SACRAMENTO — CalPERS is on the verge of imposing a $600 million rate hike on the state, intensifying the political debate over the size of state employee pensions and their cost to taxpayers.
The increased contribution would put additional pressure on a state budget that's already facing a $19.1 billion deficit.
With almost no discussion, the CalPERS Benefits and Program Administration Committee voted unanimously Tuesday to increase the state's annual contribution to $3.88 billion, an 18 percent raise, starting with the fiscal year beginning July 1. The decision has to be ratified by the CalPERS full Board of Administration, which will vote on the matter today.
Gov. Schwarzenegger seized on the CalPERS committee vote, calling it fresh proof that the state's pensions are on an "unsustainable" path. Schwarzenegger and his allies are pushing legislation to overhaul public pensions, saying they're too costly at a time when workers in the private sector are coping with frozen pension plans and volatile 401(k) returns.
The state's pension dilemma has played out similarly at the local level.
Stanislaus County, the city of Ceres, the Superior Court and five special districts that make up the Stanislaus County Employees' Retirement Association have been forced to kick in tens of millions of dollars in extra contributions over the past two years to keep the plan properly funded.
In Merced County, supervisors were told this week they need to pay an extra $10 million this year to offset stock market losses and accounting errors.
Schwarzenegger is powerless to do anything about the increase in the contribution to CalPERS. By law, the California Public Employees' Retirement System has unilateral authority to dictate how much the state contributes.
In December, CalPERS signaled that the state's contribution would increase by $200 million a year, mainly to help it recover from the enormous investment losses in late 2008. Since then, Cal-PERS determined it needs even more money because of new assumptions about life expectancies and retirements.
Employees are "living longer, retiring sooner," said Alan Milligan, the fund's interim chief actuary.
Jason Sisney, a pension expert with the legislative analyst's office, said the increase might come in less than $600 million. He said Cal-PERS likely overestimated some payroll figures.
In any event, Sisney said the CalPERS contribution will be higher than what Schwarzenegger assumed in his new budget proposal.
The legislative analyst's office, in a report Tuesday on the budget plan, called for "major pension and retiree health reform" as part of a long-term solution to the state's fiscal woes.
Shortly after the CalPERS committee vote, Schwarz-enegger called it "further evidence of an unsustainable pension system that must be reformed." Pensions are taking dollars away from "education, health and public safety," he said.
The Republican governor is supporting Senate Bill 919, by Sen. Dennis Hollingsworth, R-Murrieta, to reduce pension benefits for new workers. They say the plan would save billions. Democrats, who control the Legislature and are supported by public employee unions, have resisted the idea. They say public pensions should remain generous to reward workers who earn smaller paychecks than their private-sector counterparts.
In his new budget proposal, Schwarzenegger also wants state workers to increase the amount they contribute to the pension fund. Unions say changes in worker pension contributions must be negotiated at the contract table.
CalPERS also plans to raise rates for the local governments and school districts that are members of the pension fund.
Schwarzenegger and Cal-PERS have been arguing over pension costs for months.
When CalPERS decided to gradually phase in the impact of its 2008 investment losses, the governor accused the fund of not facing its problems. He wanted CalPERS to raise the state's annual contribution to $4.8 billion. That's nearly $1 billion higher than the bill the pension fund is about to submit.
Democrats and labor leaders said Schwarzenegger wanted the higher bill to score political points.
Schwarzenegger aides have been quoting a Stanford University study saying the state's pension funds are facing a shortfall totaling more than $400 billion.
Pension officials dismissed the study because it assumes that investment returns, which generate the lion's share of the funds' dollars, will average 4.14 percent a year. That's far less than the projections of most pension and investment consultants.
The California State Teachers' Retirement System also is talking about higher contributions from the state. But unlike CalPERS, the teachers fund needs approval from the Legislature to raise rates. It is considering asking for a raise next year.