Pension Shortfall in Illinois - Implications for California

Sooner or later you run out of other people's money, Margaret Thatcher is quoted as saying about socialism.  In Illinois, the day is coming sooner than in other states.  The pension shortfall for state workers is at $95 billion and growing at $17 million per day.  The WSJ calculates that this works out to $7300 for every man woman and child in the state.  Governor Quinn called for an emergency panel that would come up with some recommendation that would become law unless the legislature vetoed it.  If that sounds un-democratic and un-republican, to you, you're not alone.  For once I agree with a labor leader on the issue:

Daniel Montgomery, president of the Illinois Federation of Teachers, said he and other public-sector union leaders were staunchly opposed to Mr. Quinn's last-minute plan. 

"They abdicate their responsibility. They're elected to solve the problems of the state. Now they're saying: Let's create a commission of people who don't even have to be elected, who aren't responsible to anyone, and who may not know anything about the issue—and whatever they say becomes law," Mr. Montgomery said.

Precisely.  But hey, the lame duck session that failed to produce any kind of solution had time to address that most pressing problem, driver's licenses for illegal immigrants.  That's right, can't deal with a pension crisis but you can deal with a subject better left to the incoming legislators.  Governor Quinn said he will be happy to sign it.

Meanwhile, California's population isn't growing like it used to, with far less growth in the 0 to 10 age range than before.  How is this related?  Demographic imbalance exacerbates pension problems, whether for state workers or social security recipients.  So I expect Californians having fewer children in school to eventually translate to fewer workers to support the same number of state employees.  Because the state isn't going to reduce its employee count in the face of declining population.

Declining migration and falling birthrates have led to a drop in the number of children in California just as baby boomers reach retirement, creating an economic and demographic challenge for the nation's most populous state. 

But what really scared me for the future of the state's economy was this bit:

With more than 90% of the state's children under age 10 born in the state, "the majority of the next generation of workers will have been shaped by California's health and education systems,"

Given California's infamous inability to educate our youth, we are in deep trouble.

National City Schools - Central Falls Deja Vu?

Item 1. I wrote yesterday, but posted this morning, on the schools and municipal situation in Central Falls, RI. Right on cue, this morning's headlines detail some issues locally that mirror the issues back east. It appears that the National City schools are bracing for a strike, as teachers reject budget cutting measures like six furlough days per year. From this morning's U-T:

Faced with a $3 million deficit, the National School District said it was forced to take drastic measures by imposing six furlough days and raising class size caps this year to balance its budget — without the union’s consent. But labor leaders say the district is hording millions of dollars in its reserve account, exploiting the bad economy and bullying teachers to drive down wages and benefits.

Another case of defiant teachers clinging to their privileges and not recognizing the new political realities? Maybe. But here is what I found curious in the article. Management had a chance to settle on terms close to their desires:

When an independent fact-finding mediator issued a report that included a proposed settlement on July 19, the union’s representative signed off on the proposal that — among other things — called for five furloughs, representing a 2.7 percent pay cut.

A lawyer representing the district signed the same document, but said the district would not agree to all of the recommendations. The school board met in closed session the next day and rejected the proposal, in part because it called for a two-year contract when the district wanted a three-year agreement.

Why is the school board so adamant about getting all of their demands met? Can't answer that, but the fact that the teacher's union reps signed off so quickly makes me wonder about what is really going on. It may be that management is overplaying their admittedly strong hand. What is clear is that the district has serious budget difficulties, to the tune of $3 million dollars in the current school year budget. At least some of the pain to be endured must come from the teachers, but it remains an open question as to whether the school board erred in not taking the deal offered by mediation. Either way, fiscal realities like this are going to start impacting districts across the nation, causing reductions in pay for government employees such as teachers.

