Palo Alto's Proposed New Pension Tax – Oops, Hotel Tax

Fungible – definition – “able to replace or be replaced by another identical item; mutually interchangeable.”

On November 4th, Palo Alto voters will be asked to approve Measure B, with only a simple majority required for passage. According to a summary compiled by the California Taxpayers Association, “2014 Local Elections,”Measure B “increases the city hotel/motel tax by 2% and extends the tax to apply to online bookings, to fund general city services.”

According to an article in the Silicon Valley Business Journal entitled “Palo Alto 2% hotel tax hike headed for November ballot,” “About $4.6 million would be generated annually through a combination of the potential tax increase and funds generated by several new hotels slated to open in the city.”

Analysis of raw data downloaded from the California State Controller’s website, and available for review on the spreadsheet produced by the California Policy Center “Palo_Alto_2012_Stats.xlxs,” the total employer pension contribution made by the City of Palo Alto to CalPERS in 2012 was $20.7 million. That includes $1.9 million of pension contributions that are supposed to be made by employees via paycheck withholding, but which the city helpfully pays for them. On the spreadsheet ref. tab “Palo Alto Payroll SCO 2012.” column O, rows 2-12, “Employees Retirement Cost Covered” [by employer].

As documented here, and here, Palo Alto, like all CalPERS participants, will be required to increase their pension contribution by 50% between now and 2017, i.e., by around $9.0 million per year.

The hotel tax, if passed, will cover less than half of Palo Alto’s imminent contribution increases to CalPERS. Expect more tax increases, and fewer city services, or…

Palo Alto, like Watsonville, and nearly every other local entity that is asking voters to increase taxes this November, needs new taxes to help comply with the incessant, irresistible, slavering, escalating, parasitic, insatiable demands of CalPERS. They can say the money is for anything they want. But money is fungible.

As Carl DeMaio, former San Diego councilmember and current congressional candidate, once famously put it, framing policy options as either involving higher taxes or fewer services is a “false choice.” The third rail of California politics, still deadly to any politician, state or local, who moves beyond rhetoric to action, is to lower compensation and pensions. But it is an option. One more market downturn, and it will magically morph from an option to an imperative.

Here’s a summary of Palo Alto’s city worker average compensation:
–  Police – Base pay plus overtime $116,401, benefits incl. pension, $48,075, total $164,476.
–  Fire – Base pay plus overtime $132,011, benefits incl. pension, $49,326, total $181,337.
–  Other – Base pay plus overtime $90,306, benefits incl. pension, $36,140, total $126,446.

From the city website, here are highlights from Palo Alto’s “salaries and benefits:”
–  Fully paid employee and dependent dental and vision plan.
–  Fully paid life and disability insurance equal to annual salary and long term disability plan (not included in State Controller data).
–  Two to five weeks vacation, 12 holidays, and 12 paid sick days.
–  90% paid employee and dependent medical plan.

From data obtained by the California Policy Center’s Transparent California project, here are the average pension benefits for City of Palo Alto retirees since 2000 (i.e., since benefit formulas were enhanced):
–  For 30+ years of service, $91,348 per year.
–  For 25-30 years of service, $75,437 per year.
–  For 20-25 years of service, $53,946 per year.

To put this in perspective, while veteran employees of the City of Palo Alto are paying for 10% of their annual health care premiums, middle aged married couples working as private sector independent contractors with base incomes comparable to the average non-safety Palo Alto city worker are paying household premiums – either to individual health insurers or on the exchanges – including deductibles, of approximately $30,000 per year. Thirty thousand dollars. While their taxes then pay for 90% of these same premiums as they apply to their public servants.

To further put this in perspective, while someone working for the City of Palo Alto may retire after 30 years work with a pension that averages $91,348 per year, an independent contractor with comparable annual earnings will contribute 12.4% of their gross earnings to Social Security – more than virtually anyone in local government contributes to their pensions via withholding – in return for a projected Social Security benefit of around $25,000 per year beginning after 40+ years work. Yet their taxes are being increased to maintain these pensions for their public servants.

In Palo Alto, and in general throughout the Silicon Valley, the wealthy elites condone the public sector union greed that has lead to this abominable inequity. They are so rich they consider it churlish to question levels of compensation that to them, seem such a pittance. In turn, because their excessive compensation effectively exempts them from its consequences, public employees and their unions support the misanthropic policies of this elite – artificial scarcity in the name of environmentalism; causing higher prices for housing, land, energy and water.

The solution to the challenges of social equity is not higher taxes to benefit government workers. The solution is to lower the cost of living for everyone through resource development and capitalist competition. To do this, government workers and their unions will have to make common cause with ordinary private sector workers, instead of with the wealthy elites and their political cronies who reside in an insular and privileged world, filled with utopian visions and plans for everyone.

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Ed Ring is the executive director of the California Policy Center.

2 replies
  1. Howard Beale says:

    Ed, my man, you need to read all of Palo Alto’s benies for their management/professional employees, which are set forth in a City Council resolution pertaining to those poor, suffering unrepresented employees (e.g. city manager, asst. cm., department heads, asst. department heads, all the lawyers, etc.).

    In recognition of the fact that these poor, unfortunate souls have to work more than 40 hours a week, and are exempt from state and federal overtime laws (i.e. the law says they don’t get OT), and that their salaries and benefits, including their 2.7 at 55 pensions, are measily, the council awarded them all an extra 80 hours a week of management leave. This is addition to their vacation time.

    The City of Palo Alto is not unique in this regard, most cities in the Bay Area have a similar benefit for their poorly compensated unrepresented administrative/managerial/professional employees.

    I can see why so many government workers feel that the ranks of public agency employees are so underpaid compared to the private sector.

    And by the way, don’t stand in front of the Palo Alto City Attorney’s Office at about 5 pm, because you may get trampled by the rush out the door.

    Ed, how in the heck did get in this Alice Through the Looking Glass world????!!!!

  2. Al says:

    You say “The solution is to lower the cost of living for everyone through resource development and capitalist competition.” It has been well documented that most peoples’ wealth, if they have any at all, is tied up in their house. Wouldn’t a lower cost of living necessitate a tremendous drop in the price of real estate in CA? Thus dramactially lowering the prices of millions of homes and wiping out the wealth of millions of citizens.

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