Dutton Responds to Governor Brown's 12-Point Pension Plan

Sacramento - Senate Republican Leader Bob Dutton issued the following statement today in response to Governor Brown's 12-Point Pension Reform Plan:

Senate Republicans have been clear for months that public employee pension reform is a critical element required to reach a budget agreement. The governor heard it from the entire Senate Republican Caucus when he spoke to us on December 7, 2010, and again on February 9, 2011.

Senate Republicans believe that this is an achievable objective based on the public's strong support for public employee pension reform and what we had heard from then-candidate Jerry Brown.

In Jerry Brown's words:

"In some cases, managers and employees have secured pensions beyond their original base salary. It is wrong, the people doing it know it's wrong, and we have to put an end to it…Pension reform can be hard to talk about. In the long run, reform now means fewer demands for layoffs and less draconian measures in the future. It's in the best interest of all Californians to fix this system now." - Brown for Governor 2010, campaign press release, 20 July 2010

According to a March 2011 PPIC Poll, most likely voters statewide agree the cost of public pensions is a big problem: 57 percent believe state government should decrease state pension plans to help balance the budget; 71 percent support a 401K-style pension plan for government employees; 56 percent of government employees support a 401K-style pension plan for new workers.

Where we agree:

1. Eliminate the purchase of Airtime. Would eliminate the opportunity, for all current and future employee members of all state and local retirement systems, to purchase additional retirement service credit.

2. Prohibit pension holidays. All California public agencies would be prohibited from suspending employer and/or employee contributions necessary to fund the normal cost of pension benefits.

3. Prohibit employers from making employee pension contributions. All California public agencies would be prohibited from making employee contributions that fund the normal cost of employee retirement benefits in whole or in part.

4. Prohibit retroactive pension increases. All California public agencies would be prohibited from granting any retroactive pension benefit increases, such as benefit formula improvements that credit prior service.

5. Prohibit pension spiking: three year final compensation. Final compensation for new employees would be defined as the highest average annual compensation during a consecutive 36-month period. (Senate Republicans would prefer five years).

6. Prohibit pension spiking: define compensation as only regulary, non-recurring pay. Compensation means normal rate of pay or base pay.

7. Felony convictions. Prohibits payment of pension benefits to those who commits a felony related to their employment.

We also agree in concept with the governor's efforts to do the following:

1. Impose pension benefit cap
2. Improve retirement board governance
3. Limit post-retirement public employment

Major areas where we disagree:

1. Let the people vote on permanent public employee pension reform. Governor Brown is proposing laws that can be repealed tomorrow by a majority vote of the Legislature. His proposal provides no protection against future pension giveaways.
   
   Senate Republicans want lasting pension reform placed on the ballot and protected by a vote of the people. Why won't Governor Brown let the people vote on permanent pension reform?

2. Voluntary hybrid pension system does nothing to address the state's long-term financial risk. Governor Brown's proposal assumes public employees will volunteer for lower benefits, which ignores reality.
   
   Senate Republicans believe only a mandatory hybrid pension system modeled after Little Hoover Commission and Legislative Analyst's Office recommendations can reduce the financial risk effectively.

3. Unsustainable pensions costs. Governor Brown's proposal does nothing to address the $60 billion unfunded state health benefit liability the State Controller's Office recently identified or the $70-plus billion of unfunded state pension liability. One analysis suggested that the statewide unfunded liability for pension benefits could be as much as $500 billion.
   
   Senate Republicans believe state employees should pay their fair share of these unfunded liabilities to reduce future costs so our children and grandchildren don't pay for overpromising today, and that the ability of state local governments to deliver quality services is not impaired.

4. No ability to change benefits in the future. Governor Brown's proposal provides no ability to change pension benefits in the future if they are still unaffordable.
   
   Again, consistent with the independent Little Hoover Commission recommendations, Senate Republicans are proposing greater protection for California families against runaway pension costs by allowing the flexibility to change future pension contracts for new state employees.

5. No protection from future pension giveaways. Governor Brown's proposal allows salary and pension increases to public employee unions with a simple majority vote of the Legislature.
   
   Senate Republicans believe taxpayers should be protected by a 2/3rd super majority vote of the Legislature to change the salary and benefits of public employees. It's the only way to ensure that public employee salaries and benefits are appropriate and sustainable.

While Senate Republicans applaud the governor's "developing" proposal to address the CalSTRS Unfunded Liability, when Senate Republicans proposed to set actuarially-sound rates for CalSTRS funded within the Prop. 98 guarantee, the governor did not seem interested in pursuing a solution to the CalSTRS issue.

It is interesting that after today's media stories outlining a $56 billion unfunded CalSTRS pension liability, the governor announces a "developing" proposal. Nonetheless, we are glad the governor is still considering Senate Republican recommendations even after unilaterally ending budget discussions.

Senate Republicans remain committed to a budget solution that includes significant and permanent public employee pension reforms. Unfortunately, given the events of the last few weeks, it seems clear that public employee unions will not allow Governor Brown or legislative Democrats to place such a measure before the voters.

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