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Moral Values That Underlie Opposition to Government Unions

Often missing from entirely legitimate criticism of government unions is an accompanying explanation of the moral values that underlie the criticism. Last month we published a post entitled “Deceptive and Misleading Claims – How Government Unions Fool the Public,” which listed ten myths that government unions use repeatedly in their propaganda campaigns. Missing in that post, and added here, are the moral values that underlie the need to expose each of these myths.

TEN GOVERNMENT UNION MYTHS AND THE MORAL ARGUMENTS AGAINST THEM

Myth #1:  Government unions are protecting the middle class.

Reality:  Government unions are protecting government workers at the expense of the private sector middle class. The agenda of government unions is more wages and benefits for government workers, and more hiring of government workers. To adhere to this agenda, failure of government programs still constitutes success for these unions. More laws, more regulations, and more government programs equates to more unionized government workers, regardless of the cost, benefit, or need for these programs. The primary agenda of unionized government has nothing to do with the welfare of the private sector middle class, whose taxes pay for it.

Moral value:
The dignity and security of ALL workers is important, not just government workers.

Myth #2:  Government unions are a necessary political counterweight to “Wall Street,” big business, and billionaires.

Reality:  When government is expanded to serve the interests of government unions, the elite and privileged special interests are relatively unaffected, and often benefit. Large corporations can afford to comply with excessive regulations that drive their emerging competitors out of business. When governments borrow to finance deficits created by an over-built unionized government, bond underwriters profit from the fees. Government pension funds are among the biggest players on Wall Street, aggressively investing hundreds of billions each year to secure their 7.0% (or more) per year returns. Billionaires can afford to pay taxes and fees – it’s the middle class taxpayer who can be overwhelmed by them. When powerful special interests want favorable legislation passed in California, they go to the government unions and make a deal. Government unions are the brokers and enablers of special interest cronyism. They are allies, not counterweights.

Moral value:
As government contractors and as representatives of public servants, financial special interests and their government union partners should care about ALL citizens, not just themselves.

Myth #3:  Government unions represent and protect the American worker and the labor movement.

Reality:  For better or worse, government unions represent and protect government workers. Government unions and private sector unions have very little in common. Unlike private unions, government unions elect their own bosses, and their agencies are funded by compulsory taxes, not through profits earned by creating products and services that are voluntarily purchased in a competitive market. Moreover, government union members operate the machinery of government, giving them the ability to harass their political opponents under cover of authority. Private sector unions – properly regulated – have a legitimate role to play in American society. Government unions, on the other hand, exist to serve the interests of government workers, not the ordinary American citizen.

Moral value:
Democratic government represents and serves ALL Americans, not just government workers.

Myth #4:  Public employees are underpaid.

Reality: In past decades, prior to the unionization of government, a public worker exchanged lower base pay for better retirement benefits and more job security. But today, not only have retirement benefits been greatly increased from what was normal back in the 1980’s and 1990’s, but in most cases the base pay of government workers exceeds the base pay for private sector workers performing jobs requiring similar skills. A 2015 study by State Budget Solutions estimated the total compensation of California’s government workers to exceed private sector workers by 31%. But these studies typically omit lower paid independent contractors who now constitute one in three workers. A California Policy Center study that examined 2012 data showed the average pay and benefits for California’s city workers was $124,058, county workers $102,312, and state workers $100,668. And this study did not take into account the value of additional paid vacation benefits, extra paid holidays, and generous “comp time” policies, which add significantly to the total value of annual compensation. Just how much public employee pay exceeds private sector pay for equivalent jobs is the topic of ongoing debate. But they’re not underpaid by any reasonable measure.

Moral value:
Taxpayer funded government benefits – whether they are generous or minimal – should extend to ALL workers according to the same set of formulas and incentives.

Moral value:
Public service should not automatically bestow better pay, more job security, and superior benefits compared to private sector workers.

Myth #5:  The average public sector pension is only $25,000 per year (or some similarly low number).

Reality:  The problem with this profoundly misleading statistic is that this low average is the result of including participants who only worked a few years in state/local government, barely vesting a pension. Should someone who worked less than a decade (or two) in a job expect a pension based on a full career of service? When normalizing for 30 year careers and taking into account the uptick in retirement benefit formulas that rolled through California starting in 1999, the average state/local retiree in California collects a pension and retirement health benefit package worth over $70,000 per year. For a private sector taxpayer to collect this much in retirement, they would have to save at least $1.5 million.

Moral value:
We support modest, financially sustainable retirement security benefits for ALL American workers, not just government workers.

Myth #6:  California’s state/local pension systems are being reformed and will be just fine financially.

Reality: Virtually every official post-reform projection among California’s 80+ public sector pension systems are predicting eventual financial health based on a huge, extremely risky assumption – that the average annual returns of these funds over the next few decades will exceed 7.0% per year. Common sense should tell any unbiased observer that ongoing 7.0% average annual returns are not a safe bet. If they are, why are Treasury Bills only yielding 3.0%? What are mortgage bankers only able to get 3.5% on 30 year fixed mortgages? Why are bank CD’s only offering 2.0%? The spread between equity returns and truly risk-free returns has never been this large for this long. Pension funds are basing future performance projections on past results. The problem is that over the past 30 years, interest rates have been steadily lowered to allow people to borrow more. This borrowing stimulated the economy, creating corporate profits and driving up the price of corporate equities. But interest rates cannot be lowered any further. We are at the end of a long-term credit cycle, and pension funds are just beginning to deal with the consequences.

Moral value:
Government worker retirement funds should be managed cautiously and responsibly, not gambled on Wall Street with taxpayers liable if returns don’t meet unrealistic expectations.

Myth #7:  The teachers unions care about student achievement more than anything else.

Reality: The evidence simply doesn’t support this assertion. Consider the reaction of the California Teachers Association to the recent Vergara decision, in which a Los Angeles superior court judge agreed with student plaintiffs who challenged three union work rules. The CTA criticized the ruling and announced their support for an appeal. What does the Vergara lawsuit aim to accomplish? It would take away the ability for teachers to earn tenure in less than two years. It would end the practice of favoring seniority over merit when deciding what teachers to layoff. And it would make it easier to fire incompetent teachers. These are commonsense, bipartisan reforms that the teachers unions oppose.

Moral value:
Good educations for our children matter more than job security for bad teachers.

Myth #8:  Billionaires are trying to hijack California’s public education system.

Reality:  Wealthy individuals come from a diverse background of political orientations. All of them share a desire to rescue California’s next generation of citizens from a union monopoly on education. And unlike the unionized traditional public school, public charter schools and private schools survive based on the choice of parents who want a better education for their children. And if they don’t do a great job, the parents can withdraw their children from the failing charter or private school. Introducing competition to California’s unionized K-12 education system is a healthy, hopeful trend that gathers support from concerned citizens of all incomes, ethnic groups, and political ideologies.

Moral value:
What matters is the character and intentions of philanthropists and investors, not whether their ideology is right-wing or left-wing.

Myth #9:  Proponents of public sector union reform are “anti-government workers.”

Reality: This sort of claim is a distraction from the reality – which is that public sector unions have corrupted the democratic process and have been attempting to inculcate public employees with the “us vs. them” mentality that is the currency of unions. Sadly, the opposite is the truth – government unions alienate the public from their government, and, worse, alienate government employees from the public. They have created two classes of workers, government employees who have superior pay, benefits, job security and retirement security, and everyone else in the private sector. They know perfectly well that this level of worker comfort is economically impossible to extend to everyone. Government unions have undermined the sense of common rules and shared fate between public and private individuals that is a foundation of democracy. Those who oppose government unions recognize this threat. It has nothing to do with their support and respect for the men and women who perform the many difficult and risky jobs that are the role of government.

Moral value:
All American citizens should live according to the SAME government laws, rules, incentives.

Myth #10:  Opponents of government unions are “right wing extremists.”

Reality: The problems caused by government unions should concern everyone, and they do. Conscientious left-wing activists who favor an expanded role for government expect positive results, not failed programs that were created merely to increase union membership. They realize that unionized government is expensive and inefficient, leaving less money or authority to maintain or expand government services. Public libraries and parks with reduced hours and curtailed maintenance. Pitted, congested roads. After school recreation programs without reliable funding. Public schools where students aren’t learning and apathetic teachers are protected from accountability. Government has to be cost-effective, no matter how big or how small. Opponents of government unions can disagree on the optimal size of government, yet passionately agree on the problems caused by a unionized government.

Moral value:
Good government is something EVERYONE believes in, whether they are right-wing or left-wing.

This list of ten myths promulgated by spokespersons for government unions only begins to chronicle their many deceptions. But each of these myths offer strategic value to these unions – giving them the ability to put reformers on the defensive, change the topic of discussion, redefine the terms of the debate. Each of them has powerful emotional resonance, and each of them – along with many others – is continuously reinforced by a network of professional communicators backed by literally billions in dues revenue. But they are myths, not facts, and equally if not more important, they rely on premises of questionable moral worth.

Although intellectual integrity and emotional resonance are important and necessary elements of any effective argument critical of government unions, it is the moral worth of those arguments that matters above all. When you consider these myths – which is a charitable way to describe these distortions, deceptions, and misleading claims – in the context of the moral arguments that impel critics to refute them, what emerges is a new and decisive approach to countering union propaganda. Because government unions are destroying our democracy, our freedom and our prosperity, merely to enrich themselves. The moral high ground belongs to their critics, not to the government unions.

*   *   *

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

How Government Unions Are Destroying America

Not one presidential candidate, apart from Gov. Walker’s last-ditch rhetoric prior to dropping out, has discussed the problems with unionized government as a major issue. That’s too bad, because these problems are bigger than even most critics acknowledge.

When people discuss the need to reform, if not eliminate, public sector unions, the only reason typically cited is that their demands are bankrupting our cities and states. And reformers also usually fail to communicate the fundamental differences between government unions and private sector unions, or emphasize the bipartisan urgency of public sector union reform. Government unions don’t merely drive our cities and counties into service insolvency if not bankruptcy, they are distorting policy decisions of fundamental importance to the future of America.

With a focus on California, and in no particular order, here is an attempt to summarize how this is occurring:

(1) The Economy

California has the highest taxes and fees in the U.S., and is consistently ranked as the worst state in America to do business. California also has the highest paid public employees in the United States, and with state and local debt and unfunded retirement obligations now hovering around $1.0 trillion – nearly half of the state’s entire GDP – virtually all new state and local taxes and fees are to pay for services that have already been performed. The uncontrollable political power of state and local government unions, combined with their insatiable appetite for more pay, more benefits, and more members, has – across all areas of policy – shifted political priorities from the public interest to the interests of public employees. The primary reason for excessive taxes and fees, as well as fewer services and less infrastructure investment, is because California’s unionized state and local government workers receive pay and benefits that are twice what the average private citizen earns.

(2) Cronyism and Financial Special Interests

When government unions control the government, big business either gets out of the way or gets on board. The idea that government unions protect the public interest against big corporate interests is absurd. Government union backed policies create deficits that bond issuers earn billions underwriting. Excessive pension benefits create additional hundreds of billions in pension fund assets invested on Wall Street. Excessive regulations are enforced by additional unionized government employees, to which only the biggest corporations can afford to comply. Government unions enable and enrich the largest corporate and financial interests at the expense of small independent businesses and emerging competitors.

(3) Environment

When it comes to cronyism, the “clean-tech” sector has risen to the top of the list. Government unions are partnering with “green” venture capitalists to carve up the proceeds of California’s carbon emission auction proceeds, a tax by any other name that will eventually extract tens of billions each year from California’s consumers to fund investments that wouldn’t make it in a normal market. From high speed rail to side loading washers that tear up fabric, strain backs, and require expensive maintenance, “green” projects and products are being forced on Californians in order to enrich investors and corporations. But it doesn’t end there. A bad fire season isn’t because of normal drought recurrence, no, the cause is “man made climate-change,” so fire crews have a claim on CO2 emissions auction proceeds. A heat wave isn’t a heat wave, it’s global warming – and since crime is statistically known to increase during hot weather, police agencies also have a claim on CO2 emissions auction proceeds. Code inspectors and planners? Climate change mitigation via enforcing “additional” energy efficiency mandates and higher housing density. Transit workers whose conveyances replace cars? Ditto. Teachers who insert climate change indoctrination into curricula? Ditto.

An entire article, or book for that matter, could be written on the synergistic symbiosis between environmental extremists, big business/finance, and government unions. What about the artificial scarcity environmentalism creates by restricting development of land, energy, water, and other natural resources? When this happens, the wealthiest corporations and developers make higher profits while their smaller competitors go out of business. Utilities, whose margins are fixed, raise revenues which increases their absolute profits. Union controlled government pension funds, whose entire solvency depends on asset bubbles, ride investments in these artificially scarce commodities to new heights. Property tax revenues rise because home prices are artificially inflated.

(4) Infrastructure

California’s deferred maintenance on existing infrastructure – roads, bridges, rail, port facilities, utility grid, dams and aqueducts – has been assessed in the hundreds of billions. New infrastructure to solve, for example, water scarcity, would include toilet-to-tap sewage reuse, desalination, enhanced runoff capture, and – dare we say it – a few new dams. But none of these projects get off the ground, not only because environmentalists oppose them based on mostly misguided principles, but because artificial scarcity enriches established special interests, and because all the public funds that can possibly be found are instead perpetually needed to pay unionized government workers. More pay. More benefits. More government workers. Infrastructure? It’s environmentally harmful.

(5) Immigration

No matter where one stands on this sensitive and complex issue, they must recognize that government unions win when immigrants fail to prosper or assimilate. While American culture retains a vitality that is almost irresistible to newcomers and may overcome all attempts to undermine and fragment it, if government unions had their way, that’s exactly what would happen. Because the more difficulties new immigrants encounter, the more government workers are required. If immigrants fail to find jobs, if they become alienated and traumatized, if they turn to crime or even terrorism, then we need more welfare and social workers, we need more multilingual teachers and bureaucrats, we need more police, and we need more prisons. The unpleasant truth is this: If we import millions of destitute immigrants into America – people with marginal skills from cultures that are hostile to American values – it is a meal ticket worth billions of dollars for government unions, and for every crony business who services the programs they administer.

(6) Authoritarianism

By over-regulating all activity that so much as scratches the earth, whether it’s to develop land, water, energy, minerals; to farm, transport, build, manufacture; to enforce these rules, more government powers are required. Similarly, by upending the cultural fabric that’s nurtured a social contract in America so strong that volumes of law never had to be written, but were instead the stuff of mutually understood courtesies and customs, we invite strife. To manage this, more rules and referees are necessary, enforced by more government. As society loses its cohesion, and as ordinary honest citizens rebel against excessive taxes and regulations, government unions benefit from training their members to mistrust the fractious and rebellious public. After all, unionized government workers are now a special class. As society fragments, they become more cohesive. As the middle class dissolves, they retain their economic privileges. Perhaps more than any other factor, government unions impel the growth of a police state.

(7) Education

To consider education is to save the most important for last. Because everything that is wrong with where our culture is headed can either be magnified or mitigated by how we educate our young students, regardless of their income or gender or culture or faith. As it is, in California’s public schools, students are taught that open space is sacred, that energy development will destroy the planet, that capitalism is innately flawed if not irredeemable, and that the legacy of Western European culture is a primary cause for most problems in the world. Instead of teaching children to develop functional skills in reading and math, they are being indoctrinated to believe that any failure or disappointment they ever encounter is the result of discrimination. Given the demographics of California’s youth, the union fostered educational environment currently imposed on them is nothing short of a catastrophe.

The reader may not agree with all seven of these assessments, but regardless of the scope of anyone’s reform advocacy, they must confront government unions. Because reform in all of these areas is stopped by government unions. Do you want to unleash California’s economic potential? Do you want to reduce the power of the financial special interests and crony capitalists? Do you want to restore balance to environmental policies, and build revenue producing infrastructure that eliminates scarcity and lowers the cost of living for ordinary people? Do you want to stop importing welfare recipients and instead admit highly skilled and highly educated workers who will enliven our economy and our culture with spectacular success? Do you want to avoid living in a police state? Do you want California’s children to be taught lessons that build their character and give them useful skills?

Reformers must recognize that government unions have a natural interest in preventing any of these reforms from ever happening. Addressing any of these issues without also taking on the government unions is futile. Conscientious members of government unions can play a vital role in reforms, by the way, if they are willing to make their personal interests secondary to their duties as a public servant. If California can be rescued from the grip of government unions, eventually everyone will benefit. And as goes California, so goes the nation.