Item 2. Mayor Sanders not yet released plan to convert new city employees to a 401(k) style retirement plan is already drawing criticism. Public employee pensions are at the heart of the Central Falls post as well. One criticism is that by keeping new workers out of the old plan, there won't be fresh cash to keep the old system afloat. Said criticism is an implicit acknowledgement that the current system amounts to a Ponzi scheme. If the current system were properly accounted and funded, this change wouldn't matter. The other criticism comes from Michael Zucchet, union leader and former council member, saying that a properly funded 401(k) that has to include a decision on whether to account for placing the new workers in the social security system (current workers are exempt), would not save appreciable amounts of money. Maybe so, but that is totally beside the point. First, such a system insulates the city from the risks of investment fluctuation. Second, the workers themselves are better off because it forces the city to fully fund its contributions in the year earned, preventing a later reneging on promises. That Michael Zucchet would be opposed only shows that he has an agenda different from actually helping city employees.

Headwinds for the Economy

Despite signs of recovery in the broader economy, I remain concerned about a double dip recession. First, the evidence that the economy is recovering:

Economists have steadily grown more upbeat about growth in recent months and boosted their estimates for the fourth quarter of 2010 in this survey. On average, respondents now estimate the U.S. grew 3.3% at a seasonally adjusted annual rate in the fourth quarter—up from an estimate last month of 2.6% growth. The economy grew 2.6% in the third quarter.

However, the headwinds moving against the economy appear powerful. First, the housing market has never been allowed to adequately deflate. I repeat a previous graphic on the subject:


Just as the original recession was triggered by the fall in housing prices, I believe that a double dip could be similarly triggered.

State finances are going to get worse before they get better. First, their borrowing costs are rising.

Yields on 30-year triple-A rated general obligation bonds shot higher to 5.01% on Thursday, reflecting a spike in perceived risk, according to Thomson Reuters Municipal Market Data. The last time those bonds yielded 5% was Jan. 30, 2009, during the financial crisis.

Second, attempts to raise taxes are going to be met with business flight. Illinois' massive personal and corporate income tax increases will only encourage the loss of wealth producers. The news from Illinois:

In a deal hammered out by the state's Democratic leadership, the lame-duck legislature pushed through a 67% increase in the state income tax and a 45% increase in the corporate tax.
. . . "We're saying to the people of Illinois, 'For eight years we've overspent, now we're going to make it your problem,'" said Rep. Roger Eddy. "We're making up for our mistakes on your back."

Gov. Mitch Daniels of Indiana and Gov. Scott Walker are ready to welcome Illinois' businesses to their states.


Pension problems are hitting as the Baby Boomers are hitting retirement age. State, local, school district and union pensions are all underfunded. I have blogged and tweeted about a number of these problems already. To some extent demography is the key challenge here, look at the bulge in the U.S. demographic trend. (Note that this is 2000 data, so to make sense of it, add ten years to the age.) Note that we have the peak of the boomer bulge currently in the 50-54 age group, but there are significant numbers of people retiring.


The only hope is a quick deflation of the housing bubble, followed by more spending as the properties get bought up and corporations open up their bank accounts to invest in new growth.

City Hall and the Tea Party - 2011

This is my first post cross-posted to sdrostra.com. Dave Maass asked me earlier about what I thought the Tea Party would be watching locally in 2011. As the unofficial chief ideologist, I thought the question deserved an answer. (By the way, no one selected me, in a decentralized organization, people just do the job that needs to get done. Shared vision is the glue that keeps the Tea Party together, not a party organization.) Here is what we will be watching:

City Hall. Will the politicians at City Hall vote themselves new digs, without a vote of the people? Will they have the audacity to put it on the ballot, where I predict flaming defeat? This will be a litmus test for the new and more evenly balanced council. Rumors that this boondoggle might move ahead are in print.

