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TAXPORTATION: Profligate Waste Negates Justification for Transportation Tax Hike

Part One:  California’s Highways – A Legacy of Mismanagement and Over-regulation.

A personal digression: My father was head of the Iowa Department of Transportation (then called the Iowa Highway Commission) in the late ’60s and early ’70s before he was appointed by President Ford to serve as Deputy Federal Highway Administrator. (Of course, he lost that job when Jimmy Carter became president, but he continued to work in the private sector for a transportation think tank). When I was in high school, I remember him coming home from an ASHTO conference. That organization, the Association of State Highway and Transportation Officials, was a pretty well respected group and still is. He was complaining bitterly about what was going on in California. I don’t recall his exact words, but the gist of it was that the new head of California’s transportation agency, called CalTrans, had been taken over by a certifiably crazy person (with no background in transportation policy) by the name of Adriana Gianturco. According to my father, in the 1950s and ’60s, California had the best transportation agency in the entire world. But all that changed with the election of a new, anti-growth, small-is-beautiful governor by the name of Jerry Brown.

Now, fast forward 40 years. Governor Brown, version 2.0, proposes a budget that assumes a big increase in transportation taxes and fees. The California Legislature shouldn’t just say no, it should say hell no.

Where to start? First, let’s take judicial notice of the fact that California is already a high tax state with the highest income tax rate and the highest state sales tax in America. But more relevant for the issue at hand, we also have the highest fuel costs in the nation. This is because of both the 4th highest excise tax on fuel and the fact that refineries are burdened with additional costs to comply with California’s environmental regulations.

The high cost to drive in California might be understandable if we were getting value for our tax dollars. But we aren’t. A big problem is that Caltrans is dysfunctional, plain and simple. It has never fully recovered from the days when the agency was effectively destroyed by Gianturco. A report by the California State Auditor just a couple of months ago concluded that a primary responsibility of Caltrans – maintenance of our highways – is not being executed in a manner that is even close to being efficient or competent. Senator John Moorlach, the only CPA currently serving in the California legislature, reacted saying that “This audit reinforces the fact that our bad roads are not a result of a lack of funding. They’re a result of a lack of competence at Caltrans.” Moreover, a report by the Legislative Analyst concluded that Caltrans is overstaffed by 3,500 employees costing California taxpayers over a half billion dollars a year. All this compels the obvious question: Why, for goodness sake, do we want to give these people even more money?

Another unneeded and costly practice consists of project labor agreements for transportation construction projects. These pro-union policies shut out otherwise competent companies from bidding on projects resulting in California taxpayers shelling out as high as 25% more than they should for building highways and bridges.

Finally, California’s environmental requirements are legendary for their inefficiency while also doing little for the environment. Exhibit A in this foolishness is Governor Brown’s incomprehensible pursuit of the ill-fated high speed rail project. Not only has the project failed to live up to any of the promises made to voters, it is currently being kept alive only by virtue of the state’s diversion of “cap and trade” funds which are supposed to be expended on projects that reduce greenhouse gas emissions. But in the Kafkaesque world of California transportation policies, the LAO has concluded that the construction of the HSR project actually produces a net increase in emissions, at least for the foreseeable future.

No one disputes the dire need for improvements in California’s transportation infrastructure. But imposing draconian taxes and higher registration fees that serve only to punish the middle class while wasting billions on projects that don’t help getting Californians get to work or school cannot and should not be tolerated. Legislators who present themselves to voters as fiscally responsible need to understand that a vote for higher transportation taxes will engender a very angry response from their constituents.

Part Two:  Redirecting Existing Revenue Provides Plenty of Money for Highway Improvements

Last week’s column presented the case for strong opposition to any new transportation taxes in California. But on Thursday, the Executive Director of Transportation California, Will Kempton, published a response in Fox and Hounds, a California political blog run by Joel Fox, which repeated the need for higher taxes.

Will Kempton is a respected transportation expert who agrees with the central premise of my original column. That is, that California’s transportation crisis can no longer be ignored. California has a transportation and road repair maintenance backlog that some estimate will total $58 billion over the next ten years. It is also true that, thanks to alternative vehicles and more fuel efficient cars (and never mind the infamous “gas tax swap”) that fuel tax revenues have become more volatile year-over-year.

So, now that we’ve agreed on the need, how do we deal with it? Mr. Kempton argues that we have no choice but to raise taxes. Not only do we disagree, but it is abundantly clear that practically all of this backlog can be funded using existing General Fund resources. Consider:

  • Nearly $1 billion a year of truck weight fees are being diverted from road repair to paying off transportation bond debt. Total: $10 billion over ten years.
  • Nearly $9 billion in bonds for high speed rail can be diverted for road construction. (And if voter approval is deemed necessary, that measure passes in a heartbeat).
  • Currently, California spends only 20 percent of its $10 billion General Fund transportation budget on road maintenance. Especially with General Fund revenue at record levels, a boost to 50 percent does not seem excessive: Total: $30 billion over ten years.
  • Currently, $500 million in $3 billion worth of cap-and-trade funding goes to road maintenance. Doubling that amount adds $5 billion over ten years.

