Deceptive and Misleading Claims – How Government Unions Fool the Public

September 10, 2015 By Ed Ring 2 Comments

Unions pension public sectorCalifornia’s public sector unions collect and spend well over $1 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 “top 10” 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 percent (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.

union collective bargaining public sectorFALSE. 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 percent. 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 percent per year. Common sense should tell any unbiased observer that ongoing 7.0 percent average annual returns are not a safe bet. If they are, why are Treasury Bills only yielding 3.0 percent? What are mortgage bankers only able to get 3.5 percent on 30 year fixed mortgages? Why are bank CD’s only offering 2.0 percent? 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 10 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.

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

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Median Total Compensation for Redwood City Firefighters – At Least $226,365

September 3, 2015 By Ed Ring 2 Comments

dollars-in-fire-live-wallpaper-55-3-s-307x512Back in February 2014 the California Policy Center publicly announced the Transparent California website, developed in partnership with the Nevada Policy Research Institute. An article covering this announcement was posted on the Forbes Magazine website, entitled “Hundreds Of California Government Employees Are Paid Over $400,000 A Year,” which a review of 2013 Transparent California data (2014 data is still being assembled) easily confirms. As a matter of fact, in 2013, total compensation in excess of $400,000 was paid to 1,292 public servants in California. A staggering 2,818 of California’s public employees collected total compensation in excess of $300,000 in 2013.

Some have argued that it is misleading to claim people are making, for example, over $400,000 per year, when in fact the $400,000 being referenced is total compensation, not regular earnings. We reject this argument categorically. It is incumbent on anyone who assesses compensation to treat total compensation as the only valid measurement both for comparative purposes and, especially, when considering employer costs. Total compensation represents the actual cost to the employer, and it represents the actual value earned by the employee. Every penny of total compensation, whether it’s to fund future retirement benefits or to pay for current benefits such as health insurance, is something a worker will have to pay for themselves out of their regular earnings, unless it is instead paid for by the employer.

When talking about how much we pay our public servants, we contend that it is misleading to reference anything but total compensation.

The Forbes article published in Feb. 2014 also cited examples of excessive pay from Redwood City, which raises another issue, which is the reliability of the data gathered. As it turns out, and as the city acknowledged, the data provided to Transparent California by the city was not intentionally misleading, but easily misunderstood. This lead to the author of the Forbes article claiming that “nine employees made over $400,000 in total compensation with a total of 33, mostly police and fire department employees, making over $300,000 in total compensation in 2012.” The city’s response:  “No Redwood City employee earned more than $400K. Furthermore, the correct number of employees earning more than $300K is 28, not 33 as stated in the op-ed.” The city had put “exit incentive” payments into two data columns instead of just one and they got double counted by Transparent California’s researchers during the formatting process.

These are innocent mistakes. It’s worth noting that even the State Controller issues this disclaimer on all of their downloadable raw data spreadsheets showing public employee compensation – “the information presented is posted as submitted by the reporting entity. The State Controller’s Office is not responsible for the accuracy of this information.”

The real question, the real issue that isn’t going to go away, is how much should we be paying our public servants? How much can we afford to pay, and how much is fair both to these employees but also to taxpayers? So let’s take a look at 2013 data for Redwood City’s firefighters. We choose firefighters because the fire department in Redwood City, just as in nearly every other city in California, has the highest average pay and benefits of any major department.

To make this assessment, we used data provided to the State Controller for three years, 2011, 2012 and 2013. Here are the results:

Redwood City Compensation Analysis  –  Full Time Firefighters
20150601-UW-Redwood

As can be seen, during 2012 these firefighters earned significantly more overtime pay, probably because in 2012 full-time staffing was down from 2011, but then recovered again in 2013. It’s important to observe that the median total compensation is higher than the average. This is common when evaluating public safety pay and benefits in California, and refutes the claim that highly compensated executives skew the averages.

When evaluating the median total compensation of Redwood City’s full-time firefighters in 2013 of $226,365, it is necessary to consider what primary variables are driving that amount. The issue of overtime, for example, can be quite misleading. If you read the MOU in effect between Redwood City and IAF Local 2400, you will see that the 56 hour (fire suppression personnel who work 24 hour shifts) employees are apparently paid overtime when they work on any of the 12 paid holidays (MOU page 22, section 8.1). This makes sense, but if you assume these firefighters are, on average, earning 224 hours of vacation per year (10 years service, ref. MOU page 25, section 9.3), then their estimated actual 24 hour shifts per week are 2.32, an amount that includes only 3.9 hours of overtime. Holiday coverage is a sacrifice, to be sure, but apart from holidays, it does not appear that Redwood City’s firefighters are working significant amounts of overtime. Yet their median total compensation was $226,365 in 2013. Making these estimates is admittedly a fairly complex exercise and readers are invited to review the calculations on the “notes” tab of the downloadable spreadsheet “Redwood City 2013 – Firefighter Pay Analysis.xlxs,” a document that also shows all original SCO compensation data and the median/average calculations.

