SACRAMENTO -- Delivering on Gov. Jerry Brown's campaign promise to reform the state's pension system, the Democratic-controlled Legislature sent him a bill Friday that will alter retirement benefits for public employees and save the state billions, though it will take years to see the results.

Though critics called it a small step toward tackling the runaway costs stressing state and local governments, the votes in both houses of the Legislature were overwhelming, handing Brown what could be a major success heading into the fall campaign.

"With strong bipartisan support, the state Legislature today passed the biggest rollback of public pensions in California history," Brown said in a statement. "This sweeping pension reform package will save tens of billions of taxpayer dollars and make the system more sustainable for the long term."

In asking voters to support his tax-hike initiative, Proposition 30, Brown will say that he and Democrats fulfilled voters' desires to ratchet down government spending, in part with the pension reform.

The bill, AB340, passed on a 50-8 vote, with two Republicans voting for it and two Democrats voting against it in the Assembly. Of the 22 Assembly members not voting, 19 were Republicans, three were Democrats.

The Senate later passed it 36-1, with Sen. Joel Anderson, R-San Diego, the only "no" vote.


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The legislation caps benefits for new public employees who make more than $110,100 -- 20 percent for those who don't get Social Security. It also eliminates pension "spiking" and raises the retirement age for new employees. That and other fixes are estimated to save between $52 billion and $72 billion over 30 years, according to CalPERS, one of the state's two largest pension funds. That was higher than estimates earlier in the week of $40 billion to $60 billion. CalSTRS, the pension fund for teachers, estimated there will be an extra $12 billion in savings on top of the CalPERS estimates.

The Legislature on Friday also fixed a gaping loophole in the pension reform bill that would actually have enabled more spiking of retirement pay in 20 California counties, including Alameda, Contra Costa and San Mateo. The existence of the loophole was first reported by Bay Area News Group columnist Dan Borenstein.

Action came relatively early in the marathon last day of the session amid a flurry of other last-minute votes, including one on workers' compensation.

When the debate over pensions began, state Senate leader Darrell Steinberg said, it was the egregious six-figure pensions, the double dipping, spiking and other abuses that outraged the public.

"This package we voted on deals with all that and a whole lot more," said Steinberg, D-Sacramento. "There are those who defined pension reform as eliminating defined-benefits middle-class pensions. I wouldn't go for that.

"I hope this puts this issue, which has so dominated our public discourse for a long time, if not away, at least to the side."

Steinberg disagreed with criticism that the reform failed to cut deeply into the state's long-term pension liabilities, but said he is open to looking into reforming public employees' health benefits as part of implementing federal health care regulations.

Assemblyman Jim Beall, D-San Jose, said the bill wasn't perfect but it's a start.

"Is now the time to defer this, or should we start the process?" Beall said. "We'll have to watch this over the next several years, but let's take this considerable step now."

Assemblyman Chris Norby, R-Fullerton, said the Legislature should have accepted the 12-point plan Brown proposed last October. Democrats, he said, "emasculated and gutted and amended" the governor's original proposal, which included a hybrid plan that would have required new employees to build part of their pensions through a 401(k)-style plan.

Republicans questioned whether labor truly was as outraged as they've expressed.

"This is a very, very, very short haircut for unions," said Assemblywoman Shannon Grove, R-Bakersfield.

"Each of us know in our hearts that this is a small, small, small step," said Sen. Mark Wyland, R-Escondido.

That's not how Democrats saw it. Under the reform, a future public employee working for 30 years and retiring at 55 would get 48 percent less than a current employee, said Sen. Joe Simitian, D-Palo Alto.

"You hear me right," Simitian said. "The difference between what we're obliged to pay today and what people will be entitled to is close to half. I don't think anyone can call that nibbling around the edges."

The bill does affect local governments that have CalPERS plans, but not cities such as San Jose, which has its own plan and passed its own reforms, now being challenged by unions in court.

Brown hopes to use the reforms -- and other cost-cutting moves he made this year -- to enhance his chances to win voter approval of his tax-hike initiative, Proposition 30, in November. His proposal would raise income taxes on the wealthy and boost the sales tax by a quarter-cent, raising about $6 billion a year, enough to prevent massive new cuts to schools and colleges.

Brown's initiative leads in the polls, though by a narrow margin. A rival tax initiative for schools, Proposition 38, the measure backed by wealthy civil rights attorney Molly Munger, has lagged in the polls.

After months of negotiations with Brown, legislators produced the pension legislation earlier this week, pounding out a 40-page bill with no time left to send it to the floor. Republicans complained that Democrats were rushing through a bill with little scrutiny.

But the howls of outrage came from labor groups, who said that they were being thrown under the bus by Brown and Democrats.

Dave Low, chairman of Californians for Retirement Security, said the governor was about to sign into law a "political overreaction on pensions."

"Ripping billions of dollars of pension benefits from public workers without collective bargaining is unfair and wrong," Low said. "Wall Street interests who caused the economic crisis and are now calling for unconstitutional and illegal actions should take stock of their victory before attempting to further undermine retirement security for public workers."

Contact Steven Harmon at 916-441-2101. Follow him at Twitter.com/ssharmon. Read the Political Blotter at IBAbuzz.com/politics.

CALIFORNIA’S PENSION REFORM

Retirement age: Raises the retirement age to 67 from 55 for most new employees to get full benefits, and 57 from 50 for new public safety employees
New formula: Changes the formulas for new employees upon which benefits are calculated
Pension caps: Caps benefits for new public employees who make more than $110,100; or those who make more than $132,120 but don’t get Social Security
Spiking: Eliminates pension “spiking,” or inflating salary in the years before retirement to increase pension
Double dipping: Eliminates most double dipping, or drawing a pension while working another government job
Felons: Forbids felons from collecting pensions