Our View: Budget task force focuses on pensions
California can use all the help it can get to solve its endemic budget crisis. So, although it still comes up short in many ways, we welcome the Golden State report released by the State Budget Crisis Task Force. The task force has been releasing reports on individual states, such New York and New Jersey, as well as an overview report in July.
The group is headed by two distinguished Democratic co-chairs. Paul Volcker, as chairman of the Federal Reserve, imposed tight-money policies in the late 1970s and early 1980s that wrung out the high inflation of that era, although at the cost of two deep recessions. And Richard Ravitch, the former lieutenant governor of New York, as a businessman had helped solve that state's budget problems. Other members include Republican George Shultz, the former secretary of state, and David Crane, a budget expert who has been calling for pension reform.
"It's a nice effort, but it lacks specific solutions," Esmael Adibi told us; he's the director of the Anderson Center for Economic Research at Chapman University and an adviser to state Controller John Chiang. "Details are important."
The best part of the report is that it calls for public-employee pension reform more extensive than that approved by the Legislature in August and signed last week by Gov. Jerry Brown. "Recent legislation largely addressed pensions for those hired after 2012 but left existing obligations largely unaddressed," the report's summary stated. Commendably, the panel also brought up this: "Retiree health care costs must be considered."
To implement such a real reform, Adibi said, pensions for both new hires and current employees must be shifted to 401(k)-style investment funds, what's called a "defined contribution" plan. That way, taxpayers aren't on the hook, as they are now, if a "defined benefit" pension plan lacks the funds to pay promised benefits.
The reform needed to control medical costs, Adibi said, is that the public employees ought to be "shifted to Medicare, the same as everybody else."
The biggest problem in the report is that it doesn't do much to address the state's deficits. It calls for a two-year budgeting cycle. That's part of Proposition 31 on the Nov. 6 ballot. (However, Prop. 31 contains many other budget changes.) The task force also called for "a five-year fiscal forecast focused on the areas of education, health and human services, and criminal justice" and "a five-year strategic growth and infrastructure financial plan."
Those suggestions aren't bad ideas. "But the real solution is we have to control spending," Adibi said. "When the money comes in, the politicians spend it. When it's not there, they say we're short and have to raise taxes." That's why there are three tax-increase measures on the November ballot, Props. 30, 38 and 39.
What's really needed, we believe, is a return to the Gann Limit, which balanced California budgets from its enactment by voters in 1979 until voters repealed it in 1990. The law limited budget increases to a formula based on increased population plus inflation.
On taxes, the report urged, "Consider ways to broaden the base of taxation while lowering tax rates." We're all for lowering tax rates, by closing loopholes, as with the flat tax suggested by economist Arthur Laffer. But in recent California history, "broaden the tax base" too often has translated to trying to dump the Proposition 13 limits on raising property taxes.