*   *   *

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

Deceptive and Misleading Claims – How Government Unions Fool the Public

California’s public sector unions collect and spend well over $1.0 billion per year. When you have that much money, you can hire thousands of skilled professionals to wage campaigns, litigate, lobby, negotiate, and communicate. You can hire the best public relations firms money can buy. You can commission research studies that spin facts to support your agenda. You can silence voices of dissent, voices of reason, voices of reform, with an avalanche of misinformation. And it works.

Here, then, for what it’s worth, is a list of some of the biggest deceptions and misleading claims made by California’s government unions.

1 – Government unions are protecting the middle class.

FALSE. Government unions are protecting government workers at the expense of the private sector middle class. The agenda of government unions is more wages and benefits for government workers, and more hiring of government workers. To adhere to this agenda, failure of government programs still constitutes success for these unions. More laws, more regulations, and more government programs equates to more unionized government workers, regardless of the cost, benefit, or need for these programs. The primary agenda of unionized government has nothing to do with the welfare of the private sector middle class, whose taxes pay for it.

2 – Government unions are a necessary political counterweight to “Wall Street,” big business, and billionaires.

FALSE. When government is expanded to serve the interests of government unions, the elite and privileged special interests are relatively unaffected, and often benefit. Large corporations can afford to comply with excessive regulations that drive their emerging competitors out of business. When governments borrow to finance deficits created by an over-built unionized government, bond underwriters profit from the fees. Government pension funds are among the biggest players on Wall Street, aggressively investing hundreds of billions each year to secure their 7.0% (or more) per year returns. Billionaires can afford to pay taxes and fees – it’s the middle class taxpayer who can be overwhelmed by them. When powerful special interests want favorable legislation passed in California, they go to the government unions and make a deal. Government unions are the brokers and enablers of special interest cronyism. They are allies, not counterweights.

3 – Government unions represent and protect the American worker and the labor movement.

FALSE. For better or worse, government unions represent and protect government workers. Government unions and private sector unions have very little in common. Unlike private unions, government unions elect their own bosses, and their agencies are funded by compulsory taxes, not through profits earned by creating products and services that are voluntarily purchased in a competitive market. Moreover, government union members operate the machinery of government, giving them the ability to harass their political opponents under cover of authority. Private sector unions – properly regulated – have a legitimate role to play in American society. Government unions, on the other hand, exist to serve the interests of government workers, not the ordinary American citizen.

4 – Public employees are underpaid.

FALSE. In past decades, prior to the unionization of government, a public worker exchanged lower base pay for better retirement benefits and more job security. But today, not only have retirement benefits been greatly increased from what was normal back in the 1980’s and 1990’s, but in most cases the base pay of government workers exceeds the base pay for private sector workers performing jobs requiring similar skills. A 2015 study by State Budget Solutions estimated the total compensation of California’s government workers to exceed private sector workers by 31%. But these studies typically omit lower paid independent contractors who now constitute one in three workers. A California Policy Center study that examined 2012 data showed the average pay and benefits for California’s city workers was $124,058, county workers $102,312, and state workers $100,668. And this study did not take into account the value of additional paid vacation benefits, extra paid holidays, and generous “comp time” policies, which add significantly to the total value of annual compensation. Just how much public employee pay exceeds private sector pay for equivalent jobs is the topic of ongoing debate. But they’re not underpaid by any reasonable measure.

5 – The average public sector pension is only $25,000 per year (or some similarly low number).

FALSE. The problem with this profoundly misleading statistic is that this low average is the result of including participants who only worked a few years in state/local government, barely vesting a pension. Should someone who worked less than a decade (or two) in a job expect a pension based on a full career of service? When normalizing for 30 year careers and taking into account the uptick in retirement benefit formulas that rolled through California starting in 1999, the average state/local retiree in California collects a pension and retirement health benefit package worth over $70,000 per year. For a private sector taxpayer to collect this much in retirement, they would have to save at least $1.5 million. If public pensions weren’t so generous, these pension systems would not face severe financial challenges. Which brings us to the next myth….

6 – California’s state/local pension systems are being reformed and will be just fine financially.

FALSE. Virtually every official post-reform projection among California’s 80+ public sector pension systems are predicting eventual financial health based on a huge, extremely risky assumption – that the average annual returns of these funds over the next few decades will exceed 7.0% per year. Common sense should tell any unbiased observer that ongoing 7.0% average annual returns are not a safe bet. If they are, why are Treasury Bills only yielding 3.0%? What are mortgage bankers only able to get 3.5% on 30 year fixed mortgages? Why are bank CD’s only offering 2.0%? The spread between equity returns and truly risk-free returns has never been this large for this long. Pension funds are basing future performance projections on past results. The problem is that over the past 30 years, interest rates have been steadily lowered to allow people to borrow more. This borrowing stimulated the economy, creating corporate profits and driving up the price of corporate equities. But interest rates cannot be lowered any further. We are at the end of a long-term credit cycle, and pension funds are just beginning to deal with the consequences.

7 – The teachers unions care about student achievement more than anything else.

FALSE. The evidence simply doesn’t support this assertion. Consider the reaction of the California Teachers Association to the recent Vergara decision, in which a Los Angeles superior court judge agreed with student plaintiffs who challenged three union work rules. The CTA criticized the ruling and announced their support for an appeal. What does the Vergara lawsuit aim to accomplish? It would take away the ability for teachers to earn tenure in less than two years. It would end the practice of favoring seniority over merit when deciding what teachers to layoff. And it would make it easier to fire incompetent teachers. These are commonsense, bipartisan reforms that the teachers unions oppose.

8 – Billionaires are trying to hijack California’s public education system.

FALSE. To the extent wealthy individuals have decided to involve themselves in education reform and private education initiatives, they come from a diverse background of political orientations. But all of them share a desire to rescue California’s next generation of citizens from a union monopoly on education. And unlike the unionized traditional public school, public charter schools and private schools survive based on the choice of parents who want a better education for their children. And if they don’t do a great job, the parents can withdraw their children from the failing charter or private school. Introducing competition to California’s unionized K-12 education system is a healthy, hopeful trend that gathers support from concerned citizens of all incomes, ethnic groups, and political ideologies.

9 – Proponents of public sector union reform are “anti-government workers.”

FALSE. This sort of claim is a distraction from the reality – which is that public sector unions have corrupted the democratic process and have been attempting to inculcate public employees with the “us vs. them” mentality that is the currency of unions. Sadly, the opposite is the truth – government unions alienate the public from their government, and, worse, alienate government employees from the public. They have created two classes of workers, government employees who have superior pay, benefits, job security and retirement security, and everyone else in the private sector. They know perfectly well that this level of worker comfort is economically impossible to extend to everyone. Government unions have undermined the sense of common rules and shared fate between public and private individuals that is a foundation of democracy. Those who oppose government unions recognize this threat. It has nothing to do with their support and respect for the men and women who perform the many difficult and risky jobs that are the role of government.

10 – Opponents of government unions are “right wing extremists.”

FALSE. The problems caused by government unions should concern everyone, and they do. Conscientious left-wing activists who favor an expanded role for government expect positive results, not failed programs that were created merely to increase union membership. They realize that unionized government is expensive and inefficient, leaving less money or authority to maintain or expand government services. Public libraries and parks with reduced hours and curtailed maintenance. Pitted, congested roads. After school recreation programs without reliable funding. Public schools where students aren’t learning and apathetic teachers are protected from accountability. Government has to be cost-effective, no matter how big or how small. Opponents of government unions can disagree on the optimal size of government, yet passionately agree on the problems caused by a unionized government.

This list of ten myths promulgated by spokespersons for government unions only begins to chronicle their many deceptions. But each of these myths offer strategic value to these unions – giving them the ability to put reformers on the defensive, change the topic of discussion, redefine the terms of the debate. Each of them has powerful emotional resonance, and each of them – along with many others – is continuously reinforced by a network of professional communicators backed by literally billions in dues revenue.

Compensation reform, pension reform, other fiscal reforms, reforming work rules, education reform – all these urgent reforms must first go through one powerful special interest that stops them in their tracks: Government unions. Reformers must confront not only the myths these unions promote, challenging and debunking them, but they must also redefine the role of government unions, if not question their very existence.

*   *   *

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

Caltrans Union Spokesman Understates Engineers' Cost by $71M

In a hearing on Senator Moorlach’s SBX1-9 (Responsible Contacting for Caltrans) bill, Ted Toppin of the Professional Engineers in California Government (PECG) made a series of demonstrably false claims regarding the cost of Caltrans engineers.

Toppin claimed that the cost of a fully-loaded engineer – including all wages, benefits and even the cost of their office and service truck – was $116,000. A review of the department’s 2014 payroll data reveals that the average cost for a “transportation engineer” was $128,638. This is only for regular transportation engineers and excludes any engineer with a preface such as senior, supervising, principal, etc. Additionally, it understates their total cost as it does not include the cost of their trucks and office space.

In 2014, Caltrans had 5646 full-time regular transportation engineers on their payroll. Consequently, Toppin understates the cost of employing engineers by at least $71,000,000 per year for the department.

The highest compensated regular transportation engineer received $213,000, with principal transportation engineer, Kenneth Terpstra, leading all classifications of engineers with $243,000 in total compensation.

Later, Toppin is incredulous at the notion that a state engineer could make $138,000 a year, stating that, “There is no state engineer in this state, making $138,000 a year…I think it probably tops out for top engineers at around $110,000.”

Here it is clear Toppin is speaking about all categories of engineers, not merely the regular transportation engineers analyzed above. It is also likely he is referring to wages only, not total compensation. To be even more charitable, we will also assume he is referring to “regular pay” only, and in addition to excluding benefits, will also exclude any overtime earnings or supplemental wages classified as “other pay.”

Given the above, how does his claim contrast against the 2014 payroll data?

Six engineers received regular pay in excess of $138,000 last year and 1581, or nearly 20% of all engineers, received over $110,000. If we include total wages, those numbers rise to 69 and 2101, respectively.

Finally, Toppin expressed regret that the director of the department makes only $169,000 or so. He might be pleased to know that thanks to the incomparably generous leave policies offered by California’s public sector, the director was able to cash in roughly $80,000 worth of unused leave to boost his 2014 pay to $247,000, for a total compensation package of $302,000.

Mr. Toppin’s inaccurate testimony before the Senate committee fits a pattern best epitomized by the Legislative Analyst’s Office: “the overarching numbers given by Caltrans are not supported by data.”

Given the poor grasp on matters as straightforward as personnel costs, it is little wonder there exists deep skepticism about whether Caltrans is providing taxpayers with the best value possible for their tax dollars.

Robert Fellner is the Director of Transparency Research at the California Policy Center.

What Happens When Public Unions Control Everything for Decades?

Editor’s Note:  California and Illinois have a lot in common. Both have diverse, resilient economies, both are large states with most of the population concentrated in urban areas, and both have been controlled for decades by public sector unions. The crucial difference, of course, is that at least in Illinois, there is a reform minded governor who is standing up to the unions. But will it matter? In this article by Mike Shedlock, including commentary by Michael Bargo, it is clear that the depth of government union power in Illinois will be hard to overcome, even by a charismatic governor who is committed to reform. One of the most noteworthy quotes in this article comes from Bargo, who contends that literally 100% of the property tax proceeds paid by residents of Chicago are required to make pension payments. One analyst estimated the total per capita state and local debt for a Chicago resident at $88,000. But this debt wasn’t incurred to “help the working class and poor.” It is primarily to pay for pensions. California’s teetering pension systems are one market downturn away from facing a situation just as dire as Illinois. The hypocrisy of the government union controlled politicians in Illinois, and California, is only matched by their unwarranted power.

Here is my post from two weeks ago, Emanuel Fiddles While Chicago Burns; Public Schools Over the Edge; 9% Cloud Tax on Data Streaming; Emanuel Eyes Property Tax Hikes. discussing the sorry state of affairs in Chicago.

Michael Bargo, writer for the American Thinker, provides additional commentary on this topic.

Here is a  lengthy snip from Bargo’s recent, well-written article Public Pensions Prove Zero Sum Economics.

One of the major appeals in Democrat presidential campaigns  is to explain to voters that they need Democrats in office to take money away from the rich. And since the rich own big corporations, they will pay workers as little as possible. This idea is what Barack Obama had in mind in 2008 when he said he will redistribute money to the working class and poor.

But so far this analysis has only been applied to the private sector; the “rich” who own stocks or run corporations. If public sector workers, particularly pensioners who are not working, are taking significant amounts of money from taxpayers, then this may also be seen  as contributing to the shrinkage of middle class incomes.

Of course, Illinois is not the only state dominated by high Democrat taxes and public sector spending but it serves as a good case study of what Democrats do when they have total control of budgets for decades.

The results are startling. Today, Chicago’s public sector unions are underfunded, according to the City itself, by $26.8 billion. This is just the City of Chicago. When the state debt is added, the total amount of debt owed by each Chicago household to the city and state rise, according to the Illinois Policy Institute, to $61,000. SEC Commissioner Gallagher stated the number is $88,000.

Pension payments to Chicago public union employees have become so high that today all the property taxes paid by the households of Chicago go exclusively to pensions. The operating expenses are paid by additional taxes on things from packs of cigarettes, to gasoline, sales tax, and cable TV bills. Given these facts about how Chicago’s property taxes are used, it’s not surprising that its new Republican governor wants to freeze property taxes to rescue the middle class’s paychecks from Democrats.

Illinois Democrats have indentured the taxpayers of the state to turn over historic amounts of their incomes to government, shrinking Illinois’ middle class.

All public debt creates taxation and the effects have an impact, sooner or later. The more time allowed for debts to go unpaid, the greater the amount of taxes eventually wasted on interest payments.

Chicago is now the slowest growing of all major cities. In 2014 Chicago only gained 82 people in population. Residents are fleeing Illinois, taking their purchasing power with them. Illinois is also the slowest state to recover from the recession.

Chicago households will have to pay, through taxes, muni bond and unfunded pension debt for decades to come. Far into their lifetimes, and the lifetimes of their children. Zero sum theory is true, but the lion’s share of the proof shows that government spending, not private sector investing, takes money from average Americans.

Zero sum theory has been used by Democrats as nothing but a rhetorical tool used to exploit voters’ emotions of envy and greed. But in the end, the greed is exercised by Democrats while taxpayers in Illinois find themselves deep into a hole of government-created debt.

The private Illinois Policy Institute has uncovered most of the facts used here, and often had to file FOIA requests. In some cases, they had to take state agencies to Federal court to find out how much they were earning, and how much debt they had accumulated. This is all planned, it is a strategy used by Democrats to con taxpayers into putting them into office; saying they want small class size and to help the elderly; while all along they were secretly passing huge public pension contracts and dumping the cost onto average middle class and poor taxpayers.

These facts show two things. One is that these payments are so high that all Chicago households are under a crushing debt burden that takes many thousands per year away from their household budgets. And secondly, these figures provide an opportunity to measure whether this transfer of wealth from households to public pensioners negatively impacts economic grow. Illinois has the most public debt, the lowest credit rating, and the slowest growth.

Who Really Runs Illinois?

Little or no legislation passes through the Illinois legislature without the approval of Michael Madigan.

Wikipedia notes Madigan has been a House member since 1971, and Speaker in all but two years since 1983.

Chicago Magazine named Madigan the fourth-most-powerful Chicagoan in 2012 and second in 2013 and 2014, calling him “the Velvet Hammer—a.k.a. the Real Governor of Illinois.

Rich Miller, editor of the Capitol Fax Illinois political newsletter, wrote “the pile of political corpses outside Madigan’s Statehouse door of those who tried to beat him one way or another is a mile high and a mile wide.

Taxes Not the Answer

The results of Madigan’s tenure as the long-serving “real governor” of Illinois are as follows:

  • Pension holes in the hundreds of billions of dollars
  • Budget deficits
  • Corruption
  • Business exodus
  • Private taxpayer exodus
  • High taxes
  • Shrinking middle class

Tax hikes are clearly not the answer. Illinois has a spending problem, not a revenue problem.

Unfortunately for Illinoisans, other than kowtowing to public union demands, raising taxes is about the only thing Madigan knows how to do.

The results of Madigan’s tenure speak for themselves.
Isn’t it time to try a new tack?

