The U.S. Middle Class is Turning Proletarian

The biggest issue facing the American economy, and our political system, is the gradual descent of the middle class into proletarian status. This process, which has been going on intermittently since the 1970s, has worsened considerably over the past five years, and threatens to turn this century into one marked by downward mobility.

The decline has less to do with the power of the “one percent” per se than with the drying up of opportunity amid what is seen on Wall Street and in the White House as a sustained recovery. Despite President Obama’s rhetorical devotion to reducing inequality, it has widened significantly under his watch. Not only did the income of the middle 60% of households drop between 2010 and 2012 while that of the top 20% rose, the income of the middle 60% declined by a greater percentage than the poorest quintile. The middle 60% of earners’ share of the national pie has fallen from 53% in 1970 to 45% in 2012.

This group, what I call the yeoman class — the small business owners, the suburban homeowners , the family farmers or skilled construction tradespeople– is increasingly endangered. Once the dominant class in America, it is clearly shrinking: In the four decades since 1971 the percentage of Americans earning between two-thirds and twice the national median income has dropped from 61% to 51% of the population, according to Pew.

Roughly one in three people born into middle class-households , those between the 30th and 70th percentiles of income, now fall out of that status as adults.

Neither party has a reasonable program to halt the decline of the middle class. Previous generations of liberals — say Walter Reuther, Hubert Humphrey, Harry Truman, Pat Brown — recognized broad-based economic growth was a necessary precursor to upward mobility and social justice. However, many in the new wave of progressives engage in fantastical economics built around such things as “urban density” and “green jobs,”  while adopting policies that restrict growth in manufacturing, energy and housing. When all else fails, some, like Oregon’s John Kitzhaber, try to change the topic by advocating shifting emphasis from measures of economic growth to “happiness.”

Other more ideologically robust liberals, like New York Mayor Bill de Blasio, call for a strong policy of redistribution, something with particular appeal in a city with one of the highest levels of income inequality in the country. Over time a primarily redistributionist approach may improve some material conditions, but is likely to help create a permanent underclass of dependents, including part-time workers, perpetual students, and service employees living hand to mouth, who can make ends meet only if taxpayers subsidize their housing, transportation and other necessities.

Given the challenge being mounted by de Blasio and hard left Democrats, one would imagine that business and conservative leaders would try to concoct a response. But for the most part, particularly at the national level, they offer little more than bromides about low taxes, particularly for the well-heeled investor and rentier classes, while some still bank on largely irrelevant positions on key social issues to divert the middle class from their worsening economic plight.

The country’s rise to world preeminence and admiration stemmed from the fact that its prosperity was widely shared. In the first decades after the Second World War, when the percentage of households earning middle incomes doubled to 60%, it was no mirage, but a fundamental accomplishment of enlightened capitalism.

In contrast, the current downgrading of the middle class undermines the appeal of the “democratic capitalism” that so many conservative intellectuals espouse. In reality, capitalism is becoming less democratic: stock ownership has become more concentrated, with the percentage of adult Americans owning stock the lowest since 1999 and a full 13 points less than 2007. The fact that poverty — reflected in such things as an expansion of food stamp use — has now spread beyond the cities to the suburbs, something much celebrated among urban-centric pundits, is further confirmation of the yeomanry’s stark decline.

How our political leaders respond to this challenge of downward mobility will define the future of our Republic. Some see a future shaped by automation that would “permanently end” what one author calls “the age of mass human labor,” allowing productivity to rise without significant increases in wages. In this world, the current American middle and working class would be economically passé.

One would hope business would have a better option that would restart upward mobility. Lower taxes on the investor class, less regulation of Wall Street, and the mass immigration of cheap workers — all the rage among investment bankers, tech oligarchs and those with inherited wealth — does not constitute a compelling program of middle-class uplift. Nor does resistance, particularly among the Tea Party, to make the human and physical infrastructure investment that could help restore strong economic growth.

Fortunately history gives us hope that this decline can be turned around. The early decades of the Industrial Revolution saw a similar societal decline, as once independent artisans and farmers became fodder for the factory lines. Divorce and drunkenness grew as religious attendance failed. But a pattern of reform, in Britain, America and even Germany, helped restore labor’s place in the economy, and rapid growth provided the basis not only for the expansion of the middle class, but remarkably improvements in its well-being.

A pro-growth program today could take several forms that defy the narrow logic of both left and right.  We can encourage the growth of high-wage, blue-collar industries such as construction, energy and manufacturing. We can also reform taxes so that the burdens fall less on employers and employees, as opposed to those who simply profit from asset inflation. And rather than impose huge tuitions on students who might not  finish with a degree that offers employment opportunities, let’s place new emphasis on practical skills training for both the new generation and those being left behind in this “recovery.” Most importantly, the benefits of capitalism need be more widely shared if business hopes to gain support from the middle class for their agenda.

About the Author:  Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA. This story originally appeared at Forbes.com and is republished here with permission from the author.

 

How Raising the Minimum Wage Destroys Small Businesses

Editor’s Note:  This article by “Against Crony Capitalism” co-founder Hunter Lewis emphasizes again the irony of trying to legislate private sector compensation. Because the sentiment behind these policies – wanting to elevate the economic status of lower income workers and their communities – is inherently in conflict with the outcome. When minimum wages are raised, multi-national corporations (think MacDonalds, etc.) will respond through a combination of higher prices to consumers and automation. Unionized corporations, nearly all of them commanding monopolistic power in their industries, will simply raise prices for their products. But small businesses (think about that mom & pop restaurant in the local strip mall that serves the best Carnitas Michoacan you’ve ever eaten) will not be able to automate. They will not be able to compete on price with the big corporate chains. Raising the minimum wage will not only cause increased unemployment. It will kill small businesses owned by some of the hardest working citizens America’s got.

In his State of the Union address, President Obama called for higher minimum state and federal wages and added: “ I ask… America’s business leaders to…raise your employees’s wages.”

This is not the first time a president has made this “request” of employers.

After the stock market crash of 1929, President Hoover began talking about wages. They needed to be protected from cuts, he said, and preferably increased, so that consumer demand would increase. More consumer demand would supposedly get the economy through the storm.

As the economy sputtered and prices began to fall, the president acted on his pet theory. He began lobbying businesses not to reduce wages. He did more than lobby. He sent a clear signal that if his directive was ignored, the government might step in and legislate wages.

Businesses listened. But they also had their backs against a wall. With consumer prices falling, wage reductions were needed to protect profits. Without profits, a business fails and everyone loses their job.

Faced with this reality, but afraid to make any reduction in wages, businesses did the only thing they could do to try to stay afloat: they cut jobs. Millions were thrown out of work who might have kept their jobs at reduced pay but for Hoover’s intervention.

When the new Roosevelt administration came in, it embraced the same bogus economic theory. Both prices and wages were tightly controlled by the National Recovery Act. In a famous incident, a New Jersey immigrant worker, Jacob Maged, was sentenced to jail for three months on a charge of pressing a suit for 35 cents instead of the legislatively required 40 cents.

These policies had the paradoxical effect of making some Americans newly affluent even while throwing millions out of work. Since prices had fallen sharply, those who kept their jobs at the old wages could in many cases buy twice as much with the same money.

The Hoover/Roosevelt/Obama policy meant that some got a windfall; others got destitution. Economic inequality sharply worsened. In general, the Roosevelt administration’s most powerful supporters, labor unions, saw to it that their members did not lose jobs, while those without unions were the ones laid off.

It is noteworthy that the same thing happened when the Obama administration bailed out General Motors. The non-unionized workers, even those in the most efficient plants, lost everything: jobs and retirement benefits. Unionized workers allied with the president kept both.

In the same State of the Union speech, the president did not just ask employers to raise wages. He also required them to pay a higher minimum wage if they had a federal contract. Hearing this, employers can only wonder what further wage controls will be proposed next.

If more federal wage controls do come, it is not even clear that lay-offs could be used as they were in the 1930’s to save businesses from closing. Economist Paul Krugman has proposed federal controls on the right to lay-off or fire workers. The president himself has proposed giving workers the right to sue if they apply for a job and are turned down.

The economy itself provides sufficient reason to be cautious about hiring. The Federal Reserve’s low interest rate policy and regulatory rules make it very difficult to persuade a bank to finance expansion. And Obamacare creates a strong disincentive to hire the 50th employee.

With all this in the background, why would any employer in 2014 hire a new worker if not absolutely necessary? This is especially true for small businesses, and small businesses have always been the chief source of new jobs.

This is all part of a larger picture. To thrive, an economy needs free prices. Free prices not only provide the truthful signals that producers and consumers need in order to make good decisions. They also provide the discipline that any economic system requires.

The Soviet Union’s collapse was an object lesson for the world. No system can survive in the long run without free prices, and wages are among the most important prices.

The Obama administration’s whole approach is to try to substitute government regulation for the private price system. As a result, we only have “engineered” prices left on Wall Street and in medicine, and both finance and medicine are in grave jeopardy as a direct result.

Fixing the economy is not all that difficult. All we have to do is let producers and consumers sort out prices together and the engine of job growth will start up. Meanwhile the present administration offers one initiative after another guaranteed to keep the middle class and especially the poor in a state of economic hopelessness.

About the Author: Hunter Lewis is co-founder of AgainstCronyCapitalism.org. He is co-founder and former CEO of global investment firm Cambridge Associates, LLC and author of eight books on moral philosophy, psychology, and economics, including the widely acclaimed Are the Rich Necessary? (“Highly provocative and highly pleasurable.”—New York Times) He has contributed to the New York Times, the Times of London, the Washing­ton Post, and the Atlantic Monthly, as well as numerous websites such as Forbes.com and RealClearMarkets.com.

Ambitionless Nation

In colonial times, men and women were equal when it came to work. Both had chores and responsibilities from dawn to dusk. Women not only did housework, they milked cows, fed the pigs and chickens and helped tend the crops.

Life was hard in colonial times. It made little difference whether the family lived in a small town or in a farmhouse miles from the nearest neighbor. There was no such thing as women’s work when it came to basic survival needs. Everyone shared the load. Families couldn’t afford slackers on a hand to mouth existence.

Children were expected to carry their load as well. Drawings suggest the little ones were given chores as soon as they were walking and out of diapers. They learned early in life to carry their own weight, a seemingly outdated concept in our modern affluence.

Families made do with plain food and clothes. Moreover, there was very little of both to go around. A person’s needs were easily satisfied: a roof over one’s head, food in the belly a warm bed, one set of everyday clothes and one for Sunday church service. Brothers slept together in one bed; sisters, in a second.

Life was hard but few felt they wanted for anything. People had modest wants and modest needs. Kids didn’t complain or pout if asked to do more: work another few hours, do without a meal or a night’s sleep or slog in the rain to save the harvest. Everyone, young or old, just did what was expected. There were no gender issues, no protests. There was only work, and more than enough to go around for everyone.

The same equality of responsibility continued through the very early days of our industrialization. There seems to have been a shift in the nature of men’s work and women’s work when the population moved from rural farms to urban homes. Men went to work and became the breadwinner of the family. Most women got married and stayed at home to raise the children.

Life was still hard for the average family. Money was generally tight. There were few luxuries. During the Great Depression, life became even harder. Through it all, families struggled but made do. Children were often expected to get little jobs delivering newspapers, mowing lawns, sweeping stores or running small errands to help support the family. There was no gender discrimination. Sons and daughters were equal in times of survival. Protest and pouts were not well received.

The children of these bygone eras have been among the most successful in American history. Women became teachers, doctors, lawyers, authors and entrepreneurs. They were ambitious and productive. Accustomed to making do with little, they used their brains and time to make the most of themselves.

They succeeded beyond their wildest dreams, advancing education, medicine and science in this country and around the world. Their names include Nobel Laureates, pioneer scientists and physicians as well as notable authors and artists. Hard work and ambition defined their lives. Success was the reward for their efforts.

The average expected workload lessened sharply after WWII. Perhaps because most adults had grown up in times when families struggled to survive and everyone was forced to make great sacrifices, and understandably had resentments about abandoned hopes and dreams, parents were determined to make certain their children never had to do without.

Children began to be indulged. In many homes, the amount of work they were expected to do lessened. This was more apparent in some cultures and in the two genders. Parents began to cut their daughters some slack when it came to chores and responsibilities, an unwise decision.

Girls were coddled and infantilized. It gave them the feeling they didn’t have to play by the same rules as their brothers, didn’t have to be responsible and could get away with murder. Spoiled rotten is what it’s called in the trade.

Therein lays the exegesis for how the Greatest Generation spawned perhaps the worst generation in American History: the pot-smoking, free-loving, America-hating ambitionless Flower Children of the Sixties whose spawn have remained lost and purposeless for fifty years. Their effects on the nation’s culture have been nothing short of a tsunami. To better understand the phenomenon requires putting it under the psychological microscope.

Unlike the struggles of life in log cabins and farmhouses, nothing much was expected of post-war urban youngsters apart from getting good grades in school, sitting quietly in church and being respectful to the adults. The practice known as weekly allowances was born and soon became commonplace.

Sons and daughters appeared like clockwork at the appointed hour, even if they were late taking out the trash, cleaning their rooms or doing countless other chores. Even parents of modest means succumbed. How could they not? Their offspring soon came to feel entitled to the money, even for doing nothing.

The more they got, the more it seemed children wanted. The more they demanded, the more the parents gave. Modesty was replaced by immodesty. Studying the hordes of spoiled, over-indulged, couture-clad young narcissists spilling out of schools in the early afternoon, one is struck by the numbers of already wasted lives. One feels a profound sadness for their well-intended parents whose generosity and love have gone far awry.

This tradition of giving too much continues unabated. Affluence has increased the extravagance of the young ones’ demands. The expectation of work seems to have become an outdated concept when housekeepers and maids are paid to do chores children were expected to do. The concept is known as cleaning up after oneself, a basic responsibility that is taken for granted in adults.

Sons and daughters these days seem to be equally pampered. Neither has to carry their weight. Some parents actually continue to support their able-bodied offspring and allow them to live at home well into their twenties, an age when most young adults were married and supported their own families not so very long ago.

In an era when the president of the United States expects parents to feed, clothe and provide health insurance for their offspring for twenty-six years, he has now stretched the limits of childhood beyond what is in the best interest of parents and progeny. Has he no understanding the consequences for the future his nation will face with an entire populace that never grows up?

What happens to people who are never expected to stand on their own two feet? Is it any wonder that 47% of the citizenry is on public assistance? Is it any wonder that schools demand less and less from the students? Not only is there less homework, there are fewer assignments and classes and an easier curriculum. Exams given to 8th graders in 1895 would stymie even most teachers today.

Has “work” become a four-letter word? Try to assign a student too much homework and parents will file a lawsuit in protest. It may be difficult to believe but parents across the country have joined together to protest the stress homework puts on students. The movement ignited as a response to The Case against Homework, the alarmist reaction of a middle-class mother overly concerned about the detrimental effects on her son’s emotional well-being. [1]

Having gone to medical school before there were admissions quotas for women, the nature of her protest seems incomprehensible to me. Pre-medical students lived in libraries while their college classmates partied at fraternities and campus hangouts. Medical school, internship and residency were even worse.

Interns worked for thirty-six hours, got a twelve-hour break and did the same thing all over again for an entire year for a five-hundred dollar monthly paycheck. We did what was expected without complaint, grumbling only because of the lack of sleep.

Doctors weren’t singled out. Physicists, engineers, nurses and pilots also had heavy workloads to acquire their skills and master their trade. Why on earth complain if that’s what it took to be the best? The profession didn’t matter. What mattered was the work it took to become the best.

In China and neighboring Asian nations, this expectation has not changed for five thousand years, nor will it change if not corrupted by the new American laissez-non faire attitudes toward ambition-less life. The Emperors of the Ming, Ch’ing and Xia dynasties were not so different from China’s current leaders. [2] They all expect their country’s sons and daughters to work. Our leaders since FDR expect some of the country’s sons and daughters to work and more and more equally able-bodied offspring to mooch off their productive siblings. This is a recipe for disaster.

A culture of national indulgence has metastasized like a cancer since the sixties, spreading waste and disease throughout the populace to such an extent that the country is financially, academically and morally bankrupt. Entire cultures have been corrupted. American schools, like American society, have become a global joke, While China’s students are math and music prodigies, our youngsters spend their time on skateboards and playing video games.

What price success? Profligate cultures cannot last, in part because they become unproductive and cannot sustain themselves. They expire when the last working stiffs expire or when the invading armies conquer them.

R. Claire Friend, MD, is the Assistant Professor, Department of Psychiatry and Human Behavior, UC Irvine Medical Center, and the editor of the UC Irvine Quarterly Journal of Psychiatry. She is a retired psychiatrist and frequent commentator on the psychological dimensions of education and social welfare policies.

Footnotes:

1.  “Students Under Stress, Do Schools Assign Too Much Homework?” CQ Researcher, July 2007

2.  “Czars and Emperors,” The Trumpet, January 2014

How Much Do CalPERS Retirees Really Make?