The grand total of these reforms is $54 billion over ten years. Granted, not all of these things can be done overnight and the first two items will likely require statewide voter approval. But the Legislature still has plenty of time to qualify a constitutional amendment for the November ballot. And obviously, placing a greater General Fund emphasis on transportation projects will require that we figure out how to prioritize our resources better in the face of a record $122 billion budget.

Let’s be honest. It is really the word “prioritize” that is at issue here. Some of these reforms will be easier to implement than others, but unless we engage them head on, which hasn’t happened in the Legislature, how can we ever hope to solve this problem? Taxpayers should refuse to accept the incessant call for higher taxes when relatively simple reforms that could add tens of billions of dollars of funding to our roads, without raising taxes, are ignored. How can we discuss a punitive and regressive gas tax increase when common-sense legislation by State Senator John Moorlach to privatize a small portion of CalTrans projects, or to  establish a pilot project to have county transportation agencies assume projects from CalTrans, are quickly rejected in their first policy committee?

We agree with Kempton that the status quo is no longer acceptable. But there are a myriad of fiscal and policy changes that are viable and should be discussed and implemented. And until legislative Democrats, the transportation community, labor and environmentalists are willing to even come to the table, why should the burden be on California motorists to pay higher taxes?

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.

Do Newer Technologies Threaten High Speed Rail?

So many lies were told to convince voters to approve the High Speed Rail project six years ago, that most Californians have soured on it. They are appalled that the estimated cost to build, the time to build, the time between destinations and the price of a ticket have all nearly doubled since voters approved a $10 billion bond to kick start the project.

Add to this that the private investment that backers promised would limit taxpayers’ liability is nowhere to be seen and it is little wonder that even the former Chairman of the High Speed Rail Authority, respected independent Quentin Kopp, has excoriated the project as it has morphed into something wholly unrecognizable from what the voters approved.

It is somewhat ironic that Governor Brown, who fancies himself as a futurist (as Governor in the 1970s he thought California should have its own satellite) wants to commit Californians to spending billions of dollars on what is increasingly apparent to be an aging technology. Today’s futurists and tech savvy interests are suggesting that investing in High Speed Rail might be tantamount to buying stock in a chain of blacksmith shops in 1910 just as the automobile began replacing the horse as the dominant form of personal transportation.

The first successful powered railroad trip is said to have taken place in the United Kingdom in 1804. More than two centuries later, the train remains the best way to move large quantities of heavy goods. But for moving people, is the huge amount of capital investment in equipment and track that impedes the crossing of vehicles and pedestrians, destroys neighborhoods and farmland, and degrades wildlife habitat, really essential?

Elon Musk, who heads successful high-tech companies Tesla Motors and SpaceX, believes there is a better way to move people. Musk favors the Hyperloop, or something similar, that would whisk travelers between San Francisco and Los Angeles in as little as 35 minutes. Compare this with a drive time of six hours, a bullet train time of about four hours, and an hour by air.

The Hyperloop is a hovering capsule inside a low-pressurized tube, supported by pylons, which can reach speeds of up to 760 mph. According to Hyperloop CEO Dirk Ahlborn, within about 10 years and with about $16 billion, Hyperloop could become a reality. He believes it would it would be easy to put together, the challenge is to come up with a good business model.

As with High Speed Rail, there are many unanswered questions and hurdles with Hyperloop. However, it does appear to be cheaper, faster and able to be completed more quickly than the bullet train and would be less environmentally intrusive.

Moreover, for taxpayers, it doesn’t appear that public dollars are being spent on the design of this project. Unlike High Speed Rail, the Bay Bridge and the Twin Tunnels projects, keeping this project in the private sector – at least in the concept and design stage – is resulting in some fairly notable progress in a short period of time.

In addition to the Hyperloop concept, rapid advances have been made with driverless cars. Fuel efficient personal vehicles directed by computers show great promise and the technology is no longer theoretical. Google has already built a prototype. And best of all, they can operate on an existing infrastructure project which we call roads.

High Speed Rail’s cost dwarfs all other public infrastructure projects by many factors.  Before we commit more money to this project – whose funding is very much in doubt – shouldn’t we be sure there isn’t a better and cheaper alternative?

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.

Affordable Tuition vs. Gargantuan Pensions for Unionized Faculty

Californians have abysmally low levels of civic engagement as evidenced by the recent election where voter turnout set an historic low.  And the widespread disengagement of California’s younger voters is even worse.

True, in 2008 California’s youth turned out in large numbers to elect Barack Obama as President.  And in 2012 they turned out again because, in addition to Obama being up for reelection, Proposition 30 was on the ballot.  Proposition 30, which gave California the highest income tax rate and highest state sales tax rate in America was, ironically, entitled Temporary Taxes to Fund Education.

