State controller steps forward on retiree costs
After Arnold Schwarzenegger was defeated in a series of reform-minded statewide initiatives in November 2005, he has left a gaping leadership void, choosing to embrace popular borrow-and-spend policies while leaving the state's deeply troubling and fundamental fiscal problems largely unaddressed.
We've been wondering when, or if, another state leader would step forward and become a fiscal truth-teller. Earlier this week, State Controller John Chiang filled this role by not only pointing to the huge unfunded liability state taxpayers face to pay promised health care benefits for retired state workers, but by proposing a partial solution to the problem.
Mr. Chiang released the results of a survey showing that it will cost about $48 billion to pay for retiree health care costs over the next 30 years. The controller wants the state to set aside $2.23 billion a year, starting immediately, to address the problem. Even if legislators take that sound advice, the liability will still top $31 billion, but some set-aside is better than nothing. New federal accounting rules required the state to detail this liability, but Mr. Chiang is publicizing it widely and coming up with some means to fund this taxpayer liability.
The governor, according to reports by editorial writer Chris Reed at the San Diego Union-Tribune, has been silent on the findings. That's no surprise. In December 2006, the governor signed an executive order establishing a 12-member commission to examine the unfunded liability problems, analyze the options and deliver recommendations by Jan. 1, 2008. So the governor is punting, choosing more study over action, even though his own office points to the problems ahead: $49 billion in unfunded retirement benefits for state workers, and somewhere between $40 billion and $70 billion in unfunded health-care costs. "The annual cost to California's state budget for pensions rose from $160 million in 2001 to $2.6 billion in 2006, reducing funds for other purposes," according to his office.
Mr. Chiang's set-aside plan is a good idea. But the other part of the solution is to rein in the promises and cut benefit levels for new hires. Gov. Schwarzenegger at one point had toyed with the idea of switching new state workers to a defined-contribution retirement plan, of the sort increasingly found in the private sector. But he gave up that idea after facing the expected opposition from unions. This idea should be back on the table. Locally, Orange County supervisors have come up with a way to better fund the retiree health care plan for county workers by trimming back on some of the more unreasonably costly parts of the package.
Government employees enjoy far more lucrative retirement benefits than those received by private-sector workers. So far, few politicians have wanted to talk about the resulting liabilities, let alone offer any solutions.
Although controller Chiang doesn't go far enough with his proposals, he at least has gotten a needed discussion reignited, filling a leadership void left by a governor no longer interested in the big, important confrontations that are part of making big, important reforms.
