SACRAMENTO, Calif. (AP) — Democratic lawmakers on Wednesday criticized a watchdog organization’s recommendation that California freeze pension benefits for current state and local government workers as the only way to swiftly rein in runaway liabilities that are threatening basic government services.
Stuart Drown, executive director of the Little Hoover Commission, told a legislative hearing that California’s public pension systems face soaring liabilities as baby boomers retire and live longer. The commission said obligations to retirees will become unsustainable in the future.
The commission made its recommendation in a report last week just as public employee benefits became a flashpoint in statehouses nationwide. Republican lawmakers in California said the state must address the long-term problem as it deals with a $26.6 billion budget deficit.
Democrats, who control both legislative houses and generally support public employee unions, said the commission’s proposal to cut existing workers’ benefits faces such legal hurdles that it likely is not worth pursuing.
Sen. Alex Padilla, D-Los Angeles, chided commissioners for presenting a solution that “raises legal and constitutional red flags.”
“Frankly, I just don’t see some of your recommendations happening in the Legislature this year,” Padilla told Drown. “I think the only wiggle room may be on the future employee side.”
The commission, which is made up of lawmakers and political appointees, said the state should switch from its current defined-benefit plan to a hybrid model that would include something similar to the 401(k) plans offered to most private-sector employees.
California had at least $115 billion in unfunded pension obligations as of June 30, 2009, according to the latest figures available from the California Public Employees Retirement System. Unfunded state retiree health care costs were nearly $52 billion, according to the state controller’s office.
Drown told lawmakers that without swift and sweeping changes, the state, along with cities and counties, will soon have to reduce more services and lay off employees to pay for rising pension costs.
“Pension liabilities will continue to soar in California as more baby boomers continue to retire from public service,” Drown warned. “Benefits at this point are too generous.”
The state and many local governments have set up two-tiered pension systems that give lesser benefits to new employees. But Drown said that will not save money fast enough. He agreed that the commission’s keystone recommendation targeting existing workers’ pensions likely would be tested in the courts.
“That is clearly the most controversial recommendation. The commission did not make it lightly,” he said.
Labor lawyers said the courts have consistently ruled it is illegal to reduce future pension benefits already promised to current workers.
Representatives of public employee unions told the joint hearing of the Assembly Public Employees, Retirement and Social Security Committee and the Senate Public Employment and Retirement Committee that they will sue if the Legislature tries to change their defined-benefit plans.
Under current law, any changes to existing pensions may need to come through collective bargaining negotiations, Assemblyman Allan Mansoor, R-Costa Mesa, said in an interview after the hearing. Mansoor has announced legislation that would eliminate collective bargaining for pension benefits by public employees.
“No one denies that we do have a problem and this has to be addressed in a complete reform manner,” Mansoor said. “You can’t just do bits and pieces and get us where we need to go.”
Also Wednesday, the controller’s office warned the governor and legislative leaders that if they do not enact a budget by July 1, the state would likely face another round of IOUs, delayed payments and more credit rating downgrades. Democratic Controller John Chiang urged lawmakers to compromise.
“Unless we make the tough decisions necessary to stabilize the state’s fiscal health, I fear that the next four years will be sustained by chronic fiscal distress and regret over lost opportunities,” Chiang wrote.
(Copyright 2011 by The Associated Press. All Rights Reserved.)