Commission Will Consider Costs of Retiree Health Benefits, Pensions
Gov. Arnold Schwarzenegger (R) on Thursday signed an executive order creating the Public Employee Post-Employment Benefits Commission, the Sacramento Bee reports. The commission will offer proposals to address the cost of health benefits and pensions for retired public employees in California.
A February 2006 report by the Legislative Analyst Office estimates the cost of future health care benefits for retired state and University of California employees at $40 billion to $70 billion (Yamamura, Sacramento Bee, 12/29/06). Such costs would be spread over 30 years (Reuters/New York Times, 12/29/06).
The state currently spends $1 billion annually on a pay-as-you-go basis to meet the costs of current retiree health care benefits.
Jason Dickerson, principal fiscal and policy analyst at LAO, said the state would need to contribute $6 billion annually for 30 years to cover the cost of future retiree health care benefits. He said the state could begin to work toward covering that cost by doubling its current contribution to retiree health care to $2 billion annually.
Mike Genest, director of the Department of Finance, said the state pension funds would need to invest an additional $49 billion immediately to cover pension costs for public employees (Sacramento Bee, 12/29/06).
The governor will appoint six of the commission's 12 members (Roberts, Silicon Valley/San Jose Business Journal, 12/28/06). Senate President Pro Tempore Don Perata (D-Oakland) and Assembly Speaker Fabian Nuñez (D-Los Angeles) each will appoint three members (Yi, San Francisco Chronicle, 12/29/06).
The commission is directed to report its recommendations to reduce or control retiree health care and pension costs to the Legislature by Jan. 1, 2008 (Harmon, MediaNews/San Mateo County Times, 12/29/06).
New rules issued by the Government Accounting Standards Board require the state to disclose unfunded health care and pension liabilities by 2009 (Sacramento Bee, 12/29/06).
The governor said costs from health care benefits and pensions "remain one of the biggest problems facing governments everywhere," adding that increases to such costs could affect governments' contributions to provide health care services to low-income residents, as well as fund education, public safety and environmental protection programs (Kurtzmasn, AP/Bakersfield Californian, 12/28/06).
Adam Mendelsohn, deputy chief of staff for communications for the governor, said Schwarzenegger "is creating this commission to go out and look at all the options," but added that the "governor does not support tax increases" (Silicon Valley/San Jose Business Journal, 12/28/06).
Perata said, "I encourage everyone to let the process move ahead without presupposing what conclusions the commission will reach or intervening to politically influence its deliberations."
Nuñez said, "It makes sense for a bipartisan review of our post-employment benefit system for the long haul." He added, "But this should not be viewed by any stretch as an attack on a system that has performed well and provides economic security to hundreds of thousands of Californians or an indication of any interest in turning the system over to interests whose only concern is their profits."
MediaNews/Times reports that labor groups said they hope their representatives have a strong presence among the commission's members (MediaNews/Oakland Tribune, 12/29/06).
"[P]ension and health obligations" for retired public employees "are fast-growing obligations that are rapidly consuming more and more of our budget dollars," Schwarzenegger writes in a Bee opinion piece. "We must seek ways to meet those obligations without harming other government programs and taxpayers or handing invoices to future generations," he writes.
The governor concludes, "I am confident that once we know exactly what we are facing and our best options for addressing it, we can find a common-sense approach that protects California, preserves promised retirement benefits and ensures the Golden State's economic vitality" (Schwarzenegger, Sacramento Bee, 12/29/06).
"State legislators should not use the commission as political cover for a year of inaction," a Riverside Press-Enterprise editorial states, noting that the commission's recommendations are not due to the Legislature until January 2008. According to the editorial, "simply pushing the bills onto future generations is irresponsible." The editorial concludes, "Filling the funding gap needs to begin now" (Riverside Press-Enterprise, 1/2).
Los Angeles County's outgoing Chief Administrative Officer David Janssen on Thursday recommended that the county transfer $400 million in surplus pension fund earnings to a trust fund to help pay for retiree health benefits, the Long Beach Press-Telegram reports.
The surplus funds resulted from payments made by the county over the years to pay off $2.5 billion in 1994 pension bonds.
The county faces a $9 billion liability for retiree health care benefits, according to the Telegram (Anderson, Long Beach Press-Telegram, 12/28/06).