Another important variable affecting total compensation are pension contributions made by the employer. It is necessary to make two points on this topic with respect to Redwood City’s firefighters:

(1)  The Firefighter MOU grants a raise to cover every increase to their payroll withholding for pensions:

To fully appreciate this, read page 33, section 17.3 of the MOU, which covers the calendar years 2013 through 2017. In year 1 (2013), the employees begin to pay 2% towards their pension costs via withholding, and their pay is increased by 2%. In year 2, another 2% is withheld, and another 2% raise is granted. In year 3, another 2% is withheld, and another 2% raise is granted, and in year 4, another 1% is withheld, and a 1% raise is granted. In all, by 2017, Redwood City firefighters will be paying 7% of their pay towards their pensions. As a percent of regular pay, the city (the taxpayers) in 2013 made a 40% pension contribution. That’s 7% (eventually) from the employees to pay for their pension, and 40% from the city. That’s a nearly six-to-one employer match for retirement.

(2)  The city’s required pension contribution is going up, way up, no matter what. In February 2015 the California Policy Center published a study entitled “California City Pension Burdens,” compiling data and projections provided by the various pension systems, including, in this case, CalPERS. Here are some pension facts that confront Redwood City: Their estimated pension contribution in 2015 will be 6.61% of total revenue (all taxes and fees). Their pension contribution between 2015 and 2020 is assumed – according to CalPERS own projections – to increase by 54%, which, barring significant increases to employee withholding, means that instead of paying, on average $47,191 per firefighter (that is the 2013 number, the 2015 number is almost certainly higher), they will be paying $72,674 per firefighter. Just to fund their pensions. And barring pay decreases, that will elevate the median total compensation per full-time firefighter to at least $251,848.

All of these numbers are conservative, because in reality the increases to required pension contributions for firefighters will be more than what CalPERS projects for all of Redwood City’s employees, because firefighter pensions are far more expensive than those offered to miscellaneous employees. These numbers are also conservative because Redwood City is almost certainly not adequately funding their “OPEB” benefit (other post employment benefits), in particular, retirement health insurance (MOU page 49, section 19.2). And, of course, these numbers are grossly understated if you have any doubts regarding CalPERS’ ability to earn 7.5% per year through 2020 and beyond.

Asking whether or not California’s taxpayers should be paying firefighters roughly $250,000 per year is a question fraught with controversy. Clearly firefighters deserve a pay premium for the risks they take in their job. But firefighter unions have exploited the well-deserved respect firefighters have earned, and used that in conjunction with their dues revenue, to exert almost irresistible pressure on local politicians.

The rates of total compensation currently earned by Redwood City’s firefighters are by no means unique. Comparable levels of pay and benefits for firefighters are in place throughout California’s cities. When firefighter jobs that pay a quarter-million a year in exchange for slightly over two 24 hour shifts per week open up, literally thousands of people apply for them. The goal of public safety would be enhanced if we could hire more public safety personnel, firefighters in particular, for less money. But today there is no viable political coalition, anywhere, with the power and will to make that happen.

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

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San Jose City Council Capitulates to Police Union Power

August 20, 2015 By Ed Ring 1 Comment

“He told the class to take advantage of the academy, and then find jobs elsewhere. The police union tries to get us to leave the department.”

–  Anonymous source to NBC Bay Area, television report “Another San Jose Police Recruit Says Union Tried to Get Cadets to ‘Find Jobs Elsewhere’,” Oct. 28, 2014 (excerpt begins at 1:38 in report).

San Jose Police DepartmentA precedent setting new development in San Jose last week provides abundant evidence of just how powerful local government unions really are in California. As reported Monday in San Jose Inside and elsewhere, an embattled City Council has tentatively approved a new contract with San Jose’s police union that awards them “a 5 percent ‘retention’ bonus and an 8 percent raise over the next 16 months. In addition, former officers who return to the force in the next year can claim a 5 percent signing bonus.”

More significantly, at the same time, the San Jose City Council has tentatively agreed to drop their appeal of a court ruling that overturned a key part of a San Jose pension reform, a re-examination of the so-called “California Rule.” As pension expert Ed Mendel reported in PublicCEO, “The ‘California rule’ is a series of state court decisions widely believed to mean that the pension offered on the date of hire becomes a vested right, protected by contract law, that can only be cut if offset by a new benefit of comparable value.”

In practical terms, this means that pension benefit formulas, according to the California Rule, cannot even be trimmed for future work performed by existing employees. San Jose’s pension reform Measure B, passed by 70 percent of voters in 2012, presented city employees with a choice – they could either contribute an additional 16 percent towards their pension benefits via payroll withholding, or they could accept lower pension benefit accruals from then on. Nothing they had earned to-date would have been taken away from them.

Despite legal opinions that claim the California Rule is not well established law, and despite that the California Rule is contrary to the law governing public sector pensions in most states, and contrary to all law governing private sector pensions everywhere, San Jose’s local elected officials have capitulated.

THE INHERENT HYPOCRISY OF THE ‘CALIFORNIA RULE’

It is difficult to overstate just how hypocritical the union’s position is on the issue of modifying pension benefit formulas. Because the problems with pensions began back in 1999, when Senate Bill 400 raised pension benefit accruals per year for the California Highway Patrol. Within a few years, most every agency in California followed suit. And these pension benefit enhancements were applied retroactively to the date of the employees’ hire.