INTRODUCTION

The pay and benefits of public employees is a discussion of increasing relevance to taxpayers. As noted in a CPPC study published earlier this month “How Much Do California’s State, City and County Workers Really Make?,” in California, personnel costs are estimated to consume 40% of total city budgets, 41% of the state budget for direct operations, and 52% of county budgets. In many cities and counties the percentage is much higher. And these averages don’t include personnel costs for outside contractors, nor do they include payments on debt that is directly related to personnel costs, such as pension obligation bonds.

Meanwhile, even when budgets are balanced, as may be the case this fiscal year at least for the State government, there is an overhang of debt obligations facing California’s state and local governments that are only manageable as long as interest rates remain relatively low. Another CPPC study published in 2013 entitled “Calculating California’s Total State and Local Government Debt,” estimated California’s total state and local bond debt at $382.9 billion as of June 30, 2012. That same study reported California’s officially recognized state and local unfunded obligations for retirement health insurance and pension obligations at $265.1 billion. Using more conservative assumptions regarding pension fund performance, the study estimated these retirement obligations on the part of California’s state and local governments could increase by an additional $389.8 billion. In all, it is quite likely that California’s taxpayers currently owe over $1.0 trillion in total debt and unfunded retirement obligations incurred by state and local government, and most of that is for retirement benefits for state and local government employees.

In this environment it is important to present factual information relating to public sector compensation. With respect to retirement benefits, it is helpful to present complete and accurate aggregate data, in order for policymakers and taxpayers to determine whether or not current benefit formulas are fair and financially sustainable. This study analyzes data from CalPERS, using nearly a half-million records obtained from CalPERS for 2012. In particular, this study presents data showing, by year of retirement, what the average pension benefits were in 2012. The study then normalizes these benefits to account for full careers using two benchmarks – the public sector “full career” expectation of 30 years, and the private sector “full career” expectation of 43 years.

*   *   *

METHODS AND ASSUMPTIONS TO ACQUIRE DATA

The analysis and charts developed for this study can be evaluated by downloading the following spreadsheet. Please note the file size is 23 MB.

CalPERS-2012_Analysis_normalized-pensions-by-year-of-retirement.xlxs

The source data was acquired from the website www.TransparentCalifornia.com, an online resource produced through a joint-venture involving the California Policy Center and the Nevada Policy Research Institute. Since the focus in this study involves aggregate data, the names of individual participants have been removed from the spreadsheet.

Because the information provided by CalPERS included “year of retirement” and “years of service,” it is possible to normalize the information to produce “full career” equivalent pensions. It is vital to make this analysis, because no statistic representing average pensions can be evaluated apart from knowing how long most participants actually worked. It would be analogous to saying that an active worker only was paid $100 for a day’s work, without knowing how many hours they worked. Did they work ten hours and earn $10 per hour, or did they only work one hour and earn $100 per hour? Without looking at how many years participants worked to earn their pensions, we cannot even begin to have a productive discussion as to whether or these pensions are fair and appropriate or not.

From a standpoint of financial sustainability it is also vital to know how many years of service the average pensioner logged. Using the payroll analogy again, if a person only worked one hour in a day and made $100, and the employer needed someone at that post for ten hours, than the employer cost was actually $1,000 per day, whereas if that person worked a ten hour day and made $100, then the employer cost was only $100. This is precisely what is at stake when evaluating the overall cost to taxpayers of public sector pensions. For example, if the average years of service for a pensioner is only 20 years, and a private sector career is actually 40 years, then the taxpayer is essentially paying for two pensions for each position that would have been filled by one person working 40 years.

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AVERAGE LENGTH OF SERVICE AND AVERAGE PENSION – TOTAL POOL OF PARTICIPANTS

In Table 1 it can be seen that nearly a half-million retirees collected pension benefits through CalPERS during 2012, and that the average pension was $30,456 during that year. This average is consistent with the averages frequently cited by spokespersons for CalPERS and public sector unions representing CalPERS participants. But the average CalPERS retiree worked for 19.93 years. It is not reasonable to suggest that someone who has only worked half the duration of a normal career should expect a retirement benefit that might be more appropriate for a full career. And it is impossible to discuss, much less determine, whether or not CalPERS retirement benefits are appropriate, without taking into account how long a retiree has worked in order to earn their retirement benefit.

Table 1  –  Basic CalPERS Data, 2012

20140212_CalPERS_normalized-pensions_Table01The next table, below, depicts how much these overall average pension amounts would increase if the retiree pool had turned in an average “years of service” of 30 years, which is a typical duration to use when considering public sector careers, as well as 43 years, which is typical for any private sector worker who hopes to receive the full Social Security benefit.

These calculations are made by dividing the average annual pension for a CalPERS participant in 2012, $30,456, by the average years of service, 19.93. The result, $1,528, is the amount the average CalPERS retiree accrued in annual pension benefits for each year they worked during their careers. This amount is multiplied by 30 to show what a current CalPERS retiree could expect, on average, if they had worked 30 years; $45,841.  This amount is multiplied by 43 to show what a current CalPERS retiree could expect, on average, if they had worked 43 years; $65,705.

Table 2  –  CalPERS Average Pensions Assuming Full Careers

20140212_CalPERS_normalized-pensions_Table02Just as when considering current compensation for public employees, total compensation – direct pay plus employer paid benefits – is the only truly accurate measurement of how much they make, when considering retirement pensions for retired public employees, pensions adjusted to show what they would have been if the recipient had spent their entire career working and paying into the pension system, i.e., “full career equivalent pensions,” are the only accurate measurements of how much they are really getting in retirement. But there is another crucial variable that must be considered to complete this analysis, which is how much full career equivalent pensions are paying to CalPERS retirees who retired in recent years.

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AVERAGE PENSION ADJUSTED FOR FULL-CAREER – SHOWN BY YEAR OF RETIREMENT

Because the data provided by CalPERS includes not only years of service for each participant, but also the year they retired, it is possible to calculate average “full-career” pension benefits based on the year they retired. It is important to do this because pension benefits for California’s state and local government workers were steadily enhanced over the past decades, especially after 1999 when SB 400 was passed by the California state legislature. In general, pension formulas have been altered to bestow pension benefits that are approximately 50% better today than they were 20 years ago. At the same time, pension benefits are calculated on rates of pay, which themselves have increased at a rate exceeding inflation for at least the last 20 years.

Table 3 depicts the unambiguous impact of these trends. The last column to the right on the table, “Avg Pension, 43 Years Svc” shows what retirees would be really getting in pension benefits if they had worked 43 years – from age 25 through age 67 (one may substitute age 22 through age 64, or whatever, of course). As seen, the 21,590 retirees in 2012, had they worked 43 years, would have collected average annual pensions of $73,040.

In general, pensions adjusted to reflect a full career in the private sector exceeded $70,000 per year starting with those CalPERS participants retiring in 2002. They exceeded $60,000 but were less than $70,000 for CalPERS participants retiring in 2003, 2001, and 2000. Participants who retired between the years 1990 and 1999 collect pensions today – again, had they worked a full private sector career – greater than $50,000 and less than $60,000. Participants who retired between 1984 and 1989 collect pensions today greater than $40,000 and less than $50,000. And participants who retired prior to 1984 collect pensions today that are less than $40,000.

It is hard to find a data set that shows a greater correlation than this one: The earlier you retired, the less you’re going to get in your pension today. That is because pension formulas were enhanced over the past 10-20 years. Not only were they enhanced, but they were enhanced retroactively, meaning that someone nearing retirement who had been accruing pension benefits at a rate of 2.0% per year, for example, suddenly began accruing pension benefits at a rate of 3.0% per year not only for the years remaining in their career, but for every year they worked.

To speculate as to why it was possible to retroactively enhance pension formulas through legislative action, yet it is purportedly unconstitutional and therefore impossible to merely reduce these formulas for active workers from now on, would go beyond the scope of this modest analysis.

Table 3  –  CalPERS Average “Full Career” Pensions By Year of Retirement

20140212_CalPERS_normalized-pensions_Table03-a

It is probably necessary to reiterate as to why full-career equivalent pensions are the only accurate measurement to use when discussing whether or not today’s public sector pension benefits are appropriate or financially sustainable. The reason is simple and bears repeating:  Defenders of pensions as they are use “averages” that don’t seem terribly alarming. Notwithstanding the fact that a self-employed person in the private sector would have to earn over $100,000 per year and contribute 12.4% of their lifetime earnings in order to collect the maximum Social Security benefit of $31,704 at age 68, which barely exceeds the average CalPERS pension of $30,546, that average CalPERS pension is based on an average years of service of 19 years. Somebody who has only worked for 19 years should not have an expectation of a pension that exceeds the maximum Social Security benefit that requires 12.4% of a six-figure annual income and 43 years of work. Few, if any participants in CalPERS are contributing more than 12.4% of their pay into their pension account. The taxpayers make up the difference.

When debating the financial sustainability of CalPERS and the other pension funds serving California’s state and local government workers, there are many issues. How the unfunded liability is estimated is the topic of intense debate, focusing primarily on what rate-of-return these funds believe they will average over the next few decades. That rate-of-return estimate also is a primary determinant of how the “normal contribution” is calculated. There are myriad aspects to the debate over how to adequately fund public sector pensions. But missing from that debate far too frequently is an honest assessment of just how much, on average, these pensions are really worth to the recipients.

This study has presented a calculation of what CalPERS’s average pension benefit is based on years worked as well as year of retirement. It has normalized that data to show that a retiree who worked 30 years and retired last year, on average, can expect a pension of over $50,000 per year, and if they worked 43 years and retired last year, on average, can expect a pension of over $70,000 per year. Those millions of private sector taxpayers in California who have already worked well over 30 years, with no end in sight, should think carefully about these facts about pensions, when considering what sort of reforms to preserve solvency might be equitable for all workers, public and private.

About the Author:

Ed Ring is the executive director for the California Policy Center where he oversees execution of the Center’s strategic plan. He is also the editor of ProsperityCalifornia.org and UnionWatch.org. Previously as a consultant and full-time employee primarily for start-up companies in the Silicon Valley, Ring has done financial accounting for over 20 years, and brings this expertise to his analysis and commentary on issues of public sector finance. Ring has an MBA in Finance from the University of Southern California, and a BA in Political Science from UC Davis.

Economic Policy Impacts: Comparing Illinois to Texas and Indiana

In the all important “Jobs Bowl”, far more important than the “Super Bowl” Illinois is losing out to Texas and Indiana.

Via email from the Illinois Policy Institute:

“The common refrain made against Texas by those who defend the status quo in Illinois is that the jobs being created in the Lone Star State are lower-paying and less-rewarding opportunities.

But not anymore. Texas is now unquestionably besting Illinois in providing for the middle class.

According to the Bureau of Labor Statistics, in 2012 the inflation-adjusted median household income for Texas surpassed that of Illinois for the first time since 1984, when the statistic first started being recorded.

That means the household making the median income in Texas is taking home a bigger paycheck than the household making the median income in Illinois.

20140212_Sedlock_1

Not only is the pay higher, but Texans also get to keep more of it. After taking the standard deduction for three household members, the median Illinois household pays $2,287 in state income taxes. The median Texas family pays no income tax, as work is not taxed in Texas.

And not only is work not taxed in Texas, but there is also a lot more work to be had. Since 1984, Texas has created nearly 5 million new employment opportunities. Illinois created less than 1 million.

20140212_Sedlock_2

This story isn’t a simple comparison; it’s also a transfer. From 1995-2010, Illinois had a net loss of nearly 33,000 households representing just less than 80,000 people to net out-migration to Texas alone. In terms of dollars, Illinois lost $1.98 billion in taxable income to Texas, or $60,500 per household lost.

Ironically, Illinois’ anti-business, anti-success policies can take partial credit for Texas’ success.”

Illinois vs. Indiana

Let’s also compare Illinois to Indiana.

“The story of Illinois’ steady out-migration problem is well known, but just where are Illinoisans moving to? Is the outflow driven entirely by retirees and beach-goers moving to Florida? Not according to the U.S. Census Bureau, which just released its 2012 American Community Survey of state-to-state migration flow data. These data use census surveys to make estimates of migration flow between the states.

The No. 1 destination for Illinois out-migrants: Indiana.

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The data show that in 2012, Illinois had a net loss of residents to each of its neighboring states, and that Illinois had a greater net loss to Indiana than to any other state in the union.

Indiana doesn’t offer the warm climate of destinations such as Florida and Texas. Illinoisans cross the border because of policy failures.

Wisconsin Gov. Scott Walker and former Indiana Gov. Mitch Daniels, along with former Chicago Mayor Richard M. Daley correctly predicted that raising the corporate tax rate to the fourth-highest in the nation would drive residents and business across the border.

Workers’ compensation costs in Illinois are also the fourth-highest nationally, while Indiana has the second-lowest rates. Indiana, Wisconsin and Iowa are Right-to-Work states, and ending forced-unionism is becoming a hot issue in Missouri.

Illinois’ overall regulatory burden ranks it 42nd-best nationally, and residents pay the ninth-highest tax burden of any state.

In short, Illinois stands out from its neighbors as the state doing the least to create opportunity for its
citizens through common-sense economic reform.

The census data align with the United Van Lines moving data to show that the pace of outflow is high. On net, Illinois lost 69,198 residents to other states, with 33,099 of those net losses flowing to neighboring states. The most significant neighborhood losses were to Indiana (11,529, first overall), Missouri (8,737, third overall) and Wisconsin (7,871, fourth overall).

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Neighboring states have made changes to better accommodate business growth and personal opportunities. Massive out-migration from Illinois shows that an increasing number of residents have become exhausted with business as usual in Illinois, and have cast their final vote with their feet.”

About the Author:  Mike Shedlock is the editor of the top-rated global economics blog Mish’s Global Economic Trend Analysis, offering insightful commentary every day of the week. He is also a contributing “professor” on Minyanville, a community site focused on economic and financial education.

Crony Capitalism vs. Public Pensions

A new union-sponsored study lowballs today’s pension costs by around two-thirds and overstates the net costs of corporate welfare.

The Washington Post’s Lydia DePillis recently reported on a new union-sponsored study from Good Jobs First that claims that corporate welfare payments from state governments dwarf the costs of public employee pensions.

To begin, we shouldn’t take this corporate welfare/public pensions link all that seriously. There’s no actual, causal relationship between them. If public sector pensions are excessively generous, they ought to be curbed, regardless of cost pressures. And, in my opinion, we should cut corporate welfare too — crony capitalism is no better than sweetheart deals for public employee unions.

But the Good Jobs First report is also wrong in how it compare costs. The report comes to its startling conclusion by a) understating the costs of public employee pensions; and b) overstating the net costs of corporate welfare.

Let’s start with pension costs. A government’s Actuarially Required Contribution (ARC) has two parts: first, the “normal cost,” which is the contribution the government makes to cover pension benefits accruing to employees in that year; and second, “amortization costs” to pay off unfunded liabilities accruing in prior years.

Both the normal cost and amortization costs are part and parcel of the pension’s costs. When a government promises employees a benefit, it is not just making a contribution today. It is taking on the contingent liability to increase contributions in the future if the plan’s investment returns come up short. But the Good Jobs First study counts only the normal cost of pensions. Amortization costs are excluded. (This wasn’t accidental; you have to know what you’re doing to pull these numbers out of pension reports.)

Let’s illustrate with Arizona, just to pick the first state in the report. In Arizona’s main state employee plan, the ARC including amortization costs is 1.6 times larger than the normal cost alone. So this is a pretty large misstatement.

The natural response from Good Jobs First would be that amortization costs aren’t a part of today’s pension costs, but just reflect unfunded liabilities from the past. Fine. But then in calculating today’s normal cost, you need to account for the risk that the plan’s investments won’t produce their assumed return (8 percent in Arizona’s case) and the state will need to pony up additional funds in the future.

Economists do this by recalculating the normal cost using a lower interest rate to reflect this guarantee made to pension participants. For example, if you assume a 4 percent yield for long-term U.S. treasury bonds, the normal cost of a pension would roughly triple versus using an 8 percent return assumption. That tripling reflects the full cost of the liability the state is taking on and the full value of the benefits promised to employees. This approach is used by the federal Bureau of Economic Analysis in analyzing state/local pension liabilities, and has been effectively endorsed by the Congressional Budget Office, the Federal Reserve, and the vast majority of professional economists. So roughly speaking, Good Jobs First is low-balling today’s pension costs by around two-thirds.

But Good Jobs First also exaggerates the costs of corporate subsidies. The reason that states offer such subsidies is because their benefits outweigh the costs, say, by attracting businesses and jobs to the state. Now, I’m very willing to accept that this isn’t the case, which is why I think we should eliminate most corporate welfare. But the Good Jobs First study assumes that the benefits of these corporate subsidies are zero, which almost certainly isn’t the case. Some jobs and businesses are created by corporate subsidies, even if the benefits aren’t worth the costs.

So yes, if you understate pension costs and overstate corporate subsidies, then pensions cost a lot less than corporate subsidies. I bow to no one in disliking corporate welfare, but the fact that the union-sponsored Good Jobs First had to go to such lengths shows exactly how expensive public employee pension plans have become.

About the Author:  Andrew G. Biggs is a resident scholar at the American Enterprise Institute.

