Gov. Jerry Brown talks with reporters Friday. He has called for raising public employees’ pension contributions.

February 19, 2011
By Jim Carlton

SACRAMENTO, Calif.—Fighting over spending on public employees has shut down the state capitol in Wisconsin, sent police officers marching in Hartford, Conn., and sparked the largest public protest ever in Trenton, N.J. Now, it is complicating California Gov. Jerry Brown’s plan to close a $26.6 billion budget gap.

Mr. Brown, a Democrat, wants the legislature to authorize a ballot initiative that would ask voters to approve the extension of a temporary tax increase as part of his plan to deal with the state’s deficit.

But some businesses say they won’t support a tax referendum unless Mr. Brown agrees to tackle a public-employee pension overhaul as part of his fix.

“Without pension reform, my clients feel it is virtually impossible to change the fiscal situation,” said lobbyist Terry McGann, whose clients include insurers and construction subcontractors.

Many union allies of the governor are just as adamant in opposing any pension overhaul tied to the budget.

Analysts say Mr. Brown chose the initiative route because a tax extension wouldn’t attract the two-thirds of lawmakers required under California law to approve tax increases. He now faces a mid-March deadline for securing the legislature’s approval for putting the measure on a June ballot. Missing the deadline could sink the tax extension and complicate efforts to grapple with the deficit.

Mr. Brown needs the support of a handful of Republican lawmakers. Some business groups are pressuring their GOP allies in the Democrat-controlled legislature to make a pension overhaul the price of their votes.

The state’s annual retirement costs for public workers have risen to about $6 billion a year, from $1 billion in 1990 and $2 billion in 2000.

A spokesman for Mr. Brown, Evan Westrup, said the governor has a plan for overhauling the pension system but doesn’t want to “overload or delay” the budget proposal by linking it to any other issues.

The governor’s plan calls for raising roughly $14 billion of revenue from the tax extension, along with $12.5 billion of spending cuts and fund shifts.

Hundreds of lobbyists have swarmed the state capitol since the governor outlined his budget plan on Jan. 10. Mr. McGann said he has personally lobbied 15 lawmakers about the proposed budget.

Other business groups have quietly indicated they would support the budget without pension adjustments as long as other key demands—such as ensuring more reviews of state regulations—are included.

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