The public pension crisis that threatens to financially bury California municipalities, counties and the state itself has ignited a belated flurry of political vows, rhetoric and a good deal of babble in recent weeks aimed at staving off an economic Katrina.

Meanwhile, billions of dollars in unfunded liabilities for promised public-employee pension plans are pushing dozens of municipalities toward the same fate as the city of Vallejo, which filed for bankruptcy two years ago, overwhelmed by massive public debt in unfunded pension and employee health care obligations.

If you’ve been around for any length of time, you’ve heard and seen half-hearted efforts before simply evaporating when push came to shove, and powerful public employee unions stepped in, causing the errant political leaders to return to the reservation lest they alienate their controlling constituency – those same public employee unions.

However, if there is any redeeming factor in this painful economic tidal wave we’ve all endured, it may be that the true cost of years of nearly unrestrained public-employee pension promises has finally been exposed and the harsh but inevitable day of financial reckoning is closing in on us.

It also may be that an increasingly active business community, and an ever-alarmed electorate, have galvanized and are no longer satisfied with empty talk and promises. Now our political leaders must go head to head with the unions to stop ransoming our fiscal future and fix this crisis of their own making.

That is why the Los Angeles County Business Federation, or BizFed, representing the powerful and united voice of more than 100,000 businesses across Los Angeles County, is issuing a demand for real pension reform. We and the voters will be holding our political officials’ feet to the fire. They – and they alone – are accountable for bringing us to the abyss of insolvency.

BizFed’s board of directors reflects more than 70 countywide business and trade organizations unified in calling for scrapping the current public employee defined-benefits pension system and thereby stopping the hemorrhaging of government.

Defined-contribution system

Instead, BizFed believes government should institute a defined-contribution (401(k)-style) system common to most private-sector pension plans. Further, we should alter the financially unsustainable lifetime health care guarantees for public employee retirees and their families, and institute plans more closely resembling those for retirees in the private sector.

And if there is any doubt about the need for reform, consider:

• For many municipalities and agencies, contribution amounts will soon exceed 40 percent of payroll!

• Los Angeles County earlier this year estimated its pension contributions will soar from $804 million now to $1.27 billion by 2012-13!

The city of Los Angeles’ contribution to its pension system is projected to double from $653 million now to $1.3 billion in four years!

A decade ago, the state’s annual contribution to the California Public Employees Retirement System was $159 million; this year it hit $3.3 billion – that’s more than the annual gross domestic product of more than 50 countries and more than the $2.1 billion cost of the Space Shuttle Endeavor!

Recently, pension consultant Girard Miller told California’s Little Hoover Commission that state and local governments have $325 billion in unfunded pension liabilities, which he said amounts to $22,000 for every working adult in the Golden State. Miller also said pension plans statewide are approximately 30 percent underfunded today and retiree medical benefits plans are more than 90 percent underfunded!

A Stanford University study estimates California taxpayers may ultimately be on the hook for real unfunded pension debt of more than $500 billion!

The city of Vallejo was just the canary in the municipal public-pension coal mines. If we have another recession in the next decade, without fundamental public pension restructuring, scores of more governmental entities will be pushed into bankruptcy. And make no mistake: The fallout will touch us all through reduced city services, reduced jobs and pay, lowered quality of life, investment losses, job losses and an ever greater economic contraction.

While public pension reform has long been a “third rail” of politics, today the financial quagmire of the current system has become so great it is clear that reforming the system is not about being “anti-union” – it’s about correcting course before we hit the iceberg and we all sink.

BizFed, its members and the electorate at large will be demanding political accountability to force real public pension reform.

Ultimately, we cannot take back the promises we have already made to our public workers. This sorry state of affairs is not their doing. For the most part, civil servants are hard-working, dedicated folks who want to do the right thing. This looming disaster has been brought on by the greed, avarice and intransigence of their leadership. They – coupled with the tacit and abject surrender by electeds to those union leaders’ excessive demands – have brought us to the brink of fiscal insolvency.

It is inevitable that future public-employee pension costs will have to be lower than today; the current system is simply not sustainable under any realistic scenario. Public officeholders can amend many laws – but not the laws of mathematics.

The real question remains: Will the necessary changes be agreed to now by the leaders of the public employee unions and, if required, at the ballot box – or will those necessary changes be dictated later by a judge in federal bankruptcy court?

David W. Fleming is BizFed’s founding chairman and counsel at Latham & Watkins.

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