San Francisco Chronicle: California's 'unsustainable' pension promises shouldn't be kept

The San Francisco Chronicle is not what anyone would consider a right-wing newspaper. So it comes as something of a surprise that today the paper’s Editorial Board published a piece arguing for reining in the state’s pension system before it’s too late.

In a matter of months, California may get an answer on fixing its unsustainable public pension system. The state Supreme Court is due to rule on a politically loaded case that could open the door to peeling back retirement benefits in the name of fiscal need…

For decades, the courts have sided with arguments that pensions can’t be altered without compensation, an approached adopted by a dozen other states.

Between the lines, Brown is offering a different thought: You can’t promise money that isn’t there…California’s public pension pool is tens of billions short of being fully funded, with cities feeling the same pinch. Pension promises made with the best intentions or from political loyalty may prove impossible to deliver…

Brown’s goal is the right one. Pensions need to be matched to what’s balanced and reasonable, not unsustainable pledges. If the economy hits a down cycle, state and local revenues will plummet, saddling government with unpayable bills just as California witnessed a decade ago. The courts should recognize this hovering problem and acknowledge the need to make most changes in pension promises in the future.

The case now before the California Supreme Court has to do with an option offered to some retiring employees called “airtime.” Airtime allowed employees to buy extra years of service to make their final pension payout a bit sweeter. Unions are arguing that California can’t change the rules after the fact. The problem, as the Chronicle points out, is that California’s pension system, while far from the worst in the country, is still in danger of falling behind. From a Sacramento Bee column published earlier this year.

Even though CalPERS and other systems have sharply accelerated payments from employers, they still fell short in 2016 of what was needed to keep the gap from growing. California’s contribution shortfall, in fact, was the nation’s sixth highest in relative terms.

Pew [Charitable Trusts] agrees with the official CalPERS calculation that it was 69 percent funded in 2016, which is slightly higher than the 66 percent level for state pension systems nationwide. That’s a $168 billion unfunded liability – again assuming that it will meet its earnings goals, which is dropping slowly to 7 percent…

CalPERS says that an uptick in 2017 earnings, to more than 11 percent, has raised its funding level to 71 percent. That’s obviously good news, but CalPERS’ own staff estimates that earnings over the next decade should barely average 6 percent a year, which, if true, would mean the system would either have to allow its funding level to decline or hit state and local government employers – and, of course, their taxpayers – even harder.

In other words, California’s system is barely over 2/3 funded in a strong economy. The state shouldn’t count on that to last forever. Someone needs to acknowledge that the extravagant promises made to unions simply can’t be kept. But even if the California Supreme Court agrees with that premise, the real question is whether a Democratically-controlled state currently running a budget surplus has any desire to deal with the problem now or will choose instead to punt this problem down the road.

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