Pensions. Despite a small bit of good news from this morning's paper, the pension problem is the main fiscal problem facing the City of San Diego. Regardless of the faux-fabulous headline: BUDGET GAP SHRINKS, the actual fact is that the city has 67.1% of the funding needed to close a $2.14 billion gap (technically, the unfunded actuarial liability), up from 66.5%, hardly cause for rejoicing, or even a headline for that matter. My headline would have been: Tiny Progress on Pension Funding. During the November campaign, Howard Wayne performed a public service by explaining that the employees are not contributing to their own pensions to the extent allowed by law and that increasing these required contributions would be an ethical and legal way to close the gap. Even though I endorsed Lorie Zapf, I want to give credit when Democrats positively contribute to the dialog. Carl DeMaio has been doing a good job of pointing out other ways that the city can deal with this funding crisis, with ideas like freezing pay increases and not calculating certain benefits as part of base salary. Perhaps this sounds a bit arcane, but this is the hard work that needs to be done to legally and ethically meet the city's pension obligations without increasing taxes. But the other key component is the number of employees. This brings us to another key issue.

Managed Competition. The issue of managed competition makes my blood boil, because it is a proven way to reduce the costs of city services, but it has been obstructed by left leaning council members since 2006. Often times, even when the city department wins the competition, the taxpayers still end up winners because to win the competition, that department streamlines its own operations. Today's U-T offers a glimmer of hope in this area, with Mayor Sanders announcing details of competing street sweeping and public utilities. The article only identified 134 full time employees impacted. Certainly a start, but much more needs to be done. We will be watching.

Lorie Zapf. Someone we will be watching is new council member, Lorie Zapf. (Disclosure: I live in District 6.) Lorie campaigned on reigning in non-essential spending, including dealing with the pension problem, to focus on public safety. She has largely disappeared from the radar following her election, although she did do a phone interview with LaDona Harvey on KOGO. The rumor around her possible support for a new City Hall is driving me nuts because it is so plainly contrary to her stated campaign positions. I have yet to receive a satisfactory answer, even though staffer Brian Pepin left me a voice message. This, from an initial inquiry before Christmas. My honest concern is that Lorie is beholden to business interests who helped get her elected. Nothing wrong with business, per se, but here in San Diego, they tend to team up with government in sweetheart deals not in the public interest. Speaking of potential deals,

Charger Stadium. I am a Charger fan, but I don't want the city subsidizing their stadium, nor the Padres, for that matter. Professional sports are businesses that should make a profit, period. It is not up to us, as taxpayers, to make them profitable. We will be watching the city council's actions. The shenanigans of our Republican mayor don't leave me confident that we can just trust the government on this one. So who will be the new mayor after the 2012 elections?

Carl DeMaio is a council member whom we will be watching. I have really loved much of what he has done over the last year, see the link. However, I have heard some private grumblings among Tea Party activists about him, so I will be digging deeper.

That's it, there are certainly other things to keep an eye on, but B-Daddy's Book of Management, Rule #2 is "The commodity in shortest supply is management attention." It behooves us to keep our eyes on the most important issues.

Another Pension Crisis

Teamster support for Democrats in 2008 isn't going to save them from pension disaster.

Two days ago I tweeted about the newest pension issue, the underfunding of the school district pensions, documented by the U-T. In the latest Reason magazine, yet another pension debacle is documented. This problem is a little trickier to explain. In many unionized industries, multiple companies join together to fund a defined benefit plan called a multiemployer plan. There are about 1,500 such plans covering 10 million workers. However, the plans have some catches that are causing problems. First, they are defined benefit plans, so stock market or other investment losses increase the funding required. Second, they have a "last man standing" rule, that works like this. If five companies were originally in the plan and four go bankrupt, the fifth company is liable for all of the pensions in the plan. Third, withdrawing from the plan requires discharging the debt to the plan, and every major firm that has withdrawn to reduce future liabilities has had to pay in, far more than the markets predicted. For example, in 2007, UPS had to cough up $6.1 billion to withdraw from the Teamsters plan.