Blue-Collar Hot Spots: The Cities Creating The Most High-Paying Manufacturing Jobs

It’s a common notion nowadays that American blue-collar workers are doomed to live out their lives on the low-paid margins of the economy. They’ve been described as “bitter,” psychologically scarred and even an “endangered species.” Americans, noted one economist, suffered a “recession” but those with blue collars endured a “depression.”

Yet in recent years, according to research by Mark Schill of the Praxis Strategy Group, there’s been a strong revival in higher-paid blue-collar industries in many of our largest metropolitan areas, and the momentum is, if anything, building. Schill analyzed employment changes from 2007 to 2013 among a group of higher-paying blue-collar industries: oil and gas and mining; construction; manufacturing; and wholesale trade, transportation, warehousing and waste handling. Compensation in these sectors average $58,000 a year; in oil and gas, pay tops $100,000. In any case, these fields pay far better than alternative sources of employment for people without college degrees, such as retailing ($27,500), food service ($16,000), hospitality, or the arts ($31,000). Nationally, this cross section of higher-value blue-collar industries employs 31.3 million people, just more than a fifth of the nation’s workforce, up 1.3 million jobs since 2010.

This blue-collar resurgence seems likely to be more than a merely cyclical phenomenon. The U.S. edge in energy and manufacturing, increasingly linked, has sparked major new investments by both domestic and foreign producers. The new energy finds have created employment in the construction and operation of such things as pipelines and refineries, and have also led manufacturers to plan new factories here due to electricity and feedstock costs that are now well below those in Europe or East Asia.

The Boston Consulting Group suggests other factors sparking this revival. This includes rising wages in China as well as sometimes unpredictable business conditions that are leading some large U.S. companies to move some production to America from China.

Overall, since 2010 the number of high-value manufacturing jobs is up 167,000 in the 52 largest metropolitan areas while energy extraction added 50,000 positions. (Heavily subsidized renewables enjoyed a much smaller increase.) The wholesale trade and material handling sectors have added almost 300,000 jobs in that time. And as the economy has recovered somewhat, demand for housing, including in some once distressed exurban areas, has sparked a nascent revival in higher-paying construction employment. This key blue-collar sector, devastated by the recession, has gained roughly 200,000 jobs since 2010.

This revival is not evenly spread. The big winner is the Houston metro area, in large part due to the energy industry, which has added 23,000 jobs since 2010. It also reflects local growth in the high-wage manufacturing (up 30,000 jobs) and trade and transport sectors (up 26,000), while construction employment has surged nearly 20,000, a number matched only by the much larger New York metro area. Houston tops our list of the cities creating the most good blue-collar jobs. (Our ranking is based 50-50 on growth from 2007-13 and 2010-13.) Not far behind in second place is Oklahoma City, which has clocked a similarly broad increase, led by 28% growth in energy employment, 6% in construction and 15% in manufacturing.

Many of the other metro areas in our top 10 fit the same mold — traditionally business-friendly Sun Belt locales with strong energy sectors, and expanding manufacturing.

A Surge In The West

The Intermountain West also continues to create manufacturing and trade jobs at a rapid rate. This region’s blue-collar star is Salt Lake City, which places seventh on our list, led by a strong expansion in energy sector employment and trade and transport, with decent growth in manufacturing.

It’s not merely a “red state” phenomena. Progressive-dominated Denver places 11th on our list, with 32% growth in energy jobs as well as a 10% increase in construction employment. Similarly Portland (9th) and Seattle (10th) have produced more opportunities for blue-collar workers. This has been paced largely by strong growth in manufacturing, aided by low energy costs from hydro. Intel is building a large new factory near Portland, while Boeing has continued to add jobs in the Seattle area – its headcount in Washington State is up 17% since 2010.

Construction has also been healthy, in part due to migration from more expensive California, as well as trade, which ties into the region’s close ties to the Pacific Rim.

In contrast the “big enchilada” economies of California have lagged, and overall employment in high-paying blue collar sectors remains well below 2007 levels. But since 2010, there has been a modest uptick in manufacturing and construction in San Jose/Silicon Valley, which ranks 13th on our list, while San Francisco (16th) has seen some recovery in the transportation and trade sectors.

The Revival Of The Rust Belt

No part of the country is more associated with high-paid blue-collar work, and its decline, than the Rust Belt. Employment in most Rust Belt cities is well below 2007 levels, but since 2010 there has been a resurgence in high-paying manufacturing industries, led by the third-ranked Detroit area, which added 37,000 jobs.

This is clearly tied to the recovery of the U.S. auto industry. The East and West Coast media love to yammer about the demise of the car, but the industry’s production has returned to 2007 levels and automakers are investing in the region. GM has committed to spend over $1.3 billion to upgrade five factories in Ohio, Indiana, Detroit and the nearby Michigan cities of Flint and Romulus.

It’s more than an autos story in the region. Grand Rapids, which has a highly diverse manufacturing sector, including many furniture companies, has increased industrial employment 16% since 2010, putting it fourth on our list. Other Rust Belt metro areas making a blue-collar comeback are Louisville, Ky. (12th), Minneapolis (15th), Columbus, Ohio (18th), and Pittsburgh (19th).

The Laggards

Some metro areas have continued to lose high-wage blue-collar jobs, led by Las Vegas (down 4.2% since 2010), Orlando (-13.6% since 2007), Providence, Rochester and Philadelphia. Our two largest industrial metro areas, Chicago and Los Angeles, have seen slow growth, ranking 25th and 28th, respectively. Rapidly de-industrializing New York ranks 35th, despite the metro area’s surge in construction employment.

Yet overall, demand is rising for highly skilled workers at U.S. industrial and energy companies.

At a time when the wages of college graduates have been falling, it might behoove more young people to realize that, in many cases, a degree in art is not worth as much as a certificate for machining, welding, plant management or plumbing. Some metro areas are bolstering their efforts in this area, notably New Orleans, Columbus, Nashville and even creative class-oriented Portland.

To be sure, the golden days for working-class employment are over, but the future may prove to be a lot less dismal, particularly in some regions, than generally proclaimed by those who have rarely seen in the inside of factory or a refinery.

Blue Collar Industry Growth Index

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Data source: QCEW Employees, Non-QCEW Employees & Self-Employed – EMSI 2013.4 Class of Worker. Analysis by Mark Schill, Praxis Strategy Group, mark@praxissg.com. The analysis covers 37 “blue collar” industry sectors at the 3-digit NAICS classification level, each averaging at least $40,000 in average annual pay (including benefits). Industries include oil and gas extraction, utilities, heavy and specialty construction, most manufacturing, merchant wholesale industries, most transportation sectors, warehousing and storage, and waste management.

This story originally appeared at Forbes.com and is republished here with permission from the author.

About the Author:  Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

Death Knell for Pell: A Taxpayer’s Justification for Pulling the Plug

Authorized by Lyndon Johnson in 1965 as the Higher Education Act to guarantee low-income minorities have the same opportunity for a college education as children in middle-class families, the program was renamed for Senator Claiborne Pell in 1980. Like most well-intentioned government programs, the projected costs for the new entitlement exploded and exceeded the funds appropriated by Congress within several years.

Officially begun in 1976, 1.9 million students received an average award of $759 at a total cost to the taxpayers of $1.45 billion. The totals were $8 billion in 1990, $16 billion in 2008 and $38 billion in 2012. The average award increased 13% in 2008 and 27% in 2009. In 2013, 9.7 million students received between $3,800 and $5,575 in grants. President Obama plans to increase those numbers to 14 million by 2020. [1]

Pell grants are not awarded by merit. The sole criterion is total family income for dependent students or individual income for independent students, a group that represents a sizable percentage of recipients and greatly increases the risks for prolonged attendance and dropping out after the first year.

Within six years, 30% of students enrolled in public 2-year institutions receive an associate’s degree.  Within six years, 57% of students enrolled in public 4-year institutions graduate. Younger students do better; 45% of older students successfully complete the requirements for a bachelor’s degree, but only 9% who delay enrollment do in six years. [2] A Gates-Lumina study revealed that only 3% of Pell recipients had completed the 4-year credential after 6 years. [3]

The completion rates for Pell recipients are lower. Factors like independent status, single parenthood and dependents are risks that adversely influence success. In a recent AIR study of 1.1 million 1st year students, 500,000 failed to graduate. The cost for the students who dropped out after the first year was $4 billion. The cost in lost income and tax revenue was considerably higher.

California has 2.3 million college students enrolled on 122 campuses, including the largest community college system in the world. 250,000 students receive $1 billion in Pell Grant funds that are turned over to the schools. California’s community colleges receive over $100 million in federal, state and local tax revenue in 2008 alone for students who dropped out after the 1st year.

54% of low-income students now attend college, a remarkable increase from 31% at the start of the Pell program 1975. The majority attend community colleges. A significant percentage are enrolled in specific training programs for an occupational credential, not an academic degree. These students are often in their thirties and lack job skills. Job corps or vocational schools make more sense and cost far less.

The Pell Grant program is one of the rare federal programs that have avoided congressional oversight or public scrutiny regarding its effectiveness or bias. This may have resulted in the runaway costs and possible instances of abuse and fraud by recipients and institutions alike. U.S. Congressman Denny Rehberg called the Pell program “welfare of the 21st century” which may contain a good bit of truth. [4] He has a point. The 9-year entitlement until graduation is almost double the federal mandate for length of welfare.

Most colleges and universities are required to fulfill federal diversity requirements qualify for Pell money. Those that fail to do so do not receive the funds. Catholic institutions of higher education do not receive any Pell funds. All of the Black colleges do receive funds. At Tuskegee, Howard, Fisk, Spelman and Morehouse, 40-50% of their students have been receiving Pell grants for years. About 43% of Pell recipients are White. The rate of poverty among Blacks and Hispanics is considerably higher than among Whites. Even if income, not merit is the sole eligibility requirement to qualify for the program, some have said it discriminates against Whites. These are legitimate concerns that merit objective, careful scrutiny.

Federal aid to 15 million students in 2012 totaled $142 billion. $33 billion went to the Pell program. In light of the significant numbers of students who drop out after the first year or fail to graduate after six years, its limited success suggests considerable room for improvement. Among the most obvious is awarding the grants for academic merit as well as low income.

Restricting the number of years to completion of the credential would seem to be a good way to obtain a better return on a huge investment of national capital.

Pell grants are free money that does not have to be repaid by the recipients. There is no statutory limit to the program although the current maximum is 9 years to complete a 2-year program. Students who were 18 years old or younger when they started college had a ten-fold greater likelihood of graduating from college. Perhaps older students seeking job training might get better results by attending vocational schools, not college.

It is often said that no good deed goes unpunished. The maxim is especially true in the case of government programs. It is time to sound the death knell for Pell and re-examine the criteria for admission to college. Literacy and GPA might be a good place to start.

R. Claire Friend, MD, is the Assistant Professor, Department of Psychiatry and Human Behavior, UC Irvine Medical Center, and the editor of the UC Irvine Quarterly Journal of Psychiatry. She is a retired psychiatrist and frequent commentator on the psychological dimensions of education and social welfare policies.

Footnotes

1.  http://www.aacc.nche.edu/Publications/Briefs/Documents/PolicyBrief_Pell%20Grant.pdf  (page 5)

2.  http://nces.ed.gov/fastfacts/display.asp?id=372

3.  http://media.collegeboard.com/digitalServices/pdf/advocacy/policycenter/advocacy-rethinking-pell-grants-one-pager.pdf

4.  http://www.huffingtonpost.com/2011/04/01/denny-rehberg-pell-grants-welfare-21st-century_n_843712.html

How Much Do California's State, City and County Workers Really Make?

INTRODUCTION

What level of public employee pay and benefits are affordable and appropriate is a difficult but necessary discussion. And missing too often from this discussion is good data on just how much, on average, public employees are currently making. In California, the State controller has made available a database of public employee compensation, organized by agency, that includes every city, county and state worker. The analysis to follow represents the first attempt we know of to extract from the raw data the average pay and benefits for full-time employees of California’s cities, counties, and the state government.

One of the biggest weaknesses inherent in the State controller’s “Government Compensation in California” database is that the summary information provides averages that take into account positions that were part-time, or only occupied by the employee for part of the fiscal year. But the State controller’s compensation website provides downloadable Excel spreadsheets on their “raw export” page that yield sufficient additional information to estimate averages limited to full-time employees. Table 1 shows the difference between averages compiled for all employees, including part-time workers (left three columns) vs. averages compiled for full-time employees, excluding part-time workers (right three columns).

Table 1:  Average Compensation, All Employees vs. Full-Time – 2012

20140131_CA-Gov-Pay_Table1-bAs can clearly be seen on the above table, it is extremely misleading to rely on average pay and benefit data that includes part-time and partial-year employees. For example, if a researcher were to click on the State controller’s “Data at a Glance” for Redondo Beach, the “average wages” for a city employee are reported as $47,879 per year, and the “average benefits” (comprised primarily of the employer contribution to pension and health insurance) are reported as $18,203 per year. But if the averages are recalculated to only include full-time employees – a far more representative indication of how much city employees actually make – the average wages increase to $93,809 per year and the average employer-paid benefits increase to $38,197 per year. This results in a total average compensation for full-time employees of $132,006 per year, more than twice as much as the average total compensation of $66,082 as reported on the State Controller’s “Data at a Glance” page for Redondo Beach.

In general, and as shown in the examples provided in Table 1, when limiting the pool of records under analysis to full-time employees, nearly 50% of the records are eliminated and the average pay and benefits increases by nearly 100%.

*   *   *

METHODS AND ASSUMPTIONS TO ISOLATE FULL-TIME EMPLOYEE RECORDS

The method to remove part-time records from the denominator, in order to develop compensation averages for full-time employees of California’s cities, counties, and state government, using the State controller’s raw data, rests on three assumptions. They are:

(1) A full-time employee would participate in a health insurance plan to which the employer would contribute some portion of the required payment, however minimal.

(2) A full-time employee would participate in a retirement benefit plan, usually a pension, to which the employer would contribute some portion of the required payment, however minimal.

(3) A full time employee would earn an amount in “regular pay” at least equal to the amount specified as the “minimum pay for job classification.”

It is important to note that the pool of full time employees that is isolated using this analysis does not necessarily include all records of full-time employees. The third condition that must be met, for example, that requires a “full time” employee to have earned an amount in “regular pay” at least equal to the amount specified as the “minimum pay for job classification,” will exclude employees who only worked a partial year (typically because during the year they either were hired, retired, or transferred into or out of that job) and therefore earned less than the minimum. But “partial-year” employees must be excluded from the analysis because their lower earnings are not representative of what they would have earned if they’d been in the position the full year.

Another factor worth explaining are end of career payouts of, for example, accrued sick time, which could potentially skew averages upwards. In reality the opposite is probably true, because (1) this deferred compensation that occurs whenever an employee retires is an accurate reflection of what they were earning throughout their career, and so unless a disproportionate number of employees retire and collect payouts in the year under analysis, these payouts belong in the averages, and (2) a significant number of retirees do not work the full year and are therefore screened out based on condition #3 because their “regular pay” did not equal or exceed the “minimum pay for [their] job classification.”

Another potentially distorting factor in these calculations, that, if anything, lowers the averages yielded, is the failure of the three conditions to screen out, for example, City Council members who do not work full time. Most of them have pension contributions and health insurance contributions made by the cities, and their “regular pay” matches or exceeds the “minimum pay for job classification.” But they work part time and their “regular pay” is typically only around $12,000 per year, if that. The presence of these records probably slightly lowers the full-time averages that are calculated.

Because of the sheer size of the pool, even with the weaknesses noted, it is unlikely the results generated are not accurate. They draw from a database that literally includes every single employee under the payroll of any city, county, or state agency in California. In all, 291,011 city employee records were analyzed, 350,150 county employee records, and 239,860 state agency employee records. To verify the methods and the data, the reader is invited to download each of these Excel files, which were created by downloading the State controller’s raw data files and modifying them:

2012_Payroll_All-CA-Cities_CA-Controller-Data_CPPC-ANALYSIS.xlsx (44 MB)

2012_Payroll_All-CA-Counties_CA-Controller-Data_CPPC-ANALYSIS.xlsx (52 MB)

2012_Payroll_All-CA-State-Agencies_CA-Controller-Data_CPPC-ANALYSIS.xlsx (35 MB)

*   *   *

AVERAGE TOTAL COMPENSATION, FULL-TIME EMPLOYEES

Using this method for several cities in California (ref. Table 1) has validated the accuracy of this method. While a surprising number of employees are excluded from the averages as part-time – usually about half of them – a review of their job descriptions indicates they clearly are not full-time workers: “recreation leaders,” “school crossing guards,” “lifeguards,” “library clerks,” “library pages,” “theater technicians,” “maintenance trainees,” “custodians,” “swim instructors,” “theater arts aides,” and so on.

Table 2, Average Compensation by Entity – 2012

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In producing this information, because department classifications are not standardized among cities and counties, it is difficult if not impossible to compile compensation data by type of job. This is possible with individual cities and counties, and yields interesting results. Anyone interested in developing this data for a particular city or county is encouraged to download and study the spreadsheets provided in the CPPC analyses prepared for the following cities.

