PUBLIC COMMENTS OF KEITH RICHMAN, MD

April 26, 2007

. . . speaking before California's Public Employee Post-Employment Benefits Commission at its second meeting in Orange:

Mr. Chairman and Members, good morning.

My name is Keith Richman and I am President of the California Foundation for Fiscal Responsibility, a coalition of taxpayer groups and local leaders dedicated to addressing California's public pension and retiree health care cost crisis.

I would like to thank Governor Schwarzenegger and this Commission for taking on this fiscal crisis. Left unchecked, the spiraling cost of retiree benefits will crowd out the needed investments in education, health care, transportation and public safety our state and local governments must make to improve our quality of life, and ensure that California remains competitive in a global economy.

Indeed, we are already seeing many of those impacts now, both at the state and local level. They have been well chronicled in the press from around the state.
 

I would like to focus on what should be the most important aspect of this Commission's work -- determining a fair retirement benefit for new career public employees. And let me emphasize, for new employees only. Retirement benefits for current employees were set by negotiations between public agency officials and their employee unions and cannot be changed.

These very generous benefits, the highest in the nation, come at an unsustainable price. The first step in resolving this fiscal crisis is placing a fiscally responsible limit on the retirement benefits offered to all new public employees.

Using an analytical, instead of political, approach to benefits design, CFFR started with a widely recognized target replacement income level of 75-80% and crafted a set of benefits to deliver that income at appropriate retirement ages. In our view, those retirement ages are 55 for police officers and firefighters, 60 for other safety employees and Social Security retirement age for everyone else.

Using the "three legged stool" approach that relies upon Social Security benefits where available, a guaranteed defined benefit plan and employer programs for personal savings, CFFR has found that a fair retirement package can be offered using defined benefit formulas similar to those currently used in California.

Our economic modeling shows the state's unfunded liabilities for retiree health care can be fully paid with savings from fiscally responsible pension benefits within 30 years. The key factor is requiring public employees to work a full career to receive full benefits -- no longer allowing office workers, road workers, mechanics, engineers and alike to retire at age 55 with fully paid health care benefits. There is no reason these public employees performing ordinary jobs should be allowed to retire at least 10 years ahead of their private sector counterparts.

This Commission must also consider measures to stop the politicians' raids on public pension funds. The intentional under-funding of annual pension contributions at all levels of government must be stopped, as it relies upon illusory surpluses when stock market returns are high that must be paid back when investment returns hit the bottom of the market cycle.

We owe it to employees and taxpayers to keep these pension funds secure and not divert them to other purposes -- a fiscally responsible principle that will become even more important once retiree health care trust funds are finally established.

The California Foundation for Fiscal Responsibility will be filing a citizen's initiative in the weeks ahead to act as a template for a new, fiscally responsible promise to all new public employees. We look forward to an opportunity to discuss the details of our plan with the Commission. We are hopeful this Commission and the Legislature will adopt a similar retirement benefit limit and trust fund protections that would eliminate the need for our initiative.

Yet as you will hear today, this crisis is too important to depend upon the weak wills of politicians who refuse to stand up to the special interest groups and who have thus far sacrificed California's fiscal health for their own comfort and political futures. The California Foundation for Fiscal Responsibility is hoping for the best, but preparing for politics as usual.