This is where a new accounting rule put forward by the FASB comes into play. The FASB is moving towards requiring that company exposure to liabilities under multiemployer plans be fully disclosed in financial statements. (The FASB is not a government agency, but the SEC generally enforces adherence to their standards.) The problem facing the unions is that once the rules are in place, they will wipe huge amounts of book value from company balance sheets. This will erode stock price and put participating companies under threat of bankruptcy. The threat to private sector unions is huge. From Reason magazine "Labor's Last Stand?" by Mark Hemingway (not yet available online):

First, unions will no longer have one of their most effective selling points: the promise of a stable job and a generous defined-benefit retirement plan. Second, workers who are denied their promised retirement due to gross financial mismanagement are going to get awfully litigious, awfully fast. Once aggrieved union members become fully aware of the problem, you can expect a flurry of class action lawsuits, with workers looking to recoup their lost retirements by going after the assets of the employers -- and unions -- that managed their plans.

This is why the unions have been campaigning so hard for card check, they need fresh members to start shoring up the plans with new donations contributions. Further, Senator Bob Casey introduced legislation last March, the Orwellian named Create Jobs and Save Benefits Act of 2010 to create an unlimited entitlement to have the United States assume liability for these plans, just as if they were Treasury bonds. Fortunately, the bill has not made it out of committee and did not appear to get traction in the lame duck session. Neither did card check for that matter.

Meanwhile, the FASB has put on hold the proposed change, probably at the behest of unions. But it probably doesn't matter, because investors are increasingly demanding to understand these liabilities and pricing stocks accordingly. Ultimately, these plans collapse will go a long way to destroying what remains of America's private sector unions, down to 7% of the work force, because they will take down many of the companies that are liable for funding them.

Another Small Step - 401(k) for San Diego City Employees

Apparently the defeat of Proposition D has concentrated the minds of local politicians. Mayor Sanders announced a plan to put new workers into defined contribution plans yesterday. Labor leaders were of course skeptical, but made one comment with which I can agree.

Lorena Gonzalez, head of the San Diego-Imperial Counties Labor Council, said ending pensions for new hires does nothing to solve the city’s current budget crisis. . .

But you have to start reforms somewhere. Further, by changing to a defined contribution plan, the city will stabilize its future costs for pensions. Changes in market conditions won't cause changes to the city's required funding profile. Defined contribution shifts the risks to the employees, which is why the labor unions oppose. However, I am very happy to be in a defined contribution plan at my work. I think it will actually provide far better returns than the defined benefits portion of my plan, so I don't understand why labor leaders oppose it.

Carl DeMaio also pointed out that the plan does not really solve the current pension crisis.

Another Proposition D critic, Councilman Carl DeMaio, said the mayor’s plan is a good first step but doesn’t go far enough. He has proposed ballot measures that would cap the city’s labor costs and freeze salaries to control pension expenses.

“The bandwidth in the public will gravitate toward the plan that actually solves the problem,” DeMaio said. “I’m supportive of the 401(k) for new hires. It’s just that it’s not complete. It falls short of what the city needs ... You have to do a lot more.”

But the momentum is shifting in the debate over pensions and budget woes. It is becoming widely accepted that most of the problems we face with government deficits must be solved through spending cuts, however they are achieved.

The mission of the Tea Party is to hold our politicians' feet to the fire and push for real reform and budget cuts.

Isn't That Cute?

Headline in the San Diego U-T:

Council commits to achieve savings if Proposition D passes

Well isn't that cute, coming from the political class that got us into this mess. They pass a resolution in which they promise to enact reform. Aren't they adorable? Don't they look so sweet when they pretend they're passing real legislation:

Sanders acknowledged the financial thresholds in the resolution aren’t binding legally.

Well they looked good doing it.


Meanwhile from KUSI:

The pension expert who revealed the outrageous payout's in the city of Bell, has analyzed San Diego's pension payout's.

Marcia Fritz compiled a report from information gathered from San Diego's pension system.
Fritz's analysis projected what the top 10 pensioners would receive over their lifetimes, using their age and life expectancy.

According to Fritz the top 10 pensioners will receive 61-million dollars over 25 years.