Download Spreadsheet:  Irvine_Total_Employee_Cost_2012.xlsx
Discussion/Tutorial:  City of Irvine 2012 Compensation Analysis

Download Spreadsheet:  Orange_County_Fire Authority_Total_Employee_Cost_2011.xlsx
Discussion/Commentary:    The Average Orange County Firefighter’s Total Compensation is $234,000 per Year

Download Spreadsheet:  Costa_Mesa_Total_Employee_Cost_2011.xlsx
Discussion/Tutorial:  City of Costa Mesa 2011 Compensation Analysis

Download Spreadsheet:  Anaheim_Total_Employee_Cost_2011.xlsx
Discussion/Tutorial:  City of Anaheim 2011 Compensation Analysis

Download Spreadsheet:  San_Jose_Total_Employee_Cost_2011.xlsx
Discussion/Tutorial:  City of San Jose 2011 Compensation Analysis

Download Spreadsheet:  Desert_Hot_Springs_Total_Employee_Cost_2011.xlsx
Discussion/Commentary:  Desert Hot Springs, California – Average City Employee Makes $144,329 Per Year

Download Spreadsheet:  Palo Alto_Total_Employee_Cost_2012.xlsx
Discussion/Commentary:  City of Palo Alto Faces Strike

Download Spreadsheet:  Redondo Beach_Total_Employee_Cost_2012.xlsx
Discussion/Commentary:  City of Redondo Beach Fights Unions

The methods, assumptions, formats and formulas used are the same in all of these analyses; the more recent ones (Palo Alto, Redondo Beach) provide a refined template that is relatively easy to copy and adapt to evaluate any body of Excel data downloaded from the State controller’s website.

*   *   *

AVERAGE TOTAL COMPENSATION, PUBLIC SAFETY VS. MISC. EMPLOYEES

When evaluating State controller payroll records to isolate full-time employees and develop averages, while it is not practical – because of the size of the databases and the non-standard terminology employed – to develop per-department averages, it is possible to estimate averages for public safety personnel compared to miscellaneous personnel. This can be accomplished by sorting the records to move the full-time records into a single block of data, while doing a secondary sort of the field “pension formula.” It is reasonable to assume that virtually all records showing either “3% at 50” or “3% at 55” pension formulas are for public safety employees. Since very few public safety employees, apart from a still statistically inconsequential pool of new hires in some locales, are on any pension formulas other than “3 at 50” or “3 at 55,” and since very few, if any, employees who are not in public safety are under those pension formulas, this is a reasonably accurate way to separate the records. Doing so yields the results showing on Table 3:

Table 3:  Average Compensation, Public Safety vs. Miscellaneous Employees – 2012

20140131_CA-Gov-Pay_Table3-b

*   *   *

PERSONNEL COSTS AS A PERCENT OF TOTAL BUDGETS

Finally, using the State Controller’s data, one may add all of the employee records, full-time and part-time, to calculate the total personnel expense for all of California’s cities, counties, and state agencies. By comparing the results to data compiled by the California Policy Center in an earlier study “How Big Are California’s State and Local Governments Combined?,” it is possible to estimate what percentage of total government spending is comprised of personnel costs, as shown on Table 4. The amounts reported in the first row of data, “Total Budget,” may be surprising to readers familiar with the numbers, but the basis for them are explained fully in the afore mentioned CPPC study. For example, the direct state budget, once pass-throughs to cities and counties are eliminated, was only $48 billion in 2012. This smaller amount is the appropriate number to use, since the other approximately $50 billion in the state budget are funds that are passed through to cities, counties, school districts and special districts, and are not part of direct state operations.

Table 4:  Personnel Costs as a Percent of Total Budgets – 2012  ($=M)

20140131_CA-Gov-Pay_Table4-b

CONCLUSIONS

The purpose of this study is primarily to make publicly available a set of compensation averages for California’s state and local government full-time workers. Merely having this benchmark, built from officially reported data, using transparent assumptions, may provide a credible benchmark that can be useful in discussions of what level of pay and benefits is appropriate for California’s public servants.

The data clearly indicates that personnel costs do not, on average, consume 60% to 70% of local budgets, even though in many cities they do consume that much of the budget. On the other hand, at an average equaling 40% of city and 52% of county budgets, personnel costs consume far more than the 8% that has been cited as a reason taxpayers should be unconcerned about public employee compensation. And many cities and counties are now using outside contractors to perform services that are essentially part of normal operations and could be considered personnel costs.

A related observation is that the employer’s share of pension costs, while shown as still consuming less than 10% of total budgets – despite consuming far more than that in many cities and counties – do not include payments on pension obligation bonds. These numbers also don’t reflect how much payments are already scheduled to increase – for example, last year CalPERS announced it would phase in a 50% increase to required pension contributions over the next few years. When one takes this into account, unless all of this increase is borne through increased employee contributions – unlikely – it is necessary to consider the true average compensation for public servants in California’s cities, counties, and state agencies to be at least 10% greater than these estimates.

Finally, total compensation estimates here are skewed downwards because they don’t reflect accruals for the employer’s future retirement healthcare obligations beyond Medicare coverage, which are common for state and local government workers. It is common for these costs to currently range as high as $12,000 per year in retirement, and in most cases they are not pre-funded at all by California’s cities and counties. The present value of these future retirement healthcare obligations constitute an unfunded liability on precisely the same terms as unfunded pension obligations. That is, they represent an accrued cost each year these employees work, which ultimately is translated into cash payments. Appropriate pre-funding of retirement health care obligations probably adds another 3-5% to these estimates of average total compensation.

To reiterate, however, these numbers speak for themselves without requiring embellishment or copious observations. In California, during 2012 the average miscellaneous full-time employee collected total compensation as follows: Cities, $111K; Counties, $98K; State, $90K. Also during 2012, the average full-time public safety employee collected total compensation of: Cities, $170K, Counties, $140K; State, $129K. Add at least 12% to these numbers to reflect unfunded retirement healthcare and pension obligations, and you have an accurate representation of what California’s public servants earn, built from the ground up using the actual payroll records.

Income Equality Agenda Makes War On Progress

In his recent State of the Union Address, Mr. Obama emphasized his fight to equalize our incomes. Apparently, his advisors convinced him he can breathe fresh life into tax and welfare programs by hijacking the word “opportunity” from the other side of the aisle without bothering to understand what it means.

The deeper the left becomes mired in failed attempts to reengineer large swathes of the American economy, the more deceptively it promotes central planning. So, no matter what kind of mess the government makes in trying to nationalize health care, banking, education, energy, or housing, equality activists will not rest until every citizen has an income, education, health care, housing, possessions, and lifestyle narrowly distributed around the mean—and the impacts of birth, talent, upbringing, character, luck, behavior, industriousness, and personal choice are all neutralized. If economic growth has to be sacrificed a result, so be it.

Of course, income equality advocates never frame it this way. But is it possible to reach any other conclusion based on the policies they promote?

Contrast this with the classic Equality Before The Law formulation in which the government of a true opportunity society treats all citizens the same, leaving it to private, voluntary interactions to determine life outcomes just as private, voluntary charity cares for the unfortunate. Of course, this leads to disparities between society’s least and most successful members. But it also creates a set of incentives and disincentives that allows freedom to do what it does best—deliver progress.

In most developed democracies, economic intervention, overregulation, transfer payments, and monetary manipulation have become the new normal. Sadly, the United States no longer ranks among the top 10 economically free nations. And when governments get bloated and policies get capricious and unpredictable, economies stop growing. Although government GDP figures show the economy eked out a percentage point or two of growth, these are highly suspect because government expenses are falsely counted on the positive side of the GDP ledger and inflation rates are grossly understated. For all intents and purposes, the Western world has gone flat.

Despite lofty Teleprompter rhetoric, equality of outcome and equality before the law are opposing concepts. The former can only be accomplished through government sanctioned theft, vitiating the latter. And in doing so, we disable the most potent engine ever developed to improve the lot of the poor – innovation, material progress, and economic growth driven by self interest and delivered by free markets.

Is it any wonder that in stagnant societies, political economics gets reduced to a fight over a fixed pie? Policies that disproportionately reward government cronies feasting on bailouts and cheap money certainly generate poster children for the “income equality” movement, denigrating the accomplishments of both innovators and honest captains of industry. How can we be surprised when these leaders of the productive economy become risk-averse and hunker down?

In my six decades, I’ve lived through many different economic eras, from Eisenhower to Obama. I’ve climbed from the lowest income decile to the highest, now making my way back down again. My parents’ journey was even more dramatic, rising from dirt poor children of immigrants to solid members of the middle class. And the abject poverty that drove my grandparents across the ocean to seek a better life would be unimaginable to today’s poorest Americans.

When income equality advocates rail against the free market policies that fostered this kind of progress, exactly what is it that they hope to stamp out? How would my life have been better if my grandparents got hooked on welfare or were made unemployable by minimum wage laws or onerous regulations? If even steeper progressive income taxes prevented my father from buying me a great education, how would society be improved?

Now that I am winding down from helping young entrepreneurs build new products and companies and, instead, spend my time in the policy arena, Uncle Sam only extracts a fraction of the taxes he used to from me. Sure, as my income descends toward the mean inequality has gone down – Hurrah! Tell me how society is better off for it.

How is society better off when the scientist who dreams of getting rich by curing cancer decides to take a comfy academic sinecure living off government grants instead? How are poor teenagers with no skills given their first step up the opportunity ladder when minimum wage laws make it unprofitable to employ them? How does having to hire armies of lawyers and accountants to comply with all the impediments young companies face help us revitalize moribund industries? How does forcing foreign engineering graduates from U.S. universities to leave the country make us more competitive? How will increasing taxes on capital gains lead to more capital investment, the mother’s milk of growth?

Finally, how will demonizing success and championing identity politics create a culture of excellence? How can all of these measures designed to reduce “income inequality” not kill the goose that lays the golden eggs?

The word equality, like the word rights, needs to be precisely defined and vigorously defended. Ceding these powerful totems to class warriors, central planning commissars, and populist demagogues – just as the bills for their unfunded entitlements come due – is a guaranteed recipe for equality. The equality of the graveyard.

About the Author:  In the 35 years since Bill Frezza graduated from MIT with degrees in electrical engineering and biology he has been a scientist, an engineer, a product manager, a salesman, a consultant, an entrepreneur, an author, a technology evangelist, and a venture capitalist. His early career on high-tech’s bleeding edge included the development of first generation electronic newspapers, home banking, home shopping, cable modems, multi-user videogames, wireless LANs, and wireless email, all of which became a success – for someone else a decade later. His 15 years as a venture capital investor working with early stage telecom, semiconductor, and biotech startups taught him humbleness, risk aversion, and the ability to identify ten fatal flaws out of five in any startup business plan. Frezza is a frequent guest on CNBC, FOX, and CBN News where he is challenged to reduce complex economic and policy issues into thirty second sound bites. More writing by Frezza can be found at BillFrezza.com. This article originally appeared in Forbes and appears here with permission from the author.

The Importance of Real Equality, and Why the Government Can't Provide It

The subject of “equality” is the source of much political debate these days.

Ever since the founding era, free market thinkers have argued for equality of opportunity in the economic order. Equality, in other words, is a framework, not a result. In modern terms, the goal is a level playing field. Government should be a referee that enforces property rights, laws and contracts equally for all individuals.

What the free market view means in policy terms is no (or few) tariffs for business, no subsidies for farmers, and no racism written into law. Also, successful businessmen will not be subject to special taxes or the seizure of property.

In America this view of equality is enshrined in the Declaration of Independence (“all men are created equal and are endowed by their creator with certain inalienable rights”), and the Constitution (“imposts and excises shall be uniform throughout the United States” and “equal protection of the laws”).

Much of America’s first century as a nation was devoted to ending slavery, extending voting rights, and securing property and inheritance rights for women — fulfilling the Founders’ goal of equal opportunity for all citizens.

Progressives and modern critics of equality of opportunity have launched two significant criticisms against the Founders’ view. First, that equality of opportunity is impossible to achieve. Second, to the extent that equality of opportunity has been tried, it has resulted in a gigantic inequality of outcomes.

Equality of outcome, in the Progressive view, is desirable and can only be achieved by massive government intervention.

To some extent, of course, the Progressives have a valid point — equality of opportunity is, at an individual level (as opposed to an institutional level), hard to achieve. We are all born with different family advantages (or disadvantages), with different abilities, and in different neighborhoods with varying levels of opportunity. As socialist playwright George Bernard Shaw said, “Give your son a fountain pen and a ream of paper and tell him that he now has an equal opportunity with me of writing plays and see what he says to you.”

What the Progressives miss is that their cure is worse than the illness.

When government for example, tries to correct imbalances in family, ability and neighborhood, government intervention produces other inequalities that may be worse than the original ones.

Thomas Sowell writes, “Attempts to equalize economic results lead to greater — and more dangerous — inequality in political power.” Or, as Milton Friedman concluded, “A society that puts equality — in the sense of equality of outcome — ahead of freedom will end up with neither equality nor freedom. The use of force to achieve equality will destroy freedom, and the force, introduced for good purposes, will end up in the hands of people who use it to promote their own interests.”

About the Author:  Dr. Burton Folsom Jr. is a history professor at Hillsdale College and senior fellow in economic education for the Mackinac Center for Public Policy.  His work has appeared in major newspapers and magazines including The Detroit News, The American Spectator, and The Wall Street Journal. He blogs at BurtFolsom.com. Folsom received his Ph.D. in American history from the University of Pittsburgh.

50th Anniversary of Federal Government’s Failed War on Poverty

Part 1 of 2:

Fifty years after President Johnson launched his “war on poverty,” it is time to stop pretending and start doing something real for the poor.

Mitt Romney said during the 2012 presidential campaign: “I’m not concerned about the very poor. We have a safety net there. If it needs repair, I’ll fix it.”

Can there really be any doubt that it needs fixing?

Don’t expect the government to provide any reliable numbers. The biggest federal poverty program, the Earned Income Tax Credit (EITC) pays 27 million taxpayers $60 billion in cash. But like Section 8 housing vouchers and Medicaid, EITC payments are excluded when the government totes up who is poor and who is not.

It is obvious that the ranks of the poor swelled during and after the Crash of 2008. Average income fell during the Crash and has since fallen more. Paul Krugman is right to call it a “rich man’s recovery.”

Both the poor and the middle class are still in recession. Indeed if unemployment figures were calculated using the same methodology used in the 1930’s, public officials could no longer deny that we are in an ongoing depression.

But for believable numbers about who is poor and who is not, don’t look to the government.

The government is also confusing, it would seem intentionally confusing, about how much it spends in total on the poor. A Senate subcommittee struggled to estimate total spending on the poor and came up with a number of $61,194 per impoverished household per year.

This number is misleading because it includes people who are not really poor, such as students using federal Pell grants for their education, but is still almost three times the federally defined poverty threshold for a family of four. If we take medical spending out, it is still twice the poverty threshold.

Since all this money is clearly not going to the poor, where is it going? A lot of it is presumably supporting well paid federal workers, or indirectly state and local workers, all of whom are in turn protected by powerful public unions.

If we take all federal transfer payments, not just those specifically earmarked for poverty programs, only 36% of the money is reaching the bottom 20% of households by income and even less is reaching the truly poor. And even these figures do not count all the federal subsidies for corporations or the rich.

Almost all the numbers we get from the federal government are either poorly designed, or are well designed to confuse and hide the truth about what is going on. Even as the president rails against economic inequality, he is using figures that are inherently bogus, a subject that we will explore further later in this series.

It’s not that we don’t have economic inequality as well as poverty. We do. And common sense tells us that it is getting worse, in large part because of the president’s policies and those of the Federal Reserve. But it would help to have believable, not intentionally misleading numbers.

Looking behind all the smokescreens, one thing is obvious about all federal poverty programs. They not only create disincentives to work. They actually tax work at horrific rates.

As economist Thomas Sowell has explained: “ Someone who is trying to climb out of poverty by working their way up can easily reach a point where a $10,000 increase [ in pay] can cost them $15,000 in lost benefits they no longer qualify for. That amounts to a marginal tax rate of 150 percent—far more than millionaires pay.”

This outrageous tax on the poor has been made even worse by ObamaCare. A worker can earn just a few dollars more, and find that more than $10,000 in medical insurance subsidy has vanished. ObamaCare also in effect adds $2.28- $5.89 to the cost of hiring a minimum wage worker, thereby creating another major barrier to work, another subject we will explore further later in the series.

Has the war on poverty been a success? No. Does the safety net for the poor desperately need fixing? Yes.

Leading policy analyst John Goodman of Southern Methodist University has estimated that “ if there had never been a welfare state [ in the US], economic growth alone should have virtually eliminated poverty by now.”

Goodman also adds an interesting note about how progressives who designed and expanded this welfare state have become increasingly reactionary in the face of failure:

“If you are one of the folks who voted[ as a progressive] in the [2012] election, what did you vote for?… Here are three things for starters: (1) no reform of the public schools, (2) no reform of the welfare systems, and (3) no reform of labor market institutions that erect barriers between new entrants and good jobs.”

