Wednesday, September 26, 2012

California’s upcoming pension avalanche

Good article, but it could use a few extra numbers to prove its point.

On Sept. 12, Gov. Jerry Brown signed AB 340, the Pension Reform Act, in which he promised “sweeping bipartisan pension reform legislation that saves billions of taxpayer dollars by capping benefits, increasing the retirement age, stopping abusive practices and requiring state employees to pay at least half of their pension costs.”

Once Brown ceases his self-congratulatory strutting, he might realize that his reforms are in effect only against newly hired public employees. The state will only begin to see meaningful pension savings around the year 2055, when the current batch of public sector new-hires begin to retire. This extended time frame also gives powerful public employee unions decades to bribe and coerce lawmakers to peel back the hard fought reforms before they go into full effect.

Of course, everybody would like a comfortable pension after a lifetime’s worth of hard work, but the tragic fact remains that there is not enough private capital to support legions of public sector pensioners at current rates.

However, California’s pension saga certainly will come to a dramatic climax well before mid-century. Without a drastic change in trajectory, future economic and fiscal scenarios appear bleak, and someday California’s true pension reform will likely be hammered out by a judge in a bankruptcy court during a federally mandated restructuring package in return for federal bailouts needed for the state’s daily operating expenses.

If nothing is done, California’s insolvency drama likely will mimic the current Greek economic tragedy.

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