Here is the money quote though:

Tuesday, the council will consider one of the 10-reforms tied to the tax increase. This is to increase what elected officials pay toward their pensions. Currently they pay 8%, the reform would boost that to 23%, but the charter says they should pay 50-percent.

The council's unwillingness to enact real reform now is the reason we should vote No on Proposition D. It's really very simple, enact meaningful reform, then see where we stand. No tax increases until that happens.

Join the No on D campaign by clicking below.




More reasons to vote No are at this web site. Oppose the half cent sales tax increase.

Reforming California's State and Local Pensions

Poster Boy for Pension and Salary Excess. The people of Bell, CA deserve to get their money back.

In a previous post, I thanked the U-T for forthrightly reporting that the root of the city's financial debacle is the granting of excessive pensions over the last decade. However, the most disturbing part of the article was this little paragraph:

For the most part, those changes affect new hires, with minor changes for the bulk of city employees and retirees whose promised benefits have strong legal standing to remain untouched. [emphasis added]

I don't know how the municipal pension law works in California specifically, but it needs to be change. In another post I looked at what was happening in Colorado and Minnesota where the states were being sued over changes in pension formulas. It appears to me that we need to amend the state constitution to allow pensions, even for current retirees to be reduced.

I think we should start work on an initiative that would modify the California constitution to allow cities and counties to reduce pension benefits of current employees as well as pensioners upon a vote of the people through a further initiative. Should a two-thirds protection apply? Perhaps, I wonder what you think. The constitutional amendment should be worded in a manner that invokes the sovereign immunity of the state of California to prevent suit in federal court. Without such a threat to enable city councils to negotiate reductions, we will be faced with the situation San Diego finds itself in:

In large part because of the 1996 and 2002 benefit increases, the city’s annual pension payment has grown.

In 2002, it was $54 million, or 7 percent of the operating budget.

Currently, the payment is $232 million, or 21 percent of the operating budget.

By 2025, it’s projected to be $512 million, or nearly 47 percent of the operating budget, if no changes are made to pensions or budgets.

Would that be legal? As a non-lawyer, it is hard for me to say. The concept of sovereign immunity would apply to California, so suit in federal court would not fly, especially if the changes were to the state constitution and specifically forbade suit in federal court. From wikipedia:

In Hans v. Louisiana, the Supreme Court of the United States held that the Eleventh Amendment re-affirms that states possess sovereign immunity and are therefore immune from being sued in federal court without their consent. In later cases, the Supreme Court has strengthened state sovereign immunity considerably. In Blatchford v. Native Village of Noatak, the court explained that

we have understood the Eleventh Amendment to stand not so much for what it says, but for the presupposition of our constitutional structure which it confirms: that the States entered the federal system with their sovereignty intact; that the judicial authority in Article III is limited by this sovereignty, and that a State will therefore not be subject to suit in federal court unless it has consented to suit, either expressly or in the "plan of the convention."

But what about the guarantee of a republican form of government and the prohibition against state abridging the privileges and immunities that citizens enjoy under the federal constitution under the fourteenth amendment? Under Article 1, Section 9, Congress is prohibited from passing any ex post facto law. Generally, the fourteenth amendment has only been applied to the bill of rights, but what about other sections of the constitution? And is a reduction of pension payments and ex post facto law, since it is a civil, not a criminal matter? I'm hoping Eugene Volokh can take this up.

I am open to suggestion as to how to get something like this going. I am not the organizing type. Tea party cause célèbre?

San Diego's Fiscal Crisis and... Hooray for Newspapers

Hooray for Newspapers

Three times in two weeks, Southern California newspapers show why they are a necessary part of the political landscape, doing the job that the framers envisioned. Dean has a great post on the L.A. Times pulling data together on teachers and another on how they exposed outrageous salaries and pensions in Bell, CA. Today, the San Diego U-T, in its new styling, lays out the history of the pensions issue and points out the inescapable conclusion in their headline that the current proposal for a sales tax increase is directly traceable to the cowardly actions of former mayors Susan Golding, Dick Murphy, City Manager Jack McGrory and the pension board members. If they worked at Enron, they would all be in jail. I had previously surmised that the U-T was pimping for the tax increase, now I am not so sure. I reiterate Dean's point that only news organizations have the necessary resources and legal clout to pull together the information needed to expose the wrong doing of elected officials and government employees.

