Hotel California’s $36,000 Price Tag
In the United Kingdom, Tory Prime Minister David Cameron has warned that his new coalition government will have to invoke austerity cuts that could affect Brits for years, even decades. New Jersey GOP Gov. Chris Christie has turned into a conservative hero for telling an irate teacher who complained about her pay at a town hall meeting that she doesn’t have to teach. Illinois Gov. Pat Quinn signed a bill in April to cut pension benefits for new state workers — it raises the full-pension retirement age to 67 and bases pension benefits on the last eight years’ salaries — and he’s a Democrat.
The spirit has spread even to what Christie refers to as Hotel California. Gov. Arnold Schwarzenegger has vowed not to sign a budget that doesn’t include pension reform for new state workers. "I will hold up the budget," Schwarzenegger told Politico.com, "It doesn’t matter how long it drags — into the summer or fall or into November or after my administration — and I think people will support that."
Last week, the Libertarian-leaning Reason Foundation released a report that found that California’s unfunded pension liability "translates to roughly $36,000 for each California household." Author Adam B. Summers called the current system "unsustainable and unaffordable."
It’s been too tempting for dysfunctional Sacramento to pass pricey pension bonanzas. For example, in 1999, Gov. Gray Davis signed a bill that retroactively allowed some state employees to retire at age 50 with a pension as high as 90 percent of the last year’s salary.
Schwarzenegger tried to fix the problem. In 2005, he proposed ending state employees’ generous defined-benefit pensions by setting up 401(k)-style plans for new state hires. He collected 400,000 signatures for a special-election ballot measure toward that end.
Did a grateful public rally behind Schwarzenegger? Short answer: No. The governator did himself no favor by drafting a flawed measure that failed to address death and disability benefits. Schwarzenegger pulled the measure when it became clear there was little appetite for an augmented, improved version. As he explained, "I saw friends of law enforcement officers and crime victims and widows, many of them Republicans, saying, ‘Please, governor.’"
To which he replied: Uncle.
Later that year, Schwarzenegger watched voters defeat three other measures — including an initiative to curb state spending — with depressed turnout in GOP strongholds. If you can’t get Republicans to back you when you’re trying to cut state spending, what’s the point in sticking your thick neck out?
But with this broad national popular push to control out-of-control government costs, Schwarzenegger could succeed this year.
His economic adviser David Crane believes that the time is ripe for the governor’s proposed defined-benefit version of the 2005 overhaul. For one thing, current state workers are paying dearly for retirees’ benefits. They have had to endure furloughs, and as long as the status quo continues, he argued, they face "reduced chances for pay increases."
Also, the more Sacramento pays and owes yesterday’s workforce, the less Sacto can spend on programs dear to progressives today.
"If Illinois can do it," Crane told me, "California can do it." Or maybe Illinois can do it, but Hotel California still can’t.