rainomdoentire nation is Gina Raimondo – Democratic Treasurer of Rhode Island. Read this piece on my front page about Gina (click here).

Where is California’s Gina in our Democratic Party? Please stand up – our state desperately needs you.

But – at this point my strong hunch is the “reform” that comes out of the State Legislature will be far short of what is needed. Reform is going to have to be imposed on Sacramento – it won’t come from Sacramento. I’d like to be proven wrong – but I believe citizen reformers in counties should assume this is most likely true.

 
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