Newsom Vetoes AB 1383 — and Gets This One Right
Every once in a while, Sacramento delivers a surprise.
Gov. Gavin Newsom vetoed AB 1383 this week, stopping a high-profile effort by public safety unions to roll back key provisions of California’s 2012 Public Employees’ Pension Reform Act (PEPRA) that could have radically increased pension costs for state and local governments.
The veto was anything but inevitable. AB 1383 moved easily through the Legislature with overwhelming bipartisan support, passing 33–0 in the Senate and 69–2 in the Assembly. That support came despite warnings about the long-term fiscal consequences from an army of local government leaders, fiscal experts, and veterans of California’s hard-fought pension battles over the last quarter century.
Legislators were unwilling to risk the political blowback from crossing powerful police and firefighter unions pushing the bill, particularly in an election year, according to Lance Christensen, California Policy Center’s Vice President of Government Affairs. That made Newsom’s veto all the more surprising to seasoned Capitol observers.
“Jot this date in your journal of impossible moments,” said Christensen. “I’m going to congratulate and thank Gov. Newsom for vetoing a fiscally irresponsible bill, AB 1383. Yes, let’s value our public safety employees, but not at the expense of service insolvency in every city and county in the state.”
The stakes were substantial. AB 1383 would have created billions in additional long-term pension obligations for state and local governments. The bill would have allowed public safety workers to collect at 55 what they now earn at 57 while opening a new 3-percent-at-55 tier. And because the richer formulas are bargained in closed-session meetings where the public is not present, government employers can quietly agree to shoulder even more of the workers’ share, shifting still more onto the unwitting public.
Taxpayers would have absorbed hundreds of millions of dollars in new pension liabilities to enhance an already generous retirement benefit — without receiving any additional public safety services in return.
California has been down this road before.
In 1999, lawmakers significantly expanded pension benefits under SB 400. The law increased benefits by as much as 50 percent, retroactive to the date of hire, turning fully funded pension plans into plans that were only about two-thirds funded. The change created massive unfunded liabilities, adding more than $100 billion in unanticipated pension debt while dramatically increasing required annual contributions and debt payments for state and local governments.
As pension costs soared, cities and counties had fewer dollars for basic services, forcing layoffs, service cuts and other painful budget choices.
PEPRA was enacted in 2012 to stop the bleeding. As Christensen explained in the Sacramento Bee in July, the package of commonsense pension reforms “wasn’t perfect, but PEPRA was a serious, meaningful commitment that California would not make the same ruinous mistake again.” AB 1383 would have unwound several of those carefully crafted reforms.
Had it been signed into law, public safety unions would have secured enhanced pension benefits that could have given every other government union an incentive to demand the same treatment.
Newsom acknowledged as much in his veto message:
“This measure would partially reverse some of PEPRA’s reforms and significantly increase state and local government costs. Moreover, by widening the retirement benefit gap between safety members and non-safety members, this measure invites future changes that would expose our retirement system to additional risk.
PEPRA was a necessary reform born of a crisis exacerbated by past policy decisions. I still recall — before PEPRA’s passage in 2012 — the alarming forecasts, the fierce criticism of public employees, and the growing pressure to eliminate defined benefit plans altogether. This is an era of California history I do not want to repeat. I fear that undoing PEPRA’s reforms, even partially, risks us doing exactly that.”
CPC Center for Public Accountability Director John Moorlach, who has spent decades sounding the alarm about California’s unfunded pension obligations, welcomed the unexpected veto.
“The wisdom of Newsom’s veto is that he prevented another hole in an already leaking ship of state, as so many local cities are dealing with massive debts,” said Moorlach. “And it stops the potential acrimony of the non-safety public employee unions crying ‘It’s not fair’ and demanding similar modifications.”
Christensen praised local elected officials who courageously risked political backlash and pressed Newsom to veto AB 1383, raising the red flag over the devastating fiscal impact it would have had on cities and counties.
“Local government leaders showed incredible backbone while lawmakers in Sacramento caved to relentless pressure from the unions,” Christensen said.
Still, don’t declare the pension wars over just yet. California will have a new governor in January. And if it’s Xavier Becerra, the next battle may come sooner than you think.