Here’s Where to Start 

  1. Bankruptcy legislation to allow municipal bankruptcies
  2. Pass Right-to-Work legislation
  3. Scrap prevailing wage laws
  4. Property tax freeze
  5. Freeze defined benefit pension plans
  6. Pension reform
  7. Fair redistricting
  8. Reform worker’s compensation laws

That’s a big list of things that needs to be done, and Madigan is on the other side of every one of them.

As I said at the top,  Emanuel Fiddles While Chicago Burns.

And at the state level, Madigan Fiddles While Illinois Burns.

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, and a senior fellow with the Illinois Policy Institute.

Libertarians, Government Unions, and Infrastructure Development

“Alright, but apart from the sanitation, the medicine, education, wine, public order, irrigation, roads, the fresh water system and public health, what have the Romans ever done for us?”
–  John Cleese, Monty Python’s Life of Brian, 1979

Any discussion of California’s neglected infrastructure has to recognize the three factors most responsible, libertarians, environmentalists, and government unions. Picking libertarians as the first example is not by accident, because libertarians are perhaps the most unwitting participants in the squelching of public infrastructure investment. By resisting government involvement in any massive public works project, libertarians provide cover to public sector unions who know that public works funding competes for tax revenues with their own pay and benefits.

When it comes to squelching public infrastructure investment, however, nobody can compete with California’s environmentalist lobby. Their lawsuits have stalled infrastructure development for decades. And the identity of interests between government unions and environmentalists is multi-faceted. The most obvious is that when there is no money for infrastructure there is more money for government worker pay and benefits. And of course, the more environmentalist regulations are passed, the more need to hire more unionized government workers.

Then there are the unintended and largely unnoticed financial consequences of environmentalism abetting the government union agenda. As California’s carbon emission auction collections slowly grow into billions per year, government jobs are redefined to incorporate “climate change mitigation.” Code inspectors and planning dept. personnel become climate change enforcers ala revised building codes and zoning laws. Bus drivers become mass transit workers mitigating climate change. Firefighters combat lengthier fire seasons, and even police are called into action because hotter weather is correlated to higher crime rates. And as they work to mitigate the impact of climate change, all of them quietly qualify for a share of the carbon emission auction proceeds.

The unintended economic consequences of environmentalism abetting the government union agenda are among the hardest to explain. Of course environmentalism can slow down economic growth. At some reasonable level – which we’re well beyond – that’s even desirable. But the environmentalist squelching of public infrastructure development, along with competitive private sector development of land, energy and water resources, has created artificial scarcity. In turn, this drives up asset values which helps government pension funds two ways (1) directly through appreciation of their invested assets, and (2) indirectly, by creating new real estate collateral for consumer borrowing which stimulates consumer spending which creates corporate profits and stock appreciation. In short, the economic consequences of artificial scarcity are asset bubbles that, for a time, keep unionized government worker pension funds solvent. When you can’t afford to own a modest home, or run an energy intensive business, remember this.

What libertarians and environmentalists both need to understand is that massive public works are one of the prerequisites for broadly distributed prosperity. And the environmentalist bias against massive civil engineering projects is two-faced. For example, managing delta salinity, the flow of the San Joaquin River, and the very existence of one of the largest refuges for waterfowl in the American southwest, the Salton Sea, are all dependent on dams, aqueducts and irrigation. But no more?

If you search for interest groups that favor massive civil engineering projects, you’ll look far and wide and find nothing of significance. Private sector unions ought to be leading the charge, but in recognition of the power of environmentalists and government unions, they settle for politically correct projects of marginal productive value – high speed rail, delta tunnels, and the occasional stadium. The Silicon Valley lobby is even worse – rather than support abundance through innovation, they embrace conservation through surveillance. If Californians recovered an additional 10 million acre feet per year of fresh water through civil engineering projects such as desalination, dam storage, and sewage reuse, there would be no need to embed internet devices into “smart” (and mandatory) side loading washers, low flow toilets, water meters, dish washers, and irrigation systems.

The biggest challenge ideologically however confronts libertarians. Because in the real world, we need to build civil infrastructure within a financial and legal framework that relies to some significant degree on government. If libertarians can reconcile their ideals with the needs of Californians, they might rally private sector union leadership, practical environmentalists, and altruistic members of the public sector. Massive infrastructure development in California on all fronts is long overdue. The revenue producing elements of this infrastructure could be financed through the pension funds – only consuming a fraction of their assets – and give truth to their currently preposterous assertion that they’re helping our economy.

Imagine if California’s government, with help from private and federal sources, was truly committed to creating abundance again through massive civil engineering projects across all areas of critical infrastructure. Can libertarians find a formula that would enable them to urgently support this without violating their core ideals? Can they support development while also being the watchdog against corruption? It could make all the difference in the world.

*   *   *

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

California Democrat Goes Rogue, Incurs Government Union Wrath

It didn’t take long for “the brotherhood” of status quo politics to pile on. Within hours of former Assembly member Joan Buchanan having lost her election bid for Northern California’s 7th Senate District seat in last week’s special election to fill the vacancy, she endorsed labor-embraced and fellow Democratic Assemblywoman Susan Bonilla, D-Concord. Together, they joined the panoply of monied special interests led by public sector unions that are largely funding the Democratic Party, to defeat a third Democrat – independent Steve Glazer.

Glazer describes himself as “fiscally conservative, socially progressive.” He is the mayor of Orinda and former political aide to Gov. Jerry Brown. Glazer brandishes “blue” credentials in California, having worked for decades to support Democratic candidates and causes.

But a funny thing happened on the way to governing California: Glazer ran afoul of the Democratic Party establishment when he started challenging the power of public sector unions on municipal and state government. Glazer supported banning strikes by public transit workers, embraced pension reforms and campaigned to elect more business friendly Democrats.

Millions of dollars were spent to try to bury Glazer on Election Day, prompting questions on whether there is a zero tolerance policy in the Democratic party against independent-minded Democrats.

Yet, on Election Night, Glazer not only survived, but emerged as the top vote-getter. A May runoff is scheduled.

Glazer stands out because it is rare for Democrats to “go rogue” and support labor-opposed changes to teacher tenure or curbing government pensions. Despite the “big tent” image, discourse and dissent is disallowed, despite growing public support for these reforms. Party-supported candidates are reminded that the hand that feeds them comes with a demand of loyalty.

If not, as was done to Glazer, they become labeled with the equivalent of a political red-letter A: abandonment of the Democratic Party for not remaining subservient to the interests of those who fund them. Forget 50 shades – can Democrats even be allowed to display more than one shade of blue? Yet, the dirty laundry of adherence to blind allegiance has erupted into public view in recent election cycles.

Indeed, in 2008, then-candidate Barack Obama lost favor with the National Education Association for his support of holding teachers and schools accountable and linking student outcome data to teacher evaluations. Since then, he and his Education secretary have largely earned the wrath of national teachers unions.

In the most-recent Los Angeles mayoral election, Eric Garcetti defeated a fellow Democrat largely by portraying his opponent as blindly subservient to the city unions that had endorsed her. Today, Democratic Chicago Mayor Rahm Emanuel faces a re-election runoff due to his willingness to battle Chicago’s powerful teachers unions.

Meanwhile, in Orange County’s special election to fill another vacant state Senate seat, two Republicans battled each other. Former county Supervisor John Moorlach – the candidate who refused to accept campaign contributions from labor unions – claimed outright victory in that Republican stronghold district. His opponent, Assemblyman Don Wagner, R-Tustin, was financed by labor unions who perceived him to be more allegiant to the state’s public sector unions.

The outcomes of both elections – one in a Democratic and one in a Republican stronghold district – send strong signals that voters desire to reclaim their party, and not allow candidates to be constricted to only one shade of red or blue. The challenge now is to seek independence in California’s remaining 38 Senate districts, 80 Assembly districts and every statewide and constitutional office.

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. Romero is the director of education reform for the California Policy Center. This article originally appeared in the Orange County Register and is republished here with permission from the author.

"Tax Reform," Government Union Style, Equals Tax Increases

There is a clamor in Sacramento for “tax reform.” But for every political pundit, politician and bureaucrat in the room, there is a different definition of “tax reform.”

For fiscal conservatives, tax reform means tax cuts. The State of California takes too much of our money now and this heavy tax burden unquestionably hurts working families and hinders economic growth.

But for self-styled “progressives,” tax reform means even more tax hikes to feed an ever growing government and the demands of tax hungry special interests.

Because these two visions of “tax reform” are polar opposites, is it even possible to agree on anything related to changing California’s tax system?  Surprisingly, the answer is yes.

Both conservatives and liberals have at least acknowledged that California government is too reliant on revenue that fluctuates wildly.  In other words, there is some agreement that the mix of things that are taxed might be altered so that tax revenue is more predictable.

The desire to address revenue volatility is understandable.  Indeed, a commission was created by former Governor Schwarzenegger to address this very issue.  Unfortunately, the commissioners themselves could not agree on a solution.

Now, newly elected state Senator Robert Hertzberg has proposed that California start taxing services, not just sales of physical goods.  The reasoning behind Senate Bill 8 (SB8) is that services make up a much larger slice of today’s economy than in the past and in order to have a “balanced” tax system, we should consider expanding the tax base to things like car repair, legal services, kids piano lessons and dry cleaning.

But taxing services is a bad idea for California.  First, such a levy would have a depressing effect on California’s service economy.  It is a simple fact of economics that when you tax something you get less of it.

Second, and somewhat related to the first, is the ability to avoid the tax by exporting the service.  For example, one can avoid California’s tax on accounting services simply by hiring an out of state accounting firm.  And speaking of avoiding the tax, unlike a sales tax where there is an inventory of physical goods that can be tracked, it is much more difficult to ensure compliance with a tax on services.  California already has a massive problem with tax avoidance due to the huge percentage of the economy that is “underground.”  A tax on services would drive even more economic activity into the shadows.

Some respected tax experts have not rejected out of hand the notion of extending a tax to services but only if done incrementally and in a manner that does not result in a net tax increase.  And here is where the Hertzberg proposal is especially flawed.  Rather than extend the tax to services and lowering the tax rate on both sales and services so the proposal is “revenue neutral,” SB 8 has no provision for lowering the rate.  So what is the tax hit on Californians?  It is estimated to be $10 billion annually.

Last week, a Wall Street Journal article noted how several states in America are now cutting taxes to stimulate economic growth and provide needed relief to their citizens. But the ruling class in California apparently wants to head in the opposite direction.

Taxpayer advocates should always be prepared to discuss legitimate tax reform. But, at this point, Senate Bill 8 doesn’t qualify.

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

Unions – The Biggest Bullies in the School House

There has been a great deal of public attention on the problem of bullying in our public schools. Issues such as possible causes as well as appropriate administrative and legal remedies have been hotly debated across the country by educators, parents and politicians with varying responses.

The focus of bullying heretofore has been limited to students. This narrow perspective misses the most egregious culprits: the unions. The teachers’ union is the focus of this article.

Teachers are compelled as a condition of employment to join the state as well as the national union and to pay an annual membership assessment of about one thousand dollars. The monies are used to fund collective bargaining, purchase liability insurance and support political causes and candidates that reinforce the union’s power and influence.

In California, these have amounted to massive sums that were used to defeat ballot initiatives inimical to the teachers’ union’s stranglehold on education. The contributions have funded the campaigns of strongly liberal Democrat candidates and to defeat measures against abortion rights and gay marriage. Germane to our thesis, this liberal bias does not reflect the fact that teachers tend to be conservative.

Most teachers who enter the profession are devoted to the education of young minds. They have the best interests of students as their foremost priority. Unions, in contrast, operate out of self-interest. Their top priority is the maintenance of union power, not the welfare of the teachers or students.

Unions strongly oppose any threats to that power such as ballot initiatives in support of school vouchers, charter schools, opportunity scholarships or Education Savings Accounts. They will marshal vast sums of money to quash them. Funded by forced union dues, teachers who dare to speak out against the union’s political positions are subject to intimidation. Most choose to remain silent rather than face censure and harassment.

The California Teachers Union spent $32 million to defeat Proposition 75, the measure which would have required members to consent to their dues being used for political purposes. Of the $50 million unions spent to defeat Proposition 32, a measure to prohibit the use of payroll deductions for political purposes, more than $20 million came from the annual dues paid to the CTA by its 325,000 members.

It is the forced support of radical organizations such as ACORN, People for the American Way, Media Matters, Planned Parenthood and the ACLU that support abortion and gay marriage that prompted Rebecca Friedrichs, a 27-year veteran elementary school teacher with deep Christian convictions, and nine of her colleagues to file a lawsuit against the CTA and the 3.5 million-member National Education Association for violating their rights of free speech and free association.

The lawsuit is currently before the 9th Circuit Court of Appeals after Judge Josephine Staton reviewed the case and ruled that a lower court lacked the authority to overturn a Supreme Court precedent. Friedrichs is hopeful her case will be forwarded to the United States Supreme Court.

The legal arguments of her brief have interesting precedents. In the standard organization, membership is on a voluntary basis. In unions, it is not. Tremendous pressure is applied to employees to become members. The level of intimidation and censure is difficult to resist.

Public employees in the federal government were barred from organizing prior to an executive order by President John F. Kennedy. In California, it was Ronald Reagan who granted that right to state employees and Jerry Brown, to teachers.

Non-members are required to pay union dues, called agency fees, because they benefit from the unions’ collective bargaining efforts. This was clarified in a 1977 ruling by the Supreme Court, Abood v. Detroit Board of Education which stated the funds were precluded from being used for ideological or political purposes.

Reality differs from legal dictum. The National Education Association is the largest single contributor to the Democrat party, state and federal elections and liberal causes. Members’ dues are used primarily to expand the union’s political power and influence.

The July 2014 Supreme Court ruling in Harris v. Quinn opened the door to the merit of the complaint by Friedrichs et al. SCOTUS ruled that it was unconstitutional to require non-union Illinois home health care workers to pay union dues.

Justice Samuel Alito added that “no person in the country may be compelled to subsidize speech by a third party that he or she does not wish to support.” His implicit meaning that public employee unions are inherently political organizations suggests that SCOTUS will look favorably on Friedrichs’ complaint.

There is now a zero tolerance policy toward bullying in public schools. The policy should be extended to the biggest bully of all. An unlikely David to do battle with the union Goliath to hold them to the same standard, we wish the diminutive Mrs. Friedrichs well.

About the Author: 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.

California's 2014 Local Tax Proposals – The Costly Alternative to Pension Reform

On November 4th, along everything else on the ballot, California’s voters will be asked to approve local tax measures. A list compiled by the California Taxpayers Association, “2014 Local Elections,” shows that across California’s cities and counties, local tax increases proposed include the following:

–  Tax increases requiring only a majority vote: 5 business taxes, 11 hotel taxes, 9 marijuana taxes, 2 “property transfer” taxes, 1 vehicle tax, 1 property “anti-speculation” tax in San Francisco, at least 10 “utility users taxes,” 38 proposals to either increase sales taxes or extend sales tax increases that were set to expire, and a soda tax.

–  Tax increases requiring a 2/3rd vote: 1 “miscellaneous” tax, 11 sales taxes, and 39 proposals to either increase parcel taxes or extend parcel tax increases that were set to expire, and 1 soda tax.

We don’t know why the soda tax in Alameda only requires a majority vote, while the soda tax in San Francisco requires a 2/3rds majority. There’s a lot of things we don’t know, and neither do the voters. As Jon Coupal, head of the Howard Jarvis Taxpayers Association, recently said, “it is no accident that local ballots are often bereft of opposition arguments.  City councils will authorize the tax to appear on the ballot but then have very short time frames for arguments.  Sometimes, taxpayers have only 3 days to gear up.”

Statewide measures, such as Prop. 30, the tax increase approved by voters in 2012, garner a lot of attention. But in California, most tax revenue is collected at the local level. A study released last year by the California Policy Center “How Big Are California’s State and Local Governments Combined?,” showed that 85% of California’s total state and local government spending is at the local level. Programs directly administered by the state only account for 15% of spending. Local government spending in California now totals well over $300 billion per year.

Adding measures to increase local government taxes at the last possible moment before the filing deadline has the practical effect of preventing a balanced ballot discussion of the merits of these tax increases. And invariably, the proponents of these tax increases are the people who will benefit from them – the public employee unions whose coffers are filled via automatic payroll deductions from taxpayer funded public workers. They are consistent advocates for higher taxes, advocacy backed up by campaign funding that dwarfs any other special interest. Even if they have the means, local merchants and developers rarely dare to challenge the public employee unions who represent the people they have to go to for permits and inspections. You can’t fight unionized city hall.

