Jerry Brown’s Pension Plan Gets Mixed Reviews From Reformers: New at Reason

Jerry Brown’s pension plan might be a start for dealing with California’s pension crisis. Might.

Steven Greenhut writes:

California Gov. Jerry Brown (D) and the state legislature mostly have avoided tackling the state’s unfunded pension liabilities, even though these taxpayer-backed debts to pay for pension promises to state and local employees have soared by 22 percent in the last year alone. Earlier this month, however, the governor introduced a plan to help pay down the liabilities, but recent analyses from prominent pension reformers have been mixed.

The governor’s plan is similar to the idea of pension-obligation bonds. That’s when a government borrows money to pay down escalating pension debts, in the hopes “that the bond proceeds, when invested with pension assets in higher-yielding asset classes, will be able to achieve a rate of return that is greater than the interest rate owed over the term of the bonds,” according to an explanation from the Government Finance Officers Association.

The governor’s plan, by contrast, would borrow money from the Surplus Money Investment Fund, a low-interest (around 1 percent) account where the state holds money to pay for short-term expenses. It would then make a supplemental $6 billion payment to the California Public Employees’ Retirement System (CalPERS), which currently predicts a rate of return of 7 percent (even though last fiscal year it received only 0.61 percent). If the CalPERS fund performs as predicted, it will allow the state to save $11 billion in pension liabilities over two decades.

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