That is, starting in 1999, agencies changed the pension benefit formula so that, for example, police and fire pension accruals were not just increasing from 2 percent to 3 percent per year from then on, but retroactively to the day each employee was hired. So someone who would have earned a pension equivalent to 2 percent of their final salary times the years they worked would now earn a pension equivalent to 3 percent of their salary times the years they worked, even if they were going to retire within the next year or two.

What San Jose Measure B tried to do was not roll back pension benefits from 3 percent per year to 2 percent per year for years already worked. It only tried to reduce the benefit accrual, prospectively, for years still to be worked. And even that was too much for these unions.

THE DEVASTATING COSTS OF SAN JOSE’S POLICE/FIRE RETIREMENT BENEFITS

If taxpayers could afford to pay these pension benefits, there might be a stronger argument to preserve them. But San Jose’s independent Police and Fire Department Retirement Plan, according to their most recent financial report, is not in great shape financially. Keeping it afloat requires staggering sums of money from taxpayers that are only going to increase each year. Here are highlights:

(1) The plan as of June 30, 2014 (most recent data available) was 77.5 percent funded (page 114). This means that instead of earning their officially projected annual return on investment of 7.125 percent per year, just to avoid becoming more underfunded, they will have to earn 9.2 percent per year. Just to stay even. That is their so-called “risk free” rate of return.

(2) The fund truly is “risk free” to participants, because the taxpayers pay most of the expense and cover the losses when the market fails. In FYE 6-30-2014, police and fire employees contributed $21.1 million into their retirement fund, and taxpayers (the city of San Jose) contributed $123.6 million (page 69), nearly six times as much. How many “six to one” matching contributions are out there for corporate 401(k) plans?

(3) The unfunded liability for the San Jose Police and Fire Retirement Plan was $806 million (page 114) as of June 30, 2013 (most recent actuarial data), equal to 436 percent of payroll. Or looking at this another way, the city’s pension contribution was $123.6 million, whereas their “covered payroll” was $184.6 million. That is, for every dollar San Jose pays to put police and firefighters on the street, they have to pay 67 cents to the pension fund.

(4) It’s not just pensions. The San Jose Police and Fire Retirement Plan includes city funded retirement health insurance benefits. How’s that fund doing? As of June 30, 2013 (most recent data), that plan was 11 percent funded, with an unfunded liability of $625.5 million (page 65).

(5) If you consolidate the financial data for San Jose’s Police and Fire Retirement Plan’s pension and healthcare (OPEB) plans, the most recent statements indicate they are 67 percent funded, with a total unfunded liability of $1.4 billion. If San Jose were to responsibly reduce their total unfunded liability for public safety retirement benefits, they would be paying far more than 67 cents for every dollar of payroll.

THE MISLEADING EMPHASIS ON AN EXODUS OF OFFICERS

Throughout this battle between fiscal realists and the police union in San Jose, the police have maintained that officers were leaving the city to work elsewhere or to retire. There’s no question that their ranks have thinned, perhaps alarmingly. According to SJ Inside, “the agency [currently has] 943 sworn officers out of a budgeted 1,109 positions.” And historically San Jose’s police department has had as many as 1,400 officers. But is the union thwarting efforts to fill the ranks?

Several news reports suggest that could be the case – starting with the local NBC television affiliate’s report quoted earlier. That anonymous source corroborated what another person stated publicly. According to the San Jose Mercury guest column entitled “San Jose police recruit: Union told class to quit right away for good of the department,” former police academy cadet Elyse Rivas writes:

“On the first day of the academy, our orientation included the opportunity to meet Jim Unland, the Police Officers Association’s president. In no uncertain terms, he blamed Measure B for the departure of hundreds of officers — and he told us that it would be better for the department and for us if we would just quit, right then and there. He said that our employment with the department did not help the POA’s cause in proving Measure B was killing the department’s recruitment capabilities. He urged us to find jobs elsewhere.”

Reached for comment earlier today regarding developments in San Jose, former Mayor Chuck Reed agreed with the substance of these allegations. Not only did he confirm reports of union representatives discouraging academy recruits from taking jobs with the department, but he also described other ways they thwarted recruitment:

“There were reports of recruiting events held in the San Jose police union offices where they invited police recruiters in from other cities to encourage active San Jose police officers to take these jobs in other cities.”

Reed also said, “When we were trying to hire officers, we wanted to bring in retired police officers in to do the background checks so we could keep our active officers on the beat – but the union urged retirees to refuse to accept the work.”

In any case, Reed pointed out that the city had determined to reduce the size of the police force back in 2010, well before voters approved Measure B, saying “the police department headcount went down from 1,400 to 1,100 before there was any pension reform.” Reed believes that an ideal headcount for the San Jose police department would not require returning to 1,400, and that getting to the budgeted 1,109 positions would be a good first step.

SO HOW MUCH DO SAN JOSE’S ‘UNDERPAID’ POLICE OFFICERS MAKE?

