SACRAMENTO -- Gov. Jerry Brown on Tuesday announced an 11th-hour deal with top Democratic lawmakers on pension reform that caps benefits for new employees, boosts their retirement age and requires them to pay at least half their pension costs.
The deal, estimated to save between $40 billion and $60 billion over 30 years, is considered the key to the success of Brown's November tax-hike initiative because the governor and Democratic leaders need to prove to suspicious voters that they are serious about controlling spending.
A single bill that contains all of the reform package, AB340, easily passed a conference committee Tuesday night and will be voted on by the Democratic-controlled Legislature on Friday.
"These reforms make fundamental changes that rein in costs and help to ensure that our public retirement system is sustainable for the long term," Brown said in a statement.
The deal left labor officials reeling with anger, Republicans griping and pension reformers wondering whether the steps are strong enough to control spiraling costs.
Brown, who introduced a 12-point plan last October, is getting most of what he asked for. But a "hybrid" plan -- where new employees would get part of their retirement benefits through a 401(k)-style plan -- was trashed.
If the Legislature approves the reforms, public retirement benefits would be lower than when Brown first entered the governor's office in 1975, the governor
Legislators must vote yes or no on the conference committee report when it lands in the Assembly and Senate chambers on Friday, so there will be no opportunity to amend the bill. And there won't be much of a chance to scrutinize it ether: Experts from CalPERS and CalSTRS, the state's two big pension funds, will only have weighed in with an analysis by the end of the week.
The pension reform agreement requires all new public employees to pay for at least 50 percent of their pensions, with the same formula being phased in for current state employees over the next two years.
For the formula to take effect at the local level, it would have to go through the collective-bargaining process. But local governments could impose 50-50 shared costs by 2018 if negotiations reach an impasse.
The reform also bans employees from enhancing pension payouts by artificially inflating their final salaries -- a practice known as "spiking."
"We're cleaning up a big mess," Brown said.
The new proposal puts a $110,100 cap on salary (20 percent more if the employee won't get Social Security) that can apply toward a pension for new employees.
Republicans called the Democrats' plan "much weaker" than Brown's 12-point plan.
"Let's be clear -- the Democratic proposal is no substitute for serious reforms to get our public employee pension crisis under control," said Assembly Republican Leader Connie Conway, R-Visalia.
Though employee pension and retiree health costs remain a small chunk -- about 6 percent -- of the state's general-fund spending, those costs have more than doubled in a decade.
The state also provides retirement programs for many local city and county workers. And many cities have been forced to slash services as their pension bills have skyrocketed in recent years.
The governor's plan has no direct effect on San Jose, which operates its own municipal employee retirement system. City voters in June voted
Reed called Brown's revised proposal "a significant accomplishment for the governor that will have a positive impact for many jurisdictions," but said "there is more work to be done," including a constitutional amendment "to ensure that the changes aren't undone by future legislatures."
Public employee groups characterized the deal as the largest rollback to retirement benefits in state history and said that it will hurt hundreds of thousands of low- and middle-class workers.
"We're considering whether we can defeat it, considering whether we can go to the courts," said Dave Low, chairman of Californians for Retirement Security.
Low said that the hybrid proposal was unacceptable to labor because it would "reduce the pension so significantly" that lower-income public workers would be forced to "retire in poverty." Even so, he said the pension-cap plan that emerged from the Legislature is "potentially worse."
But two Bay Area business groups, the Silicon Valley Leadership Group, and the Bay Area Council, welcomed Brown's announcement.
"If this was easy, this would have already been done," said Carl Guardino, president and CEO of the Silicon Valley Leadership Group.
Marcia Fritz, president of the California Foundation for Fiscal Responsibility, said the revised proposal maintains much of what Brown had called for back in October --reforms that his Republican opponents considered substantive enough that they copied them into bill form and urged Democrats to approve them.
But Fritz said it remained to be seen whether Brown's modified proposal will persuade voters that his plan will put a serious dent in the cost of public pensions.
Assemblyman Warren Furutani, D-Long Beach, co-chairman of the conference committee, said the reform will be painful but needed.
"I know this can't be easy to swallow, but if we're looking at pensions for public employees to be in existence forever," Furutani said, "let's make the adjustment now so we can get back on track rather than waiting and sticking our head in the sand."