During the Proposition 30 campaign, Governor Brown traveled to several university campuses to push the massive tax hike promising that passage would prevent tuition hikes. California’s college students, being as gullible as they are idealistic, believed the promise hook, line and sinker.  So much for critical thinking.

But perhaps California’s younger voters are finally getting wise to all the broken promises of tax-and-spend politicians and that might explain, in part, why they stayed home in this last election.  And sure enough, their increasing cynicism is proving to be well founded.

Despite the massive tax hikes ostensibly to keep higher education affordable, the University of California Board of Regents just announced a sizable increase in tuition.  And UC students are none too happy.

Turns out that the driving force behind these hikes is the growing unfunded liability of UC’s pension fund and other items of questionable compensation.  Allysia Finley with the Wall Street Journal explains:  “UCs this year needed to spend an additional $73 million on pensions, $30 million on faculty bonuses, $24 million on health benefits and $16 million on collectively bargained pay increases. The regents project that they will require $250 million more next year to finance increased compensation and benefit costs.”

Moreover, Finley reveals the extraordinary level of waste in the UC system:  “Ms. Napolitano [President of the University of California] says that the UCs have cut their budgets to the bone, yet her own office includes nearly 2,000 employees—a quarter of whom make six-figure salaries. An associate vice president of federal government relations earns $273,375 a year, plus $55,857 in retirement and health benefits, according to the state controller’s office.  Thirty professors at UC Santa Cruz rake in more than $200,000 in pay, and most faculty can retire at 60 and receive a pension equal to 75% of their final salary. More than 2,100 retirees in the university retirement system collected six-figure pensions in 2011.”

At the moment, the outrage expressed by students in their protests – one of which resulted in a shattered glass door outside a meeting of the UC Regents – seems a bit unfocused.  They’re angry but, aside from the mere fact that their education costs are rising, many are not clear about the causes.

In a weird way, UC’s pension crisis might be the ultimate teachable moment for college students who typically have little grasp of anything related to public finance.

So, students, here’s the scoop:  There’s no such thing as a free lunch.  Public employee compensation is expensive; especially pension costs that you will be paying long after those of us who are older are long gone.  Government waste, fraud and abuse in California is a real problem.  Those who pay taxes – a lot of taxes – have choices where to live and move their businesses – and that may not be in California.  Debt means future costs.  You might like the idea of High Speed Rail but you might want to study both the costs and viability of any megaproject before you hop on board.

And finally, don’t buy into any promise by any politician about what they are going to do for you without first figuring out what they are going to do to you.

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.

Race for California Governor Should Emphasize Education Reform

On Thursday, Democratic Gov. Jerry Brown will face off against Republican challenger Neel Kashkari in their only scheduled debate. Although Kashkari asked for 10 debates, Brown chose to do just one.

Undoubtedly, a slew of issues will be discussed, from economic policy, including taxation and tax credits, to border security and immigration, earthquake preparedness, California’s death penalty and even the ethical lapses of legislators.

Somewhere in that one-hour debate the candidates also will be asked about their views on education policies and practices in the Golden State. After all, education consumes almost half the state budget, and a new funding formula has recently been enacted. The Legislature has also suspended its testing of students as California prepares to adopt the Common Core curriculum, amid some public souring on its implementation.

The perennial debate over the quality and expansion of independent public charter schools continues to dominate discussion. An increasing number of local education agencies are tying to curtail their availability, even though at least 50,000 children remain on waiting lists to get into a quality charter school.

Like many other Californians, I will, most likely, watch the debate on television. Not all questions can be asked – much less thoughtfully discussed – in the scant allocated time of 60 minutes. Nonetheless, let me suggest a few questions:

(1) Nationally, we’ve seen a parent empowerment movement demanding greater parental rights in school choice options. Do you support ending school assignment by ZIP code, enabling parents to bypass their “local” school, particularly if it is chronically underperforming?

(2) In 2010 the Legislature enacted the Parent Empowerment Act, which allows parents to turn around chronically underperforming schools if 50 percent of the parents sign a petition choosing a transformation option, such as converting to a charter school. Recently, the Los Angeles Unified School District shocked many when it claimed “exemption” from the law due to a federal Department of Education waiver combined with suspension of state testing. Do you concur that these “reform” districts are exempt from the law, and can any district self-proclaim exemption from state laws?

(3) In a school near Disneyland, a group of mostly Latino mothers are using the Parent Trigger law to transform their school, which has chronically underperformed for 10 years. They are being met with resistance from the teachers union and some elected officials. If you could meet with them, what would you say you could do to help realize their educational dreams for their children?

(4) Nine students sued the state of California, claiming that teacher employment and dismissal laws, including tenure and seniority, deprive students of equality of educational opportunities. L.A. Superior Court Judge Rolf Treu sided with the kids, ruling the statues unconstitutional, and the decision is being hailed nationally as a significant education and civil rights victory. What is your position on the Vergara ruling, and do you support an appeal of the decision or settling it and calling the Legislature into special session to rewrite these laws?

