The calamity to come

OC Register "Gov. Arnold Schwarzenegger is trying to trim about $60 million a year out of rapidly rising pension costs for public employees through a series of minor tweaks in the law. But such savings pale in comparison to the enormous problem his predecessor, Gov. Gray Davis, and the Democratic-controlled Legislature imposed on the state.

Costs to the state for pensions have skyrocketed since 2001, rising from $611 million annually to $2.5 billion this year, according to a Los Angeles Times report. 'Beginning in 1999, Gov. Gray Davis signed an array of union-backed legislation that allowed state and local governments to sweeten retirement packages,' according to the newspaper. 'Lawmakers approving higher benefits were told that, because retirement trusts were flush with stock market earnings, the improvements wouldn't cost anything.'

But the market, not surprisingly, didn't continue to perform at those record levels, and now taxpayers are being forced to pick up the tab for retirement plans for public employees that were increased as much as 50 percent. Most private- sector employees receive defined contributions to their retirement plans, which means the company promises to contribute a set amount. The employee's retirement income depends upon how well the investments perform.

In the public sector, employees receive defined benefits, which means the government promises them a specific rate of return. If the market is doing well, the retirement accounts are flush with more than enough cash to meet the obligations, and everything is fine. But if politicians overpromise and markets perform less well than anticipated, taxpayers are obligated to pay the difference. That's what's happening here. Politicians rewarded politically reliable unions. The unions assured everybody that these benefits could be afforded. But they couldn't be.

Meanwhile, the excess costs of unreasonably generous pensions are being felt not just in state budget negotiations but locally. Many localities have quickly followed the state's lead and adopted dramatic hikes in public union benefits initiated at the state level. The crisis is just beginning, and unless pension benefits are reduced to more reasonable levels, Californians will watch other services dry up or face rapidly escalating tax increases to pay the bill."