This week our Governor finally came out and proposed a state wide plan to reform pensions which have become economically unsustainable. This is the first real effort in over a year of a budget crisis that anyone in Sacramento has actually proposed something that will address the real problems.

Click here for the Sacramento Bee article.

All they have come up with is cutting schools, cutting human services, and stealing money back from counties and cities. Everyone knows that is not a real answer to California’s budget problems. The Democrats who control the state government are all already running for office again and do not want to do anything to upset their main supporters, the public employee unions, by dealing with the real issues that confront the California budget.

California already has some of the highest taxes in the nation, and there is no way they are going to be able to raise taxes enough to cover the large deficits that now stretch out into the horizon as far as we can see. The Legislative Analyst's office says that even with the tax increase already passed we have at least a $22 billion deficit looming again next year.

The only thing is that is going to save California is permanent, structural reform. The key element of that reform is to face the fact that we are spending money that we do not have and may never have, and we have to stop.

Two of the key elements of overspending are pensions and salaries to government employees throughout the state. At this point, articles and facts abound on this issue. Even the union controlled CalPers pension funds actuary said this week that the pensions were unsustainable, and that we were looking at safety pensions costing 40-50 percent of payroll, and miscellaneous (all other) employees at 25 percent.

That is just for pensions, and that is a huge number, a new cost on top of the already too high cost.

In Napa County, pensions are about 15 percent of our total payroll, safety is about 28 percent of payroll, miscellaneous 13.6 percent. In 2006, the latest date I have the actuarial report for, the total dollar amount was about $12 million, out of about an $80 million payroll.

The entire discretionary budget for the County is around $80-85 million annually, to give you some perspective on the numbers. It is a big  percentage for one budget item, and it is going to go up a lot because of the market sell off, about 20 percent more, permanently.

Schwarzenegger’s plan is to create a two tiered pension system that will have all new employees on a defined contribution plan, a 401K type plan that is an individual account, rather than the current defined benefit plans that guarantee a certain dollar amount to the retiree.

The good thing about it is that he proposes it as a statewide plan, meaning it will also apply to local government employees as well as state employees.

The bad thing is that it won’t help anything for a long time. In fact, in the near term it will cost taxpayers even more. The Governor states that it will save $90 billion over 30 years, but most of that savings will come in the last few years of that 30 years. In the mean time, we will actually have to fund this new plan as well as the old plan.

It would be far better to retain the defined benefit plans, but simply cut the top amount that can be received by anyone to 70 percent of their highest salary for safety, 50 percent for the rest. That would still be considered a terrific retirement by most people, and it is. It would also immediately solve the portion of the budget crisis created by excessive pensions including the recent big losses in Cal Pers.

People will say you can’t do it because the unions already have this in their contracts, and you can’t take it away from them. They will sue. It is illegal.

Let them sue. General Motors unions had their contracts invalidated and took large cuts. People are taking cuts everywhere in violation of contracts, including Vallejo. Most people in private employment have just taken a 40-50 percent cut in their retirement funds.

Make it a constitutional amendment, put it on the ballot. Do whatever it takes, because unless we permanently roll back these excessive pensions, we will never get the structural reform we need to pull California out of its quagmire.

It is an ongoing budget emergency, we have gone way too far in spending and only major spending reforms like this are really going to solve the problem. The only question is how soon will we face up to them?