To appreciate just how effective government unions are at what amounts to perpetual campaigns to raise local taxes, take another look at the “2014 Local Elections” list from the California Taxpayers Association, and review the final results of the local tax proposals that were on the June 3rd ballot. Of the 32 parcel taxes proposed, 25 passed with a 2/3rds majority. Of the 11 sales taxes proposed, 10 passed with a 2/3rds majority. Of the 4 new fire taxes proposed, 3 passed with a 2/3rds majority. Out of 8 proposed “miscellaneous” tax increases, 7 passed, requiring only majority votes. And so on. Almost all of them passed – along with scores of local proposals enabling billions in new bond debt.

And for those handful of measures that fail, there’s always the next election. Once taxes are increased, they are very hard to repeal.

None of this is to suggest that taxes should never be increased. But voters should be aware of where most of the money is going. Another California Policy Center study, “How Much Do California’s State, City and County Workers Really Make?,” released in February 2014, using data from the State Controller’s Office, calculated the average pay plus benefits for California’s state, city and county workers. The findings (ref. Table 2) show that during 2012, in California’s cities, the average total pay plus benefits was $124,058; counties, $102,312; state agencies, $100,668. This in a state where the median household income in 2012 was $58,328.

There’s one more big piece to this story.

As documented in our UnionWatch editorial last week, one of the recently passed local sales tax increases – passed by Watsonville voters on June 3rd – is projected to raise $2.8 million per year to “replace police cars, add another team of paramedics, and hire more police officers.” But the scheduled increase to the annual required pension contribution for Watsonville is estimated at $2.4 million – using up nearly all of the proceeds from this new tax. There’s nothing unique about Watsonville’s situation. CalPERS has announced a 50% increase to their required pension contributions. Other pension funds in California, including CalSTRS, are following suit.

To distill this phenomenon into the most stark and simple terms possible – California voters are currently being asked to pay higher taxes so state and local government workers can continue to collect pensions and retirement health benefits that average well over $60,000 per year for non-safety employees, and around $100,000 per year for safety employees, after only 30 years of full-time work. The average Social Security benefit, after 45 years of work, starting at age 67, is $15,000 per year. Taxpayers may determine for themselves whether or not this is an equitable situation, or something that should be challenged.

*   *   *

Ed Ring is the executive director of the California Policy Center

REFERENCES

Estimating America’s Total Unfunded State/Local Government Pension Liability (includes downloadable spreadsheet)
September 9, 2014

The Case for Adjustable Defined Benefits
July 31, 2014

Evaluating Total Unfunded Public Employee Retirement Liabilities in 20 California Counties
May 6, 2014

Evaluating Public Safety Pensions in California
April 15, 2014

How Much Do CalSTRS Retirees Really Make? (includes downloadable spreadsheet)
March 12, 2014

Comparing CalSTRS Pensions to Social Security Retirement Benefits
February 28, 2013

How Much Do CalPERS Retirees Really Make? (includes downloadable spreadsheet)
February 13, 2013

How Much Do California’s State, City and County Workers Really Make? (includes downloadable spreadsheets)
February 1, 2013

Are Annual Contributions Into CalSTRS Adequate? (includes downloadable spreadsheet)
November 8, 2013

Are Annual Contributions Into Orange County’s Employee Pension Plan Adequate? (includes downloadable spreadsheet)
August 30, 2013

A Method to Estimate the Pension Contribution and Pension Liability for Your City or County (includes downloadable spreadsheet)
July 24, 2013

How Big Are California’s State and Local Governments Combined?
July 12, 2013

Calculating California’s Total State and Local Government Debt
April 26, 2013

City of Irvine 2012 Compensation Analysis (includes downloadable spreadsheet)
April 8, 2013

How Lower Earnings Impact California’s Total Unfunded Pension Liability (includes downloadable spreadsheet)
February 18, 2013

City of Costa Mesa 2011 Compensation Analysis (includes downloadable spreadsheet)
October 3, 2012

City of Anaheim 2011 Compensation Analysis (includes downloadable spreadsheet)
August 29, 2012

City of San Jose 2011 Compensation Analysis (includes downloadable spreadsheet)
August 10, 2012

The Growing Rift Between Public and Private Sector Unions

New York Gov. Andrew Cuomo, a Democrat, is coasting to reelection with only partial support from organized labor. While many private unions remain in his corner, the state’s major government unions are either declining to support Cuomo’s bid for a second term or have endorsed a challenger. In this respect, Cuomo 2014 resembles New Jersey Gov. Chris Christie’s hugely successful reelection campaign last year. As Steve Malanga detailed here, Christie received enthusiastic support from building trades unions, whereas public sector unions never forgave him for his first term initiatives on pension and K-12 reform.

Any news about a private v. public split in the labor movement is encouraging, because influence peddling by government unions is far more troubling than when it’s done by private sector unions. Market forces keep corporations, and thus their unions, in check, but cities are monopolies and never go out of business. Government unionization thwarts the will of the voters, by forcing politicians to implement policy through the collective bargaining process instead of legislation. Taxpayers should not have to pay workers extra for administrative changes such as drug testing or a new teacher evaluation system.

But will the trend continue?  Many political coalitions don’t outlive their standard bearers. Bridgegate certainly seems to be testing Christie’s hold over his. And Cuomo is a uniquely talented politician, as attested by the polls, his warchest, his strong support on the left and right, and his ability to make the New York State legislature look effective or at least less dysfunctional.

Here are four factors to consider in considering the potential that other blue state politicians might split the labor movement, to the detriment of public sector unions.

First, recessions are helpful, because they stimulate more conflict between government unions and Democrats than private sector unions and Democrats. Most priorities of private labor—minimum wage, paid leave, making it easier to organize—can be pushed regardless of economic conditions. The arguments may change (“…now more than ever…”) but the goals and their chances at becoming reality probably do not.

As employers, governments must balance their budgets, and so, as policymakers, they simply can’t be as generous with teachers and police unions during recessions. An austerity budgeting regime puts unions on the defensive and sows distrust between them and Democrats. (“Is he doing this pension reform to shore up the retirement system, which is what he told us, or so that he can brag to the business community?”)

Second, the private/public distinction breaks down in the case of private unions that seek rents that effectively transform them into public employee unions. Project Labor Agreements and other union-friendly bidding restrictions on public construction projects make government workers out of employees of unionized construction firms. To regard 1199 SEIU, the most powerful union in New York State, as a private union like the steel or autoworkers would be to overlook the government’s outsized role in healthcare finance.

Third, the Cuomo model is more threatening to unions than the Christie model. Though statistically normal, Republican governorships in New York, Massachusetts, Connecticut and New Jersey are still hard not to interpret as aberrations, more the result of Democrats’ bungling than a political paradigm shift. The party remains weak. A blue state Democrat proving he can win and govern without unions provides a model for others to replicate whereas Republican success always seems sui generis.

Fourth, government unions have benefited from the weakness of private unions, which has made them more indispensable. Until private unions can do more for Democrats in the way of money and ground troops, politicians who care about being tagged as anti-worker will be wary of alienating AFSCME, NEA and  AFT.

About the Author:  Stephen Eide is a senior fellow at the Manhattan Institute’s Center for State and Local Leadership. Steve received his doctorate in political science in Boston College and previously was a Senior Research Associate at the Worcester Regional Research Bureau. His research focuses on public employee unions, retirement benefits, public finance, and urban policy.

Government Employee Unions – The Root Cause of California's Challenges

Spokespersons for California’s government employee unions perpetuate a myth of staggering absurdity and tragic consequences – that they are protecting working Californians from wealthy corporations and wealthy individuals.

The reality is that government employee unions are focused on one thing: Expanding government employee pay, benefits and privileges. This requires expanding government, and that priority comes in front of everything else, including the cost to society at large. Expansive environmentalist regulations have made prices in California for housing and utilities the highest in the nation. Expansive compensation packages for unionized government workers have resulted in chronic deficits and accumulating state and local government debt that by some measures already exceeds $1.0 trillion. Expansive taxes and regulation have made California consistently rank as the most inhospitable place in the nation to run a small business.

Exactly how does any of this protect the poor from the wealthy?

It doesn’t, of course. But the deeper story is how government employee unions are not only failing to “protect” California’s aspiring multitudes, but are in fact enabling the wealthy special interests they claim to protect us from. The most entrenched and massive corporate entities are not harmed by excessive regulations, because they can afford to comply. An obvious example would be California’s impending $13 per hour minimum wage. Large corporate entities like MacDonalds will simply automate a few positions, tinker with the menu and recipes, incrementally raise prices, and go forward. Large corporations can hire attorneys and lobbyists, they have access to capital, and when the smaller players go out of business they gain market share. They benefit from over-regulation, but the consumer suffers.

Less obvious is how the financial sector also benefits from an overbuilt, financially irresponsible, unionized government. When excessive rates of pay and benefits consume government budgets, financial institutions step up to extend debt. Bond underwriters collect billions each year in fees in California to issue new debt and refinance existing debt. When excessively generous pension plans are granted to unionized government employees, pension funds pour hundreds of billions into Wall Street investment firms, earning additional billions in fees. As for “carbon emissions auctions,” now in its third year of implementation in California, as that ramps up, virtually every BTU of fossil fuel energy consumed will put a commission into the hands of a financial intermediary. Trillions are on the table.

Unionized government hides behind environmentalism to justify pay and benefits over investment in infrastructure – which after all is environmentally incorrect. As the cost-of-living inevitably rises through artificial constraints on the supply of land and energy, the unionized government workers negotiate even higher pay and benefits to compensate, and the corporate monopolies that control existing supplies of land and energy get more revenue and profit. And of course the resultant asset bubble is healthy both for pension funds and wealthy investors, even as low and middle class private sector workers are priced out of owning homes – or even automobiles – and struggle to make ends meet.

The power of public employee unions starts with the fact they collect and spend more money than any other special interest. In California they collect well over $1.0 billion per year in dues and fees. About one-third of that money is reported as explicitly political spending – that’s over $600 million per two-year election cycle. The rest of it is still spent indirectly on politics, since all of their negotiating and public education campaigns concern how we manage our public institutions. The portion of this billion per year that goes to entirely nonpolitical activity is negligible.

With the best academic studies, political consultants, public relations firms, and lobbyists that money can buy, with political action committees that extend down to the most obscure local elections, government employee unions make or break candidates at every level in California.

It is crucial to perceive the irony. Government unions empower the worst elements of the capitalist system they persistently demonize. The crony capitalists and speculative financial interests benefit from an overbuilt, over-regulating, state and local government populated with overpaid unionized workers. Those virtuous capitalists who want to compete without subsidies are successfully lumped together with these robber barons, discrediting their support for reform. Those small business owners who want to grow their enterprises are harassed and marginalized.

If government employee unions were illegal, the most powerful political force in California would cease to exist. But it wouldn’t “turn California over to the corporations and billionaires.” Quite the opposite. It would take away the ability of those corporations and billionaires to collude with local and state government unions who currently control the lawmakers. It would force them instead to compete with each other, lowering the cost of living for everyone. It would restore balance to our debate over environmental policy, energy policy, and infrastructure investment.

Government unions have taken over California. Their agenda is inherently in conflict with the public interest, their rhetoric is compelling and formidable and utterly deceptive, their financial power is immense. They are turning California into a feudal state, where the anointed and compliant corporations build monopolies, government workers lead privileged lives, the rich get richer, the middle class diminishes, and the poor become dependent on government. Nobody who is serious about reversing California’s decline – or America’s potential decline – can ignore the fundamental enabling role unionized government is playing in its demise.

*   *   *

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

Conservative Politicians and Public Safety Unions

As reported by investigative journalist John Hrabe, conservative gubernatorial candidate Tim Donnelly has accepted money from public safety unions in his legislative campaigns. His support from unions wasn’t a momentary lapse in judgement. As cited in Hrabe’s reports, his past candidacies have also benefited from independent expenditure campaigns funded by public sector unions. To not report Donnelly’s actions here would be negligent. But Donnelly’s not alone.

An assembly candidate from Orange County, conservative Keith Curry, recently lost the endorsement of the conservative Orange County Lincoln Club for accepting a donation from the Orange County Firefighters Union. Apart from the Orange County Lincoln Club’s dramatic decision to hold Curry accountable, none of this is news. While public sector unions virtually control the Democratic party in California through campaign contributions and lobbying, public safety unions spread their money around to candidates from both parties.

The consequences of allowing labor unions to take over California’s cities and counties through political spending that dwarfs every other special interest should be obvious by now. Public sector unions are the brokers and enablers of other special interests – corporate, financial and environmentalist. In all cases, these special interests have an agenda to squelch competition and secure government favors. Public sector union power makes or breaks any candidate or policy agenda from any other source. The other special interests get the message, and play ball. The results are higher prices for consumers, higher costs on small businesses, and higher taxes for everyone. Meanwhile, large corporations and financial interests profit, and public sector union members get increased pay and benefits that effectively exempt them from these harmful effects.

Such abstractions are largely irrelevant to politicians who need money to run their campaigns. They know that rank and file conservatives love public safety employees because they do tough work, fighting crime and catastrophe, facing danger every day, serving and protecting the public. Of this, one can say without irony, what’s not to like? But public safety unions take advantage of the sentiments of loyalty and respect their members have earned from the public, and have used it to elevate their pay to unaffordable heights. Libertarians, of course, can also be manipulated by public safety unions. After all, who cares if nearly 100% of a city’s budget is for police and fire services, if those are the only “legitimate” services a local government ought to provide? But should a double standard apply? Should most public sector unions be opposed, while public safety unions get a pass?

The challenge for conservatives is two-fold. First, whatever money they don’t accept from public safety unions they will have to replace through contributions from somewhere else. But there is nothing available to them that comes anywhere close to the torrent of money that perennially flows from the pockets of taxpayers into the payroll departments of government agencies and then automatically transfers into the coffers of public sector unions. In California over $1.0 billion per year is collected by public sector unions – one third used explicitly for politics, two-thirds utilized for an inherently political agenda, negotiating how we manage our public institutions and compensate our public workers. Public sector unions play in every political contest because they can, and because every election, no matter how insignificant, directly affects their interests. Nobody else even comes close.

The other challenge for conservatives is equally daunting. How do you make the entirely legitimate but woefully awkward argument that you support public safety, even though you oppose public safety unions? How do you express your appreciation for the risks and sacrifices made by public safety employees, at the same time as you argue that their pay and benefits have grown to levels we can’t afford, and in many cases are inequitably high?

One way to make this argument – along with simply stating the above points – is to remind members of public safety that even without collective bargaining and unions, they will still have significant political influence. Totally voluntary associations of public safety employees can still collect dues and donations, voluntarily, from members, and they can still engage in political spending. But without collective bargaining, at least the politicians they help elect would not be bound by the strait-jackets of labor agreements that are wreaking financial havoc on nearly every city and county in California.

There remains the larger, more abstract but very compelling argument that Donnelly, Curry, Brulte, and every other conservative in California who engages with unions ought to articulate. Unions, especially public sector unions, negotiate over-market compensation at tremendous cost to everyone else. And the intrinsic agenda of public sector unions, bigger government, is compatible with the agenda of crony capitalists, financial opportunists, and environmentalist extremists with their army of plaintiff attorneys, but this agenda hurts everyone else.

There is another, higher path, which is to dissolve public sector unions altogether, so that government workers and private workers share the same fate. This will facilitate grassroots political activism undistorted by government union agenda. Activism that will force corporations to compete, force governments to live within their means, inspire debate over government entitlements that are financially sustainable and earned according to the same formulas by all workers, increase opportunities for small businesses, and lower the cost of living for everyone.

*   *   *

Ed Ring is the executive director of the California Policy Center

RELATED POSTS

When Will Conservative Candidates Stop Accepting Public Sector Union Money?, May 12, 2014

The Unholy Trinity of Public Sector Unions, Environmentalists, and Wall Street, May 6, 2013

Public Pension Solvency Requires Asset Bubbles, April 29, 2014

Construction Unions Should Fight for Infrastructure that Helps the Economy, April 1, 2014

Forming a Bipartisan Consensus for Public Sector Union Reform, January 28, 2014

A Policy Agenda for Union Reformers Stuck Inside Unions, November 5, 2013

Why Did the California State GOP Accept Donations from Public Sector Unions?, October 8, 2013

Avoiding the Oversimplifications of ‘Right Wing’ vs. ‘Left Wing’, December 16, 2013

How Unions and Bankers Work Together to Protect Unsustainable Pensions, November 26, 2013

How Public Sector Unions Skew America’s Public Safety and National Security Agenda, June 18, 2013

Should Police and Firefighters be Exempted from Union Reforms?, March 12, 2013

The Preexisting Political Advantage of Government Workers, November 27, 2012

Would ANY Public Sector Union Reform Appeal to California’s Democrats?, February 12, 2013

The Ideology of Public Sector Unions vs. Private Sector Unions, February 20, 2012

The Differences Between Public and Private Sector Unions, May 13, 2011

When Will Conservative Candidates Stop Accepting Public Sector Union Money?