Getting timely and accurate information on public pay is difficult because financial reports from public entities take a long time to produce and often omit important data. The most recent payroll records publicly available for the city of San Jose are for 2013. According to a search on Transparent California of San Jose city employees with “Police” in their job title, in 2013 there were 260 of them who made over $250,000 in pay and benefits, and an astonishing 806 who made over $200,000 in pay and benefits. Here’s the link:  San Jose city employees, 2013, with “Police” in their job title.

Pension information for San Jose’s retired police officers is complicated by the fact that the data includes firefighters along with police officers. Moreover, the average full-career pension estimates are understated because a significant percentage of the current participants retired before pension benefits were enhanced in San Jose – a process of “continual enhancement” that continued up until 2008. Using 2014 data acquired by Transparent California, the estimated average full career pension for a San Jose police/fire retiree is $99,116 – with guaranteed 3 percent per year cost-of-living increases. The number for recent, post-2008, full-career retirees is undoubtedly much higher. Here is a 2014 roster of all of San Jose’s police/fire retirees – note that individual retirement health benefits (unfunded liability of $625 million) were not provided – certainly adding a value of at least another $10,000 per year.

Are San Jose’s police officers underpaid? The average veteran officer makes pay and benefits worth well over $200,000 per year. Add to that the likely 5 percent “retention bonus, and the 8 percent raise over the next 16 months per the tentative new agreement. You decide.

The personal attacks and confrontational tactics employed by the San Jose police officers union against their political opponents do not reflect well on the fine men and women who staff that department, who perform work of vital importance to society. Whether or not they intentionally urged officers to quit (or never join) the San Jose police force is almost irrelevant, despite abundant evidence that suggests they did. Because their real transgression against the people of San Jose, the taxpayers, the elected officials, and public safety itself, is to insist on levels of pay and benefits for their officers that are far more than the city can afford.

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

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Tough Education Reform, not More Borrowing and Spending, is What Students Need

August 6, 2015 By Ed Ring Leave a Comment

School bond studyLast week the California Policy Center published a major new study that compiled, in exhaustive detail, both the amount that Californians have borrowed to finance public school construction and upgrades, as well as documented the abuses that have diminished the return on these substantial investments. Californians simply don’t realize how much borrowing is going on.

In 2001, voters passed Prop. 39, which lowered the threshold for passage of a school bond from 66 percent to 55 percent. Prior to the passage of Prop. 39, only 42 percent of school bond proposals would pass – since then, 88 percent of them pass. The scale of this borrowing is amazing: Since 2001, Californians have approved 911 local school bond measures totaling $110.4 billion. In addition to local bonds, voters approved three state measures which added another $38.8 billion.

If the proceeds of these bonds were being spent efficiently, on worthy projects, under repayment terms that were fair and appropriate, there would not be an issue. But they’re not. Thanks to costly project labor agreements, environmentalist lawsuits, and a shocking lack of public oversight, school construction projects – along with all public infrastructure projects – cost far more than they should.

When considering what projects might be considered worthy, at whatever cost, one of the biggest reasons cited for local bond proposals is to fund “deferred maintenance.” For examples of this, view the summary of the 2014 Local Elections provided by CalTax (scroll down to “Bond, School”), and read the “description” column. “Upgrade and repair,” “modernize and upgrade,” “fix leaky roofs,” “make safety repairs,” “repair outdated heating and ventilation systems,” etc., etc. But why can’t maintenance work come out of existing budgets? For that matter, why wasn’t the work done using funds from earlier rounds of local school bond proceeds, instead of deferred?

This is not a rhetorical question. California’s K-12 student population has been stable for nearly 20 years. At 6.2 million students, it has actually declined slightly. Meanwhile, over the past 14 years, $146 billion has been borrowed and spent to maintain and improve schools for these 6.2 million students.

That’s $10.4 billion in construction spending every year, which based on 30 students per classroom, equates to approximately $50,000 per classroom, per year. Could you maintain one classroom and that classroom’s share of common facilities if you had $50,000 to spend, year after year?

How much is enough? Since 2001, construction bond proceeds have poured $700,000 into every K-12 classroom in California. Why do the roofs still leak?

When it comes to the terms of this debt, the story gets even worse, because these bonds are complex financial instruments with ample room for “gotchas” that harm taxpayers. One of the worst examples of this are so-called “capital appreciation bonds,” which don’t require any payments for 10-20 years, then demand massive sums of principal and interest payments, long after the original promoters have retired, and often after the improvements and upgrades have worn out again.

It is relevant to discuss California’s $146 billion in school bond debt in the context of all California’s state and local debt. A few years ago the California Policy Center attempted tabulate it, including unfunded liabilities for pensions and retirement health care for state and local government employees. Those findings, using a 5.5 percent discount rate to estimate pension liabilities, and using our updated amount for school bonds, come in at $976 billion. That’s $76,250 of debt per household. Just interest payments on this debt, at 5 percent per year, come out to $3,812 per household per year.