If voters really want to help the poor, they will have to start by admitting that we need some new ideas.

About the Author: Hunter Lewis is co-founder of AgainstCronyCapitalism.org. He is co-founder and former CEO of global investment firm Cambridge Associates, LLC and author of 8 books on moral philosophy, psychology, and economics, including the widely acclaimed Are the Rich Necessary? (“Highly provocative and highly pleasurable.”—New York Times) He has contributed to the New York Times, the Times of London, the Washing­ton Post, and the Atlantic Monthly, as well as numerous websites such as Forbes.com and RealClearMarkets.com.

Welfare, Illegitimacy and Academic Failure: America’s True "Race to the Bottom"

A great deal has been written about the cost of welfare, rise of illegitimacy, decline in public education and racial differences in academic achievement. Very little has been written about the link between welfare and those phenomena.

They are all direct results. Welfare affects a process known as maternal-infant attachments that is the psychophysiologic foundation of early infant brain development and future IQ. Welfare is the X factor in many of society’s ills.

This essay will address that connection. We will also examine the politically taboo subject of racial differences in test scores viewed through the prism of a social scientist. It is my hope this will stimulate a much-needed public conversation about what ails the nation and what steps are needed to get it back on track. In a word, the answers are more marriage, not welfare checks and more fathers, not federal programs.

The Great Society forever changed the national culture. It institutionalized welfare and turned our traditional social order on its head. Since Lyndon Johnson announced his War on Poverty fifty years ago, marriage has virtually disappeared among minorities. Johnson’s vision is America’s nightmare.

Among Blacks, wedlock plummeted from 85% to 26%. Out of wedlock births skyrocketed from 22% to 90%.  Among Hispanics, marriage dropped to 45%. Illegitimate births rose to 53%. [1] Marriages among Whites declined from 93% to 51%. Illegitimacy increased from 5% to 29%. [2] Is this the portrait of a Great Society?

The results of the nation’s report card, the National Assessment of Educational Progress (NAEP), mirror the rates of illegitimacy: the higher the rate, the lower the test scores. In 2003, the illegitimacy among Black females without a high school diploma was 92.1%. [3] The average NAEP score for Black students was 33 points lower than those for White students. In 2013, illegitimacy among Blacks was 75-80%. The performance gap between their scores and those of White students was 31. The performance gap between Hispanic and White students was 30 points in 2003 and 31 points in 2013. [4]

National School Lunch Program (NSLP) data are an indicator of welfare enrollment. The percentages of students eligible for free lunch or reduced fee lunch by race mirror those for out of wedlock births. 82% of urban Hispanic students and 80% of urban Black students are eligible for the government’s national free lunch program. The data for suburban and rural communities as well as small towns are very similar.

This is a national social plague. 50% of 8th grade students qualify for NSLP in many states. [5] 62% of urban 4th grade students qualify as well. The numbers of students raised by unwed mothers on welfare should give the citizenry pause. They are a reflection of how far our nation and culture have fallen. They are also a vision of our future.

NAEP scores in mathematics reveal significant performance gaps between students who qualify for free lunch and those who do not. Test scores for 4th grade White students ineligible for NSLP are 247 for 2003, 250 for 2005 and 252 for 2007. The scores for their eligible White classmates are 229, 233 and 235. The performance gap is seventeen-points. [6]

The same relationship holds true in the 8th grade. Scores for ineligible White students are 291, 292 and 295. The performance gap for their NSLP White eligible peers averaged 20 points. Corresponding scores for Black students are 262, 264 and 268 with a fifteen-point performance gap for NSLP eligible students. [6] Is the difference surprising? Could it be otherwise?

In 2013, students who were eligible for free or reduced-price school lunch had an average NAEP score that was 27 points lower than students who were not eligible. The performance gap in 2003 was 17 points. Poverty in single parent families is four times higher than in married families with two-parents. [7]

Brain development, measured by IQ, is highly correlated with the strength of what is called maternal-infant attachment. The stronger the bond between them, the more the mother interacts, coos and plays with her baby. It is the degree of stimulation she provides that promotes development of the infant’s brain and expansion of its massive neuronal network. Simply put, the quality of mothering is critical for the development of her infant’s intelligence.

Married women have more time to cuddle, teach and play with their infants. Married women are constantly talking to their babies. One study estimated the difference to be millions of words during the first year compared to mere thousands.

English pediatrician and psychoanalyst David Winnicott called this good enough mothering. Its absence results in the infant’s failure to thrive. The brain fails to thrive as well. In the mother’s prolonged or total absence, as in abandonment, the infant can die.

Married women are more likely to be good-enough mothers. Consequently, their children tend to have higher scores on measures of intelligence or aptitude. Studies on infant brain development show significant differences between babies raised by married or single mothers. Babies of married women tested at 18 and 36 months have a significantly higher IQ.

It is the mother’s boundless love and stimulation that constitute the neurophysiological X factor that unwed mothers lack and their infants must do without. Deprived of adequate attachment during this critical period, optimal brain development fails to occur. Critical points for infant brain development, as for normal fetal development, cannot physiologically be recaptured five or ten years later in life. This is the hidden cost of welfare.

To appreciate the link between illegitimacy and poor performances, compare those of the graduates of Paul Laurence Dunbar High School, the nation’s 1st public high school for African-Americans. Founded in 1870, its graduates include the 1st Black dean of Harvard Law School, 1st Black graduate of West Point, 1st Black USN admiral, 1st Black USAF general, 1st Black appointed to the US Cabinet and two of America’s most renowned physicians. 95% of the students at Dunbar were raised in two-parent homes.

As we have outlined, the link between NAEP test scores and NSLP is welfare, specifically the derivative illegitimacy it fosters. There are 126 federally-funded programs that discourage marriage but encourage illegitimacy. Welfare contributes to the poor scores of US students on international tests. In the absence of major changes, these results will get worse. In the absence of welfare, we’ll get Dunbar.

Johnson’s war on poverty was a contemptible fraud. His goal was not to help African Americans but to buy their votes thus helping to gain and assure permanent political loyalty. Poor young minority women with little opportunity were the most vulnerable to his promise of a better life. For most, it was too seductive to refuse. Their naive pact with the government Devil has proven fatal to the African American community as to Faust.

These statistics are generational phenomena. It has taken decades to reach this point but we do not have decades to fix the problem. Welfare reform is a national emergency. My suggestion is to begin with a few basics: more marriage, not monthly EBT cards; more fathers, not federal programs. America needs to restore the time-honored traditional two-parent family.

The government spends trillions on its massive entitlement apparatus. A marriage license costs twenty-five dollars. Obama trumpets equal opportunity for all as his primary mission. Tell him to put an end to welfare. [8] Imagine the money and lives that he could save. I pray that my message will reach the right ears. It is a hopeful vision.

R. Claire Friend, MD, is the Assistant Professor, Department of Psychiatry and Human Behavior, UC Irvine Medical Center, and the editor of the UC Irvine Quarterly Journal of Psychiatry. She is a retired psychiatrist and frequent commentator on the psychological dimensions of education and social welfare policies.

Footnotes

1. http://www.statisticbrain.com/marriage-statistics/

2. http://www.livescience.com/8049-college-educated-women-stay-married.html

3. http://www.cis.org/illegitimate_nation.html

4. http://nces.ed.gov/nationsreportcard/subject/publications/dst2013/pdf/2014467XL4.pdf

5. http://febp.newamerica.net/background-analysis/federal-school-nutrition-programs

6. https://www.google.com/#q=naep+test+scores+2012+of+students+eligible+for+free+lunch

7. http://www.legalmomentum.org/sites/default/files/reports/single-mother-poverty-2010.pdf

8.

Notable graduates of Paul Laurence Dunbar High School

http://en.wikipedia.org/wiki/Dunbar_High_School_(Washington,_D.C.)

Scholars and artists

Government

Business, religion and professionals

Athletes

Sonoma County's Pension Crisis – Analysis and Recommendations

INTRODUCTION

New Sonoma, a volunteer organization of financial experts and citizens concerned about the finances and governance of the County has just completed an extensive study of the County’s pension crisis.

In addition to describing how the County has incurred over a billion dollars in unfunded pension and retiree health care liabilities, how the County ignored the requirements to notify the citizens of cost of the benefit increase and failed to follow the Board of Supervisor’s resolution requiring the employees to pay for the increase, this report also provides a first-of-its-kind comparison of Sonoma County’s pension system with neighboring counties.

The following is a summary of the study’s findings.

(1) Sonoma County is approaching balance sheet insolvency, which means the County’s liabilities will exceed their net assets when the GASB’s new accounting standards take effect. These will require the County to list their pension liabilities on their balance sheet in 2014, and unfunded retiree medical liabilities by 2016.

(2) The key driver of the pension problem was the retroactive increases which took effect in 2003 and 2006 for Safety and 2004 for General employees. The increases lead to higher pensions, accelerated retirement rates and reduced the average retirement age by 5 years.

(3) The retroactive increases combined with a new definition of pensionable compensation increased pensions by 66% for General Employees and 69% for Safety Employees after the increases were enacted.

(4) Even though the Board of Supervisors Resolutions authorizing the new formula required the General Employees to pay the entire past and future cost of the increase and Safety Employees to pay the past cost, the resolutions were never enforced. In fact, in the 2008 contract negotiations the County picked up all but 1% of the employee contributions.

(5) The County’s pension costs have climbed from $24 million in 2001 to $122 million in 2012. Even with these increased costs, the system has $1.3 billion dollars in unfunded pension, retiree health care and pension obligation bond liabilities.

(6) When comparing Sonoma County’s pension costs with Tulare, Mendocino, Alameda, San Mateo, Marin and Contra Costa counties the study found that their average pension costs were 16% of the General Fund while Sonoma’s were more than double at 36%. As a percent of the general fund, no other county in California has pension costs as high as Sonoma County.

(7) When adding payroll costs, the total climbs to 120% of the General Fund. The average for the other six counties analyzed is 60%.

(8) The County currently has a funding ratio of 60% for pension and retiree health care benefits. That means there is only 60 cents available for every dollar for benefits already earned. This ratio assumes a 7.5% return on investments. If a more conservative 5.5% return is used, the funded ratio drops to 50%.

(9) Sonoma County employees receive on average $110,000 per year in salary and pension benefits, plus health insurance for life after 10 years of service. This is double the average salary and retirement benefits of Sonoma County residents.

(10) Increased pension costs in the years ahead have far reaching implications for the all Sonoma County residents, including; (a) unsustainable annual costs for taxpayers, (b) burden on active County employees, (c) threats to vital public services, and (d) the potential for the County to run out of money and go bankrupt resulting in loss of health care and a reduction of pensions for retirees as has happened in Stockton and Detroit.

This report is a call to action on the part of all stakeholders to work together to solve this deepening crisis, which threatens the quality of life and economic prosperity of all Sonoma County residents.

*   *   *

SONOMA COUNTY’S PENSION CRISIS – ANALYSIS AND RECOMMENDATIONS

Newly mandated financial reporting requirements by the General Accounting Standards Board indicate that Sonoma County will be required to recognize a $1 billion reduction in net assets next year, reducing them from $1.2 billion to about $200 million.  After adding on the $297 million in unfunded liability for retiree healthcare, the new rules will wipe out the net assets of the County.

A fair and sustainable retirement system plays a critical role in recruiting and retaining talented employees on whom we depend for quality public services, such as taking care of our fellow citizens in need, maintaining our roads, protecting our environment, policing our streets and highways, and prosecuting lawbreakers. The system is also designed to provide a level of secure income to these employees, once they retire. To be viable, the County’s retirement system must be affordable for both the employees and the taxpayers who support it.

This report was published by New Sonoma, a nonpartisan, volunteer group of financial experts and concerned citizens.  All the financial information in this report is taken from publically available documents. This report provides the first-of-its kind rating and assessment of the financial impacts of hundreds of millions of dollars in unfunded retiree debt owed by the County. It also compares Sonoma County with our neighboring counties and Tulare County, a county with a sound retirement system to demonstrate how our retirement system compares with others.

Ensuring a common understanding of the current pension situation and how we got here is critical to fostering a lively and informed debate among all stakeholders, including; employees, retirees, taxpayers, and elected officials.

Prior to 2002 we had a sustainable pension system. From the 1940’s until 2002, Sonoma County provided its employees with sustainable pension levels that provided career employees with 60% of their salary upon retirement combined with social security and health care benefits. It was a sustainable, affordable system that required the County to contribute 7% of the payroll and employees 7% of their salary to properly fund the system. From 1994 to 2001 the County’s pension costs averaged $20 to $25 million per year.

Today, this is not the case. Sonoma County’s retiree pension and health care system provides neither retirement security nor financial sustainability and it is in dire need of re-design. At the end of 2012 the retirement fund had unfunded liabilities of $527 million and unfunded retiree health care liabilities of $297 million. In addition, the pension fund has consumed $600 million in pension obligation bond funds that taxpayers will pay principal and interest on for the next 20 years. At its simplest, an unfunded liability is the additional amount of money required to be infused into the system today, to fully support the promises made to retirees and current employees for service already rendered. It does not include amounts required to fund benefits for future service. In fact, most of the money going into the system today is to pay off these unfunded liabilities.

This challenge is not unique to Sonoma County, but as the County’s financial statements and the pension funds annual actuarial valuations indicate, our pension costs as a percentage of the General Fund are double those of our surrounding counties and when payroll is added, the pension and salary costs exceed the County’s General Fund, leaving limited funding for the services citizens expect and deserve for their tax dollars.

Each year that the County delays action to address its fundamental structural pension issues, the more risk the system faces and the harder and more painful it will be to fix. Recently in Stockton, the retirees lost their medical benefits in the bankruptcy settlement and in Detroit, the bankruptcy judge ruled that pensions can be impaired, meaning retirees will see their benefits significantly reduced.

This report is a call to action on the part of our elected leaders, County employees, employee unions, and citizens to work together to create a sustainable pension system that will provide retirement security for our valued employees and enable the County to continue to provide the services we need to maintain our quality of life and a thriving economy.

The Key Drivers of the Problem – Retroactive Increases and Accelerated Retirements

In 2002, the Sonoma County Board of Supervisors enacted pension increases for both General and Safety Employees and adopted the highest allowable formulas, 3% of salary per year of service at 50 years of age for Safety Employees and 3% at 60 for General Employees. The increased benefits were combined with a court settlement called the Ventura Decision, which also added 46 special pay items to what was considered pensionable compensation.

All of these benefit increases were applied retroactively back to the date people were hired. This means that many employees were able to retire at younger ages with richer benefits. Since employee and taxpayer contributions needed to fund these improved benefits during prior periods of service were never collected the unfunded liability increased substantially.

After the increase, the average retirement age for General Employees dropped from 62 to 57 and for Safety Employees from 56 to 51. The increases also resulted in a 69% increase in pensions for new retirees from an average cost of $35,803 in 2002 to $60,697 in 2006. This had a huge impact on the funding status and created additional unfunded liabilities because pensions were funded for 5 fewer years and retirees received benefits for 5 more years.

Currently, the funding ratio is at 50% to 60%, meaning there is only 50 to 60 cents on the dollar available to pay for retiree pension and health care benefits already earned.

How the Increase Was Supposed to Have Been Paid For

The County Supervisors were told by the Sonoma County Retirement Association before pension increases were enacted that the costs of these benefit increases could be covered with an additional 3% of payroll contribution to the pension fund by the employees.  Based upon these numbers, the Supervisors passed the increase. What the Plan Administrators of the retirement board did not tell the supervisors was the cost they presented for General Employees did not include the impact of accelerated retirements. Those accelerated retirements have cost the County tens of millions in additional pension costs each year as more and more employees started drawing their pensions instead of contributing to them.

The costs of the benefit increases were also magnified by the lower than anticipated stock market returns. The pension fund’s actuary used an assumed rate of investment return of 8% when calculating the cost of the increase. Since the increase, the investment fund has fallen $570 million short of its assumed rate of return. As a result of increased retirements and investment shortfalls, the actual cost of the increase is approximately three times the cost that was provided to the Supervisors.

The Failure to Provide Required Public Notification of the Benefit Increase

After sending out letters requesting information under the Freedom of Information Act, New Sonoma received and reviewed the County documents surrounding the benefit increase. We discovered that when they were enacted, the Supervisors did not follow the requirements to perform their own actuarial study of the costs, nor did they notify the public of the increase as required by Section 7507 of the California Government Code. Some legal experts believe this should void the increase back to the date it was enacted.

Understanding the Consequences of Further Inaction

Increased pension costs in the years ahead have far reaching implications for the all County residents, including; (1) unsustainable annual costs for taxpayers, (2) burden on active County employees, (3) threats to vital public services, and (4) the potential for the County to run out of money and go bankrupt.

So far, additional pension costs have caused deep cuts to services and have greatly reduced the County’s ability to maintain its roads and infrastructure.  According to the Supervisor’s Ad Hoc Committee Report on Roads, 86% of the County’s roads are not receiving pavement preservation and we now have the worst roads in the state according to the state’s Pavement Condition Index’s (CPI) report.