Part One: Tim Donnelly’s anti-union rhetoric doesn’t match his pro-union record:

Public employee unions are a reliable target of California’s self-styled “patriot, not politician.”

“California’s governor and legislature have shown a complete disregard for the needs of businesses and working families, and have instead caved to unions and special interest supporters,” Assemblyman Tim Donnelly writes on his campaign website.

Yet, much like his spotty record on property rights, Donnelly’s anti-union rhetoric doesn’t match up with his record, which includes financial support from and sponsored bills for the very public employee unions that he loves to hate.

Donnelly’s anti-union rhetoric

In January, the Republican lawmaker attacked Gov. Jerry Brown for “confiscating the earnings of hard-working Californians” to squander it on “political pay-offs to his cronies in the public sector unions.”

The solution to public sector unions, who in Donnelly’s words, get to “legally bribe your boss,” is “to change it so that unions can’t have a stranglehold on every dollar that comes in.”

Back in his first campaign for State Assembly, it was the union dollars coming into Donnelly’s campaign.

Public employee unions’ financial support for Donnelly’s campaigns

In 2010, Donnelly “was the first to get a big donation from any of the state’s law-enforcement unions,” according to the Pasadena Star-News. That donation was a $5,000 contribution from the Los Angeles County Professional Peace Officers Association.

It wasn’t the only time public employee unions have supported Donnelly. In 2012, the California Correctional Peace Officers Association Independent Expenditure Committee spent heavily to attack Donnelly’s Democratic opponent, John Coffey. According to the Victorville Daily Press, “the group mass-mailed fliers with personal attacks against Coffey including accusations of domestic violence and unpaid child support.”

What have law enforcement unions received in exchange for this support?

Donnelly’s union-sponsored bill: special gun rights for law enforcement

This session, Donnelly carried a sponsored bill on behalf of the American Federation of Government Employees, Local 3969. According to UnionWorkers.com, “The American Federation of Government Employees (AFGE) is the largest federal employee union representing federal and D.C. government workers nationwide and overseas.”

Donnelly’s bill grants law enforcement a special gun right, not offered to the general public. Assembly Bill 1985 “allows federal correctional officers to possess and use assault weapons and other specified firearms while off duty,” according to the legislative analysis.

“By exempting Federal Correction Officers, we will not only allow them to protect themselves but also allow them to protect the citizens of our communities that they have sworn to serve,” Donnelly argued in support of his bill.

The idea of providing special gun privileges not enjoyed by the general public is what many Second Amendment activists describe as a “cops-only” gun bill. In 2013, Wisconsin Carry, a gun rights group, cautioned that such special exemptions for law enforcement was “the path to tyranny.”

“Granting special privileges to off-duty and former cops that allows them to ignore FUNDAMENTAL private property rights and carry where law-abiding concealed carry license holders cannot is a path to tyranny,” the group warned.

Part Two:  Donnelly aide working with unions against San Diego GOP candidates

A top aide to a Republican candidate for governor is working with public employee unions to defeat Republican candidates in local elections.

Asher Burke, who assists Assemblyman Tim Donnelly’s gubernatorial campaign with “social media and online creative,” is also a principal officer of Public Safety Advocates, a political campaign committee working to defeat Republican-endorsed candidates in San Diego County.

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According to campaign reports filed with the County of San Diego Registrar of Voters, the campaign committee has accepted tens of thousands of dollars from public employee unions, including the Deputy Sheriffs Association of San Diego County, the San Diego Police Officers Association and the Peace Officers Research Association of California.

Those funds are going to support Bob Brewer, who is running for San Diego County District Attorney. The Republican Party of San Diego County has endorsed Bonnie Dumanis, the incumbent, who has been outspent by Brewer.

“County records show Brewer also outraised Dumanis in the first six months of this year, bringing in more than $281,000,” the Voice of San Diego reported on the competitive race. “Dumanis received about $213,300 during the same period.”
Brewer, a first-time candidate, has received support from “11 police unions – including, most recently, the statewide California Coalition of Law Enforcement Associations,” according to the Voice of San Diego.

Union-funded Public Safety Advocates attack GOP candidates

Burke said the campaign committee welcomes the support of police and fire unions.

“Public Safety Advocates is a political expenditure committee for public safety organizations to support candidates they have determined will keep our local communities safer,” Burke said. “Almost every campaign, probably including Assemblyman Donnelly’s, would welcome the support of police and fire. If you were a candidate, wouldn’t you?”

John McCann Union MailerHe added, “As Jerry Brown continues to dump dangerous criminals on our streets, due to his early release boondoggle, I find my work with local groups like police and fire to be extremely important to maintaining the type of city and state I want to live in.”

In addition to backing the union candidate for district attorney, the campaign committee has spent money to attack John McCann, a candidate for Chula Vista City Council who has also been endorsed by the Republican Party of San Diego County.
A recent mailer distributed by the Public Safety Advocates campaign committee attacks John McCann as “the man who CAN’T.”

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“John McCann is bad news for Chula Vista,” the mailer warns. “Tell McCann you CAN’T support his failed management and incompetence.” (A copy of the flyer is shown at the end of this article.)

Donnelly’s anti-union rhetoric

Burke’s work with public employee unions coincides with his work for Donnelly’s campaign for governor, which has repeatedly attacked the unions for excessive salaries and benefits. Writing in an open letter to Brown in 2011, Donnelly accused the governor of submitting new contract agreements that “protect the well-paid public employee unions, even at the cost of students, public safety, and jobs.”

According to state campaign finance records, Burke and his businesses, Burke Communications, Inc. and Campaign Services Group, Inc., have received $69,194 in payments from Donnelly’s gubernatorial campaign committee, of which $38,500 was for campaign consulting. It easily makes Burke one of the highest-paid employees of Donnelly’s low-budget campaign.

Donnelly’s campaign did not respond to a request for comment. However, in the past, the GOP candidate has boasted that hard-core liberals also work on his campaign.

“I have hard-core liberal Democrats working on my campaign as well as libertarians,” Donnelly told the Redding Tea Party in September 2013.

About the Author:  John Hrabe spends his time traveling the world as a freelance journalist. When he isn’t on an international flight, John writes about state and national politics for CalWatchdog.com, FlashReport.org, Huffington Post and the editorial pages of the Orange County Register. John’s most recent high-profile investigation uncovered the questionable labor practices of Goodwill Industries, the nonprofit organization famous for its secondhand clothing stores. These articles originally appeared on CalNewsroom.com (“Tim Donnelly’s anti-union rhetoric doesn’t match his pro-union record,” May 9, 2014, and “Donnelly aide working with unions against San Diego GOP candidates,” May 11, 2014), and are republished here with permission from the author.

The Unholy Trinity of Public Sector Unions, Environmentalists, and Wall Street

Taken at surface value, there ought to be minimal identity of interests between these three special interests. But if you follow the money and power instead of the rhetoric and stereotypes, you will find this unhealthy alliance is alive and thriving. For example, unions use “greenmail,” the threat of a lawsuit on environmentalist grounds, to block developments until the businesses involved concede to union demands. Once they back down, the environmental problem magically disappears.

California’s much vaunted high-speed rail and delta tunnel proposals are also examples of the unhealthy rapprochement between unions (public and private) and environmentalists. Because the construction unions, God bless ’em, want thousands of good new construction jobs, and the only big projects that are environmentally correct are these monstrosities. The unions have a choice – fight the environmentalists in order to lobby for public works that actually yield economic benefits to society, or enjoy their considerable support for a couple of misguided mega-projects.

Beyond obvious examples, how unions, environmentalists, and America’s overbuilt financial sector collude – often unwittingly, does not lend itself to emotionally resonant, simple narrative. It can’t be expressed in a few declarative sentences. But because this web of collusion is stunting the economic growth of America and systematically destroying its middle class, it is a story that must be told. Here are some points that all exemplify the chain of cause and effect, linking the interests of public sector unions, environmentalists, and Wall Street.

  • Public sector unions demand, and get, over-market compensation and benefit packages. This causes budget deficits which, in turn (1) enables environmentalists to more easily fight and defeat infrastructure investments, and (2) creates hundreds of billions in business for Wall Street bond underwriters who finance budget deficits.
  • Politicians controlled by public sector unions declare new infrastructure – freeways, utility upgrades, improved water infrastructure, upgraded grid, investment in airports and seaports, etc., to be environmentally unsound. The real reason, however, is they want the tax revenue to go to increasing pay and benefits for public employees.
  • Wall Street investment firms work with pension funds to convince public sector unions that it is financially feasible and reasonable to enhance pension benefits – or not reduce them, as is more recently the case. As hundreds of billions each year of taxpayers money pours into these funds, investment firms make huge profits. If they don’t earn enough, they raise taxes.
  • Environmentalists come up with a “market-based” way to curb dangerous greenhouse gasses, an “emissions auction” plan, which in turn (1) enables Wall Street trading firms to collect a fee on literally every BTU of fossil fuel consumed in America, and (2) empowers public sector agencies to redefine their jobs (mass transit workers, firefighters, code inspectors, teachers – even police since crime increases during hot weather) as coping with, educating about, or mitigating the effects of global warming, allowing these government agencies to collect the proceeds of the emissions auctions.
  • Without an endlessly appreciating asset bubble, every public employee pension fund in the United States would go broke. To pump up this asset bubble, environmentalist restrictions artificially accelerate price appreciation for land, housing, gasoline, electricity, and other basic needs. And of course, financial institutions reap spectacular profits during periods of rapid asset appreciation.

It is reasonable at this point to wonder – what about business? What is their role in this? That is simple – big business benefits, by being able to afford to comply with excessive regulations and by being able to afford a unionized workforce. In general, smaller companies, innovators, emerging competitors, are crushed by the power of unions and environmentalists, just like the middle class.

There are consequences of an unexamined, unchallenged yet powerful de-facto alliance between public sector unions, environmentalists, and the financial sector that ought to animate anyone claiming to care about America’s working middle class – whether they adhere to the ideology of the Occupy movement, or the Tea Party movement. Because the consequences are a higher cost of living with minimal economic growth and new opportunities. The consequences are an increasingly monopolized, anti-competitive private sector, a perennially swollen financial sector, and an increasingly authoritarian, self-interested government. Public sector unions and Wall Street use the environmental movement for cover. This factor should temper any assessment of environmentally inspired policies.

Unions in the private sector, were they to adhere to their ideals and even their most cherished pragmatic goals, would use their considerable influence to rein in the unchecked power of environmentalists. Only then will their desire for more and better jobs, building tangible assets that are actually beneficial to society, be best realized. Public sector unions, on the other hand, whose entire reason for existence is inherently in conflict with society at large, should be illegal.

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

 

RELATED POSTS

Public Pension Solvency Requires Asset Bubbles, April 29, 2014

Construction Unions Should Fight for Infrastructure that Helps the Economy, April 1, 2014

Forming a Bipartisan Consensus for Public Sector Union Reform, January 28, 2014

Avoiding the Oversimplifications of ‘Right Wing’ vs. ‘Left Wing’, December 16, 2013

How Unions and Bankers Work Together to Protect Unsustainable Pensions, November 26, 2013

Bipartisan Solutions for California, October 27, 2013

The Prosperity Agenda, April 2, 2013

The Ideology of Public Sector Unions vs. Private Sector Unions, February 20, 2012

America’s Atlas Generation – The Forgotten 33%, January 9, 2012

Why Government Unions are Collection Agents for Wall Street, August 12, 2011

The Differences Between Public and Private Sector Unions, May 13, 2011

 

Government Unions Attack Free-Market Nonprofits via Pension Funds

“The AFT [American Federation of Teachers] will be looking more closely at those who are supporting the dismantling of defined benefit plans at the state and municipal level.”
–  Ranking Asset Managers, A Retirement Security Report on Money Managers for Pension Fund Trustees, March 5, 2014

As reported in a Washington Examiner editorial on April 4th, the American Federation of Teachers – that’s “teachers union” in plain English – has circulated a pamphlet that:

“Calls on pension fund trustees to drop any investment managers that are tainted by connection to free-market nonprofits. They also want those same trustees to force any potential new managers to have to disclose any donations they may have made to the groups on AFT’s blacklist.”

That the AFT can circulate a document like this without generating an uproar in the media reflects a monstrous and tragic double-standard. Money supporting “free-market non-profits” is tainted, which – not entirely logically – also taints any analysis they may produce, or policies they may advocate. But the money supporting public sector unions, involuntarily and automatically taken from their paychecks, ultimately funded by taxpayers, is pristine. Whatever analysis or policies they come up with, including “blacklists,” are beyond criticism.

What the AFT just did may be more explicit than usual, but it’s nothing new. In states like California, politically dominated by public sector unions, almost no businessperson or financial professional is going to identify themselves as supporting a free-market candidate or free-market nonprofit that dares criticize public sector unions or question the sustainability of public sector pensions. They risk retaliatory legislation, official harassment, strikes or “slowdowns,” character assassination, sit-ins and other orchestrated protests, shareholder revolts and boycotts. And if they represent a sufficient threat, their partners, customers, investors and vendors will get similar treatment.

In the financial community, as AFT’s document verifies, union critics stand to lose their biggest customers – the government agencies who come to them to underwrite bonds, and the pension funds whose investments fuel their fees and commissions. Just in California, billions are at stake every year.

Since the American Federation of Teachers fired this latest salvo against the free market, here are a few facts about CalSTRS, the California State Teachers Retirement System:

Three of the nine current CalSTRS board members are union officials:  The Chairperson of CalSTRS, Dana Dillon, “has been active in the California Teachers Association for more than 26 years… and was recently elected to the board of directors.” Their Vice Chair, Harry M. Keiley, is “chair of the California Teachers Association Political Involvement Committee.” Another board director, Sharon Hendricks, “also serves as president of the American Federation of Teachers, local 1521 chapter at Los Angeles City College.”

Most of the remaining six active CalSTRS board members are beholden to unions:  Tom Torlakson serves while also serving as California’s Superintendent of Public Instruction, an office he was elected to with substantial support from public sector unions. Two more board members come from the financial community; Paul Rosenstiel from a municipal bond investment bank, Thomas Unterman from a venture capital firm. Three other members come from government, Michael Cohen from the California Dept. of Finance, John Chiang, the State Controller, and Bill Lockyer, the State Treasurer.

Would it be more than reckless speculation to say the unions have four votes locked, and only need one of the other five in any given decision they make? And who is going to support Lockyer or Chiang if they run for another political office if they cross the unions? The financial community? Unlikely, given the pressure they’re under from the unions.

At this point the reader may be reminded that without reform, without tough, responsible decisions, public sector pension funds are going to crash, and when they do they’re going to take down with them entire cities and states, if not the global economy. The obliteration of defined benefits will be a mere footnote.

CalSTRS pays hundreds of millions each year to financial professionals:  Take a look at page 83 of CalSTRS Annual Report for the fiscal year ended June 30, 2013, under the bland heading of “Other Supplemental Information.” Here’s what’s on the table for the financial community, every year, from a fund that only represents about 30% of the public sector pension fund assets under management in California:  Administrative expenses, $139 million (page 84). Investment expenses including management fees, advisors, consultants, research services, risk management systems, trading systems, etc., $310 million (pages 85-88). Don’t forget “Global Equity Broker Commissions” whose payees include the infamous Goldman Sachs, $25 million (page 104).

CalSTRS invests in companies and financial instruments they supposedly detest:  Skip along in the CalSTRS Annual Report to page 101 and take a look at their “largest equity holdings.” They include Exxon Mobil Corp at the #1 position, and Chevron Crop at #5.  Go back to page 45 to see where CalSTRS has $22 billion in “Private Equity Investments.” How many Wall Street wolves fatten themselves on that rather substantial hunk of fresh meat?

