Lo and behold, it’s not just pension reformers and critics of the state’s massive pension funds who are worried about the sustainability of California’s pension systems. At a press conference announcing his proposed budget last week, Gov. Jerry Brown made some astounding comments. “When the next recession comes around,” he said, “the (next) governor will have the option of considering pension cutbacks for the first time in a long time.”

Brown not only believes that pensions can be cut. But he makes clear that pensions are likely to be cut. And he seems to be suggesting that they will need to be cut. “There is a lot more flexibility than is currently assumed by those who discuss the California Rule. At the next downturn when things look pretty dire, (pensions) will be on the chopping block,” Gov. Brown said, according to a Sacramento Bee report. Read that again. Pensions will be on the chopping block.

Brown is referring to a series of high-profile cases that are coming before the California Supreme Court later this year. The high court has agreed to review two of them (and is awaiting an appeals court ruling on a third one) relating to the “California Rule,” a series of court interpretations that bar state and local governments from ever reducing the pension payments to current employees even as they become unaffordable and threaten the health of the entire pension system.

In one case, a local union is challenging Brown’s 2013 pension-reform act, which capped certain benefits such as “airtime” – allowing employees to buy fictional years of service to inflate their permanent pension payments. The Brown administration is defending its signature pension-reform law in court. That’s not surprising. Even the California Public Employees’ Retirement System defends the savings that have resulted from that law. But the governor’s legal team has gone further by making arguments that could result in the paring back – or elimination – of that “rule.”

It will be interesting to see how CalPERS, the union-controlled pension fund that denies that people’s pensions face serious risk, will play that one. Whenever a pension reformer points out the tenuous financial condition of the pension funds, the current system’s defenders claim that critics want to deny public employees a decent pension. Or that they are exaggerating the extent of the problems. The pension funds are earning generous returns on their investment dollars – and there’s nothing to worry about, CalPERS notes.

Indeed, the CalPERS website features a “For the Record” section, in which the pension fund’s public-relations folks rebut particular criticisms. It’s enlightening mainly because of CalPERS’ apparent insistence that high rates of stock-market returns, which buoy the underfunded system, will continue without problem. In a November 21 rebuttal, CalPERS accuses critics – this one included – of “selectively min(ing) the facts so they can advance their anti-pension platforms.” Yet the governor knows the facts as well as anyone.

“CalPERS pays pensions for decades to come,” the agency insists. “Our Investment Office and actuaries must take into account carefully considered projections 10 years … and beyond. In fact, the new investment portfolios and asset allocation mix the CalPERS Board is considering, looks at returns over the next 60 years.” The implication is there won’t be any problem fulfilling pension promises well beyond most of our lifetimes.

But the idea that pensions might one-day soon be on the chopping block isn’t news for pension reformers. According to California Policy Center estimates, the state’s total unfunded state liabilities and debts, including pensions and retiree medical care, are $1.3 trillion if the pension funds used a realistic, risk-free rate of return for their estimates. California cities are likely to face their fifth fee increase from CalPERS in five years to pay for recent funding shortfalls. They continue to slash services to make up for these increasing costs.

CalPERS is only 68 percent funded. The California State Teachers’ Retirement System, the state’s other massive pension fund, is only 64 percent funded. That means they only have around two-thirds of the dollars needed to fulfill all their pension promises. CalPERS assumes a rate of return on its investments of 7 percent (down from 7.5 percent) but only assumes a 2 percent rate of return when agencies leave the CalPERS system. That’s the rate that CalPERS assumes when its own money is on the line and the fleeing agencies can’t rely on taxpayer backing. That should tell you something.

And the pension funds have dangerously low funding levels after the most recent year, where the funds have had fabulous returns. “Our investment portfolio has seen positive returns every year since 2010,” CalPERS boasts in that rebuttal column, titled, “Critics pick their facts but ignore the truth.”

Of course, CalPERS picks its years to measure investment returns – and ignores one of the biggest truths. The 1999 pension proposal, which became a law that increased pensions across the state, helped pave the current dire situation. Even great returns on investment can only go so far when the state gives 50-percent retroactive pension boosts to current employees.

It’s unfortunate that Jerry Brown hasn’t done more in his final two terms as governor to rein in the unsustainable pension benefits that he helped create in his first two terms. His early governorships greatly empowered the state’s public-employee unions, after all. His 2013 pension reform, while noteworthy, was modest and was designed mainly to reassure California taxpayers that he was serious about fiscal reform as he sought a large tax increase to fix a deficit problem.

Nevertheless, as the governor heads into the political sunset he recognizes that the current pension system is unsustainable without some significant changes in the law. He sounded just like a pension reformer at his press conference, but it will be interesting to see what CalPERS has to say about that. It’s not as if the fund can portray the governor as someone who selectively mines the facts to promote an anti-pension platform. He’s just telling it like it is.

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