In a display of power that ought to be used for public benefit, California’s public servants have instead prioritized their personal financial interests. Unions representing the state’s police and firefighters pushed a bill through the state legislature that will increase their pension benefits, despite the state’s pension systems barely achieving solvency thanks to critical reforms passed in 2012 combined with a stock market that has roared almost continuously since 2009.
To suggest that the American stock market will never end what is—notwithstanding a brief dip during the COVID era—one of the longest bull runs in history is to deny reality. But in a unanimous 33-0 vote in the state senate and a nearly unanimous 70-2 vote in the state assembly, denying economic reality is exactly what California’s legislators did. Assembly Bill 1383 will, as even California’s liberal political news site CalMatters put it, “let first responders retire earlier and with more money.”
We’ve seen this scenario once before and should have learned. In 1999, during the last heady moments of the internet-fueled stock market bubble (it burst in March 2000), public safety unions rammed through the California state legislature Senate Bill 400, which would allow them to “retire earlier and with more money.” Then, even as the internet bubble burst and the market crashed, every other public sector union pushed through similar legislation or “negotiated” similar benefit enhancements. They rolled through every state, city, and county agency in the state. And within a few years, California’s taxpayers were on the hook for hundreds of billions of dollars in unfunded pension liabilities, with no end in sight.
Pension finance is complicated. Most legislators, especially the Democrats who control over 75 percent of the seats in the state assembly and state senate, have no idea how it really works. It’s hard to explain. But to borrow a metaphor from the incomparable comedy Being There, a pension fund is like a large shrub in a garden. The mass of the shrub represents the assets, and the annual growth represents the investment returns those assets generate. Regular pruning that reduces the size of the shrub represents payments the pension funds make to retirees.
Visualizing a pension fund in this manner makes it easier to see how a pension fund can get into trouble. If you increase the payments to retirees, you risk shrinking the shrub faster than new growth can replace what’s been cut away. And the more the shrub shrinks, the less mass it can add through new growth. If it shrinks too fast, it cannot recover without adding, to sustain the metaphor, a great deal more water and fertilizer, and that water and fertilizer come from only two sources—either through payroll withholding from public employees enrolled in the pension plan or from taxpayers.
Here’s the kicker: When the shrub shrinks more than the actuaries projected it to shrink because (surprise!) the stock market corrected, the economy took a predictable dive, and the business cycle asserted itself, these pension plans are not designed to increase the required employee withholding. These so-called “unfunded payments” on the growing gap between how big the shrub needs to be and how small it has actually become are exclusively borne by taxpayers.
We may now dispense with the metaphor, because the consequences are not amusing. Pension payments are breaking state and municipal budgets across California. It got so bad that in 2012, Governor Jerry Brown used all his political power to engineer a comprehensive pension reform, the Public Employee Pension Reform Act (PEPRA), through the state legislature. We may criticize Brown for many things, but he had the brains and the leadership skill to address what had become a statewide crisis.
PEPRA was a compromise. It made modest reductions to public employee pension benefits, and what they had in most cases was still better than what they enjoyed prior to the 1999 enhancements. But it still left California’s state and local governments contending with a pension burden that crowded out funding for other government services and created an insatiable need to raise taxes. Government employers (taxpayers) split the “normal” cost of pensions 50/50 with employees. But as noted, when that “normal” payment isn’t enough to grow the pension fund assets enough to make up for the shrinkage caused by payments to retirees, then taxpayers pick up the unfunded payment. Depending on the jurisdiction, unfunded payments are already double to quadruple the normal payments.
A comprehensive discourse on pension finance is likely to bore anyone apart from the most determined finance nerd, and California’s state legislature sways to the other extreme: most of them are semi-numerate labor activists whose appetite for fiscal restraint is dwarfed by their appetite for more tax revenue. Under Newsom’s administration, state government spending has more than doubled at the same time as the state’s population has slightly declined. Spending in all areas is so out of control that the pension crisis—with literally hundreds of billions of dollars at stake—is lost in the noise.
Even after PEPRA came along, there was a growing bipartisan movement to reform the state’s pension system. The stock market in 2015 was just starting to recover, and it still looked like PEPRA wasn’t going to be enough. At the time, when a group of reformers met in downtown Sacramento, union activists turned up to disrupt the meeting. Representing themselves as victimized workers, however, became difficult when one of the protesters turned out to be a retiree whose pension was a paltry $183,690 per year. Thanks to cost-of-living increases, that same individual, who worked 30 years, collected $225,039 in 2024.
