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Governor wants bipartisan commission to study state retiree costs
| Thursday, Dec 28 2006 6:16 PM
Last Updated: Thursday, Dec 28 2006 6:16 PM
Gov. Arnold Schwarzenegger said Thursday he will appoint a bipartisan commission to study the growing cost of funding state public pensions and retiree health benefits.
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The governor said the mounting costs, mostly due to health care, "remain one of the biggest problems facing governments everywhere" and threaten to take money away from education, public safety, environmental protection and health care for the poor.
Over time, the state will have to come up with between $40 and $70 billion to pay for the health benefits promised to retired state workers, according to the nonpartisan Legislative Analyst's Office. To do that, the LAO says the state should set aside an extra $6 billion a year.
The alternative is cutting benefits, but that is politically explosive. Public employees derailed a proposal Schwarzenegger supported in 2005 to privatize the state retirement system for new employees and can be expected to resist any attempt to cut back on health benefits.
This time, the governor is going much more slowly and trying to gain the cooperation of Democrats. The 12-member commission - half of whom will be appointed by the governor, the other half by Democratic leaders - has a year to ponder the problem.
"I think this approach is better," said Yvonne Walker, a vice president for SEIU Local 1000, which represents 87,000 state workers. "This is such a huge problem. It's not something you're going to be able to solve easily."
She added that she expects her union will have a seat on the commission.
Senate President Pro Tem Don Perata, D-Oakland, said the question of how to pay for retiree benefits "merits careful study" and pleaded for patience while the commission does its work.
Assembly Speaker Fabian Nunez, D-Los Angeles, issued a statement supporting the commission but opposing privatization of the state retirement system.
California's two main public retirement systems have unfunded pension liabilities, partly because their investment portfolios fell when the dot-com bubble burst. More problematic is the rising cost of health benefits for current and future retirees. The state has not set aside funds to pay for them.
New accounting rules require public agencies to look at the future cost of health benefits and report them starting in 2008. The amounts are expected to be staggering. Nationwide, unfunded liabilities could be as high as $600 billion to $1.3 trillion, according to JP Morgan Chase & Co.
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