Economy

California Pension Crisis Worsens as Politicians Shirk Responsibility

California is facing a crisis, well a number of crises, in fact. Here we’re talking about a financial crisis created by irresponsible politicians who are unwilling and unable to make responsible fiscal decisions.

Twenty years ago, the California Legislature passed Senate Bill 400, a pension reform plan for the California Highway Patrol. This bill increased the pension for the California Highway Patrol (CHP) by 50 percent retroactively and was intended to serve as a model for other California government agencies. And like lemmings, the other agencies followed over the cliff without a thought for the sustainability of these new pension hikes.

During the startlingly short debate over the original SB 400 bill, California taxpayers were told that they would not have to pay for these changes and that the pension increases would come from the excellent stock returns that the country was experiencing. The legislature based a massive spending plan on momentary investment success. It was both naive and shortsighted to believe that the stock market, an inherently unreliable institution, would be able to fund statewide pension increases indefinitely. This pension plan may have worked out for the CHP alone, but when applied to most state government agencies, the funding proved inadequate.

If it was not already obvious, this plan collapsed quickly when the stock market fell. It led to the largest municipal bankruptcy in the history of the United States. Now, California can barely manage 70 percent funding of these pension plans because the market returns have proven incapable of keeping up with ever-increasing pension plans.

For example, a study from the California Public Employee’s Retirement System (CalPERS) has found that California police officers and firefighters’ pensions are at 50 percent of their pay. That means that for every dollar that a police officer or firefighter makes, the state has to pay an additional 50 cents—and these numbers are on the rise. There is no way to pay for these programs and the original source of funding has been depleted, but the pension plans continue to grow.

The real problem here is that pension plans are a dangerous issue for politicians. They do not want to risk making the state employees upset so they sit back and watch as the treasury runs dry. They are too timid to rock the boat and the state suffers for their cowardice as a result. It’s time to take back control of the state budget and cut extraneous spending. More broadly,  it’s time for some common sense and fiscal responsibility.