The topic of school bond debt is vast and complicated, which is one reason why there is rarely meaningful public debate. The California Policy Center’s complete study on California’s school bond debt, including appendices, came in at 361 pages (view PDF), and took a team of researchers lead by policy analyst Kevin Dayton nearly a year to write. Here are key recommendations from that report:

  • Provide adequate and effective oversight and accountability for bond measures.
  • Enable voters to make a reasonably informed decision on bond measures.
  • Eliminate or mitigate conflicts of interest in contracting related to bond measures.
  • Reduce inappropriate, excessive or unnecessary spending of bond proceeds.
  • Improve understanding of bond measures through public education campaigns.

And here are a few additional recommendations:

  • Make construction bond proposals contingent on enforcing the Vergara ruling – making it possible to fire bad teachers, changing layoff and retention criteria from seniority to merit, and extending the time period required to acquire tenure.
  • Hold teachers accountable for the academic progress of their students, and prohibit construction bond proposals for any school districts in violation of the state’s teacher evaluation law, the Stull Act.
  • Reduce the number of administrators and support staff, increasing the proportion of public education employees who actually teach in classrooms. This will result in a proportionate reduction in support facilities, at the same time as it frees up budgeted funds to be used to perform deferred maintenance.

The reason Californians have borrowed $146 billion in recent years for school construction is because Californians believe there is nothing more important than educating children. That’s a noble sentiment. It’s why Prop. 39 passed back in 2001, carving out an exception to California’s two-thirds vote requirement for new taxes. And while the process of approving and spending all this money has been riddled with corruption and excess, it would be inaccurate to say all of this money was wasted. But all the money in the world will not improve California’s educational system, if great teachers and principals aren’t given the latitude and incentives to inspire their pupils, and if poor teachers and administrators are not terminated.

Californians should reform their system of K-12 education before borrowing another dime for construction. The return-of-investment is simply far better.

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

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Can Unionized Police Be Held Accountable for Misconduct?

June 25, 2015 By Ed Ring 4 Comments

“We thought [the employees we fired] were inappropriate to be employees of the city.”

– Los Angeles Police Chief Bernard Parks (ret.), in reference to the termination of corrupt police officers, Rampart scandal (late 1990’s)

police-badgeAbout a year ago UnionWatch.org published an editorial asking this question, “How much does professionalism cost,” using as an example the tragic death of Kelly Thomas. In that case, six police officers repeatedly struck with batons and tased an unarmed man, who died a few days later of his injuries. Since that tragedy back in 2011, numerous cases of police misconduct have surfaced, many of them with equally tragic consequences. The latest one, while inexcusable, is more farce than tragedy, involving a team of Santa Ana police officers who recently raided a marijuana dispensary in that city.

The misconduct didn’t involve murderous violence, but it did involve blatantly unprofessional behavior. Once the officers secured the dispensary and ejected the staff and customers, they proceeded to disable the security cameras, and, at least according to the video recording from the camera they neglected to destroy, some went on to gobble up marijuana “edibles.” Watch this video and make up your own mind whether or not these individuals are engaging in conduct appropriate for employees of the Santa Ana police department.

Former Sacramento County Sheriff John McGinness, on his radio talk show, has frequently discussed the issue of police misconduct. He makes an observation that bears repeating – in a population of over 1 million police officers in the United States, it is inevitable that you will have bad apples. It is statistically impossible to have a group of humans that large, where every single individual will be beyond reproach. There will always be a percentage of crooks and thugs who slip through. It can’t be helped.

Critics of police fall roughly into two camps – those who are concerned about police respecting civil rights, and those who are concerned about excessive police pay and benefits. While there’s overlap, these are very distinct concerns. But those who are concerned police overstate the risks of their job in order to justify increasing their pay are often the same ones who overlook the fact that police misconduct can also be overstated. Critics can’t have it both ways. Police fatalities are rare. Police misconduct is also rare.

What can be helped, however, is how police who do cross the line are held accountable.

According to a source at an Orange County blog that covered the pot bust, the supervising officer on the scene was Alex Sanchez, a police sergeant with the city of Santa Ana who in 2013 made $107,952 in regular pay, $27,205 in “other pay,” $16,184 in overtime pay, and earned employer paid benefits of another $68,820. In other words, this officer earned pay and direct benefits during 2013 of $221,162. This rate of pay is not unusual. Take a look at the pay for Santa Ana city employees – note how nearly all of the high paying positions are for police officers.

Citizens have a right to expect better behavior from a police officer who makes this much money. And a police officer who makes this much money should be prepared to be held accountable. In the corporate world, on-the-job drug use, vandalism, or insults directed at a member of a protected status group are all grounds for instant termination. And in the corporate world, despite repeated claims to the contrary by government union propagandists, total compensation packages in excess of $200,000 per year are very unusual. Notwithstanding that incessantly cited handful of rapacious and untouchable Wall Street bankers, corporate managers and executives who make $200,000 or more per year have little or no job security, and are held accountable, and terminated, for transgressions of far less import.