In addition to service insolvency, the County is approaching balance sheet insolvency. New government accounting standards have been enacted that will have a drastic effect on the County’s balance sheet. Currently the County lists $1.2 billion in net assets in their most recent financial statements. After the new reporting requirements, the County will need to write off $472 million in pension assets and post about $527 million in new pension liabilities on the balance sheet for a $1 billion reduction in net assets. And if the $297 million in unfunded liability for employee health care is added, the County’s liabilities will exceed its assets.

Employees Breached the Agreement to Pay for the Increase  

Upon reviewing the 2002 Board Resolutions approving the benefit increase we found the resolutions stated the General Employees were required to pay for 100% of the past service and prospective cost of the increase and Safety Employees were required to pay for just the past service cost, estimated to be 50% of the cost of the increase.

The initial cost estimates for the increase provided by the County’s Actuary Rick Roeder to the Sonoma County Employee Retirement Association Plan Administrator in 2002 stated that if employees contributed an additional 3% of salary for 20 years, the $93 million cost would be offset by the employees.

In his 2002 Annual Actuarial Report Mr. Roeder came up with a completely different cost for the increase. The new, more detailed cost analysis concluded that increasing the General Employee formula to 3% at 60 and Safety Employees to 3% at 55 would increase the unfunded liability of the plan by $152 million, even after adding in the new employee contributions.

Even though the employees had agreed to pay the 3% of salary estimated cost of the increase the Supervisors agreed to pick up more of their contribution. The employee MOU’s indicate that when the County negotiated the 3% of salary additional contribution with the Safety employees the County agreed to pick up 2% of their previous contributions so the net Safety Employee contribution was 1% of salary.

In 2008, after paying the 3% of salary for 4 years, SEIU employees received a 2.25% pickup of their previous contribution so their net contribution was .75% of salary.

Even though the employee contributions were falling significantly short of paying for the increase, the Board of Supervisors negotiated for the employees to pay even less.

The Current Supervisors Have Ignored Their Own Pension Report

The Board of Supervisors has ignored its own Ad Hoc Committee Pension Report dated November 3, 2011, which included the following text on Page 18 identifying the failure of employees to pay their share and the recommendation to address this in labor negotiations. Here is the text from the report:

“In 2002, Sonoma County agreed to retroactive increases which became effective in 2004 for general members and 2006 for safety members. This decision while part of a legal settlement and negotiations was made with the understanding that employees would bear the full cost of the enhanced retroactive benefit. At the time, the long term cost was actuarially estimated and labor negotiations provided for contract provisions to pay for the cost over the course of 20 years. However, those initial estimates and stock market volatility caused an increased cost to the County to cover pension costs”.

“The Ad Hoc Committee recommends staff commission a new calculation to identify the shortfall, if any, and to work with the labor organizations through negotiations to meet the intent of the prior agreements regarding the enhanced benefit formulas costs”.

We have asked the Supervisors for the results of this calculation and were informed it has never been performed. As a result, we believe the citizens of Sonoma County deserve a full accounting and explanation of what went wrong and what corrective actions should be taken to bring the County into compliance with their own Board Resolution.

Because of the numerous problems with the increase process including: (1) not notifying the public, (2) not presenting accurate cost estimates to the Board of Supervisors, and (3) ignoring the Board Resolutions requiring the employees to pay for the increase, New Sonoma believes an independent committee of experts should be hired by the County to evaluate the situation and propose corrective actions to bring the fund into compliance with the law and the Board Resolutions.

We also believe that a Pension Advisory Committee made up of experts, union and retiree representatives should be formed to develop a plan for paying off the pension’s unfunded liabilities over the next decade and to ensure that the County complies with governance issues in the future. It is evident that there are too many conflicts of interest between staff and the supervisors over pensions and an independent committee needs to be formed.

The charts on the following pages demonstrate the problems faced by all stakeholders including; taxpayers, employees and retirees. These include:

  • The unaffordable impact of the benefit increases on retirement rates and payments
  • Evidence that Sonoma County’s salaries and pension benefits are significantly richer than those of surrounding counties,
  • County employees receive compensation that is double the average for county residents,
  • The County’s pension fund costs are soaring and unsustainable, and
  • The pension and health care funds are significantly underfunded.

The chart below demonstrates how the number of new retirees jumped significantly after the increase. In addition, the average age of new retirees dropped 5 years from 62 to 57. This meant people paid into the retirement system for 5 fewer years and will receive retirement funds for 5 additional years. As previously discussed, the retirement association did not have their actuary include the impact of accelerated retirements in their cost analysis, as was recommended.

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In addition to lowering the retirement age, the increase to 3% at 60 also resulted in an immediate jump in pensions for new retirees of 66% from an average cost of $22,468 in 2003 to $37,715 the following year.

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The Sonoma County Board of Supervisors adopted two new pension formulas for Safety Employees. A 3% at 55 formula took effect in 2003 and a 3% at 50 formula took effect in 2006. As a result, the average age of new retirees dropped from 56 to 51 resulting in 5 fewer years of employee contributions and 5 more years of retirement.

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The increases also resulted in a 69% increase in pensions for new retirees from an average cost of $35,803 in 2002 to $60,697 in 2006.

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This graph demonstrates how the cost for pensions has soared for the County, now reaching 40% of payroll. However, the cost that employees pay,  has stayed flat at 12% of payroll or less than the amount shown because the graph does not account for the County’s pickup of employee contributions, which is difficult information to obtain from County reports.

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This chart provides the total annual cost of pensions each year. Pension costs were stable at about $25 million per year from 1994 to 2000 and from 2001 to 2012 the average annual cost jumped 600% to an average of $155 million per year.

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This chart shows the growth of the unfunded liability, which is money owed to current employees and retirees for work already performed. It is the difference between what they are owed and the assets in the fund. Bond funds used to buy down the debt are added back in to provide the true unfunded liability the County faces. The pension bond debt is currently at $495 million. It will end up costing the County $856 million when interest is added. In addition, the County had $527 million in unfunded pension liabilities at the end of 2012 as well as $297 million in unfunded medical liabilities.  These amounts assume the County will receive a 7.5% return on its investment earnings. If they receive less, the unfunded liability increases dramatically.
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This graph shows the disbursements to retirees and disabled workers. The payments have increased 600% over the past 12 years from $28 million in 2000 to $122 million in 2012. From 2000 to 2004 payments to retirees increased by about $4.2 million per year. After the increase in benefits, payments to retirees increased an average of $9.4 million per year.
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Comparing Sonoma County Pension Costs with its Neighboring Counties

Sonoma County’s annual pension costs as a percentage of the General Fund are more than double neighboring counties and 7 times the cost of Tulare County.  In addition, Sonoma County expects its pension costs to climb to $209 million per year by 2020, an amount equal to 50% of today’s General Fund.  We have not seen any other city or county with a ratio as high as Sonoma County’s.

2014_Sonoma_Churchill_9But it even gets worse. When Sonoma County’s $300 million in payroll costs is added onto its pension and social security costs, the total reaches 119% of the General Fund, double the average of the other counties.

2014_Sonoma_Churchill_10The Earned Retiree Benefits Funding Ratio is the present value of pension and other post employment benefits earned by retirees and employees to date. Generally 80% funded is considered a healthy plan and 60% is a plan in significant financial stress and risk of insolvency. We calculated the funded ratio based upon three rates of investment return of 7.5%. 5.5% and 4.8%. Tulare and Alameda County did not retroactively increase benefits and therefore have a funded ratio of almost 90%.

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Average county employee salary and pension costs are now $110,000 per year, double the salary and retirement costs of the average county resident. A 3% employer contribution to a 401k account was added to the non-government employee salary for comparison purposes. That is the most typical amount contributed by employers.

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Comparison of Sonoma with Tulare County

Tulare County has about the same population as Sonoma County, but their finances are in great shape because they never retroactively increased pensions and they controlled salaries. Their payroll is 37% less than Sonoma County’s even thought they have 577 or 15% more employees. This data is from the 2012 Annual Actuarial Valuations of both counties.

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PROVIDING A FRAMEWORK FOR SOLUTIONS

With a clear understanding of the nature and extent of the challenges we face as a County, we must find a workable solution. Indeed, only by addressing and solving this urgent financial challenge can we move to a healthy local economy and provide retirement security for employees and retirees.

To begin this process New Sonoma believes a Citizens Advisory Board made up of union, retiree and taxpayer representatives along with independent legal, actuarial, and financial experts needs to be formed to develop a long term solution to this growing crisis. It is our intent to ask the Supervisors to form this Board and if they refuse, to place an initiative on the ballot that will let the voters decide. The initiative would also include other measures, such as reducing pension formulas going forward if the Reed Initiative slated for the 2014 election passes.

The path to comprehensive pension reform should begin with agreement on a definition of retirement security – once we have agreement on a level of post-retirement income that ensures security and that the County can afford, we can design a sustainable system to provide that security.

Sonoma County residents, retirees and employees should share the following goals in creating a secure, sustainable retirement system that:

  • Attracts and retains quality employees
  • Provides a level of benefits that retirees can plan on being there
  • Accumulates assets to cover 80% or more of its projected liabilities
  • Allows the County to continue to invest in public services
  • Eliminates the need for piecemeal reform by instituting self-correcting mechanisms that are triggered when funding levels dip below acceptable thresholds.

Any comprehensive solution should be informed by the following:

1. Accurate and transparent assumptions: Today’s system was largely built by policymakers using little accurate data. Retirees, employees and taxpayers rely on government leaders to be honest about the system’s liabilities and to have safeguards in place that require accurate accounting. Public employees should depend upon their union leadership to insist on conservative, realistic assumptions. Using overly optimistic assumptions hurts everyone because these assumptions underestimate the true cost of pensions and increase the risk that not enough money will be set aside to pay for granted pension benefits.

2. Equitable and reasonable changes: Fair and balanced eligibility rules, benefit levels and contributions for all members must be required of any retirement system reform. This report underscores the truth that any reform impacting only new employees will not affect the existing $1 billion in unfunded pension and medical liability for past service. This problem is over a decade in the making and all stakeholders must now share in the solution. The following, among many other ideas, should be analyzed as possible areas of reform:

  • Increasing the retirement age
  • Lowering the accrual rate of benefits
  • Cost of living adjustments
  • Hybrid plans and portability
  • Eliminating the ability to spike pensions and purchase Service Credits

As we analyze the various options for fixing our retirement system, we must again remind ourselves that real people and real families are connected to every change we consider. While all stakeholders must be prepared to collaborate in achieving a fair and sustainable system, we must also consider possible hardships that these changes may impose.

Therefore, reforms could be structured so that they have a smaller impact on plan members at lower income and lower benefit levels. One of the principal purposes of a public retirement system is to sustain public workers during their retirement years. Reforms that provide protection to sustenance level benefits must be part of any reform.

3. Intergenerational fairness: New County employees are receiving a lower pension formula (2% at 62), but are required to pay the additional 3% of pay for an enhanced formula their predecessors’ received. In addition, they shoulder the greatest risk that money will not be there in 20 to 30 years when it is time for them to retire.

And when there are budget cuts today that result in lower wages and furlough days, it is the current employees that endure these challenges. Any solution needs to ensure fairness between newer and more veteran employees and retirees.

4. Comprehensive and self-correcting processes: As the collaboration on reform begins, it is important that any solutions protect the County from ever again facing the massively underfunded system that it has today. To maintain a defined benefit system at all, it is critical that the County adopt structures that provide for automatic self corrections.

5.  Unfunded liability is the lion’s share of the problem: A real challenge in reforming the pension system is that it is extremely underfunded today and any solution must address the unfunded liability, the bill for past service. It is likely that any solution will require a change to benefits to both retirees and current employees in order to address this problem.

THE TIME TO ACT IS NOW

The Board of Supervisors have enacted some reforms to limit spiking of pensions and have changed benefit levels for new hires. However, these reforms will not provide substantial savings for decades. It is time to take a different approach to solving this problem. We must begin this time by defining retirement security and designing a system that provides security in retirement for our valued public employees.

This new system will necessarily also address budgetary concerns because no one is secure if they are promised a benefit that the County cannot afford. Each day the County avoids comprehensive reform, the liability grows. It is unfair to ask taxpayers to pay for the growing level of required contributions and it is dishonest to let County employees and retirees believe that full benefits will be there for their retirement.

The time to act is now because it is in the interest of everyone to solve this problem, once and for all.

*   *   *

About the Authors:  This report is a collaborative effort headed by Ken Churchill, the director of New Sonoma, an organization of financial and business experts and concerned citizens dedicated to working together to solve Sonoma County’s serious financial problems. Ken Churchill has over 40 years of business and financial management experience as founder, CEO and CFO of a solar energy company and environmental consulting firm. He sold both companies and now grows wine grapes and produces wines under his Churchill Cellars label. For the past three years, Ken has been actively researching and studying the pension crisis and published a report titled The Sonoma County Pension Crisis – How Soaring Salaries, Retroactive Pension Increases and Poor Management Have Destroyed the County’s Finances.

Unaffordable California – It Doesn't Have To Be This Way

January 2014 Update:  Here’s a documented comparison of California taxes and economic climate with the rest of the states. The news is bad, and getting worse. But it doesn’t have to be this way! The state and local government policies that created an unaffordable California can be reversed:

PERSONAL INCOME TAX:  Prior to Prop 30 passing in Nov. 2012, CA already had the 3rd worst state income tax rate in the nation. Our 9.3% tax bracket started at $48,942 for people filing as individuals. 10.3% started at $1 million. Now our retroactive (to 1/1/2012) “millionaires’ tax” rate is 13.3% – including capital gains (CA total CG rate now the 2nd highest in the world!). 10+% taxes now start at $250K. CA now has by far the nation’s highest state income tax rate. We are 21% higher than 2nd place Hawaii, 34% higher than Oregon, 47.8% higher than the next 2 states, and a heck of a lot higher than all the rest – including 7 states with zero state income tax. CA is so bad, we also have the 2nd highest state income tax bracket. AND the 3rd. Plus the 5th and 7th.
http://taxfoundation.org/sites/taxfoundation.org/files/docs/ff2013.pdf, Ref. Table 12

http://tinyurl.com/CA-2nd-CG

SALES TAX:  CA has the highest state sales tax rate in the nation. 7.5% (does not include local sales taxes).
http://taxfoundation.org/article/state-and-local-sales-tax-rates-january-1-2012

GAS TAX:  CA has the nation’s highest gas tax at 71.6 cents/gallon (October, 2013). National average is 49.5 cents.
http://www.api.org/statistics/fueltaxes/
(CA also has the nation’s 3rd highest diesel tax – 76.2 cents/gallon. National average 54.8 cents)

PROPERTY TAX:  California in 2010 ranked 19th highest in per capita property taxes (including commercial) – the only major tax where we are not in the worst ten states. But the median CA property tax per owner-occupied home was the 7th highest in the nation in 2009.
http://www.taxfoundation.org/taxdata/show/251.html
http://www.taxfoundation.org/taxdata/show/1913.html (2009 latest year available)

“IMPACT FEES” ON HOME SALES:  Average 2012 CA impact fee for single-family residence was $31,100, 90% higher than next worst state. 265% higher than jurisdictions that levy such fees (many governments east of the Sierras do not). For apartments, fee averaged $18,800, 290% above average outside state. The fee is part of the purchase price, so buyer pays an annual property tax on the fee!
http://www.newgeography.com/content/003882-california-homes-require-real-reach

“CAP AND TRADE” TAX:  CA has now instituted the highest “cap and trade” tax in the nation – indeed, the ONLY such U.S. tax. One study estimates the annual cost at $3,857 per household by 2020. Even proponents concede that it will have zero impact on global warming.
http://tinyurl.com/WSJ-CA-cap-and-trade

SMALL BUSINESS TAX:  California has a nasty anti-small business $800 minimum corporate income tax, even if no profit is earned, and even for many nonprofits. Next highest state is Oregon at $150. A few others under $100, with most at zero.
http://tinyurl.com/CA-800-tax

California small businesses failed in 2011 at a rate 69% higher than the national average — the worst state in the nation.
http://money.cnn.com/2011/05/19/smallbusiness/small_business_state_failure_rates/index.htm (based on Dunn & Bradstreet study)

CORPORATE INCOME TAX:  CA corporate income tax rate (8.84%) is the highest west of the Mississippi (our economic competitors) except for Alaska.
http://taxfoundation.org/article/2013-state-business-tax-climate-index
Ref. Table #1 – we are 5th highest in nation in per capita corporate tax collections.

