While referring to Governor Jerry Brown's proposal for changes in public employee pensions as a "bold, excellent starting point," the state's independent fiscal analyst's office nonetheless concludes that neither Brown's proposal -- nor any other -- that seeks to rejigger the terms of the deal for current workers is likely to work.
If legislators take their advice, it means that a major policy and political fight will either be avoided... or ultimately left to an expensive and divisive initiative campaign come November 2012.
This morning's report from the nonpartisan Legislative Analyst's Office offers praise both for Governor Brown's comprehensive approach to the issue of pensions and to his timing; it calls this a "golden opportunity" for substantive reform.
The LAO report applauds the governor for suggesting a hybrid pension/401(k)-type system for future employees, saying such a system would "bring public employees' retirement packages closer in line with those of their private–sector counterparts," while also discouraging public employees from cashing out early.
The report also supports Brown's call for increasing the retirement age to 67 for non-public safety employees; for a ban on "spiking" practices that use a final year's salary -- even if it's higher than previous years -- as the basis for calculating long-term benefits; and for changes ranging from the purchase of "service credits" that pad a pension benefit to a more experienced set of appointed board members to public pension funds.
But LAO researchers place some pretty low odds on any approach that seeks to rework the pension agreements of public employees who are already on the job and working their way toward eventual retirement.
"Our reading of California's pension case law is that it will be very difficult -- perhaps impossible -- for the Legislature, local governments, or voters to mandate such changes for many current public workers and retirees," says the report.
Governor Brown, when releasing his 12-point pension plan (PDF) on October 27, told reporters that while legal questions remained about reducing future benefits for current workers, he sees a clear path for asking those workers to contribute more to the cost of those benefits -- up to even an annual 50/50 split of the costs.
Today's LAO report says -- politely, of course -- maybe not:
We do not share the governor's belief that existing constitutional law clearly allows the state to require current public employees to contribute more to pensions. To the contrary, such a proposal seems to run counter to existing constitutional protections in case law that may protect many current and past public employees... For many current employees, such contribution increases probably could be implemented only through negotiations, and in any event, would result in many employers increasing pay or other compensation to offset the financial effect of the higher pension contributions. Since increasing current employees' contributions is one of the only ways to substantially decrease employer pension costs in the short run, the legal and practical challenges that we describe mean that the governor's plan may fail in its goal to deliver noticeable short–term cost savings for many public employers.
Governor Brown's proposal for bigger contributions from current workers was eclipsed by the Republican backers of a pair of pension initiatives filed last week; in their proposals, the employee contribution would likely rise above 50% of the annual cost... and stay there until long-term pension fund finances stabilize, which could take many years.
The LAO's cautious advice to lawmakers: "We advise the Legislature to focus primarily on changes to future workers' benefits. Such changes should produce net taxpayer savings only over the long run but are certain to be legally viable."
Meantime, expect a lot of talk about pensions in the coming weeks. Legislative hearings to examine Governor Brown's plan are now in the work. And a group of Senate Republicans has scheduled a Wednesday news conference at the state Capitol to urge Brown to call a special session on pension reform -- and to do so now.