There’s more. When critics of police conduct say police should not consider themselves above the law, they’re right, but they don’t go far enough. Police should not merely obey the law, they should be role models. By their words and deeds they should inspire the rest of us. The destruction of cameras, the needless vandalism, the profanity, and the insults undermine respect for law enforcement, which is the human face of the laws we must obey.

Police unions not only highlight the risk officers face as the reason they deserve excellent pay and benefits, they highlight the professional requirements of the job. Police perform an incredibly difficult job that goes well beyond the physical risk they live with. Every day, they have to deal with uncertain, volatile situations, with agitated individuals and groups, with hostility and disrespect, and with violent criminals. Police work in 2014 America requires more professionalism than ever. That’s why they’re paid like professionals. But with professionalism comes accountability.

Police officers depend on the trust and solidarity of their colleagues. That is a necessary and proper element of an effective police force. But police unions overlay onto that solidarity an us-vs-them mentality, as well as a layer of protection against individual accountability, that at the least may be described as problematic. Police unions, like teachers unions, may consciously proclaim their commitment to the broad public interest, but their organizational agenda invariably pulls them away from the people they serve.

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

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Retiree with $183,690 Annual Pension Attacks Pension Critics

June 10, 2015 By Ed Ring 13 Comments

“Critics of public employee retirement benefits are engaging in hyperbole and pointing to potholes as evidence that millions of elderly Californians should be stripped of their retirement savings.”
Brian Rice, president, Sacramento Area Fire Fighters, Sacramento Bee, June 2, 2015

Notwithstanding the possibility that saying pension reformers want to see “millions of elderly Californians stripped of their retirement savings” is itself “hyperbole,” Brian Rice’s recent Sacramento Bee submission requires a detailed rebuttal. Rice’s piece, entitled “Pensions aren’t being paid at expense of filling potholes,” was in response to a study written by Stephen Eide and released by the Manhattan Institute entitled “California Crowd-Out, How Rising Retirement Benefit Costs Threaten Municipal Services,” published in April 2015.

Rice leads off by attempting to link the Manhattan Institute to the supposedly infamous Koch Bros., despite offering zero evidence that the Koch Brothers contribute to that organization. And, of course, he is relying on this unsubstantiated link to discredit Eide’s work, apparently because if the Koch’s funded the work, then the author had to come up with data and conclusions that fit their agenda, instead of the facts and logic.

We’ll get to facts and logic in a moment, but first it is necessary to consider Brian Rice’s agenda. Because there is virtually no comparison between California’s urban firefighters and the “working class,” “minority, low-income and rural communities,” to whom Rice makes reference in his article, and for whom unions are more legitimately challenged to represent. Brian Rice, who retired in 2011 after 28 years of service, collected a pension in 2013 of $183,690, NOT including other benefits which probably add at least another $10,000 to his total retirement package.

Here’s pension data for Brian Rice. Notice how during retirement his pension still increases each year.

Here’s pension data for Rice and his fellow retirees from Sac Metro Fire – and Rice isn’t even in the top 10. The top spot is held by James Eastman, who collected a modest pension of $231,428 in 2013.

Rice writes: “Public employees have traded off other compensation in order to have a secure retirement.”

Really? Here’s payroll and benefits data for Sac Metro Fire’s active employees. Eleven employees made over $300,000 in 2013, 195 made over $200,000 in 2013, and 408 made over $150,000 in 2013. The Sacramento Bee recently published an analysis of average pay, not including benefits, for Sacramento firefighters. The data shows the average firefighter makes $122,677 per year, NOT including current benefits such as health insurance, and not including the employer’s pension contribution. Add those and the average goes up to $194,083. And no, that average does NOT include captains, who average $163,040 before benefits.

Quite a trade off. Modest pay in return for a secure pension. No hidden agenda there, right? No motive to engage in “hyperbole” when you encounter critics?

Back to potholes. A California Policy Center study published in February 2015, “California City Pension Burdens,” documents the average employer pension contribution for California cities in 2013 at 7% of total revenue. CalPERS is increasing their required pension contribution by 50%, meaning the average will become over 10% of total revenue. And that assumes the markets don’t correct downwards. Many cities are in far worse shape. Is it really necessary for 10% of every dollar in local tax revenue go to pay pensions that average over $100,000 per year for public safety employees who retire early and whose pensions get annual cost-of-living increases?

The “crowding out” effect is real, and it affects more than potholes. Rice is perhaps at his most hyperbolic when he writes “each year, the $13 billion that much-maligned CalPERS pays Californians in pension payments creates $30.4 billion in economic activity. The California Public Employees’ Retirement System also invests in big infrastructure projects for the state, and makes capital available to minority, low-income and rural communities.”

Bull. Bull. And Bull. To wit:

(1) The $13 billion creating $30.4 billion in economic activity is known as a “multiplier.” As Rice puts it, “They spend it on housing, food, gasoline, other necessities, gifts for the grandkids and more – which drives economic activity, creates jobs and increases tax revenues.” We hate to break it to you, Mr. Rice, but if we had been able to keep that money, instead of paying higher taxes so you can have your $183,690 per year pension, We would have also been able to “spend it on housing, food, gasoline,” etc. No net benefit there.