Many more questions could be asked of the candidates. But these are worth posing to Brown and Kashkari, for one of them will govern California’s 6 million public school kids, impacting their parents and utilizing half the state budget for the next four years.

Of course, one hour to debate all the issues is not enough time. Another debate is needed. Democracy thrives when the citizenry is educated. Californians deserve to know.

About the Author:  Gloria Romero, a Los Angeles resident, served in the California Legislature from 1998 to 2008, the last seven years as Senate majority leader. This article originally appeared in the Orange County Register and is republished here with permission from the author.

Another Union Giveaway Almost Becomes Law

If California voters grant the state government the billions in higher taxes in Proposition 30 that Gov. Jerry Brown and legislative Democrats have been demanding, those same officials might be expected to squander the money by shoveling even more benefits to already well-compensated government workers.

Evidence for such an expectation is a scheme to enrich unionized police and firefighters that came within a whisker of becoming law.

Even in its watered-down form, Assembly Bill 2451 would have exposed California cities and municipalities to an endless amount of financial liabilities for the families of deceased police and firefighters. The legislation also illustrated the surreptitious strategies used to expand benefits in California, as government unions quietly work the system for higher compensation.

The story of AB2451, even though it ended with a veto, also confirms that legislators have in no way reformed their free-spending ways.

In the private sector, employees typically receive injury and death benefits through insurance, and such benefits are linked to work performed on the job. In “public safety” jobs in the public sector, taxpayers foot the bill for disability and death benefits.

Politicians – always currying favor with the unions representing police, firefighters and prison guards – continually expand the categories of illness presumed to be caused by job-related injuries.

So if a retired firefighter or police officer develops heart disease, cancer or any number of other common diseases, the illness often is presumed to be caused by the retiree’s former job. That presumption releases a stream of taxpayer-funded benefits. Under current law, if that employee dies from myriad ailments within four-and-a-half years after the date of injury, the family can receive hundreds of thousands of dollars in survivorship benefits. In the public sector, it’s far easier to make a claim than in the private sector.

Apparently, this wasn’t generous enough for Assembly Speaker John Perez and the Democratic leadership. They came up with a plan that allows family members of deceased police and firefighters to claim more than $300,000 in survivorship benefits up to a year after the person’s death, no matter how old that retired public-safety official may be.

The bill also specified the ailments that are considered “hero ailments” – deaths cause by working as a cop or firefighter. These include: hernia, pneumonia, heart trouble, cancer and leukemia, tuberculosis, blood-borne infectious diseases and certain skin infections.

As the nonpartisan Legislative Analyst’s Office, summarizing arguments against the bill by local governments, explained: “Thus, any retired safety officer who dies in his or her 80s or 90s of a cancer or heart-related condition would be presumed to have a work-related cause, and his or her dependents would be entitled to a death benefit.

But with the incidence of cancer and heart conditions as the cause of death for many elderly people, the causation for someone 20, 30, or more years removed from service is much more debatable.”

The legislation was amended to “merely” expand the time to nine years after injury in which a benefit claim can be made. It removed a couple of the presumptions from the list, but this still would have been a costly giveaway and provides insight into how legislators think.

Still, it passed overwhelmingly. It even had some original support from Republicans, until Jon Fleischman of the Republican-oriented Flash Report website and others started waving the red flags. GOP support then evaporated.

“What is needed is rational, thoughtful consideration of balancing the serious fiscal constraints faced at all levels of government against our shared priority to adequately and fairly compensate the families of those public safety heroes who succumb to work-related injuries and disease,” Gov. Brown said in his on-point veto message.

But Brown is not so much a born-again fiscal conservative, as someone so committed to the Prop. 30 tax hike plan that he will not give opponents any ammunition to use against it. As the Sacramento Bee reported, “Larry Gerston, a government professor at San Jose State University, said that Brown’s moderation in bill signings points to a much larger goal: passing Prop. 30, his multibillion-dollar tax hike, in November.”

Brown reminds me of the kid who is on his best behavior – i.e., cleaning his room and cutting the lawn – to prove to Mom and Dad that he deserves that new bicycle. Don’t figure the new habits to continue long after he gets what he wants.

AB2451 is built on the fiction, perpetrated by unions eager to use emotional claims to divert more tax dollars to their members, that police officers and firefighters have such dangerous jobs that they die early, which could leave their families destitute.

But based on data from the California Public Employees’ Retirement System, the longest-living category of public employee is a police officer, followed closely by firefighters. They live, on average, well into their 80s, which is one of the reasons the state has such a large unfunded pension liability. Public-safety workers receive, by far, the most generous pension and health benefits.

In California, they can retire with 90 percent of their final year’s pay at as soon as age 50 – and spouses receive generous benefits, too. Police and firefighters don’t come near the top of the Bureau of Labor Statistics’ list of most-dangerous jobs.

The Democrats are always talking about shared sacrifice, yet the same-old, same-old takes place in the Capitol – powerful interest groups keep pushing for, and often getting, more.

