- The Washington Times - Saturday, August 1, 2009

SACRAMENTO, Calif. | California’s rapid economic decline has prompted Gov. Arnold Schwarzenegger to propose what once was unthinkable - rolling back generous pensions in a state heavily influenced by public employee unions.

The Republican governor said he is motivated by the need to save money. California has at least $63 billion in unfunded pension liabilities, an amount equal to roughly two-thirds of all annual general fund spending.

The concern is shared across the country, as local and state governments wrestle with hundreds of billions of dollars in unfunded public employee pension and retiree health care costs.

New Mexico this year approved longer work requirements - from 25 years to 30 years - for state employees starting in 2010.

New Jersey last year raised the minimum age to qualify for benefits from 60 to 62.

Kentucky now requires new police hires to contribute 1 percent of their pay to help cover retiree health benefits.

And Georgia has started a hybrid plan for new state hires that blends a defined-benefit pension - with set payments based on salaries - and a 401(k).

In California, Mr. Schwarzenegger dropped long-term pension reform from previous negotiations with lawmakers to close the state’s $24 billion budget deficit. He said this week that he would press for pension reform now that the state has enacted the revised spending plan.

“Again, everyone understands we are running out of money,” he told reporters. “We cannot continue promising people things that we cannot deliver on.”

His proposal would not change the pension system for current workers, but would lower benefits for new employees. His office said such changes would save the state some $95 billion over 30 years.

His administration has estimated that unfunded pension liabilities could be as high as $300 billion if current investments fail to generate the projected returns.

But the reform proposal met with quick resistance in a state where large public employee unions contribute heavily to Democrats, the state’s majority party.

The potential for reduced retirement benefits adds to concern that California will not be able to attract qualified employees, said Christopher Voight, executive director for the California Association of Professional Scientists.

For example, he said, the state needs microbiologists to test for swine flu, but has a hard time keeping them because they tend to leave for better pay at private labs.

Mr. Schwarzenegger wants to start by undoing a retirement package passed by California lawmakers in 1999 and signed by then-Gov. Gray Davis, a Democrat.

Most state workers can retire as early as age 55. Their pension is based on 2 percent of their final salary multiplied by the number of years they worked. The payments rise with inflation.

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