This article is from Cal-Tax Digest, published
by the California Taxpayers' Association.
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SACRAMENTO - The latest millennium scare stems from quietly enacted legislation that's now fostering nightmarish visions of mass early retirements statewide by highway patrol officers, prison guards, firefighters and other state workers.

"The retirement calculator on our Web page has gone crazy," said Patricia Macht, a spokeswoman for the California Public Employees Retirement System. The agency says the applications it has received for retirement increased by more than a third in November over the same month in 1998.

And in a domino effect, a big state pension benefit hike that went into effect January 1 is sure to trigger negotiations over similar deals for local police and fire departments throughout California, according to public safety sector analysts.

The new law and companion legislation authorize local public safety workers to get pension hikes similar to those granted state workers, as long as they are approved by unions and local government agencies, state officials said.

Enhanced retirement benefits for police, sheriff's deputies and firefighters could then, in turn, prompt increased retirements in local departments already fighting staff shortages and overtime costs due to a booming economy that's dramatically lowered the jobless rate, said Clancy Faria, president of the Peace Officers Research Association of California.

The developments come as public safety departments already were expecting high turnovers because so many employees hired after the Vietnam War are approaching retirement age, Mr. Faria said. At the same time, fewer people are entering law enforcement ranks and those there are serving shorter periods.

Many of these factors, as well as competition between state and local governments for employees, are sure to frustrate efforts to refill the ranks.

But at the same time, Mr. Faria said, enhanced pensions may assist to some degree in recruiting new employees.

State government and employee union officials confirmed that they expected an increase in retirements starting in January from the CHP, Department of Corrections and California Department of Forestry and Fire Protection. (Editor's note: A number of high-level officials at the state's largest tax agencies - State Board of Equalization and Franchise Tax Board - have announced their retirements effective in 2000, including BOE Executive Director Les Sorensen and FTB Assistant Chief Counsel Larry Counts.)

But they were uncertain about the size of the surge, because they expected most of the retiring workers to wait until after the law took effect to submit applications.

"For many people who have been with the department or the state, it may be, in their own minds, time to retire as a result of this," Department of Corrections spokeswoman Margot Bach said.

Meanwhile, officials and analysts acknowledge rumors in law enforcement ranks throughout California of a mass employee exodus.

Two Strong Indications
So far, there have been only two strong indications of a large surge.

The number of hits on the CalPERS Web page calculator - normally about 11,000 monthly - skyrocketed to 42,000 in October after approval of the benefits hike and reached 27,000 in November. That's 47,000 extra instances of someone using the calculator.

CalPERS received 1,837 retirement applications from state and local workers in November, or 38 percent more than in the same month a year ago, Macht said.

In the public safety sector, analysts expect the impact to be greatest in the Department of Corrections, where 28,500 guards oversee more than 160,000 inmates. The next greatest impact is expected in CDF, where 3,800 permanent firefighters protect 31 million acres of California.

The CHP's 6,500 officers patrol more than 103,000 miles of freeways, highways and roads.

In September, Governor Gray Davis signed the measure enacting enhanced pension benefits that had been negotiated with unions as part of new state labor contracts. CalPERS recommended the benefit hike because pension investment windfalls weren't being passed along to state workers.

CalPERS administers the pensions for employees of most local governments, as well, but local workers' benefits are negotiated between unions and local agencies.

The new law gives some state workers outside of the public safety sector, such as program analysts and other support staff, the first retirement benefit hikes in more than 30 years.

The revision of the complex retirement benefits formula essentially allows government employees - especially public safety workers - to retire earlier with better pensions.

Higher Factor at Work
For example, a CHP officer will be able to retire at age 50 on a pension that's figured at 3 percent, multiplied by the number of years the officer has served. Therefore, with 20 years of service, an officer could retire at age 50 with 60 percent - nearly two-thirds - of current salary.

The amount is up from 2 percent, which would have given the same retiring 50-year-old officer just 40 percent of salary.

But the effect of the benefits hike on the CHP could be partially delayed as officers wait for a salary increase next year that would further boost pension levels, said CHP spokeswoman Anne DaVigo.

A CDF firefighter or a state prison guard will be able, for instance, to retire at age 55 on a pension that's calculated at 3 percent multiplied by the number of years the firefighter or guard has worked. That's an increase from a multiplier of 2.5 percent per year served.

Before this change, CDF was expecting a significant increase in retirements because of growth and hiring in the department in the 1970s and 1980s, said CDF Chief Deputy Director Woody Allshouse.

Editor's Note: The Legislative Analyst's Office, a nonpartisan office that provides fiscal and policy information and advice to the Legislature, issued a report on December 6 estimating the additional cost to taxpayers for enhanced pensions, through state government contributions, will exceed $2.5 billion over 10 years through 2010-11. Retirement benefits for state employees will cost more than $400 million per year beginning in 2001-02, a figure partially offset by actuarial changes adopted by the CalPERS board. The additional employer (state tax dollars) contributions to the state employee retirement fund, as a result of SB 400 (Ortiz), will increase by about $205 million beginning in 2001-02, the analyst said. The additional cost to taxpayers will grow to around $280 million in 2004-05, then decline and level off at about $260 million by 2008-09, the report said. Without SB 400, the taxpayer cost of state employee pensions would decline from $1.2 billion paid in 1997-98 to $112 million in 2005-06, a decline of more than 90 percent. Cal-Tax opposed SB 400, even with the amendments to value the CalPERS system's assets at 95 percent of market value, instead of 90 percent, and shorten the amortization of excess assets to 20 years. The LAO report, prepared by Todd R. Clark, noted that the actuarial changes to reduce the impact on the state's general fund were offered by the CalPERS board only if the legislation passed to increase pension benefits.