BUSINESS TAX CLIMATE:  California’s 2013 “business tax climate” ranks 3rd worst in the nation – behind New Jersey and anchor-clanker New York state.
http://taxfoundation.org/article/2014-state-business-tax-climate-index

LEGAL ENVIRONMENT:  The American Tort Reform Association ranks CA the “worst judicial hellhole” in U.S. for 2nd year in a row – most anti-business. The U.S. Chamber of Commerce ranks CA higher – “only” the 4th worst state (unfortunately, sliding from 7th worst in 2008).
http://www.judicialhellholes.org/2013/12/17/california-ranks-1-in-20132014-judicial-hellholes-report/
http://www.instituteforlegalreform.com/states/california

FINES AND FEES:  CA tickets are incredibly high. Red-light camera ticket $490. Next highest state is $250. Most are around $100.
http://reason.org/blog/show/red-light-cameras-and-the-enigmatic

CA needlessly licenses more occupations than any state – 177. Second worst state is Connecticut at 155. The average for the states is 92.
http://cssrc.us/publications.aspx?id=7707

CA has the 3rd highest state workers compensation rates, up from 5th in 2010. CA had a 3.4% rate increase in 2013. http://www.cbs.state.or.us/external/dir/wc_cost/files/report_summary.pdf
http://tinyurl.com/2013-CA-rate-increase

OVERALL TAXES:  Tax Foundation study ranks CA as the 4th worst taxed state. But if counting ONLY in-state and local taxes, we are arguably the 2nd highest. http://taxfoundation.org/article/annual-state-local-tax-burden-ranking-2010-new-york-citizens-pay-most-alaska-least

UNEMPLOYMENT:  CA has the 5th worst state unemployment rate (November, 2013) – 8.5%. National unemployment rate 7.0%. National unemployment rate not including CA is 6.8%, making the CA unemployment rate 25.1% higher than the average of the other 49 states (one of the better performances we’ve managed in several years).
http://www.bls.gov/web/laus/laumstrk.htm

Using the 3rd quarter 2013 U-6 measure of unemployment (includes involuntary part-time workers), CA is the 2nd worst (after Nevada) at 17.8% vs. national 14.1%. National U-6 not including CA is 13.6%, making CA’s U-6 30.9% higher than the average of the other 49 states.
http://www.bls.gov/lau/stalt.htm

EDUCATION:  CA public school teachers the 4th highest paid in the nation. CA students rank 48th in math achievement, 49th in reading.
http://www.lao.ca.gov/reports/2011/calfacts/calfacts_010511.aspx, page 36
http://www.cde.ca.gov/fg/fr/sa/cefavgsalaries.asp

California, a destitute state, still gives away community college education at fire sale prices. Our CC tuition is the lowest in the nation. How low? Nationwide, the average community college tuition is more than double our California CC’s.
http://trends.collegeboard.org/college-pricing/figures-tables/state-tuition-and-fees-state-and-sector-2012-13-and-5-year-percentage-change

This ridiculously low tuition devalues education to students – often resulting in a 25+% drop rate for class completion. In addition, up to 2/3 of California CC students pay no net tuition at all!
http://tinyurl.com/ygqz9ls

Complaints about increased UC student fees too often ignore one crucial point — all poor and many middle class students don’t pay the “fees” (our state’s euphemism for tuition). There are no fees for most California families with under $80K income.
http://www.universityofcalifornia.edu/blueandgold/

WELFARE AND POVERTY:  1 in 5 in Los Angeles County receiving public aid. http://www.latimes.com/news/local/la-me-welfare22-2009feb22,0,4377048.story

California’s real poverty rate (the new census bureau standard) is by far the worst in the nation at 23.8%. We are 48.8% higher than the average for the other 49 states. Indeed, the CA poverty rate is 20.2% higher than 2nd place Nevada.
http://www.census.gov/prod/2013pubs/p60-247.pdf, page 13

California has 12% of the nation’s population, but 33% of the country’s TANF (“Temporary” Assistance for Needy Families) welfare recipients – more than the next 7 states combined. Unlike other states, this “temporary” assistance becomes much more permanent in CA.
http://www.utsandiego.com/news/2012/jul/28/welfare-capital-of-the-us/?print&page=all

California ranks 48th worst for credit card debt and 49th worst for percentage of home ownership.
http://riderrants.blogspot.com/2013/02/more-dismal-california-economic-rankings.html

GOVERNMENT INSOLVENCY:  California now has the 2nd lowest bond rating of any state – Basket case Illinois recently beat us out for the lowest spot. We didn’t improve our rating – Illinois just got worse.

http://www.calwhine.com/great-news-california-no-longer-has-worst-credit-rating/1554/

Average California firefighter paid 60% more than ff’s in other 49 states. CA cops paid 56% more.
http://tinyurl.com/CA-ff-and-cop-pay

HOUSING COSTS:  Of 100 U.S. real estate markets, CA contains by far the least affordable middle class housing market (San Francisco). PLUS the 2nd, 3rd, 5th, 6th and 7th. San Diego is #5 (w/homes avg. 1,056 sq. ft.) http://riderrants.blogspot.com/2013/10/the-us-least-affordable-housing-market

TRANSPORTATION COSTS:  CA has 2nd highest annual cost for owning a car – $3,966. $765 higher than the national average.
http://tinyurl.com/lmxnucs

WATER & ELECTRICITY COSTS:  California residential electricity costs an average of 27.6% more per kWh than the national average. CA commercial rates are 44.4% higher. For industrial use, CA electricity is 74.4% higher than the national average (October, 2013). NOTE: SDG&E is even higher than the CA average! http://www.eia.gov/electricity/monthly/epm_table_grapher.cfm?t=epmt_5_06_a

A 2011 survey of home water bills for the 20 largest U.S. cities found that for 200 gallons a day usage, San Diego was the highest cost. At 400 gal/day, San Diego was third highest.
http://www.circleofblue.org/waternews/wp-content/uploads/2011/05/allstats590.jpg

BUSINESS FLIGHT:  In 2012, our supply of California businesses shrunk 5.2%. In ONE year. NOTE: That’s a NET figure – 5.2% fewer businesses in CA in 2012 than were here in 2011. Indeed, in 2012, CA lost businesses at a 67.7% higher rate than the 2nd worst state!
http://riderrants.blogspot.com/2013/07/in-2012-ca-lost-businesses-at-677.html

736 top U.S. CEO’s surveyed rank California “the worst state in which to do business” for the 9th straight year (May, 2013). 24/7 Wall St. ranks CA the “worst run state” for 3rd yr.
http://chiefexecutive.net/best-worst-states-for-business-2013
http://www.TinyURL.com/WorstRunState

From 2007 through 2010, 10,763 industrial facilities were built or expanded across the country — but only 176 of those were in CA. So with roughly 12% of the nation’s population, CA got 1.6% of the built or expanded industrial facilities.
http://www.cmta.net/20110303mfgFacilities07to10.pdf
(California Manufacturers and Technology Association podcast)

OUT-MIGRATION:  California is now ranked as the 2nd worst state to retire in. Only basket-case Illinois is worse. We “beat” NY, RI and NJ.
http://www.topretirements.com/blog/great-towns/our-worst-states-to-retire-list.html/

Consider California’s net domestic migration (migration between states). From 2000 through 2009, California lost a NET 1.5 million people. Net departures slowed in 2008 only because people couldn’t sell their homes. But more people still leave each year — in 2011 and again in 2012, we lost about 100,000 net people to domestic out-migration. Again, note that this is NET loss.
http://www.newgeography.com/content/002585-new-census-data-reaffirms-dominance-south
http://tinyurl.com/2011-CA-migration

They are primarily the young, the educated, the productive, the ambitious, the wealthy – and retirees seeking to make their nest-eggs provide more bang for the buck.

Richard Rider is the chairman of San Diego Tax Fighters, a grassroots pro-taxpayer group. Rider successfully sued the county of San Diego (Rider vs. County of San Diego) to force a rollback of an illegal 1/2-cent jails sales tax, a precedent that saved California taxpayers over 14 billion dollars, including $3.5 billion for San Diego taxpayers. He has written ballot arguments against dozens of county and state tax increase initiatives and in 2009 was named the Howard Jarvis Taxpayers Association’s “California Tax Fighter of the Year.” Rider updates this compilation of statistics on California every month.

NPR Misrepresents Danger of Fracking to Oil Workers

On-The-Job Deaths Spiking As Oil Drilling Quickly Expands” screams a supposed National Public Radio exposé on the “terrible price” we’re paying for the fracking revolution that has transformed the U.S. energy industry. “Last year, 138 workers were killed on the job — an increase of more than 100 percent since 2009.” The story blends chilling statistics, heartrending anecdotes, and stern warnings from Labor Secretary Thomas Perez calling for a national voluntary stand-down of U.S. onshore oil and gas exploration and production because, “No worker should lose their (sic) life for a paycheck.”

As anti-fossil fuel advocacy, it was a masterful piece. But was it responsible, credible journalism? Five minutes on Google provides an answer—and lays bare NPR’s practiced techniques of framing, context manipulation, and choosing which facts to report and which to ignore to advance a consistent left-liberal editorial agenda as biased as any right wing talk radio show.

Take a look at the Annual Occupational Fatality Rate for oil and gas workers reported by the Centers for Disease Control and Prevention dating back to 1993. The annual fatality rate in 1993 was about 25 fatalities per 100,000 workers. In 2012, the year that caused such alarm at NPR, it was … 24 per 100,000 workers. This is lightly down from 2003, when the rate ticked up to 29 after the CDC changed its reporting methodology to include data from industries in Mexico and Canada.

Annual Occupational Fatality Rate among Oil and Gas Workers, and,
Number of Active Rotary Rigs, 1993-2010

20140115_Frezza

Is 24 fatalities per 100,000 workers a large number? It depends on the context. The on-the-job fatality rate across all industries is about 3.2 per 100,000. But that includes me sitting at my keyboard. What is the fatality rate for, say, farming?About 26, which is comparable to the wicked and reckless oil and gas industry. How about commercial fishing? Yikes, the fatality rate is 124! If we’re going to regulate fracking out of existence to save lives, does NPR also recommend that we stop eating?

What was the leading cause of fatalities among oil and gas workers? About 30 percent died as a result of car accidents on public roads. And the leading contributing factor was that the driver wasn’t wearing a seatbelt—the same as with other auto fatalities. So then, what was the NIOSH Oil & Gas Extraction Safety & Health Program’s number one recommendation for reducing fatalities in the oil and gas industry? Less emphasis on profits? Reduced drilling and exploration? Nope. Drivers should wear their seatbelts.

How much airtime did NPR devote to these facts? Nada.

Topic selection, framing, fact selection, guest selection, expert selection, questions asked, questions not asked, anecdotes included, and anecdotes left on the cutting room floor can slant a story any way an editor chooses. How many other NPR listeners took the time to dig a little deeper after hearing this piece? My guess is that most walked away shaking their heads, cursing greedy oil and gas executives for putting profits before people—as per the editors’ intentions.

Award winning NPR reporters Andrew Schneider and Marilyn Geewax should be ashamed, not just for producing such biased and shoddy work, but for making themselves easy targets for anyone caring enough to spend five minutes to debunk their propaganda. Most NPR reporters take a lot more care covering their tracks, but their techniques are all the same. It is extremely rare to hear an outright falsehood on the air; but once you tune your ear to recognize the methodology, NPR will never sound quite the same.

Don’t get me wrong, I listen to taxpayer supported public radio all the time, both because of the compelling content and to keep tabs on how the news is being spun by the best of the best. But to paraphrase the great Frederic Bastiat, when assessing journalistic objectivity we need to consider not only what is heard, but also what is not heard.

About the Author:  In the 35 years since Bill Frezza graduated from MIT with degrees in electrical engineering and biology he has been a scientist, an engineer, a product manager, a salesman, a consultant, an entrepreneur, an author, a technology evangelist, and a venture capitalist. His early career on high-tech’s bleeding edge included the development of first generation electronic newspapers, home banking, home shopping, cable modems, multi-user videogames, wireless LANs, and wireless email, all of which became a success – for someone else a decade later. His 15 years as a venture capital investor working with early stage telecom, semiconductor, and biotech startups taught him humbleness, risk aversion, and the ability to identify ten fatal flaws out of five in any startup business plan. Frezza is a frequent guest on CNBC, FOX, and CBN News where he is challenged to reduce complex economic and policy issues into thirty second sound bites. More writing by Frezza can be found at BillFrezza.com. This article originally appeared in Forbes and appears here with permission from the author.

Exclusive Interview with Joel Kotkin

Joel Kotkin’s writing is not easily pigeonholed. Alienated from California’s Democrat and Republican parties, both of which he believes are dysfunctional, Kotkin focuses on the interests and aspirations of California’s disappearing middle class. With positions on energy and land development that challenge the conventional wisdom of Democrats, and positions on infrastructure development and other public investment that challenge the conventional wisdom of Republicans, Kotkin nonetheless constructs compelling arguments for how to revitalize California’s economy. Joel Kotkin is a professor of urban development, currently a fellow at Chapman University in Orange, California, and the Legatum Institute, a London-based think tank. Kotkin’s new book, The Next Hundred Million: America in 2050, explores how Kotkin believes the nation will evolve in the next four decades. Do Kotkin’s insights constitute a coherent policy framework that might animate a powerful coalition of middle class voters, demolishing traditional political boundaries? Kotkin’s work is essential reading for anyone who wants to thoroughly understand California’s public policy options. We caught up with him last month, and here’s what he had to say:

(1)  You have become an influential writer on global, economic, political and social trends. You have a unique perspective that includes an emphasis on geography and demographics. How would you describe your analytical approach?

“I try to ask ‘what is the best data out there,’ I do a lot of comparative studies – how are we doing compared to other places. California is competing with other states in the U.S.”

(2)  What would you say are the primary challenges facing California?

“We have an increasingly parasitic economy. Our politics increasingly cater to a ‘gentry liberal’ elite. California accommodates high end industries but middle class employers go elsewhere. As a result California ends up with an affluent class, a very large low-income class and a struggling, diminishing middle class. For example, people move to the Bay Area in their twenties and leave in their thirties and forties because they can’t afford it. In Los Angeles, migration indicators are near the bottom in the U.S. California has disproportionate asset bubbles that make housing unaffordable. We don’t attract families with these policies. There has been a tremendous decline in the percentage of children in California’s population.

California’s business environment is byzantine – getting anything through in California is almost impossible. This is very difficult on entrepreneurs and small companies. California’s business community is too weak, relative to its size, it may be the most impotent in the U.S. There are strong lobbies on specific issues – but outside of tech and Hollywood people there’s not much – and the technology and Hollywood lobbies don’t care much about the middle class, much less the working class. These oligarchs are so cut off they have no concept of reality. The number of tech start-ups are way down, and people start companies to get acquired, not to be self-sustaining.

Public sector unions have lots of money and lots of reasons to be engaged in these issues They win by default. Basically the public employees are just more powerful and more organized and everything else is weaker.

The way things are, taxpayers and consumers get hammered.”

(3)  You have described the political elite now controlling California as a coalition of the “digital oligarchy,” the public sector unions, and the “Hollywood / Media claque.” What sort of a coalition could possibly be formed to counter this, and what would their message be to voters?

“I don’t know. The natural coalition would be a middle class party that wanted broad based growth including infrastructure. Republicans and Democrats are both dysfunctional. The Republicans don’t want to spend money on infrastructure. They are right that high-speed rail is bad, but they aren’t fighting to fix our ports, improve our roads, or rebuild our water infrastructure. Those are not their issues. Republicans seem to be often against ANY infrastructure.

The question, if not the message, is how do middle class workers live and how can we make their lives better? How do we build infrastructure that does the most for the population that we have? How do we grow the economy in a more equitable way? Couldn’t the money we’re putting into the high-speed rail be used to improve the roads?”

(4)  You have stated that the Democratic “Upstairs Downstairs” coalition is coming apart. Can you define what you mean by the “upstairs downstairs” coalition, and why it is coming apart?

“It has an internal contradiction because it is a coalition of the rich and the poor. Are you going to have energy rates that are so high that any private energy user goes somewhere else? Gentry liberals are pushing that [energy prices] to the extreme at the expense of the low income and working class. On the other hand, the middle class electorate may have already declined so much that the the upstairs-downstairs coalition may win by default. Nobody much listens to Republicans anymore in California.”

(5)  Why are you a Democrat?

“I was brought up as a Democrat, but more or less I’m politically homeless. I still think Pat Brown was a great governor. I like the Harry Truman / Pat Brown version of Democrats. Also, I don’t like the social conservatives. Finally, I think libertarians are too abstract in their view of society, they don’t think about the impact of their ideas on large numbers of people. They live in a world of theories. There’s a situation now in California where being a Republican would be worthless, it’s like being a member of the British Tory party while you’re living in the Soviet Union. I don’t know what the Democrats would have to do wrong to not win in California.

Small businesspeople, homeowners; there are a lot of people out there who are basically Independents or Democrats who aren’t in any way persuaded by Republicans. So the trajectory of the Democratics is to move further and further to the left because they can get away with it.

In California the middle class are leaving, the twenty-somethings haven’t grown up, and the wealthy benefit from Democratic policies. Of course the Democrats also have a huge public sector base, along with the people dependent on government programs. Democrats don’t care about upward mobility for 2nd geneneration Latinos – not their priority I don’t see liberals or conservatives focused on this. Latinos aren’t heavy in the public workforce, and regulations against business hurt them more than others. They are hurt by the deindustrialization of the economy and by bad freeways.”