The state is out of cash. Brown reminds us of that every chance he can. Some cities are teetering on bankruptcy, thanks largely to pensions, medical benefits and other compensation paid to municipal employees.

Taxpayers and job-creators are fleeing the state. Legislators should be reforming the system so that California can be competitive again.

Instead, they want to keep comforting the comfortable (union members) and afflicting the afflicted (taxpayers).

Yes, Brown vetoed some of the worst nonsense, but AB2451 shows what the Legislature will do when it has more money, and no one is looking. Is it wise to give them more of your money?

Steven Greenhut is vice president of journalism at the Franklin Center for Government and Public Integrity.

The Politics of Public Sector Unions

To say that the unions have undue influence in the California Legislature, as many critics allege, is to understate the problem. The unions – and the public sector ones in particular – don’t just control the Legislature. They are the Legislature. Senate President Pro Tem Darrell Steinberg, D-Sacramento, previously worked as an attorney for a public sector union. Assembly Speaker John Perez, D-Los Angeles, is best known as the union organizer who led the Southern California grocery strikes of 2003-2004.

The Democratic Party, which controls every state constitutional office and holds strong majorities in both houses of the Legislature, functions as the cat’s paw for the unions. Gov. Jerry Brown was elected with the help of a record-setting $30 million in expenditures from the state’s unions, and despite disappointing them on a handful of matters including an encouraging new pension-reform proposal, has governed largely as their advocate in Sacramento.

So even as California sinks under the weight of an unfunded pension liability estimated by Stanford University to be as high as a half-trillion dollars, and even as various cities teeter on the brink of bankruptcy, there is little or no appetite for serious reform in the state Capitol. Pension reform has been a non-starter despite some modest criticism by legislative leaders of some of the more outrageous pension abuses. To illustrate how extreme the situation is, a 2010 proposal to strip pensions from government employees convicted of on-the-job felonies couldn’t even get a hearing. As Republican insiders told me, the unions exerted their political muscle by saying that such a measure was unfair to the families of the felons – and the legislation was pulled.

Instead of paring back union benefits and rooting out various abuses, ranging from those double-dipping DROP programs (Defined Retirement Option Plan) to “airtime” benefits that allow employees to buy additional retirement credits at a fraction of the cost to the taxpayer, the state Legislature continues to, at best, nibble around the edges of reform and even in some cases expand benefits, in the case of those cancer and heart-attack presumptions for public safety workers. Once, when asked what it is he ultimately wants for his members, a union president retorted, “more.” But despite lean times – in a state where unemployment averages above 12 percent, and where those numbers often exceed 20 percent in rural locales – the unions continue to implement more aspects of their benefit-expanding agenda.

GOVERNOR BROWN TILTS TOWARD UNIONS

Many observers had hoped that an aging Gov. Brown, back as the governor after a decades-long hiatus, would want to create a legacy rather than become too closely aligned with any interest groups. There was the much-discussed “Nixon goes to China” references to Brown, who could be the one person with the credibility to stand up to the unions that are a stumbling block to the state’s fiscal improvement. In a New York Times article before Brown’s victory over Republican billionaire Meg Whitman, Democratic consultant Chris Lehane echoed this common viewpoint, “He may be a career politician, but nothing about him has ever been conventional. If he is able to get through a lot of obstacles — and that is a big if — he could be the right person at this time, the sort of Nixon-goes-to-China way.”

Yet a year into his governorship, Brown has functioned in a “Nixon goes to San Clemente” way. He is less the unconventional politician and more a traditional pro-union politician. Brown is an interesting character, who offers varied rhetoric and prides himself on his Canoe Theory of Politics (paddle a little to the Left, then a little to the Right), but until very recently he failed to confront the unions.

As the Los Angeles Times reported after the close of the legislative session: “When the dust settled on Gov. Jerry Brown‘s first legislative session in nearly three decades, no group had won more than organized labor, which heralded its largest string of victories in nearly a decade. At the urging of the food workers’ union, Brown agreed to crack down on the use of automated checkout machines in grocery stores. At firefighters’ request, he approved new restrictions on local governments seeking to void union contracts. He guaranteed wages for workers in public libraries that are privatized — a bill sponsored by another labor group. … ‘Finally, after seven long years of [Gov. Arnold] Schwarzenegger, we’re moving in the right direction again,’ said Steve Smith, a spokesman for the California Labor Federation.”

Brown did, however, surprise most Sacramento observers when on Oct. 27 he introduced a 12-point pension-reform plan that goes much further than most Democrats and Republicans expected. The response from Sen. Bob Huff, R-Diamond Bar, the GOP caucus chairman, epitomizes this viewpoint: “The governor’s admission today that California is not on a sustainable path when it comes to unfunded pension liabilities is a refreshing step in the right direction. While I believe that all of the governor’s proposed reforms should be placed on the ballot for voter approval, I am ready to support his ideas to rein in costs by raising the mandatory retirement age for all new employees and the adoption of a hybrid risk-sharing plan. These proposals are similar to what Senate Republicans brought to the governor last year, and I believe the governor is on the right path.”

