January 2005

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Cal-Tax Commentary

Larry McCarthy is president of the California Taxpayers’ Association in Sacramento.

State and local government pension costs have shot through the roof and are threatening the funding of essential programs throughout California. It is time for action to stanch the bleeding.

There are growing signs that this will be a front-burner topic for the state Legislature in 2005. Taxpayers are well-advised to watch developments closely.

Thanks to significant news coverage, particularly in The Sacramento Bee, the Legislature is scheduled to conduct a special hearing on January 24 in Sacramento. The Bee has uncovered outrageous abuse of disability retirements among top officers of the California Highway Patrol. Also, there are alarming numbers of sheriff’s and fire department personnel filing claims for injuries as they prepare retirement papers in Los Angeles County, according to the Los Angeles Daily News.

Meanwhile, the California Public Employees’ Retirement System board, which is dominated by public employee unions, has voted unanimously to sponsor legislation to help clamp down on disability retirement fraud.

Quick action by the Legislature is needed on measures to order regular medical examinations to make sure those on disability retirement – getting preferential tax treatment – are not misusing the system. Disability retirement was intended to generously protect public safety officers and their families if disabling injuries are sustained while working to safeguard Californians. Unfortunately, the program has wandered far from this objective.

There must be a well-defined crime of disability pension fraud with criminal and civil penalties, and restitution.  Beyond that, there must be review of disability retirements that may be sanctioned under current law but allow individuals to launch lucrative second careers. A final legislative package, whether sponsored by CalPERS or others, must not be watered down as it goes through the process.

The state could roll back its 1990 decision to base pensions on final year salaries, which has allowed many to spike their pensions, according to a report in The Bee. Cal-Tax agrees.

While pursuing these fixes in the system, the Legislature must also embrace sweeping reform of the entire public retirement system, state and local. This would prevent future state and local budget problems that now amount to billions of dollars.

Cal-Tax supports ACA 5, by Assemblyman Keith Richman, which would take future state workers out of the overly generous defined benefit pension system that will be impossible for taxpayers to pay for and place them in a defined contribution plan, similar to the 401(k) investment retirement plans available to the vast majority of those not working in government jobs.

Those currently employed with the state or local government would continue with the program they have, which has become unaffordable as governing bodies, under intense lobbying pressure from increasingly powerful public employee unions, have approved more and more pay and benefits.

Assemblyman Richman calls the runaway costs of public pensions a “ticking time bomb.” He is absolutely correct.