(6)  One of your articles is entitled “Thinking Outside the Rails on Transit.” Do you think we need more freeways? Is the death of the automobile greatly exaggerated? What do you envision as the car of the future, or the primary transportation mode of the future, and why?

“The primary mode of transportation will remain cars, although people will drive less because they work from home and are unemployed. Most of California’s mass transit needs would be better served with dial-a-ride, shuttles and rapid busses than with light rail. While some light rail trains are filled on select routes in parts of Los Angeles and the Bay Area, many appear empty even during rush hour.

With respect to transportation solutions we have to come up with what is the problem you are trying to solve and how do you solve it in a way that serves people. Light rail is social engineering that benefits large scale politically connected developers. We are building housing that people don’t want. We are making people live in small apartments and take expensive rail systems. The problem in California is that ideology has become theology.”

(7)  While economic development and affordable transportation and energy are compelling issues for people of low and moderate income, how do you address the claims that using fossil fuels will destroy the planet by contributing to global warming?

“First of all, I’m not a climatologist. So let’s take as a given that there’s a problem – that’s certainly possible. You could address this by encouraging people to work at home. Also, we’re already headed to far more fuel efficient cars. We could promote dispersed development so people can live where they work. The idea that you are going to densify cities will never relieve transportation. You can’t comfortably densify an auto-dependent city – you create terrible congestion problems.

If you look at the ideology of some greens they want to shrink the middle class to have no car and live in an apartment. That is not what people want, that is not their aspiration. This kind of redevelopment helps the public sector and a handful of speculators, developers and middlemen, but it does nothing for the middle class.”

(8)  You provide ample evidence that families prefer suburbs with detached homes and large yards. And there is ample land within California to accommodate land development. But how do you counter the prevailing conventional wisdom – and policies – that restrict land development in order to protect the environment?

“You can sensibly develop land to accommodate people and industry in a responsible way – look at Irvine and Valencia. You aren’t going to get the mass industrial / suburbia that you used to. But you have to ask what kind of future you want. Urban land use planners are massively pro-density, when the fact is people start to look for detached homes in their thirties and they stay in their homes till they are in their eighties. For example, in the 1980’s boomers moved into cities, then in the 1990’s they moved to suburbs. If you’re wealthy you can stay in the city and have children, but most people who want families move to inner-ring or outer-ring suburbs.”

(9)  Let’s suppose the policies you advocate are successful, and the price of housing becomes affordable again in California. More generally, let’s suppose that by reintroducing competition, lifting onerous restrictions on businesses, and opening land and energy resources for development, we lower the cost of living in California. Won’t this put millions of homeowners and commercial property owners into default because it will collapse their collateral? How do we make California’s economy affordable without triggering a massive liquidity crisis for millions of people?

“The problem is we’re now in that trap. We are in a position where we have to have an unreasonable pricing structure to prop up the economy, and as a result people are fleeing or not coming the state. I’m not exclusively advocating low density, I’m just saying let’s have a market. If people want high density, fine. The notion that people want to live in high density is wrong unless you are young or in your mid-to-late seventies and eighties. But you can’t build a society on artificially inflated asset values, because that accelerates the class division.

You have to unwind this gradually – our biggest danger isn’t becoming too affordable, it’s the opposite. For example, 47% of families in Los Angeles are paying 50% or more of their income on rent or mortgages. It will take a long time before we have to worry about liquidity. As it is, we have trapped people in their homes which are the only things that are increasing in value and the only way they can move is by leaving the state. Meanwhile, immigration has slackened even in Southern California. Immigrants know that even if they work in a low-paying job in a hotel in Houston the chances they can save and buy a house are infinitely better than in California. If you want to have an asset based economy then accept we’re going to have feudalism because the price of entry is just too high.

We’re going through a “happy talk” period right now because of a relatively small tech bubble. We have to think about how we create a sustainable economy so you’re not dependent on bubbles.”

(10)  The United States has healthier demographics than virtually any other developed nation. But do you think automation will make it increasingly difficult for labor intensive businesses to compete and offer well-paying jobs? What about Japan, a society that is adapting to an aged population through massive automation including android service workers? Isn’t that an inevitable economic model – aren’t the Japanese just 50 years ahead of the rest of the world in this regard?

“People have been predicting mass unemployment due to automation for 100 years. There are lots of opportunities that would emerge if the economy were to take off. One of the great tragedies is that when you get this big increase in minimum wage it will just accelerate the process of automation.

If you accept very low birthrates permanently, what signal does that send to a society? There is a demoralization of society – we are potentially headed towards Brave New World, not 1984, we can end up without the traditional lynchpins of our society – everything will be how can I be titillated. But we won’t become Japan if the U.S. doesn’t become totally secularized, if immigration continues, and if we don’t implement the anti-family land-use policies.

California was populated by people who aspired to and acquired middle class status. Do we want to live in a society where the vast majority of people think they can’t move up? We have ratcheted down our expectations. There are still a lot of opportunities, however. Our technological growth is not as great as it could be. If you build housing and infrastructure, people won’t go elsewhere to get things done.”

The Virtues of Catholic Schools

What do Nobel Laureates Elfreide Jelinek, Doris Lessing, Jane Addams, Emily Greene Balch, Nadine Gordimer, Mother Teresa and Aung San Suukyi, Heads of State Maria Lourdes de Pintasilgo, Hanna Suchocka, Yingluck Shinawatra, Mary Robinson, Mary McAlesse, Portia Simpson Miller, Dilma Rousseff and  Jerry Brown, Condoleezza Rice, Phyllis Schlafly, Matt Leinert, Matt Barkley, Bernard Parks, Kenneth Hahn, Neil Clarke Warren, Ernesto Perez Ballardes and Jose Napoleon have in common?

They are all graduates of Catholic schools and colleges.

Catholic Schools around the world are based on specific guidelines. The emphasis on academics and self-discipline begins in preschool. The curriculum in Los Angeles, Chicago, Sao Paolo or Dublin is similar. It is in the tradition of a classical liberal arts education: demanding and comprehensive. English literature includes Plato, Chaucer, Homer, Byron, Keats, Faulkner, Melville, Milton, Shakespeare, Steinbeck and Twain.

A typical K-12 syllabus introduces mathematical concepts and logic in pre-school with a progression to calculus and philosophy in high school. To graduate four years each of math, English, science, foreign language and history are required.

A glance at the syllabus for the Jesuit High School in Carmichael, California, Cristo Rey Jesuit High School [2] in Minneapolis or the schools in the Archdiocese of Denver will dispel any notion of comparability with the public school. At Cristo Rey, the 9th grade curriculum includes English composition, algebra I or geometry, physical science, religion, principles of math and language, physical education/health and 20 hours of community service. In 12th grade, it includes English IV, Pre-calculus or calculus, physics, religion IV, government/economics in addition to community service, college counseling and internship.

American literature and world literature, American history and world history, biology and chemistry and Spanish I and II are included in 10th and 11th grade. B is an adequate grade. C is sub-standard. Any F must be repeated and passed. There are no social promotions.

We will review the data and discuss the reasons Catholic schools provide such a superb education. The hope is that those factors can be incorporated into the public school system and improve the students’ performance.

The development and the content of the curriculum, salaries and annual teacher performance reviews are the purview of the school superintendent, principal and faculty. As Cai Yuanpei, the founder of China’s modern education system counseled at the turn of the 20th century, education must be above politics. The NEA and CTA teachers unions have no foothold in the Catholic schools.

The main purpose of education is to inform and enlighten young minds, not to become the vehicle of liberal politics. Education scholars William Damon, Cornelius Riordan and Leonard Sax report that topics such as multiculturalism, gender politics and revisionist history account for 50% of the public school curriculum. No such indoctrination has a place in Catholic school classrooms. As an added bonus, tuition is often considerably less than that for public or private schools.

The following facts and statistics taken from the literature should persuade even inveterate sceptics. Sources are cited in the footnotes. 94% of Catholic school graduates in the Archdiocese of Milwaukee [3] pursue higher education. In the Archdiocese of Brooklyn, 99% of students graduate within four years; 98% go on to college. More than 63% of these students are minorities [4].

Latino and African American students who attend Catholic schools are more likely to graduate from high school and more likely to graduate from college than their public school peers.  More than 80% of students in the Archdiocese of Denver [5] are minorities. 97% graduate from high school.

Compared with their public-school counterparts, more than twice as many minority Catholic-school graduates from urban areas finish college: 27 percent of the minority Catholic-school graduates [6] finish college, while only 11 percent of minority public-school graduates receive their degrees.

Social class and status do not handicap a minority student’s academic performance in Catholic school. Multiply disadvantaged kids benefit most from Catholic schools. The poorer and more at-risk a student is, the greater the relative achievement gains compared to public school peers. A number of the Nobel Laureates and world heads of state come from poor, single parent or minority families [7].

Xerox CEO Ursula Burns, Heads of State Dame Perlette Louisy of St. Lucia, Portia Simpson Miller of Jamaica,  Michaelle Jean of Canada, Dame Jennifer Smith of Bermuda and Nobel Laureates Toni Morrison and Ellen Johnson Sirleaf are all Black women who were raised in abject poverty, most in dysfunctional or single-parent homes who were educated in Catholic schools and colleges.

We do not advocate replacement of public schools by Catholic Schools but we strongly recommend their serious consideration by Catholic and non-Catholic parents alike. Non-Catholics now represent 25-33 percent of the student body in many large urban Archdioceses. The benefits from enrollment in all-girls Catholic schools and colleges have been compellingly documented in the previous paragraph [8].

The deliberate focus on and normalization of sexual promiscuity, abortion and illegitimacy in public schools is directly correlated with poor achievement and excessive dropouts. The virtue of catholic schools is its deliberate focus on academics, athletics and the traditional virtues such as morality, responsibility, continence and competition. Athletics is an important component of the curriculum. The list of professional athletes in basketball and baseball who are graduates of Catholic high schools and colleges is impressive. The three Heisman Trophy winners from Mater Dei High School in Corona del Mar and seven from Notre Dame, and the numbers of professional athletes who are graduates of Catholic schools is a Who’s Who of the NFL., NBA and Major League

The Catholic school curriculum is parochial. It is narrowly restricted to the rigorous classical model of the Three R’s, not gender politics, multiculturalism, social and sexual indoctrination and revisionist politics. It is the antithesis of the anti-intellectual, anti-American politicized curriculum in many of America’s public schools, especially in California.

Coupled with strong parental commitment, structure and discipline, this is the virtue of Catholic schools and the reason for their great success. It is the model that has existed in the United States since its founding (Harvard, Yale and Princeton were founded as Christian schools) and responsible for the enviable success of its education system.

When graduates from Catholic Schools can become Nobel Laureates, presidents and prime ministers and valedictorians at Harvard College, the results speak for themselves. Judge for yourself.

R. Claire Friend, MD, is the editor of the UC Irvine Quarterly Journal of Psychiatry. She is a retired psychiatrist and frequent commentator on the psychological dimensions of education and social welfare policies.

Footnotes:

Graduates of Catholic Schools

All-girls Catholic schools and colleges – Nobel Laureates
Nadine Gordimer
Wislawa Szymborska
Sigrid Undset
Selma Lagerlof
Elfreide Jelinek
Doris Lessing
Jane Addams
Emily Greene Balch
Leymah Gwoobee
Wangari Maatai
Ellen Johnson Sirleaf
Elizabeth Blackburn
Mairead Corrigan
Tawakkol Karman
Aung San Suukyi
Betty Williams

All-girls Catholic schools and colleges – Heads of State
Maria Lourdes de Pintasilgo (Portugal)
Dilma Rousseff (Brazil)
Dr. Dame Hilda Louisa Bynoe (Grenada)
Michaelle Jean (Canada)
Hanna Suchocka (Poland)
Dame Pearlette Louisy (St. Lucia)
Dame Eugenia Charles (Dominica)
Yingluck Shinawatra (Taiwan)
Louise Agueta Lake-Tack (Antigua-Barbados)
Mary Robinson (Ireland)
Mary McAlesse (Ireland)
Ellen Johnson Sirleaf (Liberia)
Paula Cox (Bermuda)
Dame Jennifer Smith (Bermuda)
Portia Simpson-Miller (Jamaica)
Joyce Banda (Malawi)
Dame Elmira Minta Gordon (Belize)
Maria Philomena Libera-Peter (Dutch Antilles)
Luisa Diaz Diogo (Mozambique)

Graduates of Pepperdine University:
Neil Clark Warren
James Hahn
Bernard Parks
Michelle Steel
Ambassador Pierre-Richard Prosper

Graduates of University of San Diego:
Maj. Gen. Robert Bohn, USMC
Mike Fetters
Steven Altman
Kenneth C. Koo
Carlos Bustamente, Mayor Tijuana

Graduates of Notre Dame
Peter King
Bruce Babbitt
Miguel Diaz
Ernesto Perez Ballardes (President of Panama)
Jose Napoleon Duarte (President of El Salvador)
Judge Andrew Napolitano
Condoleezza Rice
Regis Philbin

Graduates of Mater Dei High School
Matt Barkley
Matt Leinert
John Huarte
Colt Brennan
Jason Forcier
Jamal Sampson
LeRon Ellis

2.   http://www.cristoreytc.org/uploaded/Documents/Academics/CRJHS_Course_Guide_2012-2013.pdf

3.   http://www.archmil.org/Catholic-Schools/Benefits-Catholic-Education.htm

4.    http://mybqcatholicschool.com/why-choose-a-catholic-school/

5.   http://www.archden.org/index.cfm/ID/106/Curriculum-Guidelines/

6.   
http://ace.nd.edu/catholic-school-advantage/catholic-school-advantage-fact-sheet

7.   http://chronicle.uchicago.edu/970306/catholic.shtml

8.   http://www.connellyhs.org/

Who's Looking Out for California's Middle Class?

Thirty years of political engagement in California politics has led me to the realization that the middle class is woefully underrepresented in this state. Not only that, but this injustice seems amplified with every passing year.

This column has covered the lack of meaningful representation for ordinary citizen taxpayers for more than a decade. Indeed, in October, we exposed the unfairness of Assembly Bill 8, a massive $2.3 billion car tax increase on everyone who relies on their cars for work, errands and everyday life.

Assembly Bill 8 was nothing less than a deal among very powerful interests who had no problem throwing taxpayers under the bus. Who were the winners? Environmental extremists (with support from Governor Brown) who got funding for a dubious “Hydrogen Super Highway.” Also, manufacturers of “green cars,” like the hyper-expensive Tesla, got big tax breaks. Regrettably, some of our allies in the agriculture and trucking industry were in on the deal as well. In exchange for their imprimatur, they received much needed relief from some absurd regulations which seem to proliferate in California like amorous rabbits.

Standing alone against all these well-moneyed interests was the Howard Jarvis Taxpayers Association. And while we are acknowledged as a powerful voice for California taxpayers for our unwavering defense of Proposition 13, the interests of homeowners and citizen taxpayers, there are times when our advocacy is steamrolled by those with more money, power and influence.

If there is any good news here, it is that the plight of the middle class is starting to attract much needed attention. In perhaps one of the best columns on the subject ever written, noted historian and classicist Victor Davis Hanson reveals how the political machinations at the state and federal levels treat middle class citizens more as second class indentured servants.

Hanson starts with noting what Obamacare does to the middle class: “The problem with Obamacare is that its well-connected and influential supporters — pet businesses, unions and congressional insiders — have already won exemption from it. The rich will always have their concierge doctors and Cadillac health plans. The poor can usually find low-cost care through Medicaid, federal clinics and emergency rooms. In contrast, those who have lost their preferred individual plans, or will pay higher premiums and deductibles, are largely members of the self-employed middle class. They are too poor to have their own exclusive health care coverage, but too wealthy for most government subsidies. So far, Obamacare is falling hardest on the middle class.”

Hanson then points out that policies of higher education — with expensive tuitions — protect the wealthy and the poor but hit the middle class hard, very hard: “Consider the trillion-dollar student-loan mess. Millions of young people do not qualify for grants predicated on income levels, ancestry or both. Nor are their parents wealthy enough to pay their tuition or room-and-board costs. The result is that the middle class — parents and students alike — has accrued a staggering level of student-loan debt.”

Next comes immigration. Open borders advocates and corporations have more in common than Americans concerned about finding and keeping their jobs. Hanson notes that “illegal immigration also largely comes at the expense of the middle class.”

Davis doesn’t stop with immigration. Policies on gun control, energy and the Fed’s quantitative easing are revealed to have deleterious effects on the middle class while sparing the rich and poor.

So what can be done to afford the middle class the degree of representation they are due? First, the middle class should realize that they — by virtue of their sheer numbers — constitute the largest block of registered voters. If citizen taxpayers ever come to grasp this simple truth and realize that they have little in common with powerful special interests, they could assert themselves more effectively in the political arena.

Second, ordinary taxpaying homeowners should focus more on the actual policies coming out of Washington and Sacramento and less on party affiliation or political labels such as “liberal” or “conservative.”

Third, the middle class should ignore the political messaging emanating from the political elites, including those in the anointed main stream media and do their homework to educate themselves on what is really going on. After all, veritas vos liberabit (the truth shall set you free).

Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.