The fact that public sector pensions are guaranteed to deliver far more than Social Security benefits in exchange for far fewer years worked makes the pension crisis more than just a fiscal issue. No reasonable person questions our obligation to respect and recognize the risks that first responders live with throughout their careers. But public service ought to bring with it a balancing reciprocity, a recognition that taxpayers cannot be asked to pay for pensions that are several times greater than what most of them can ever hope to achieve. The numbers are stark.
The average pension benefit for a retired public safety employee is more than $80,000 per year. That average understates reality, because it includes retirees with less than 30 years of service, and it includes administrative personnel. A more representative example is the average for retired California Highway Patrol officers, which is more than $114,000 per year. On the lower end of the pension benefit spectrum are California’s teachers, where the average pension is $68,880 per year. But these averages are misleading.
To accrue a full pension typically requires 30 years of work. But these averages include payments to retirees who may have only worked a few years. Most major pension systems in California will qualify a participant to receive a pension after only five years of full-time work, and they can begin collecting their pensions as young as age 52.
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By contrast, through Social Security, an American who works the taxable maximum beginning at age 22 and retires at age 70, at most, will collect $62,172 per year. The average Social Security benefit is only $25,020 per year.
These are massive, undeniable disparities. Public sector employees, because they don’t have to pay down the “unfunded” shortfall in their pension system’s assets, only contribute about one quarter (or less) of the actual amount paid, with taxpayers covering the rest, and 30 years of service constitutes a full career with full benefits. Social Security recipients pay 50 percent of the required funding through withholding, and their benefit is calculated using their highest 35 years of earnings—meaning fewer than 35 years of work permanently lowers the benefit, since missing years are counted as zeros in the formula.
To summarize: As a percentage of the required payment into the fund, Social Security recipients pay twice as much, or more, than California’s public employees have to pay towards their retirement benefits; they must wait until full retirement age (66 to 67) to collect their full benefit, while many public safety employees can retire with full benefits after just 30 years of service, sometimes as young as 50 to 57; and their average retirement benefit is about one-third as much as the average public sector pension.
Against this disparity between the public servant and the private taxpayer, in California, public servants have just gotten more for themselves.
There is a misconception that Social Security will eventually go bankrupt. That’s ridiculous, because at any time, federal legislators have the option to increase payments, or decrease benefits, or raise the retirement age, or raise (or abolish) the maximum ceiling on withholding. They’ve already done this several times, incrementally each time, and they’ll always have that option. The benefit may shrink, the payments may rise, but bankruptcy will never happen.
No such luck with public sector pensions, despite being far more costly and far more generous than Social Security. The power of public sector unions not only prevents reform, but it also digs a deeper hole. But this is more than a fiscal problem, even though, as a fiscal problem, it rivals every other source of government deficits we’ve got. This also challenges the social contract that legitimizes government, and it undermines what it means to be an American citizen.
People who work for the government should not be a privileged class. If they exempt themselves from the challenges that face everyone surviving in the private sector, it exacerbates a preexisting temptation, which is for public sector unions to grow government, securing more dues-paying union members in the process, regardless of whether that growth is helping or harming the rest of America. If you don’t share a concern for the solvency of government benefits that accrue to private sector citizens, because your benefit package is superior and exempt from threats to its solvency, then why not throw open the borders, allow the destruction of K-12 public education, and, as a consequence, nurture additional, unaccountable bureaucracies that thrive when social problems get worse?
Shared fate between government workers and private citizens ought to be something we take for granted. Retirement security, as much as anything else where government has a role, should be a cornerstone of that shared fate. This concept even supersedes the question of whether a government program like Social Security should even exist. If taxpayer-funded retirement security is an inappropriate benefit for the government to give its citizens, then nobody should get it.
California’s public employees have lost sight of this fundamental value. They have put themselves above the public they are supposed to serve and have bullied a thoroughly cowed state legislature into doing their bidding. What a waste of political power.
The clout that allowed firefighters to increase their already sufficient pension benefits could have been used to demand the state legislature bring back the timber industry, which has been regulated into oblivion. That might reduce the number of super-fires that plague the state, saving billions of dollars and putting fewer firefighters in harm’s way.
Police officers in California could have used their clout to demand the state legislature start enforcing Proposition 36, which made crime illegal again. If police in California were allowed to do their jobs, recruitment and retention would not be a problem.
Neither of these priorities, which one would think are central to the identity of firefighters and police, mattered enough to come in front of give us more money. California is a broken state, and the public servants who have become the public masters have it in their power to fix it. They choose not to.
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