Specifically, the Brown plan – which still must get pushed through a Democratic-controlled Legislature – would raise the retirement age for non-public-safety new hires from 55 to 67, increase employee health-care contributions, ban “airtime” and other pension-spiking methods, and create a mandatory hybrid system for new retirees that apparently applies to public-safety categories also. Unfortunately, as my colleague John Seiler wrote in CalWatchdog, the details are left for a study and who knows what the study will conclude? Brown also calls for an initiative to change the nature of a retirement fund board in the wake of myriad scandals. The good news: the unions already are complaining.

Republicans called for a special session, but Brown rebuffed that idea.

San Diego Councilman Carl DeMaio, known for his statewide pension reform activism, said, “It takes some baby steps forward. But in the end, it’s completely inadequate for protecting taxpayers. It’s deja vu because it’s not reforming existing pensions.” And the pension liability doesn’t go away by reforming things only for new hires.

The Brown pension plan comes against a backdrop of his many pro-union bill signings. As I reported in the Orange County Register: “For instance, the governor signed a bill that makes it nearly impossible for municipalities to declare bankruptcy, forcing them instead to go through a mediation process that is dominated by union supporters who would oppose bankruptcy at all costs. Salaries and benefits are consuming such a large portion of city budgets that officials have no choice but to shut down parks and lay off workers. The unions won’t budge on benefits, so their goal is to make it impossible to abrogate those overly generous union contracts that are the source of the problem.”

Furthermore, the governor signed SB 202, which pushes citizen initiative measures to November general election ballots, thus undermining one of the key measures Californians have to tackle union power – the initiative process. The unions control the governor’s office and the Legislature, so reform can only come at the ballot box. Limiting initiatives to the general election makes it that much harder to qualify initiatives for the ballot and that much easier for big players, such as the unions, to dominate the process and squelch direct democracy.

Brown claims to be promoting democracy – at least that’s his explanation as he pushes Californians to approve new taxes and promotes a measure that would make it easier for localities to pass taxes. But the governor doesn’t like democracy when it comes to bans on those union-only Project Labor Agreements for public works projects. He signed a law that stops local governments from banning PLAs. At the bidding of the police unions, Brown vetoed a bill that was supported overwhelmingly by Democrats and Republicans in both houses of the Legislature.

It would have overturned a recent state Supreme Court ruling that allows police to search everything on an arrestee’s cell phone – a troubling development given the amount of information and number of databases available in a modern smart phone. By allowing police unlimited ability to search these phones, the court has given them unlimited ability to go on fishing expeditions of, say, a reporter’s databases if that reporter were arrested for any reason. The bill would have required a warrant, but Brown did what the unions asked him to do.

Brown signed a deal with the powerful prison-guards union that made it clear that he would not be standing up for taxpayers. As I wrote in City Journal: “The state’s old contract with CCPOA allowed retiring prison guards to collect a payout for up to 80 unused vacation days. In practice, that limit was often unenforced—but the new contract removes it altogether, letting guards bank an unlimited amount of vacation time. That will make it much easier to retire with six-figure payouts. Already, as a Sacramento Bee story has revealed, some state employees have walked away with as much as $800,000 in banked vacation time; the new CCPOA contract will make that more common. In fact, the San Francisco Chronicle reports that guards and their supervisors have 33 million vacation hours banked, which could cost taxpayers $1 billion or more. All this is in addition to prison guards’ ‘3 percent at 50’ retirement arrangement, which allows them to retire as young as 50 with up to 90 percent of their final year’s pay—and the guards commonly spike those generous pensions with various gimmicks, such as filing disability claims shortly before retirement.”

Brown also signed legislation to crack down on contraband cell phones that make their way to prison gangs. But the bill completely ignores the main source of those illegal phones – prison guards who take bribes and sneak them in. The California Correctional Peace Officers Association refuses to allow the guards to be searched unless they are paid for additional time.

Here we see that union power does more than impose financial costs on California taxpayers. It restricts accountability by public officials. It makes it nearly impossible to debate policy issues in terms of what’s best for the public. Such debates – ranging from pensions for felons to police searches of phones to keeping contraband out of prisons – don’t get much of a hearing when a dominant interest group flexes its muscle.

DEPTH OF THE PENSION PROBLEM

When Stanford University analyzed the state’s pension problem, it argued that the state’s main pension funds should use a discount rate of 4.1 percent in determining the size of the unfunded pension liability or debt. In the private sector, of course, most employees receive 401/k-style defined-contribution plans. The employer will, for instance, promise to match a certain percentage of the employee’s pay and place that in a retirement account. When the market goes up, the employee’s account grows and when it falls, obviously it too falls.