(2) Rice claims $13 billion is paid out annually by CalPERS to pensioners. Actually last year it was $17.7 billion (ref. CalPERS CAFR 6-30-2014, page 24). But Rice neglects to mention that 15% of those pensioners have moved out of California. And Rice ignores the other side of the equation, which is that based on their asset allocation to-date, 91% of the $12.6 billion paidinto CalPERS last year was invested out-of-state. CalPERS has $301 billion in assets, and ninety-one percent of that money is invested out-of-state. As it stands today, California’s citizens, their cities, and the overall economy would be a lot better off if CalPERS, and every other pension system in California, did not exist.

(3) When it comes to infrastructure, not only is CalPERS investing a ridiculously minute portion of their portfolio, but the primary reason there isn’t money for infrastructure is because cities, counties, and the state are too busy allocating all of their financial resources to overcompensated public employees. And if CalPERS and the other pension systems were willing to invest for reasonable rates of return, instead of speculating on global markets, they could take their roughly $700 billion in assets and finance revenue producing civil infrastructure such as dams, upgraded water treatment to allow reuse of waste water, desalination plants, aqueduct upgrades, port expansions, road and freeway upgrades, bridge repair – the list is endless.

Despite Mr. Rice’s hyperbole, most pension reformers do not want to abolish defined benefit pensions for public employees, if these pensions could be made fair and financially sustainable. That would require returning to the conservative investment guidelines in place until Prop. 21 was passed in 1984, and it would require returning to the modest and fair benefit formulas that were in place until SB 400 was passed in 1999. Taking these steps would not only save defined benefit pensions, but enable massive investment by the pension systems in revenue producing civil infrastructure.

There’s a lot of middle ground between someone collecting a pension of $183,690 per year, and being “stripped of their retirement savings,” Mr. Rice.

Originally published by UnionWatch.org

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

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A Challenge to Moorlach and Glazer – Build A Radical Center

June 4, 2015 By Ed Ring Leave a Comment

John Moorlach1On March 22, 2015, John Moorlach was officially sworn in as state senator for California’s 37th District. On May 28, 2015, Steve Glazer took the oath of office as state senator for the 7th District. Moorlach is a Republican serving mostly conservative constituents in Orange County. Steve Glazer is a Democrat serving mostly liberal constituents in Contra Costa County.

Different parties. Different constituents. You wouldn’t think these two men had much in common. But you’d be wrong.

John Moorlach and Steve Glazer have both distinguished themselves as politicians and candidates by doing something that transcends their political party identity or conventional ideologies. They challenged the agenda of government unions. As a consequence, both of them faced opponents who were members of their own party who accepted money and endorsements from government unions.

It wasn’t easy to challenge government unions. Using taxpayers money that is automatically deducted from government employee paychecks, government unions in California collect and spend over $1.0 billion per year. These unions spent heavily to attack Moorlach and Glazer, accusing – among other things – Moorlach of being soft on child molesters, and accusing – among other things – Glazer of being a puppet of “big tobacco.”

steve glazerThis time, however, the lavishly funded torrent of union slime didn’t stick. Voters are waking up to the fact that the agenda of government unions is inherently in conflict with the public interest. Can Moorlach and Glazer transform this rising awareness into momentum for reform in California’s state Legislature?

Despite sharing in common the courage to confront California’s most powerful and most unchecked special interest, Moorlach and Glazer belong to opposing parties whose mutual enmity is only matched by their fear of these unions. With rare exceptions, California’s Democratic politicians are owned by government unions. Fewer of California’s Republican politicians are under their absolute control, but fewer still wish to stick their necks out and be especially targeted by them.

The good news is that bipartisan, centrist reform is something whose time has come. Democrats and Republicans alike have realized that California’s system of public education cannot improve until they stand up to the teachers unions. Similarly, with the financial demands of California’s government pension systems just one more market downturn away from completely crippling local governments, bipartisan support for dramatic pension reform is inevitable.

There are other issues where voters and politicians alike realize current policy solutions are inadequate at best, but consensus solutions require intense dialog and good faith negotiations. An obvious example of this is water policy, where the current political consensus is to decrease demand through misanthropic, punitive rationing, when multiple solutions make better financial and humanitarian sense. Supply oriented solutions include upgrading sewage treatment plants to reuse wastewater, building desalination plants, building more dams, increasing cloud seeding efforts and allowing some farmers to sell their allocations to urban areas.

Imagine a centrist coalition of politicians, led by reformers such as Moorlach and Glazer, implementing policies that are decisive departures from the tepid incrementalism and creeping authoritarianism that has defined California’s politics ever since the government unions took control. How radical would that be?

Ultimately, forming a radical center in California requires more than the gathering urgency for reforms in the areas of education, government compensation and pensions, and, hopefully, infrastructure investment. Beyond recognizing the inevitable crises that will result from inaction, and beyond finding the courage to stand up to government unions, Moorlach and Glazer, and those who join them, will have to manifest and pass on to their colleagues an empathy for the beliefs and ideologies of their opponents.

