As California gets closer to the climax of its budget showdown, pension reform has taken on a major role in the debate as a bargaining chip, while Gov. Jerry Brown tries to persuade Republicans to support his plan to extend tax increases in order to help close the state’s $26 billion budget gap.

Gov. Jerry Brown

The Little Hoover Commission, a California fiscal watchdog group, last week called for sweeping pension reform and urged the Governor to grant the state and local governments the authority to freeze pension benefits for current public sector workers. The combined funding of pension liabilities in the top ten benefits systems in the state came up short about $240 billion in 2010, according to the commission.

Even during the economic meltdown of 2008, the commission reported, 200 agencies raised their benefits.

Marcia Fritz, president of the California Foundation for Fiscal Responsibility, says the Little Hoover Institution’s recommendation “lays the framework” for a pension reform bill that could be passed as early as 2012 and “sets the stage” for a statewide constitutional amendment.

“Nationally, it’s the boldest pension reform plan I’ve seen yet,” she said. “California could be a leader in this if it passes.”

The changes to benefits to current workers are the parts of the proposal that will be hardest for politicians to swallow. Such action would possibly need to be put before the voters in a special election, Fritz said, much like the proposed tax extensions.

Public unions in California have friends in high places, unlike those in Wisconsin, and are more powerful. Union representatives quickly ripped into the report.

"The Little Hoover Commission is recommending something that it admits the courts have already determined is illegal and would violate the promise that government made to its public servants when they were hired," said Bruce Blanning, Executive Director of Professional Engineers in California Government, in a press release.

Fritz said the state needs to get over the idea that reform policies cannot tamper with such benefits.

“When you’re in a fiscal emergency, it makes absolutely no sense to imply that you can’t change things for current workers.”

In his 2010 campaign for Governor, Brown promised pension reform, calling on the state to stop pension spiking and the retroactive application of increased benefits for retirees, among other things. However, Brown stopped short of promising cuts to current workers’ benefits and did not put pension reform in his budget proposal.

Former Press Secretary for Gov. Arnold Schwarzenegger Aaron McLear wrote in an op-ed in the Sacramento Bee that Brown’s tax extension proposal would not move forward without clear indications that the Governor is serious about dealing with the pension problem:

“The question is whether these moves will persuade taxpayers to send more of their money to Sacramento. Until the governor delivers on his campaign promise to tackle pension reform, the answer is no.”

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