What more does it take to make clear there is a phony war going on between public sector unions and the financial community? This isn’t an ideological battle, it’s an intramural struggle for dominance between two groups who are both elitist and privileged, who need each other far more than they need taxpayers.

“Dark money,” or money that doesn’t pass the “smell test,” seems to be a favored meme of public sector unions these days. Especially if that money is used to fund challenges to their interests, hence, a new “blacklist.” But why does public sector union money, sourced involuntarily, falling into their accounts automatically by the millions and billions, emanating directly from taxpayers, used to intimidate opponents, fund political campaigns and academic studies, organize activist groups, and feed Wall Street financiers, get a pass?

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Ed Ring is the executive director of the California Policy Center

Editor’s Note:  Since this was posted on April 8th, the list of CalSTRS board members, as posted on their website, has been updated to include Joy Higa, appointed by Gov. Brown on January 27, 2014. Here is her biography:

“Joy Higa is the vice president, regulatory affairs, for UnitedHealthcare, where she manages federal health reform policy and implementation. She previously served as deputy chief of staff to the State Controller from 2004 to 2006 and chief deputy cabinet secretary in the Office of the Governor during 2003. She received her bachelor of arts degree from Cornell University.”

Construction Unions Should Fight for Infrastructure that Helps the Economy

One primary reason California has the highest cost-of-living (and cost of doing business) in America, combined with a crumbling infrastructure, is because California’s construction unions have allied themselves with environmental extremists and crony “green” capitalists, instead of fighting for what might actually help their state.

California’s construction unions ought to take a look around the rest of the country, where thousands of jobs are being created in the energy industries – really good jobs – doing something that actually helps ordinary people. Because the natural gas revolution unleashed in North Dakota, Texas, Wyoming, Colorado, Utah, New Mexico, Pennsylvania, West Virginia, and Ohio is creating thousands of jobs in those states at the same time as it lowers the cost of energy for consumers who struggle to make ends meet.

More generally, construction unions should remember that it is not only how much their own members earn that matters, but how much things cost everyone. If things cost less, you can make less yet enjoy the same standard of living. When unions fight for high paying jobs on projects that are useless, they only help themselves. When they fight for projects – such as natural gas development – that lower the cost of energy, they are helping everyone.

The California Public Policy Center released a new study this week entitled “The Benefits and Costs of Oil and Gas Development in California,” written by Dr. Tim Considine, an energy economist with the University of Wyoming. In the study, Considine estimates the recoverable reserves of shale oil in the South San Joaquin Valley to total 15 billion barrels, with another 10 billion barrels offshore in the Santa Barbara Channel, accessible now from land-based wells using slant drilling. At $100 a barrel, this is $2.5 trillion worth of oil. And where there’s oil, there’s gas – over 12 trillion cubic feet just offshore in the Santa Barbara channel. What are we waiting for?

Developing these sources of energy over the next 25 years in California, according to Considine, could create up to 500,000 high paying jobs in the energy industry and inject hundreds of billions of tax revenue into the state’s government. When are California’s construction unions going to fight for something that actually helps all Californians?

Instead, apparently, they are lobbying hand in hand with environmental extremists for a “Bullet Train” that almost nobody will ever ride – costing taxpayers over $100 billion so it can operate at a loss – and “Delta Tunnels” that will cost tens of billions and not increase the supply of fresh water in California by so much as one drop.

Can unions themselves be guilty of “labor malpractice”? Because unions are supposed to fight for the interests of ordinary people. They are not supposed to join hands with rich, elitist, misanthropic environmentalist fanatics who live in wealthy coastal enclaves, who would be thrilled if gasoline cost over $10.00 a gallon, and electricity rates were over $1.00 per kilowatt-hour. That’s where we’re headed in California if construction labor doesn’t wake up and fight for ordinary people.

Here are two visions of California’s infrastructure priorities:

(1) Spend $150 billion on a bullet train that almost nobody rides and operates at a loss, and build two “delta tunnels” that do not result in one drop of additional water storage or supply. Prohibit development of any fossil fuel reserves in California. Finance this prodigious waste of money through increasing taxes along with proceeds from “carbon emissions auctions” that enrich Wall Street billionaires and crony “green” capitalists. Continue to neglect California’s infrastructure.

(2) Develop California’s energy resources using private financing, creating hundreds of thousands of high-paying jobs, generating hundreds of billions in tax revenue, and lowering the cost of energy to consumers. Use proceeds to help finance infrastructure investments that benefit all Californians:
–  New aquifer and surface water storage.
–  Desalination plants on the Southern California coast.
–  New power stations – natural gas and nuclear.
–  New natural gas pipelines connecting California to the rest of North America.
–  A liquid natural gas terminal off the Central California coast.
–  Upgraded freeways, bridges, and existing rail corridors.

Which of these visions delivers prosperity to the most people? Which creates more jobs for members of construction unions? Which reflects truly beneficial infrastructure priorities for California?

California’s construction unions have thousands of members who want to build and produce real assets. This distinguishes them from public sector unions, who have an incentive to deny infrastructure spending because it takes tax revenue out of their own pockets. Public sector unions use environmentalist extremists for cover – it justifies them keeping public funds for their pay and benefits instead of investing in infrastructure. There is NO identity of interests between public sector unions and construction unions, other than a residual ideological affinity that falls apart under logical examination.

Perhaps it is time for California’s construction unions, joined by people of conscience from all unions, to care more about all of California’s workers. Perhaps it is possible for construction union leadership to agree to disagree with union reformers on the issue of open shops vs closed shops, or project labor agreements vs. free and open competition, and at least recognize together that environmentalist extremists have too much power in California. They should be challenged, before more money we don’t have is spent on projects we don’t need, simply because it was politically feasible and created a handful of jobs.

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Ed Ring is the executive director of the California Policy Center

RELATED POSTS

Bipartisan Solutions For California, October 27, 2013

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Forming a Bipartisan Consensus for Public Sector Union Reform

Across the United States there is an escalating political conflict over the role of labor unions in society. But it is inaccurate to characterize this conflict as one between Republicans and Democrats. There are members of both major political parties, as well as independents of widely diverse ideologies, who are concerned about civil liberties, the growth of authoritarian government, inadequate investment in infrastructure, and poorly funded social programs. Explaining to these diverse groups that public sector unions are a threat to civil liberties, impel authoritarian government, and preclude investment in infrastructure and social programs – and that by and large, private sector unions do not – is the key to successful public sector union reform.

While reformers who are immersed in the topic may consider this obvious, the fact that public sector unions are fundamentally different from private sector unions is still a relatively new concept to the general public. Some of these differences might be summarized as follows:

(1) Public unions elect their own bosses, private unions have minimal role in selecting their management.

(2) Unlike private unions, public union members run government agencies, which gives them the ability to intimidate their opponents with state-sanctioned force.

(3) Public unions derive their revenue from compulsory taxation, private unions depend on consumers voluntarily purchasing products and services.

(4) There is a trade-off between infrastructure spending that benefits private unions, vs. more pay and benefits for unionized government workers.

(5) Public unions and Wall Street financial interests benefit when public entities borrow money and enhance pension benefits, since financial firms underwrite the bonds and invest the pension funds. Private unions have no similar conflict of interests.

(6) Unlike private unions, public unions have an incentive to enact more laws even at the expense of civil liberties and economic growth, because it grows their organizations.

Recognition of differences between public and private sector unions can come from unlikely places. Last month the Boston Globe published a guest editorial entitled “Martin Walsh’s [Boston mayoral candidate] sensible kind of unionism.” The author, Hugh Kelleher, is executive director of the Plumbing-Heating-Cooling Contractors Association of Greater Boston. He writes:

“Construction unions in Boston and elsewhere are cognizant of the bottom line in these key ways:

  • Unlike public unions representing teachers, police, and firefighters — construction unions provide no job guarantees. There is no tenure or seniority.
  • Our layoff process rarely involves any subsequent arbitration. Workers understand that their jobs depend upon performance and the availability of work.
  • How much notice must the employer give a union construction worker before layoff? Fifteen minutes.

The construction industry’s emphasis on reliability and performance offers lessons for city government.”

Imagine if public sector unions had to work under these rules. Job security would be based on job performance rather than seniority. And as for retirement security, why should members of construction unions oppose public sector pension reform? The retirement plans that benefit unionized private sector workers must conform to ERISA (ref. “Actuarial Assumptions and Methods), meaning their pensions are modest but sustainable, because they have to use conservative rates of return when calculating the present value of their future pension payment liabilities.

It’s not just more efficient work rules and sustainable pensions that differentiate unionized government workers from private union workers, however. It is the profound difference in overall incentives that drive each of them. Public sector unions want more tax revenue for themselves. Private sector unions want that money for infrastructure. And funding infrastructure remains a pipe dream as long as public sector unions successfully resist streamlining and modernizing government, and prioritize allocating tax revenue to more compensation and benefits.

The agenda of private unions for infrastructure – real infrastructure, by the way, not environmentally correct useless monstrosities such as California’s “bullet train” and delta tunnels – is matched by the agenda of liberal Democrats for social programs. There will never be adequate money for either, as long as every spare dime goes to pay public employees literally twice as much, on average, as private sector workers earn.

Where the interests of liberal Democrats and libertarian Republicans may intersect is depicted on the table below. As shown, the “left” may oppose a union reform such as Right-to-Work (RTW) in the private sector, but for the public sector, they may view it as the only way to rescue their ambitious agenda for infrastructure projects and social programs. The “right” may support Right-to-Work for all unions, but will recognize that the most egregious threat to economic health and property rights comes from the government unions, who might be diminished if they were subjected to Right-to-Work laws.

FORMING A BIPARTISAN CONSENSUS FOR PUBLIC SECTOR UNION REFORM

PublicSectorUnionReformParadigm_400pxAnother area of intersection between liberal Democrats and libertarian Republicans would concern the special case of public safety unions. Despite troubling nationwide examples of how public safety unions use their immense power at the local level to negotiate unaffordable compensation and intimidate political opponents (ref. “Battle over police pensions in U.S. cities takes ugly turn,” Reuters, January 2014), Republicans have exempted public safety unions from public sector union reform legislation. Their omission, from Wisconsin to Pennsylvania and elsewhere, not only leaves intact what are perhaps the most inappropriate types of public sector unions, but precludes an alliance with reform-minded liberal Democrats.

Finally, a coalition of liberal Democrats and libertarian Republicans may jointly recognize that public sector unions are partners with Wall Street speculators and middlemen; entities who contribute nothing to the productive economy. For years, bond underwriters and hedge funds alike have had union controlled cities and states – and their public employee pension funds – as their biggest customers, and both reap short-term gain from accumulation of bond debt and unfunded pension liabilities that will eventually wreak financial catastrophe – that process has already begun.

Liberal Democrats and libertarian Republicans will never agree on the optimal size of government. But they can recognize together that public sector unions are the force behind an inefficient, over-built, over-compensated, increasingly authoritarian government that violates the spirit and diminishes the potential of the American dream, in all of its diversity.

*   *   *

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

Related Posts:

Avoiding the Oversimplifications of ‘Right Wing’ vs. ‘Left Wing’, December 16, 2013

How Unions and Bankers Work Together to Protect Unsustainable Pensions, November 26, 2013

Bipartisan Solutions for California, October 27, 2013

Exponential Technological Advances and the Role of Unions, July 23, 2013

How Public Sector Unions Skew America’s Public Safety and National Security Agenda, June 18, 2013

Why Public Sector Unions are “Special” Special Interests, June 11, 2013

The Prosperity Agenda, April 2, 2013

Should Police and Firefighters be Exempted from Union Reforms?, March 12, 2013

Would ANY Public Sector Union Reform Appeal to California’s Democrats?, February 12, 2013

The Ideology of Public Sector Unions vs. Private Sector Unions, February 20, 2012

The Differences Between Public and Private Sector Unions, May 13, 2011

Massive Disability Fraud Uncovered in New York

Editor’s Note:  As the author points out in the report to follow, this may just be the tip of the iceberg. For more on what public employee retirement disability fraud could be costing Californians, please refer to our 2011 California Public Policy Center study “The Impact of Tax Exempt Disability Pensions.”

In what I believe amounts to a mere 100th of a percent of the disability fraud problem, CNBC reports About 100 people accused in NYC disability scam.

 More than 100 people were rounded up and arrested Tuesday morning as part of a massive investigation into disability fraud in the New York City area, authorities said Tuesday.

The alleged ringleaders, which included 83-year-old Raymond Lavallee, a former Nassau County assistant district attorney, and retired police officer John Minerva, surrendered to the Manhattan District Attorney’s office, according to prosecutors.

Approximately 80 additional police and firefighters, mostly from the tri-state area but some from as far away as Florida, also were arrested in the multiagency sweep that started at 5:30 a.m.

Most of the police and firefighters arrested are former New York City workers, prosecutors said.

Millions in claims over decades, prosecutors say

According to the allegations, police and firefighters falsely claimed stress-related illnesses to pocket tens of millions of dollars in disability benefits. Many of the suspects also received 9/11 pensions, sources said. As the case unfolds with potentially more arrests, the fraud dollar amount could rise even further, authorities said.

The Manhattan DA’s office also released pictures of several suspects, who received hundreds of thousands of dollars in benefits. In one picture, a man named Richard Cosentino is seen on a boat and swordfishing. He received $207,639.70 in payments, according to prosecutors.

Another image shows Louis Hurtadoin inside a martial arts photo. He pulled in $470,395.20, prosecutors say. And in yet another photo, a man named Glenn Lieberman is sitting on a WaveRunner, with both middle fingers raised, smiling into the camera. He received $175,758.40 in benefits, according to prosecutors.

A spokesman for the NYFD union declined to comment.

At best the union will choose not to respond. More likely, the union will protest the arrests when the story dies down, just as unions protect child molesters in LA and New York.

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.

Public Sector Unions Want to Gut Prop. 13 Taxpayer Protections – Voters Disagree

Editor’s Note:  As Jon Coupal explains in detail, Prop. 13’s “coattails” are alive and well in California. In a special election a few weeks ago in Southern California, Susan Shelley, a moderate Republican whose sole message was “protect Prop. 13” has lost by a margin of less than 1%, in a district where Democrats outnumber Republicans two-to-one. She was outspent primarily by public sector unions, using taxpayer’s money to back her Democratic opponent, by ten-to-one. As public sector unions become more desperate in their attempts to protect their pay and benefits – which are now more than twice what the average private sector worker earns – they will try to overturn Prop. 13 which keeps California’s property taxes relatively low (“relatively” since asset values are artificially inflated in California, meaning actual property taxes are still punitively high). Voters, and political candidates, take note: The enemy of the “middle class family” are public sector unions. Susan Shelley told the truth about property taxes, unionized government, and how they are trying to destroy the private sector middle class worker, and she nearly won against overwhelming odds.

This is a tale of coattails. The coattails of an 800 pound gorilla known as Proposition 13.

In 1978, support for Proposition 13 swept 17 new legislators – nicknamed “Prop 13 Babies” – into office. It was clear, at the time, that Proposition 13 had very long coattails.

Over the years, the professional political class has tried to downplay the influence of Proposition 13 on electoral politics, even though polls show that it would pass by the same two-thirds margin as it did in 1978. Political consultants have advised candidates, in all but the most left leaning districts, to pay lip service to Proposition 13 but then to move on to other issues. Few candidates have been willing to make the defense of Proposition 13 the centerpiece of their campaigns.

The thinking that Proposition 13 really doesn’t matter to today’s voters has been turned on its head by the recent results from the Special Election in the 45th Assembly district, located in the Los Angeles suburbs in the southwest San Fernando Valley.

When Representative Bob Blumenfield resigned in the middle of his term to take a seat on the Los Angeles City Council, voters chose as the top two candidates for a November 19th runoff a self-described pro-business Democrat and a Republican who pledged to defend Proposition 13 against efforts by majority Democrats in the Legislature to destroy its taxpayer protections.

Virtually no one gave Susan Shelley, a socially moderate, fiscally responsible Republican, a chance. (In the interest in full disclosure, she was supported by the Howard Jarvis taxpayers Association PAC.) The 45th Assembly District voter registration shows 49% Democrats and 25% Republicans. Last year, the district gave President Obama 63% of its votes and Senator Feinstein 67%. The California Target Book, which applies professional analysis to each contested legislative district, called it a “safe Democratic district,” and the big money flowed to the Democrat.

