How has the nation’s largest public pension fund managed to devour California? From its founding along cautious, fiscally conservative principles in the 1930s in the shadow of the stock market crash, CalPERS gradually upped its political clout and successfully convinced the state legislature to grant it increasingly lavish and ultimately unsustainable pension packages. If you missed it when we highlighted it a few weeks back, Steven Malanga’s excellent City Journal essay has been condensed in the LA Times, and is worth your time.
The major changes began in the late ’60s, during a time of rapidly growing public-sector union power. In 1968, the Legislature added one of the most expensive of all retirement perks — annual cost-of-living adjustments — to CalPERS [California Public Employees’ Retirement System] pensions. Other enhancements followed, including, in 1970, a far more generous pension formula that would allow an employee who worked for 40 years to retire at 60 and collect an annual pension equal to 80% of his salary. If he kept working for another five years, his pension fattened to 90%. In 1983, public safety workers got an even better pension formula, and the age at which they could start collecting was dropped to 55. […]CalPERS wrote the legislation for these changes and then persuaded lawmakers to pass it. In pushing for the change, though, the pension fund downplayed the risks involved. A brochure about the proposal that CalPERS handed to legislators read like a pitch letter, not a serious fiscal analysis. It didn’t mention that state law protected government pensions, so that taxpayers would be on the hook for any shortfall in pension funding. In essence, the CalPERS position was that government workers should carry zero risk, sharing the bounty when the fund’s investments did well but losing nothing if investments went south.
CalPERS lobbying has been irresponsible to say the very least, but all told, California’s lawmakers are at least equally at fault for agreeing to pass it. Now that the markets have turned sour, California is stuck with a system in which both workers and taxpayers are getting the short end of the stick.Do read the whole thing, especially the longer version in the City Journal. Here’s the takeaway to keep in mind as you do: California’s model is not “pro-worker”. Champions of right-to-work laws like Scott Walker get pilloried by Democrats, but at least Wisconsin’s pensions are getting paid. This strikes us as far more pro-worker than anything happening in the Golden State.