The Roots of the Crisis

The U-T article is a must read for all Tea Party types. It lays out in stark detail the shenanigans and the cost to the taxpayer of allowing the ruling class to have its way unsupervised. Some quotes:

The push for a half-cent increase to San Diego’s sales tax has just begun, but it actually goes back to past decisions by city leaders who chose short-term political expediency over the long-term interests of taxpayers. . . . For example, the highest-paid retiree in the city’s pension system, former Assistant City Attorney Eugene Gordon, would have been due an annual benefit of roughly $64,600 after his 34 service years if city leaders hadn’t significantly increased retirement benefits. . . . The design of the city’s pension changed again in 2002, but things only got worse. Golding’s successor, Dick Murphy, and the City Council established a new underfunding plan that called for a second benefit increase for retirees. Their action instantly created a $1 billion-plus pension deficit. The increase helped win the favor of pension board members, many of whom were city workers, to let the city put far less money into the pension fund than was required. . . .

Currently, the payment is $232 million, or 21 percent of the operating budget.

By 2025, it’s projected to be $512 million, or nearly 47 percent of the operating budget, if no changes are made to pensions or budgets.

Exit question: What should we do now, given the strong legal standing that the current pensioners and employees have? B-Daddy is still noodling and researching the question, but I need some input. This may be the battle of the the century.

Pension Test Cases to Watch

Perhaps the most important judicial news seems to have escaped much coverage. (This is why I prefer the print edition of the paper, I would never have stumbled across this article otherwise.) Both the Colorado and Minnesota legislatures are being challenged in court over reductions they made in cost of living adjustments to their state employee pension plans. From the Wall Street Journal article by Jeannette Neumann:

In February, Colorado lawmakers passed a bill that reduced the pension system's cost-of-living adjustment from a fixed 3.5% a year to a maximum of 2%—but possibly less for current and future retirees.

Similarly, Minnesota reduced their automatic cost of living increase from 2.5% to 1%.

In response, Colorado and Minnesota have been hit by lawsuits filed by retirees, who claim the changes violate state law. Those retirees have "lived up to their end of the bargain, and the state is not living up to theirs," says Stephen Pincus, a Pittsburgh lawyer representing plaintiffs in both states.

First, a cost of living adjustment that is greater than the rate of inflation? This makes no sense to me, but I don't know anything about the law or case law here. Regardless, these cases are very important to watch. If the courts rule against the states, they are basically saying that employee pension benefits are guaranteed over and above any other spending. Such an outcome seems unlikely to survive, but if it did, it would not bode well for states seeking to ease budget woes. If I was in the legislature, this would be one of the first places I would look. Reducing an automatic increase in pensions does nothing to hurt the delivery of current services.

I am fairly certain that the pensioners will not be able to sue in federal court under the doctrine of sovereign immunity. The article states that the pensioners are suing under a claim that the changes violate state law. But if the changes violate state law, and the legislature approved and the governor signed the change, is that not an amendment to law? Unless the state constitution prevents this change, I don't see how the pensioner win their case. I am hoping for some legal analysis from Eugene Volokh, because I am having a hard time figuring this one out, and I know it is important.

Don't Give Up On California

At San Diego's Tea Party rally last Saturday, Dawn really jolted me when she said not to give up on California, adding "Remember, this is the Golden State." It made me realize that I had. I figured the state needed to "hit bottom" like a drunk, before it collectively came to its senses. The spread of a vibrant Tea Party movement within the state attests to the truth of what she said.

But how to fix it? Right now the state legislature is unable to cope with a $21 billion budget deficit. It is dominated by Democrats who would rather outlaw cussing or pass a veto-ready universal health insurance scheme, rather than deal with the reality of this crisis. This deficit is 1% of the state's GDP, making it sound small, but the state is already known for having both a high sales tax and a high income tax, so where the hell is the money going?