By contrast, most public sector employees receive defined-benefit plans. They are promised a defined level of benefit based on a formula regardless of how the stock market performs. Taxpayers are backing the promises made by politicians and must pay up if the pension fund investments don’t perform as promised. In California, these formulas can be rich. For instance, public safety officials receive the most generous formulas, including the common “3 percent at 50” formula. Police, deputy sheriffs, firefighters, prison guards and an expanding list of safety officials (such as lifeguards, who can earn more than $200,000 a year in Orange County) can retire at age 50 with benefits equaling 3 percent of their final year’s pay times the number of years worked. If an officer begins his police career at age 20, that means he can retire at age 50 with 90 percent of his final year’s pay – and that’s before the various pension-spiking gimmicks that can push those numbers even higher. In most California communities, firefighter pay and benefit packages average more than $170,000 a year, so these are expensive for taxpayers.

The agency that hires the employees and the employees contribute a portion of their salary into the pension funds, which then invest the money. In many instances, the agency – i.e., the taxpayer – pays the employer and the employee portion of the contribution. Especially with public safety, the employee often contributes nothing to his own retirement plan. Investment income is supposed to pay for the future pensions, so this becomes a guessing game.

The pension funds estimate the highest-possible rates of return on their investments because the higher the discount rate the less the predicted liability. The nation’s largest pension fund, the California Public Employees’ Retirement System (CalPERS) estimates that its investments will earn 7.75 percent a year for the next 30 years, which strikes most observers as optimistic. The goal of CalPERS and the public employee unions are to minimize the size of the problem so that politicians do not tinker with the generous pensions they receive.

In an April 2010 study called “Going for Broke,” Stanford University suggested using the risk-free rate of 4.1 percent to determine the true unfunded pension liability for the state’s three major pension funds. According to the report, “Adjusting the discount rate used on liabilities to a risk-free rate, we estimate the combined funding shortfall of CalPERS, CalSTRS, and UCRS prior to the 2008/2009 recession at $425.2 billion (see Table 2). At the time of this writing, the funds have not released more recent financial reports, but due to the previously mentioned $109.7 billion loss the three funds collectively sustained, we estimate the current shortfall at more than half a trillion dollars.”

CalPERS was aghast at this study and its officials have been blasting it ever since, even though it was produced by a highly respected academic institution and its research was led by a well-known former Democratic state legislator who has taken particular interest in the pension crisis.

Ironically, as I reported recently in the Orange County Register, CalPERS’ own numbers actually make the case for an even lower discount rate than the one used in the Stanford study: “When the taxpayer is backing up the entire liability for the pensions received by members of the California Public Employees Retirement System, then CalPERS officials are exuberant about the stock market. They insist that a predicted rate of return of 7.75 percent is perfectly realistic. When their own funds are on the line, however, CalPERS can be extremely conservative as it embraces one of the lowest annual return rates imaginable: 3.8 percent.”

The latter number is what CalPERS uses when it pays localities that are interested in exiting the CalPERS plan. It’s the “rubber meets the road” number CalPERS uses when its own funds, rather than our funds, are on the line. It also is vindication that the Stanford study is on the mark and that the state’s unfunded liability is higher than expected. Former Orange County Treasurer Chriss Street pins that number at nearly $900 billion if the 3.8 percent figure is used.

But thanks to union power, reform has gone nowhere in the Capitol and even the discussions about reform – and local initiative-based reform measures – deal almost solely with new hires. But reforming pensions only for new hires doesn’t stave off economic problems. During one state Senate hearing about a Republican-backed pension reform measure last year that would have lowered pensions and increased contributions for new state employees, Democrats objected by arguing that it wouldn’t do anything anyway – it would be too many years down the road before savings would be realized. They weren’t arguing for a tougher measure that lowered pensions for current employees. Rather they wanted to do nothing. They said that this issue ought to be resolved at the negotiating table. Never mind that unions control both sides of that table, especially at the local governmental level.

The unions essentially elect their own bosses. In many local pension negotiations, the employees who supposedly represent that taxpayer are actually members of the union that sits at the other side of the negotiating table. They have every incentive to negotiate a deal that improves their benefits regardless of what it means for taxpayers. These negotiations are done in closed session, so the public rarely learns about the deals until it’s almost too late to organize to stop them. City council members and supervisors love to gain the union endorsements and to pose next to the squad cars and fire trucks. The average citizen hardly has a chance.

TACKLING REFORM AT THE BALLOT BOX

The pension issue won’t be fixed at the negotiating table. In California, which has liberal rules governing the initiative process, the only hope for reform is direct democracy. Last November, for instance, eight out of nine local pension-reform initiatives were approved by voters. The one losing measure was in liberal San Francisco, and this November’s election is dominated by pension reform even in that city.

In San Francisco, voters will choose between Proposition C, the “city family” measure backed by the establishment and the city’s public-sector unions, and Proposition D, a more hard-hitting measure championed by Public Defender Jeff Adachi, who also is a candidate for mayor.