Shelley, an articulate, informed and energetic candidate, was not deterred. She understood and shared the concerns of her community, where homeowners feel threatened by efforts in the Legislature to make it much easier to increase property taxes and other charges and levies on taxpayers.

She adopted the slogan “Protect Proposition 13” and pushed that message – almost to the exclusion of other positions – in every speech and political advertisement. She alerted voters to the fact that the Democrats, who now have an overwhelming majority in the Legislature, are pushing bills that would severely undercut Proposition 13’s protections for taxpayers.

On Election Day, the political establishment was rocked by the result. Shelley trailed Democrat Matt Dababneh by less than 200 votes with nearly 3000 late arriving ballot still to be counted.

When asked by the Associated Press to comment on election results and voter concerns about Proposition 13, several spokesmen for legislative Democrats scoffed at the idea that Prop 13 is at risk because of their efforts. But this simply isn’t true. Seven bills backed by Democrats are designed to do one thing, and one thing only; to circumvent the protections contained in Proposition 13 so they can vacuum out the contents of taxpayers’ wallets. If they don’t intend to increase the burden on taxpayers, why would they introduce and support this legislation in the first place?

The latest ballot count shows that the Democrat pulled out a very narrow victory. Some will say that the close result of this David and Goliath contest has little meaning for other elections. After all, they will rationalize, it is typical in Special Elections for turnout to be low, and anything can happen. This overlooks the fact that Dababneh is an attractive candidate himself, he outraised Shelley by 10 to one, and was running in an overwhelmingly Democratic district. That he was barely able to squeak by in spite of having every advantage — the victory is so narrow, he may have earned the ironic nickname “Landslide” — is the direct result of a high quality, courageous candidate harnessing the power of Proposition 13. In next year’s regularly scheduled elections, candidates who refuse to fully and enthusiastically commit to preserving Proposition 13 better be looking over their shoulders.

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.

How Unions and Bankers Work Together to Protect Unsustainable Defined Benefits

One of the biggest unreported, blockbuster stories in modern America is the alliance between public sector unions and the speculative banking industry. It is a story saturated in greed, drowning in delusion, smothered and marginalized by an avalanche of propaganda – paid for by taxpayers who fund both the public sector unions and the public employee pension funds.

The problem with public sector defined benefit pensions can be boiled down to two cold factors: They are too generous, and they rely on rate-of-return assumptions that are too optimistic. The first is the result of greed, the second of delusion. To indulge these vices requires corruption, and it is a rot that joins public sector unions with the most questionable elements of that Wall Street machine they so readily demonize.

If you honestly review the numbers, the greed is obvious. The average pension for a public servant who has worked 30 years or more in public service is more than four times what the average social security benefit is for someone who has worked 40 years or more in the private sector. To cite examples – the average CalPERS retiree who retired in the last five years, after 30 years service, collects a pension of $67,980, for CalSTRS, the average for recent retirees with 30+ years of service is $66,828 per year. Most of California’s independent city and county pension funds are even more generous; Orange County’s employee retirement system, for example, pays the average recent retiree with 30+ years of service a pension of $81,000.

These numbers are ridiculously out of step with reality. If every Californian over the age of 55 got a pension that averaged $65,000 per year, it would cost over $650 billion per year, one-third of California’s entire GDP. But the average public employee who works from age 26 through age 55 will easily collect that much. This is impossible to justify, and impossible to sustain. The average Social Security benefit for a 68 year old new retiree: $15,000 per year.

Greed is compounded with corruption and delusion, when in response for calls to bring public sector pensions into line with what is affordable and fair, unions and pension bankers claim 7.5% annual rates of return can be sustained forever. Their first mistake is suggesting that 7.5% rates of return is all they need. Current levels of underfunding mean either annual contributions go way up, or returns have to greatly exceed 7.5%. For example, CalSTRS is 67% funded, and to avoid becoming more underfunded, they must either earn 11.2% per year, or they must make a supplemental “unfunded contribution” of $4.1 billion per year – last year their unfunded contribution was only $1.1 billion. We are at the top of another bull market and in the terminal phases of a long-term credit cycle – anyone want to bet that CalSTRS is going to earn 11.2% a year for the next 30 years?

In an attempt to earn in excess of 7.5% per year, pension funds are increasingly turning to hedge funds, whose charter, essentially, is to earn over-market returns. To do this, they do all the things that public sector unions are supposedly opposed to and wishing to protect us from – opaque private equity deals, currency speculation, high-frequency trading – all those manipulative tools used by the super-wealthy, super empowered Wall Street players to siphon billions out of the economy. Except now they’re using tax dollars, channeled to them via government payroll departments, and cutting the government workers in on the skim. And if it goes south? Taxpayers pay for the bailout. And even if these funds can keep the lights on for a few more years before the whole scam collapses, isn’t it inherently exploitative for a government-ran pension fund, operated for the benefit of government employees, to aspire to over-market returns? To the extent the market is manipulated and over-market returns are extracted for an elite few, value investors with their individual 401Ks are penalized. That fact is irrefutable, simple algebra.

Which brings us to sheer abuse of power. Hypocrisy aside – and how much more hypocritical can it be for union leaders to hurl the word “profit” the way most of us might utter obscenities, yet ignore the fact that only “profits” can impel pension funds to appreciate at rates of 7.5% per year or more – it is raw power, sheer financial and legal might, that enables pension funds, with unions cheering them on every step of the way, to sue city after bankrupt city to ensure their “contracts” are inviolable, that the pension money keeps pouring in, even if it means raising taxes via court order, then selling the parks, selling the libraries, closing government offices and “furloughing” public servants, and giving raw deals to newly hired employees. But as courts will eventually sustain, perhaps out of financial necessity, the moral worth or worthlessness of a contract supersedes its technical validity. Power is a ship. Financial reality is a lighthouse.

Public sector retirement benefits – like all taxpayer funded entitlements – should provide an austere safety net, like Social Security. Pensions should not enable a retirement lifestyle of luxury and ongoing leverage, exempting government workers from the challenges to save and prepare that face every other American citizen. Nor, in the process, should they impoverish taxpayers, enrich banks, and flush the social contract into oblivion.

The reason pension reform doesn’t happen isn’t merely due to the greed and exceptionalism of public sector unions. Despite their overwhelming power, unions probably couldn’t stop reforms all by themselves. Public sector unions receive formidable political, legal and financial support, along with intellectual cover in the form of delusional financial projections, from their partners in the financial sector, corrupt, crony capitalists who indeed give capitalism a bad name.

*   *   *

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

Rolling Stone Magazine: Attacks Wall Street, Gives Public Sector Unions a Pass

When people think of Rolling Stone magazine most only think of music. The reality is that Rolling Stone is very influential in the politics of young people. It is the print version of the Daily Show. One of Rolling Stone’s top political writers is Matt Taibbi. He garnered national attention towards the end of the Bush Administration for railing against the bail out of Wall Street. In particular he deserves our amusement, if not admiration, for famously describing investment bank Goldman Sachs as a “great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.” Tabbi’s writing is a mix of populism and left leaning ideology.

In Taibbi’s recent piece, “Looting the Pension Funds: All Across America, Wall Street is Grabbing Money Meant for Public Workers,” published in September 2013, he obfuscates with half-truths the public union’s responsibility for the pension problems while excoriating their partner in crime Wall Street. The two have nearly identical goals, and that is to asset strip the private sector. Taibbi writes a credible case against Wall Street and the hedge fund industry, but then chooses to completely neglect their corrupt partner, the public unions. Corruption and fraud in public unions is probably more prolific and costly to society than Wall Street’s. Taibbi makes a lot of good points, but be sure to watch out for the obvious bias.

So let’s put on our critical thinking caps and dissect what Taibbi is saying.

“This is the third act in an improbable triple f—ing of ordinary people that Wall Street is seeking to pull off as a shocker epilogue to the crisis era. Five years ago this fall, an epidemic of fraud and thievery in the financial-services industry triggered the collapse of our economy. The resultant loss of tax revenue plunged states everywhere into spiraling fiscal crises, and local governments suffered huge losses in their retirement portfolios – remember..”

Granted there is plenty of fraud on Wall Street, and it is a travesty of justice that no one on Wall Street has paid for their crimes. But that does not mean that the citizens of this country should also turn a blind eye to the fraud and corruption that public unions have wrought. Tabbi writes:

“In state after state, politicians are following the Rhode Island playbook, using scare tactics and lavishly funded PR campaigns to cast teachers, firefighters and cops – not bankers – as the budget-devouring boogeymen responsible for the mounting fiscal problems of America’s states and cities.”

Two wrongs don’t make a right. Unions and associations representing teachers, and especially fire and police, share much of the blame. Ignorance is not a defense. Without egregious salary escalation and pension increases there would be no crisis. These unions used campaign contributions to bribe politicians into awarding clearly unsustainable pay and benefit packages.

Just because Wall Street creates an epic bubble, it does not mean that municipalities can throw all fiscal restraint to the wind and spend with reckless abandon on the public union members. In fact a hero of many left of center economists, John Maynard Keynes, would have recommend that these municipalities practice restraint during those artificial boom years and save for the inevitable rainy day. Of course they didn’t, and now they are trying to convince the public that the budget they set during the boom years cannot be adjusted down. Tell that to the millions who lost their jobs in the great recession and had to make adjustments to their families budgets. The budgets are only difficult to reduce because of overly generous union contracts that the “well-funded” politicians agreed to.

It even gets so ridiculous that these lavish union agreements can be signed by a simple majority of the city council, and once agreed to become constitutionally guaranteed in many states. It is really easy to give these benefits in the good times, and because they are constitutionally protected, it is nearly impossible to reduce them in the bad times. Private sector unions used think their benefits were rock solid too, but then they met the bankruptcy judge.

Public employees are enjoying superior rights compared to the rest of us. It is too bad the steel workers and airline employees couldn’t get added to the constitution that their pensions could in no way be harmed. Instead they were subject to ERISA, the PBGC and the bankruptcy judge. Many saw their pensions reduced to a quarter of what they had expected.

It should also be noted that private sector unions actually experienced an adversarial negotiation with their companies. In the public sector we only have the illusion of an adversarial negotiation. Not only is the person negotiating probably getting campaign contributions from the union, but they probably have a “me too clause” in their contract, meaning if the union gets more so do they. Why should they care when it isn’t their money? This is corruption.

“ERISA forces employers to provide information about where pension money is being invested, gives employees the right to sue for breaches of fiduciary duty, and imposes a conservative “prudent man” rule on the managers of retiree funds, dictating that they must make sensible investments and seek to minimize loss. But this landmark worker-protection law left open a major loophole: It didn’t cover public pensions. Some states were balking at federal oversight, and lawmakers, naively perhaps, simply never contemplated the possibility of local governments robbing their own workers.”

Taibbi cannot see what is staring him right in the face. The unions and politicians did not want to be a part of ERISA, because it would make it much harder for them to trade in favors. With ERISA public plans would have had to use a much more conservative discount rate. This would have led to higher contributions to the funds and smaller pensions to the union members. Obviously this was not appealing to either.

The lesson from ERISA is that defined benefit plans that rely on optimistic earnings assumptions to justify overly-generous benefits and minimal annual contributions will all eventually fail. ERISA tried to help, but all it did was forestall the failures for a few years. We shouldn’t be surprised that these funds are in bad shape. Most of are run like Ponzi schemes. That may sound hyperbolic, but the mechanics of a Ponzi Scheme and a deeply underfunded public pension plan are the same.

“Then they get elected, and instead of paying for the cops, garbage men, teachers and firefighters they only just 10 minutes ago promised voters, they intercept taxpayer money allocated for those workers and blow it on other stuff.”

In large part, that “other stuff” was payoffs to the unions. Instead of hiring more cops and fire fighters like they promised (In many cases unnecessary as well due to ridiculous union work rules), they just paid the existing ones more money and offer better pensions. Anyone who has driven around in California can tell you that the “intercepted” money is certainly not being used to fix roads.

So the reality is that these “other budget items” are mainly made up of police and fire budgets. Police and fire take up nearly 80% of most municipalities’ budgets in California. So what really happened is, the city promised too much to current and retired employees, and tried to pay for it with accounting gimmicks. The same group of people who are being hurt with underfunded pensions are the ones who created the problem.

“What the study didn’t say was that this supposedly massive gap could all be chalked up to the financial crisis, which, of course, had been caused almost entirely by the greed and wide-scale fraud of the financial-services industry – particularly with regard to state pension funds.”

“Instead, it was then that the legend of pension unsustainability was born, with the help of a pair of unlikely allies.”

The above statement is ludicrous, but neatly summarizes the misconception that Taibbi, along with literally thousands of union and pension fund spokespersons, have been spreading. Public sector defined benefit pension funds can go on for quite some time, but anything that is predicated on a growth rate above the true growth rate of an economy will eventually runaway. It is the math of exponents. This is an immutable reality. It is the reason private sector pension funds all blew up once reform regulations forced them to recognize lower, more sustainable projected rates of return.

Public pension plans admit that they are underfunded, but what they don’t tell you is that the reality is much worse. Some claim they are 75% funded, but to get to 75% they have to use an unrealistic discount rate. There have been numerous studies published using realistic discount rates showing these funds to be extremely underfunded. Also, let’s not forget that the stock market is again at all-time highs. Therefore blaming it on the financial crisis is really a stretch. It is simply too many big political promises coming due.

As for unlikely allies perhaps Mr Taibbi should put a little more critical thought into the link between public unions and Wall Street.

“So even if Pew’s numbers were right, the “unfunded liability” crisis had nothing to do with the systemic unsustainability of public pensions. Thanks to a deadly combination of unscrupulous states illegally borrowing from their pensioners, and unscrupulous banks whose mass sales of fraudulent toxic sub prime products crashed the market, these funds were out some $930 billion. Yet the public was being told that the problem was state workers’ benefits were simply too expensive.”

In California currently there are 12,000 CALPERs retirees receiving $100,000+ pensions. Some 6,000 retired educators receive $100,000+ pensions. Then there are thousands more from places like Los Angeles who do not participate in CALPERs. If you drop the threshold from 100K to 70K, still a nice retirement, the numbers get very large. Nearly all retiring public safety union members are receiving pensions of at least 80K. How expensive is this!

A recent egregious example of these lavish pensions comes from Oceanside, California, a small town in north of San Diego. At the age of 51 with 29 years of service, Chief Frank McCoy retired from his $287,000 a year job and will receive a pension benefit of $172,000 a year. To put this in perspective, making prudent earnings assumptions, a private employee who wishes to retire at this age with this income would need to have saved at least 3.5 million; probably much more in order to also cover medical costs.

“The supposed impending collapse of Social Security, which actually should be running a surplus of trillions of dollars, is now repeated as a simple truth. But Social Security wouldn’t be “collapsing” at all had not three decades of presidents continually burgled the cash in the Social Security trust fund to pay for tax cuts, wars and God knows what else. Same with the alleged insolvencies of state pension programs. The money may not be there, but that’s not because the program is unsustainable: It’s because bankers and politicians stole the money.”

This one is a whopper. While Social Security is currently unsustainable it is also easily fixed. Congress just needs to pass a law to change how it is setup. Tweaking it around the edges will fix it. Small changes in the FICA tax percentage, an increase in the income cap, an increase in the eligibility age, means testing, and a small reduction in benefits and Social Security is fixed.

Under Social Security the maximum amount you get is about $24,000 a year depending on your age at retirement. That works out to be worth approx $289,000. Most people don’t get the maximum and those that do, especially higher wage earners, put in far more than $289,000. Annual Social Security payments in this country total 1.2 Trillion dollars, whereas payments from public pensions are estimated to total 1.5 trillion dollars. The number of people who collect Social Security (not including the many public servants who have qualified for both Social Security AND a public pension) is about four times more than the number of those on public pensions. Public sector pensioners, while only one quarter the number of Social Security recipients, receive more money. What does that say about the relative sustainability of these programs?

Comparing public sector pensions to Social Security is red herring argument.

As for stolen money, politicians have been taking money from private sector taxpayers and handing it over to the public unions for years.

“The Arnold Foundation released a curious study on pensions. On the one hand, it admitted that many states had been under contributing to their pension funds for years. But instead of proposing that states correct the practice, the report concluded that “the way to create a sound, sustainable and fair retirement-savings program is to stop promising a [defined] benefit.”