California Tax Revenue by type, Source Red County, California

My research has shown that overall spending as a percent of personal income has fluctuated up and down for the last decade. Unfortunately, in the good years the legislature spends every nickle of it, saving nothing for a rainy day.

Looking at this graph, things don't LOOK so bad. But notice that spending ramped up from 1997 to 2007 and that despite a recent downturn, we are still way up. Also, these figures are adjusted for inflation. There is no reason to believe that per capita spending, adjusted for inflation should vary from year to year. Here is the scarier unadjusted picture:



But it still doesn't answer where all that swag is going.

But here is a clue:

Approximately 85% of the state's 235,000 employees (not including higher education employees) are unionized. As the governor noted during his $83 billion budget roll-out, over the past decade pension costs for public employees increased 2,000%. State revenues increased only 24% over the same period. A Schwarzenegger adviser wrote in the San Jose Mercury News in the past few days that, "This year alone, $3 billion was diverted to pension costs from other programs." There are now more than 15,000 government retirees statewide who receive pensions that exceed $100,000 a year, according to the California Foundation for Fiscal Responsibility.

Amazingly, even Willie Brown, seems to agree there is a problem. From the same article:

My hope is that these and other reforms find support in unlikely places. Former Assembly Speaker Willie Brown, a well-known liberal voice, recently wrote this in the San Francisco Chronicle: "The deal used to be that civil servants were paid less than private sector workers in exchange for an understanding that they had job security for life. But we politicians—pushed by our friends in labor—gradually expanded pay and benefits . . . while keeping the job protections and layering on incredibly generous retirement packages. . . . [A]t some point, someone is going to have to get honest about the fact."

So what's to be done? Amazingly I found this Deloitte Research Study that had some good ideas. (I usually have a low opinion of consultants.) Here are a few that I like:

• Curtail abuses of policy primarily in pay raises and sick leave that allow inflation of benefits.
• Raise employee contribution requirements. After all these are generous pensions, state employees should contribute, the way I do for my federal pension.
  
• Develop a plan and stick to it. Stop shifting the burden to future generations.
• Put newly hired workers into lower cost programs.
• Limit cost of living raises to actual inflation.
• Scale back generous early retirement programs.

But the one thing they don't say that would give short term relief is: REDUCE THE NUMBER OF STATE EMPLOYEES. (Sorry for shouting).

By shifting work to contractors, who usually have a defined contribution plan and away from the defined benefits plan the state provides, it will immediately start reducing the burden of future pensions on the state. Further, there are many areas where the state could contract for services and save money, because, as Willie Brown points out, state workers are paid above the private sector average.

These are things that could be done without cutting state "services." Cutting actual programs is a blog for another day. But I just want to point out one quick win. About 25% of the state budget is for "health and human services," much of which is for welfare. From the Fox & Hounds blog:

In 1996, Congress took much-needed action to reform the federal welfare program. The reforms tore down the old federal entitlement program and empowered states to implement genuine welfare-to-work programs. Caseloads across the country, including California’s, began to decline.

But we didn’t go far enough. While other states tightened their time limits and sanctions, California’s program remained lax, with extended time limits and weak sanction policies. The direct consequence of the state’s failure to clean up the system is the disproportionately high welfare rate we face today.

And we’ve tolerated these bloated welfare rolls despite the fact that most CalWORKs recipients aren’t following the rules. The law requires welfare recipients to meet a minimum level of work participation, but only 22 percent of work-eligible welfare recipients in California actually do so. Incredibly, of California recipients required to work in 2007, 64 percent didn’t work at all—not a single hour. This must change.

My link to that article is not an endorsement of Steve Poizner for Governor. I am still sorting out my options.

Summary of my overly long blog post. Fix spending by reforming pensions, reducing the number of state workers and running our welfare system like the rest of the country.