In the wake of the recently adopted public pension reform by the state legislature, questions persist about the outcome: Did we get real reform, enough to shore up the system and protect the state from bankruptcy, or did we get a cosmetic make-over with just enough "reforms" to keep opponents off balance and at bay?
To be sure, few people are satisfied with the legislature's action. Public employee unions feel that they've been singled out as the primary source of the state's financial difficulties. Meanwhile, taxpayer groups and others believe that the legislature ducked its responsibility to balance the pension program. So perhaps the answer may lie somewhere in between.
By far the two largest public pension systems in California are the California Public Employees' Retirement System (CalPERS) and the California State Teachers' Retirement System (STRS). Together, these two funds have an unfunded liability of $165 billion.
So does the new legislation eliminate that gap? Not quite.
According to the first analyses by the two retirement systems, the new plan will reduce CalPERS obligations somewhere between $42 billion to $55 billion over the next 30 years. CalPERS is by far the larger of the two programs. As for STRS, the reform will cut its obligations by an estimated $12 billion over the same period.
Added together, these savings will amount to somewhere between $54 billion and $67 billion over the three-decade time horizon, approximately one-third to 40 percent of the shortfall.
If these figures are accurate (and we won't know for sure until the formulas and other data are mined in detail), the state will have traveled a long way toward addressing the pension reform issue. But it appears that more may need to be done. Why, then, didn't the legislature solve the entire problem at once?
Reform is tricky stuff in politics. The stronger the proposed change, the greater the push back from entrenched status-quo interests. That goes for just about everything from addressing endless corporate tax loopholes to altering delicate environmental protection standards.
To change any substantive policy area, legislatures must have near unanimity among their members, a rare commodity in Sacramento where powerful interests roam the halls at will, placing great pressures on policymakers.
Under the circumstances, the legislature did about all it could with pension reform. The state is not about to go broke. As the economy improves and greater returns accumulate to pension fund investments, the need for further reform may be minimal. Conversely, if over time the pension gap fails to close, the legislature may have to go back for additional pension surgery.
In the meantime, it appears that substantive change has taken place, and given Sacramento's contentious political environment, a positive step has been taken.