California’s public sector unions are trying to undo pension reform

One step forward, three steps back.

That just about sums up how California’s public sector unions, which represent state and local government employees, are trying to undo the only progress that’s been made on pension reform in a generation.

They might succeed. That’s because in Sacramento, public employee unions are the most dominant and well-funded political interest groups.

They all but control the Democrat-run state Legislature, and Gavin Newsom as well.

Pension reform became an urgent necessity decades ago. The state had massive unfunded pension liabilities — that is, it had promised employees generous future benefits without the money to pay for them.

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California also suffers from volatile budgeting, with tax receipts rising and falling dramatically, because the state depends so heavily on taxing the fortunes of a few high earners.

In 2012, Democratic then-Gov. Jerry Brown made real progress by championing and signing the Public Employees’ Pension Reform Act (PEPRA).

It was a significant reform that adjusted benefits for new hires. By reducing abuses like “pension spiking” (by which some employees juiced payouts), raising the retirement age for many, and requiring the new hires to pay a larger share of their own pension costs, the reform sought to save taxpayers tens of billions of dollars.

California’s pension benefits are still exceptionally generous, even after Brown’s reforms.

Under California’s current framework, a long-serving public safety worker can retire in his or her 50s and secure a guaranteed, inflation-adjusted lifetime pension equal to nearly 100% of his or her highest salary.

Unfortunately, Brown’s progress will be undone if union-backed legislation passes and is signed into law.

California Assembly Bill 1383 (AB 1383), sponsored by Assembly member Tina McKinnor of Los Angeles, would relax the state’s 2012 pension reform guardrails by lowering the retirement age for public safety personnel from 57 to 55, and by increasing the pensionable salary limits used to calculate retirement payouts for public sector employees.

AB 1383 passed the California Assembly in January by a 70–2 bipartisan majority. Progressive Democrats voted to align with organized labor, while conservative Republicans prioritized backing law enforcement pensions over standard fiscal constraints. The legislation is now before the California Senate.

It’s sad that California legislators will likely roll back the progress that was made 14 years ago. It’s also a dark day for likely presidential candidate Gavin Newsom; if he signs the bill, he’ll have to explain AB 1383 away during his anticipated campaign, since it would destroy his credibility on fiscal issues.

Meanwhile, California’s budget is an unpredictable roller coaster. The state can swing from a multibillion-dollar surplus to a severe multibillion-dollar deficit in a matter of 12 to 24 months. Yet expensive bills like AB 1383 face very little resistance in committees, often advancing with little to no public pushback from the local governments that will ultimately have to help foot the bill.

Escalating mandatory payments to the California Public Employees’ Retirement System (CalPERS) has contributed to municipal bankruptcies in two jurisdictions, Stockton and San Bernardino.

Even though CalPERS just enjoyed a year of high returns, thanks to a soaring stock market, paying down these long-term pension obligations requires state and local governments to spend billions of dollars every single year, which leaves less money available for current public services.

That means public pensions crowd out today’s public needs, leaving less money available for infrastructure and other priorities in a state where public projects are already made more expensive by restrictive work rules and regulatory burdens.

Some of the same unions have proposed a 5% “wealth tax” on billionaires, which voters will decide in November. But it’s not like California doesn’t raise enough taxes. It already has the highest state income tax rate in the nation.

Rather, California’s problem is that it is spending too much money, and public pensions play a significant role.

Jerry Brown’s PEPRA reforms were the last successful effort to even partially address the problem.

Sadly, that improvement is now at serious risk.

Jon Hartley is a policy fellow at the Hoover Institution and an assistant professor of economics at the UT-Austin School of Civic Leadership.