The city establishment has rigged the game to ensure C’s passage. As I wrote for City Journal: “Prop. D is clearly the better of the two initiatives, which is why city officials are taking no chances that Adachi’s reforms will prevail over the establishment’s compromise half-measure. Mayor Lee pulled a sneaky behind-the-scenes stunt to ensure that Adachi’s measure would be less effective, even if it wins the most votes. Under a memorandum of understanding Lee negotiated with the police and firefighter unions in July, most of the city’s highest-paid workers would be exempt from the provisions of Prop. D that require higher pension-contribution rates. Despite an exposé by the San Francisco Examiner and ensuing controversy, the city’s board of supervisors unanimously approved the memorandum. Adachi rightly was appalled at the anti-democratic nature of a secret deal exempting particular classes of public workers from a ballot measure that the public hasn’t even had a chance to consider. He also was angered at the way the city’s controller, a Lee ally, skewed a supposedly independent analysis of the two measures to minimize the expected savings from Prop. D.”

The San Francisco Chronicle argued that “Neither would come close to covering the escalating general-fund obligation to meet promised pensions and health-care coverage for retired city workers.” But instead of siding with the more far-reaching measure, it backed Prop. C because that proposition has backing from the establishment and is less divisive. But given the degree to which pensions are consuming public budgets, officials in San Francisco and elsewhere are going to have to embrace measures that cut deeply into the problem.

Adachi, a progressive Democrat, has been making the progressive case for pension reform. In his view, unless San Franciscans cut back on millionaire’s pensions for public employees (a person would indeed need several million dollars saved to receive these six-figure cost-of-living adjusted deals), then the city will face a continued decline in the quality of life and in the quality of services there. David Crane, the liberal Democrat who was former Gov. Arnold Schwarzenegger’s chief pension adviser, said at a Senate hearing: “One cannot both be a progressive and be opposed to pension reform.  The math is irrefutable that the losers from excessive and unfunded pensions are precisely the programs progressive Democrats tend to applaud. Those programs are being driven out of existence by rising pension costs.”

Instead of embracing modest reform, Californians might soon need to listen to the reform-oriented official government watchdog called the Little Hoover commission, earlier this year “urged the Governor and the Legislature to establish the legal authority for the state and local governments to freeze pension benefits for current workers. The Commission recommends that, going forward, current workers accrue benefits under more sustainable pension plans. Payments to current retirees would not be affected.”

This was a groundbreaking suggestion. We’re not talking about stripping pensions from current retirees or changing the retirement formula going backward – even though unions have repeatedly succeeded in increasing pension benefits retroactively. Little Hoover simply is calling for the state to do what many private-sector companies have done: Make good on pension promises up until today, then implement a new, lower benefit tier starting tomorrow. Unless this is done, the current unfunded liability will not be addressed and pension and other retiree benefits will continue to consume an ever-larger portion of city budgets.

CUTTING PENSIONS OR CUTTING SERVICES

After Vallejo, Calif., went bankrupt – the result of excessive pensions and pay packages, including average compensation of more than $170,000 a year for firefighters and a $300,000 pay package for a police captain – the city had to shutter fire stations, parks and community centers and reduce the police force by a third. Citizens were warned to use the 9-1-1 system only in the most dire emergencies. So as governments pay too much to public employees, the services the public receives are greatly diminished. The Sacramento Bee once opined that city governments are becoming pension providers that offer services on the side.

The problem has been bipartisan. Although the state’s Democrats are most closely aligned with the unions, at the local level Republicans have been particularly eager to expand pay and benefits for police and firefighters.

Meanwhile, the state’s key pension reform activists have not been able to agree on a pension reform initiative, which leaves reform to the local level. A Paycheck Protection measure is going forward, however, which would limit the ability of unions to tap their members’ paychecks for political funds without them first opting in. The new measure includes restrictions on corporate donations also as a way to blunt some of the expected criticism from the Left.

And the SEIU has been dispatching action teams to places where signature-gatherers are collecting signatures for this measure in an effort to confront and even intimidate voters away from signing the petition. Unions still like to flex their muscle, whether at the Capitol or in front of grocery stores. Researchers at union-backed think tanks affiliated with the University of California have produced easily debunked studies that claim to show that public sector workers earn less than their private-sector counterparts. Clearly, they are fighting back as public opinion shifts in favor of pension reform.

Reformers are winning the debate but losing the policy battle thanks to the deep roots the union movement has sunk in California. It’s hard to overcome a union-backed governor, a union-owned Legislature and big union money that come into play during statewide initiative battles. But running out of money focuses the mind, which seems to explain Gov. Brown’s pension-reform proposal. As states and municipalities go broke, elected officials will have no choice but to reform overly generous pension deals for public employees and not just for new hires.

Steven Greenhut is director of the Pacific Research Institute’s Journalism Center in Sacramento. He is editor in chief of www.CalWatchdog.com, a columnist for the Orange County Register, a contributing editor to City Journal California and author of Plunder! How Public Employee Unions Are Raiding Treasuries, Controlling Our Lives And Bankrupting the Nation (2009 The Forum Press).