How then, does Mr. Tabbi propose they correct the underfunding problem? The money doesn’t exist. Politicians have been bribed for years to give these unsustainable benefits to public employees. The typical liberal response would be to raise taxes. Well that has been going on for years. The primary reason taxes have gone up, especially at the state and local level, is to pay for more public union benefits. Instead of confronting the financial issues that challenge pensions, Mr. Taibbi uses a typical ideologue defense, creating a “boogeyman.”

The northern California city of Vallejo went into bankruptcy in 2008 because of its union obligations. At the time its bankruptcy pension costs consumed 11% of the city’s budget. The city failing to address these obligations exited bankruptcy in 2011 with pensions consuming 14% of the budget. Today the pensions eat up 18% of the city’s budget and the city will most likely find its way back to the bankruptcy court.

Taibbi goes on to make a lot of good points about hedge funds and their fees. It is hard to disagree with much of what he writes. So the question is, why are we not arguing for imposing strict standards for investing public pension funds? Why doesn’t ERISA apply to public pension funds? Why should public pension funds be allowed to take so much risk when the taxpayers are ultimately the ones who are asked to make up the difference? Taibbi conveniently fails to address any of these issues.

Of course the answer is that the unions and Wall Street are both guilty of pillaging Main Street. One could go as far as saying they are in bed together. If you don’t believe that then take a look some big name Democratic donors. The top donors are always Wall Street and the public unions. The unions need Wall Street. They need Wall Street to take on risky investments as a cover for their extravagant benefits. If changes were made to reduce the risk in public pension’s investment portfolios, then all benefits would need to be slashed due to the massive underfunding.

In finance risk is equal to reward. Simply put the more risk you take the greater your chances of making a high return are, but you also equally increase your chances of a big loss. When the taxpayer is the insurer of public pension funds, it is inappropriate for the money to be invested in risky investments. One can agree with Mr. Taibbi that they should not be investing in hedge funds. Public pension funds are acting like a person with a gambling addiction. They are doubling down in hopes of making big returns so they can avoid the inevitable insolvency for a few more years. In this case, however, the gambler knows that when they screw up the taxpayer will be there to bail them out.

Public employees should be entitled to the assets that are currently in their pension funds, but the taxpayer backstop needs to be lifted. They should be subject to the same economic laws that private union members were when their pension plans became insolvent.

Wall Street and the public unions have created tremendous distortions in our economy. If the issue of public pension unsustainability is not addressed soon, the distortions and damage to our social fabric may be too great. It used to be that people went to work for the government to serve the public. They generally were paid less, but enjoyed job security and a modest pension. In the past several decades the public unions have turned that old axiom on its head. We are quickly turning into a three tiered society of the elites, government workers, and the rest of us. Matt Taibbi is invited to apply his passion and prose to this complexity. Instead, he is entertaining and influencing the youth of America with comforting partisan indignation that has the ironic effect of reinforcing a great injustice.

Bill White is a financial analyst with over a decade of experience. He holds a MBA in Finance and has consulted for various industries. He became interested in municipal finance when he realized what a threat it was to the social fabric of our country and has since dedicated much of his time to informing the citizenry about the powder keg that municipal finance has become. He believes strongly that a democratic republic can only prosper with a informed electorate.

BART Strike is a Teachable Moment

Reactions from the press and public to the BART strikes this year have been overwhelmingly negative. In one of the safest Democratic strongholds in the U.S., there is serious talk of outlawing future BART strikes.

As reported in the San Francisco Chronicle on October 19th, “That discussion has already begun, in letters from California lawmakers to Gov. Jerry Brown, from state Sen. Mark DeSaulnier, D-Concord, who said he “looking into legislation that could prevent future strikes,” a petition drive by a Democratic Assembly candidate in the East Bay seeking the same, and a piece by editorial page editor John Diaz in Sunday’s Chronicle supporting a Republican proposal that BART unions be made to honor the no-strike clause in their last contract.”

The aforementioned Democratic Assembly candidate is Steve Glazer, a “political strategist, longtime adviser to Gov. Jerry Brown and, most recently, city councilman in the prosperous East Bay suburb of Orinda.” In an October 15th article in the San Francisco Chronicle, Glazer described himself as “a progressive Democrat who is fiscally conservative – supportive of public-pension reform and more business-friendly regulations, and willing to take on labor, the biggest special interest in the state.” Glazer, reportedly among the top money-raisers statewide so far for next year’s Assembly races, went on to say that “Not one drop,” of his campaign contributions have come from labor. “I’m redefining what it means to be a Democrat,” Glazer said.

By apparently recognizing that fiscal conservative values require taking on unions like those representing BART workers, Glazer is on to something. But how far will he take it?

When questioning the right of BART workers to strike, the underlying principle is that workers who hold monopoly power over a vital public service cannot be permitted to withhold that service, holding members of the public hostage, in order to extract concessions from management. This ability has served BART well over the years. Here, taken from information provided to the California State Controller from their “Raw Export” page (refer to “2011 Special District Data), with analysis from the California Public Policy Center available to download in an Excel spreadsheet, is how much the average full-time BART worker made in 2011:

BART-average-pay-2011-aThis is only part of the compensation, however. Here, taken from a BART employment brochure, are the benefits offered BART employees:

BART-average-benefits-a

Nice work if you can find it. How many veteran workers get six weeks paid vacation per year, plus 14 paid holidays, a generous pension (“2% at 55 equates to a retirement benefit at least three times better than Social Security) that costs them nothing, and health and dental coverage with an average value of $15,885 per year, for $92 per month? Plus long-term disability insurance, life insurance, and a host of other benefits including unlimited free rides on BART?

If BART were a self-supporting, non-monopolistic entity, providing its unionized workforce with this sort of largesse would be a private matter between the employees and their management. But if you review BART’s 2013 Budget, you will see that of the $672 million of total revenues expected in 2013, only $415 million comes from operating revenue – passenger fares, parking fees, etc. The other $257 million comes from taxpayers, mostly through sales taxes. BART’s biggest 2013 expense, by far, is the $381 million they have budgeted for labor.

Which brings us to a teachable moment.

BART’s compensation relies partially on the ability of its workers to strike. But unionized public sector workers, who have only limited ability to strike, still benefit from binding arbitration rules, as well as major advantages that BART’s unions do not have – they elect their management. California’s public sector unions collect and spend over $1.0 billion per year, with about one-third of that (a staggering amount) going to explicitly political activity, but nearly all of it used to advance a political agenda – how we manage our public agencies.

The financial consequences of the ability of public sector unions to decisively influence the election of politicians they negotiate with should be obvious by now, especially to “fiscal conservatives,” regardless of their party. Here are a few examples of the average total compensation – direct pay plus employer paid benefits – for California’s city workers:  San Jose – $149,907, Anaheim – $146,551, Costa Mesa – $146,863, Irvine – $143,691. And here is a study showing California’s total state and local government debt, when you include the present value of unfunded liabilities for pensions and retirement health care at realistic rates of return, to exceed $1.0 trillion.

What politicians and voters need to understand is that public sector unions wield leverage even more potent than BART’s unions. This leverage has resulted in an overpaid public sector workforce and potentially catastrophic levels of state and local government debt.

So what will fiscally conservative Democrats do? What will voters do?

It is healthy to appreciate the contributions made by our public servants. But to pay public servants literally two to three times as much as the average private sector worker is to invert the relationship. Public servants have no right to exempt themselves from the economic challenges facing private sector workers. Until public sector workers cannot inordinately influence our politicians, and until public sector workers earn taxpayer funded benefits according to the same formulas and incentives as private sector workers, the challenge of achieving a financially sustainable government will have no chance of success.

*   *   *

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

BART Transit Strike Begins in San Francisco Bay Area

Editor’s Note: UnionWatch contributor Mike Shedlock provides some perspective on the BART strike that began today, their 2nd this year. One impasse relates to the refusal of management to submit to binding arbitration on the remaining areas of dispute. Good for management. The possibility of getting an even worse result in binding arbitration is the leverage public sector unions have used for years to intimidate politicians into signing deals that taxpayers couldn’t possibly afford. We’re just beginning to pay the price for years of union control over our state and local governments. If you want to see where this could end up, read Shedlock’s subsequent post covering “unfair competition laws,” etc., in France,” where union power is destroying what vestiges of private initiative and vitality remain in that troubled economy. By any reasonable definition, BART employees are public sector workers, and they are among the most overpaid of the entire overpaid, unionized, public sector workforce. The BART strike is another example of why public sector unions should be illegal. If BART’s management truly cares about the public they serve, they would fire every worker who doesn’t report to work Monday morning.

The average BART (Bay Area Rapid Transit) worker makes over $76,000 per year, plus huge benefits. Janitors make as much as $82,752. But the unions want more. And they are willing to bankrupt the region to get more.

In my opinion, San Francisco is already bankrupt due to pension obligations that cannot possibly be met (but the city may not realize that yet).

Oakland is without a doubt bankrupt due to public union pension obligations. Oakland city officials likely realize that (but they just do not want to admit the obvious).

In due time, both Bay Area cities will follow Vallejo, Stockton, and San Bernardino into bankruptcy. In the meantime, unions are hell bent are driving cities right over the bankruptcy cliff.

With that backdrop, please consider San Francisco Bay Area transit unions threaten midnight strike.

San Francisco Bay Area Rapid Transit workers are threatening a midnight strike because contract talks have reached an impasse.

Earlier Thursday, Roxanne Sanchez, president of Service Employees International Union Local 1021, said the transit agency and its two largest unions have “come extremely close” to agreement on economic, health care and pension issues. However, she said the parties remained apart on work rule issues.

She said the workers would walk off the job at midnight unless BART officials agree to submit the remaining issue to arbitration.

Talks began in April, three months before the June 30 contract expirations, but both sides were far apart. The unions initially asked for 23.2 percent in raises over three years. BART countered with a four-year contract with 1% raises contingent on the agency meeting economic goals.

Workers represented by the two unions, including more than 2,300 mechanics, custodians, station agents, train operators and clerical staff, now average about $71,000 in base salary and $11,000 in overtime annually, the transit agency said. BART workers currently pay $92 a month for health care and contribute nothing toward their pensions.

BART Workers Plan to Strike Friday

SF Gate reports BART Workers Plan to Strike Friday

Roxanne Sanchez, president of Service Employees International Union 1021, said Thursday afternoon that they met BART on its health care and pension requests, but the two sides still could not come to an agreement on pay and work conditions.

“We made concessions, but you can only bend so far before you break,” Sanchez said. “This is the way they want to solve the conflict, in a fight, a street fight.”

BART’s General Manager Grace Crunican said there are certain rights that management needed to retain.

“The union decided they would take the money on the table but not the work rules on the table,” she said. That’s when BART asked unions to take the offer to its membership for a vote. Crunican said the offer remains on the table until Oct. 27 and if approved, the deal would be retroactive to July 1. If a vote is taken after Oct/ 27, the contract offer would no longer be retroactive.

BART’s final offer included a 12 percent raise over four years and provisions that would have employees paying a 4 percent pension contribution and a 9.5 percent increase in their health-insurance contribution.

BART’s Offer Overly Generous

Mercury News reports BART workers’ paychecks already outpace their peers’

BART workers easily earned the most money on average last year among the 25 largest government agencies in the Bay Area, the newspaper’s review of public employee payroll data shows. What’s more, BART employees also topped the list of the highest-paid transit operators in California.

And the results are not close. Even when eliminating high-paid police officers and executives, the average gross pay for the blue-collar BART union workers who are threatening another shutdown was $76,551 last year.

Overall, BART’s average employee — executives included — made nearly $30,000 more than employees at Los Angeles’ transit line, and nearly $10,000 more than those at San Francisco Muni, the state’s second-highest paid transit workers.

Blackmail

“(BART unions) have a degree of leverage from a strike perspective that many other industries don’t, and this is a classic example of them capitalizing on it,” said Christopher Thornberg, founding partner of Beacon Economics, a Los Angeles-based economics consulting firm. “If you ask me, it’s a tiny bit short of blackmail: ‘Give me the money or the commute’s going to get it.’ “

No Shortage of Workers

The BART gravy train has no shortage of applicants.

Mercury news reports “Since 2007, BART has received nearly 65,000 job applications for about 1,800 line-level union openings.

Public Employee Salary Database

Mercury news has an interesting interactive map of Public Employee Salaries in the Bay Area that inquiring minds may wish to take a peek at.

Message From FDR

Inquiring minds are reading snips from a Letter from FDR Regarding Collective Bargaining of Public Unions written August 16, 1937.

All Government employees should realize that the process of collective bargaining, as usually understood, cannot be transplanted into the public service. It has its distinct and insurmountable limitations when applied to public personnel management.

The very nature and purposes of Government make it impossible for administrative officials to represent fully or to bind the employer in mutual discussions with Government employee organizations.

Particularly, I want to emphasize my conviction that militant tactics have no place in the functions of any organization of Government employees.

A strike of public employees manifests nothing less than an intent on their part to prevent or obstruct the operations of Government until their demands are satisfied. Such action, looking toward the paralysis of Government by those who have sworn to support it, is unthinkable and intolerable.

For more on public union slavery, coercion, bribery, and scapegoating please see …

Paul Krugman, Stephen Colbert, Bill Maher, others, Ignore Extortion, Bribery, Coercion, and Slavery; No One Should Own You!

President Obama’s Slave Trade; Senator DeMint Says Team Obama Acts Like Thugs; Death of Right-to-Work

Scapegoating Madness

Best Way to Deal With Public Unions

The best way to deal with public unions is to not deal with them at all. Ronald Reagan had the right idea when he fired all of the PATCO workers.

Scott Walker had the right idea in Wisconsin when he ended collective bargaining of some public unions. Unfortunately, Walker failed to include police and firefighters.

Actual Wisconsin results prove Union-Busting is a “Godsend”; Elimination of Collective Bargaining is the Single Best Thing one Can do for School Kids

It’s time to implement national right-to-work laws and put an end to public union collective bargaining nationally.

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. Every Thursday he does a podcast on HoweStreet and on an ad hoc basis he contributes to many other websites, including UnionWatch.

Ten Fallacies Used To Justify Opulent Government Pensions

There are many implicit rationalizations justifying paying generous government pensions. Here are my nominations for the top ten bogus excuses:

1. “Public employees deserve high pensions because of their low pay.”

FALSE. Perhaps true at one time, but not anymore. In many instances, today’s government employees are earning 10%-30% more than their true private sector counterparts — with far better job guarantees.

2. “Government employees should not have to save for retirement.”

FALSE. They can use retirement accounts to add to their nest eggs — just like the rest of us. They can invest in stocks, real estate, annuities — just like the rest of us.

3. “Government employees deserve to retire earlier than private sector employees.”

FALSE. If they do “need” to retire early, they can get another job to supplement income (as do most military retirees).

4. “Government employees and their families deserve to live and retire comfortably from a single 40 hour a week job.”

FALSE. Today most private sector middle income and upper middle income couples fully expect to generate multiple incomes — working over 40 hours and/or both working.

5. “Government workers deserve guarantees because they are ‘public servants’ not motivated by greed.”

FALSE. As a group, public employees, thanks to their their unions, are as greedy as they come, and they rely on the force of government to get what they want. The REAL “public servants” are the TAXPAYERS.

6. “No matter how many or few years a public employee works for government, their only source of retirement income is (and should be) their government pensions.”

FALSE. Downright ludicrous. Yet government pension apologists will point to a 10 year government worker’s relatively modest pension, bemoaning the worker’s poverty-stricken plight at retirement. They include such workers in their “average government pension” propaganda.

7. “Many government employees don’t get social security.”

LARGELY FALSE — or at least misleading. While many public employees don’t pay into social security, most can qualify for at least a minimum social security income from other jobs.

8. “Without guaranteed pensions, many government employees would retire in poverty.”

LARGELY FALSE — or at least not the fault of taxpayers. This assertion is based on the absurd assumption that, unlike private sector employees, government employees would (and should) otherwise save nothing for their senior years.

9. “Many government employees should be able to retire with essentially the same income they earned on the job.”

FALSE. This is the “90% pension at 30 years” common in public safety jobs — and for too many other government employees (including all San Diego County government employees). Indeed, given that a retired employee no longer pays for pensions, union dues, Medicare, or commuting costs, a 90% pension is actually HIGHER than the net salary received while working.

10. “We have to pay top pensions to attract ‘the best and the brightest’ to government work.”

FALSE — and a bad idea to start with. We DON’T want to attract “the best and the brightest” to government work. We need such folks in PRODUCTIVE employment in the private sector. All that government pensions do is to assure that government employees STAY as government employees – regardless of work quality.

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.”