Pension reform plan draws heated opposition;
Governor touts agenda while public safety groups protest

Mark Martin, Patrick Hoge, Lynda Gledhill
SF Chronicle Staff Writers
Thursday, March 3, 2005

As Gov. Arnold Schwarzenegger visited the Bay Area to gather support for his agenda, his proposal to change the way the state handles public employee pensions was attacked in Sacramento by firefighters, police groups and even President Bush's chief fund-raiser in California.

Schwarzenegger made an afternoon stop in Hayward, where he told a bipartisan crowd of local business people inside a drapery manufacturing plant that lawmakers were spending "addicts'' and outlined three initiatives he is backing for a special election if the Legislature doesn't approve his proposals.

In the Capitol, lawmakers held hearings on two Schwarzenegger ideas: a plan to cap state spending in times of deficit and one that would eliminate guaranteed pension payouts to state employees.

Changing the pension system has been bitterly opposed by labor unions. But a dissenting view came from an unusual voice Wednesday, one with ties to two Schwarzenegger allies.

Gerald Parsky is Bush's leading fund-raiser in California and was appointed to the University of California's board of regents by former GOP Gov. Pete Wilson. Parsky is now the chairman of the board, and told an Assembly committee Wednesday that less-stable pensions could hinder the university system's ability to attract top-notch professors.

Parsky noted that UC faculty are typically paid about 14 percent less than their peers in similar systems, and guaranteed pensions have helped offset that in recruiting.

That could change if pensions are revamped, he said.

"Without a competitive compensation package, we will lose the best available faculty,'' Parsky said.

He noted that UC professors, researchers and doctors provide the state's "intellectual capital,'' which creates technological and business breakthroughs that produce jobs.

"California's economic competitiveness will suffer if we cannot retain the nation's best and brightest,'' he said.

Parsky added, however, that the university was concerned about pension costs and their relation to the stock market and said he thought lawmakers and the governor should work on some form of pension reform.

Schwarzenegger's pension proposal would cap the amount of money the state pays into employee pensions and have future government employees enter into 401(k)-style plans that limit taxpayer responsibility for retirement and put more of the burden on workers to save.

Shifting to a so-called defined contribution system will spare taxpayers that risk and allow employees more flexibility in investing their pensions, supporters argue.

An administration official noted that under the governor's proposal, UC officials who currently manage pensions for employees could continue to do so. Individual employees could simply give authority to UC pension fund managers to manage their individual retirement funds, said H.D. Palmer, spokesman for Schwarzenegger's Department of Finance.

At the same legislative hearing, labor officials and Democratic lawmakers criticized the pension plan, arguing that it could end death and disability benefits to employees like firefighters and California Highway Patrol officers who are injured or killed on the job. The benefits are currently part of pension packages that most employees receive, and would likely become a negotiation topic in collective bargaining if Schwarzenegger's proposal is adopted.

"It's a shoddy way to treat people who give their lives to public service, '' said Carrol Wills, of the firefighters union California Professional Firefighters, after the hearing.

Both Assemblyman Keith Richman, R-Northridge, who is authoring the legislative version of the pension overhaul, and Schwarzenegger's top budget official, Tom Campbell, told lawmakers the reform was not intended to do away with death or disability benefits.

Richman called the issue a "red herring,'' saying those types of benefits would be negotiated between unions and employees.

Schwarzenegger is now engaged on two parallel tracks to try to implement his agenda. While carrying legislation in Sacramento, he is also pushing initiatives in a statewide publicity campaign.

He has endorsed an initiative that would allow judges -- instead of lawmakers -- to draw voting districts. He also is supporting an initiative to make teachers work five years before obtaining tenure and the pension reform.

In Hayward, American Blinds & Draperies Inc. President Paul Russo said he supports Schwarzenegger, a Republican, even though he is a Democrat, because Schwarzenegger is taking decisive action to improve the business climate in the state.

"The politicians were deaf to the message that voters sent with the recall (of Gov. Gray Davis) in 2003,'' Russo said. "The voters want immediate changes.''

Outside Russo's plant, scores of protesters representing nurses, firefighters, teachers and other public employees loudly voiced their opposition to the governor's proposals.

"Those are the special interests,'' Schwarzenegger said inside, calling it unfair that public employees get "gold plated'' pension benefits that are better than what workers can get in the private sector.