The state’s two largest and successful pension funds have issued statements this week attacking the report on pensions released two weeks ago by the Little Hoover Commission. The Commission, stacked with appointees of Gov. Arnold Schwarzenegger, issued a series of recommendations that have stirred controversy in Sacramento.
Why the furor from a supposedly independent commission with a previously-stellar reputation? Because Schwarzenegger’s appointees are private sector business people with little or no knowledge of state government. The interests of pensioners weren’t represented in the study; the commissioners are largely from industries that have tried to reduce labor costs and increase corporate profits by cutting employee pensions in the private sector. In fact, many of the recommendations are repackaged proposals from the same special interests who have been working to eliminate and reduce retirement benefits for public employees for years, including former Schwarzenegger and Wilson Labor Secretary Vicki Bradshaw.
CalPERS, with its $230 billion in funds, noted the report ignores its recent recovery of assets — some $70 billion since the financial crisis. The fund had a 13.3 percent return last year and 7.9 percent annual return over the last 20 years.
CalPERS also blasted the loaded language of the report — particularly that pension costs would “crush government” as a “gross exaggeration.” CalPERS pension costs represented 1.8 percent of the State’s $87.2 billion general fund budget in FY 2009-10. In comparison, the cost of debt service amounted to 5.3 percent of the general fund budget in the same year For every pension dollar paid over the last 20 years, 64 cents comes from investments, 21 cents from employers, and 15 cents from members.
It also said that the Commission’s recommendations were unconstitutional.
Over at CalSTRS, the teacher’s retirement system, the words for the report are even harsher.
“Our conclusion is that implementing the recommendations made in the report – even if it were possible to do – would likely weaken, rather than strengthen, retirement security for California’s public educators,” noted CalSTRS CEO Jack Ehnes.” In fact, in some circumstances, the Commission’s recommendations could increase the total cost of providing retirement benefits. The report makes many of the same misdiagnoses others have made of the cause of the financial problems faced by public pensions. These misdiagnoses lead to impractical recommendations, which may reduce the liabilities incurred by public pension plans, but do so at the expense of the retirement security of school educators and at increased cost to school employers.”
Ehnes continues that “… it is time to move past the political rhetoric and ocus on solutions that are truly responsive to the problems. Not only are there substantive legal weaknesses in the report, but it fails to convey the underlying drivers of this financial dilemma. The report opens with the assumption that underfunding is due primarily to “’overly generous benefit promises, wishful thinking and an unwillingness to plan prudently,’ a premise that fails to reflect any recognition of the financial market’s collapse and its underlying causes…The credibility of the report also suffers from broad generalizations that do not hold up when applied to specific plans.”
State Senator Alex Padilla and Assembly Speaker pro Tempore Fiona Ma were among those legislators that also have raised concerns about the Little Hoover Commissions recommendations. At a recent legislative hearing, both noted that the proposals offered by the commission were both impractical and possibly unconstitutional.
Steven Maviglio is a Sacramento-based public affairs and political consultant. He is the former Deputy Chief of Staff to Speakers Karen Bass and Fabian Nunez. This article originally appeared in the California Majority Report.