Is California Finally About to Address Its Looming Pension Crisis?

Fingers crossed.

A good sign is that Assembly leaders now say they will take on the massive shortfall in the State Teachers Retirement System (CalSTRS) that provides retirement, disability and survivor benefits for California’s 868,493 teachers and their families. Speaker John Perez says he wants to find a way to begin paying down the $80 billion unfunded liability for teacher pensions and the Assembly will hold hearing on the issue this month.

While CalPERS, the other major public employee pension system, is in a weak position, CalSTRS is close to falling into the abyss. However, neither of the systems is likely to ever go over the edge because taxpayers are obligated to maintain their solvency, no matter the cost. This means the sooner the unfunded liability is addressed, the less long-term cost to taxpayers.

Unfortunately, until now, Sacramento’s approach to these unfunded liabilities is probably why the phrase “kicking the can down the road” was coined. Even Governor Brown, who has espoused government frugality and responsibility — while increasing state spending — ignored the unfunded pension systems in his proposed state budget.

In fairness to Brown, two years ago, he proposed a fairly decent pension reform package. But by the time the Legislature got through with the governor’s plan, all that remained was some modest changes to address the worst of pension abuses including a few to prevent “pension spiking.”

As we all know, unfunded pension liabilities are the bane of every liberal-dominated state's economic existence. It is an issue that has gotten some lip service in recent years where it is a problem but not a lot of action. It is also an issue that will eventually cripple the states plagued by it. A state can guarantee defined benefits and obligate the taxpayers to fund them but it can't guarantee that there will be taxpayers.

It is with very cautious optimism that those of us who have been screaming for reform until we've got no scream left are receiving this news.

Like alcoholics attending their first AA meeting, Speaker Perez and his colleagues deserve credit for taking the first step by acknowledging the problem and making a commitment to address it. Of course the Speaker may have been nudged along after seeing poll results, including one by PPIC that shows that over 80 percent of adults believe that the money spent on pensions is a problem for state and local government budgets. The poll further reveals that more than 70 percent would favor a change from a defined benefit – a guaranteed monthly payout at retirement — to a defined contribution system, similar to a 401(k) plan.

Baby steps, for now. There is still a window of opportunity to fix this. They won't be enough in another decade.