Ideological polarities – environmentalism vs. pro-development, social liberal vs. social conservative, libertarian vs. progressive – generate animosity that emotionalizes and trivializes debate on unrelated topics where action might otherwise be possible. The only solution is empathy. The extremes of libertarian philosophy are as absurd as those of the progressives. The extremes of social liberalism can be as oppressive as an authoritarian theocracy. Economic development without reasonable environmentalist checks is as undesirable as the stagnant plutocracy that is the unwitting consequence of extreme environmentalism. And while government unions should be outlawed, well regulated private sector unions play a vital role in an era of automation, globalization, and financial corruption.

Despite being inundated with a torrent of slime by their opponents, John Moorlach and Steve Glazer took the high road in their campaigns. They are worthy candidates to nurture the guttering remnants of empathy that flicker yet in Sacramento, and turn them into a roaring, radical centrist fire.

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

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California’s Government Unions Collect $1 Billion Per Year

May 21, 2015 By CPR Editors Leave a Comment

PileOfMoney“If you say there is an elephant in the room, you mean that there is an obvious problem or difficult situation that people do not want to talk about.”

–  Cambridge Dictionaries Online

If you study California’s Legislature, it doesn’t take long to learn there’s an elephant in both chambers, bigger and badder than every other beast. And considering the immense size of that elephant, and the power it wields, it doesn’t get talked about much.

Because that gigantic elephant is public employee unions, and politicians willing to confront them, categorically, in every facet of their monstrous power and reach, are almost nonexistent.

Government reformers and transparency advocates are fond of attacking “money in politics.” They attack “soft money” and “dark money.” Most of the time, these reformers are on the so-called political left, concerned that “rich billionaires” and “out-of-state corporations” have too much political influence. They are misguided and manipulated in this sentiment. Because billionaires contribute to both major political parties (and both political wings) roughly equally, and the largest corporations – in state and out of state – play ball with the government unions because, as monopolies or aspiring monopolies, large corporations and government unions have an identity of interests that far outweighs any motive for conflict. At the state and local level in California, there is no amount of money, anywhere, that comes close to the sums that are deployed by government unions to control our government.

Thanks to a lack of transparency so thick that public corporations, and even private sector unions, are required to submit far more publicly available reports on their operations than public sector unions, it is almost impossible to estimate how many government union members there are in California. From the U.S. Census we know that California’s “full-time equivalent” state workforce numbers 397,348, for local governments, 1,313,344, meaning there are – on a full time basis – about 1.7 million state and local workers in California. But how many of them pay dues? And what is their total statewide revenue?

If you turn to the 990 forms that government unions file with the IRS, you’ll note that the California Teachers Association’s 990 reported “dues revenue” of $172.3 million in 2012. You’ll also know they were sitting on $100 million in cash and securities, net of all long and short term liabilities and not including their fixed assets and real estate. But that’s just the financials for the CTA’s state office. If you search for “California Teachers Association” on Guidestar, here’s the message you get on the results screen: “Your search for California Teachers Association produced 1,083 results.”

As we noted in a 2012 CPC study entitled “Understanding the Financial Disclosure Requirements of Public Sector Unions:”

Most of the statewide unions, such as the CTA, the CSEA, the CFT and the CPF, collect revenue from members through their local affiliates, which themselves retain most of the money for local collective bargaining and political expenditures. There are over 1,300 CTA local affiliates, 20 (public sector) SEIU local affiliates, 42 AFSME local affiliates, 45 AFT local affiliates, several hundred CSEA (School Employees) local affiliates, and hundreds of CPF (Firefighter) local affiliates. Then there are federations of various unions, such as the California State Employees Association and the Peace Officers Research Association of California, which also collect revenue from members through local affiliates.

There are over 6,000 local government union organizations in California, each of them an independent financial entity, each of them merely required to file a minimal 990 form that barely, and with a maddening lack of clarity, discloses financial transfers between entities. Against this opacity, there is no precise way to learn just how much money California’s public sector unions collect every year, no way to determine how many members they’ve got, no way to determine their annual dues assessments.

An article published nearly five years ago on UnionWatch, “Public Sector Unions and Political Spending,” estimates the total annual dues revenue of California’s public sector unions at $1 billion per year. While the number of state and local government workers has actually declined slightly since 2010, the percentage of unionized state and local government workers has increased, as has their average pay upon which dues are calculated. That estimate, $1 billion per year, is probably still accurate.

Behind closed doors and off the record, Democrats resent government union power with increasing intensity. But apart from an isolated whisper here, a passing utterance there, they are silent. Just like their Republican colleagues who grasp for their own pathetically minute share of government union contributions, they fear the wrath of the elephant in the room at the same time as they keep taking the money.

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

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Libertarians, Government Unions and Infrastructure Development

May 7, 2015 By Ed Ring 2 Comments

 

“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

Infrastructure constructionAny 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 department 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.

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

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Eureka Faces Pension Headwinds – Just Like Every Other California City

March 29, 2015 By Ed Ring 8 Comments

The city of Eureka on the far north coast of our state is part of a fabled land, far removed from the rest of drought stricken California. The winds that the ridiculously resilient ridge of high pressure push north find welcoming mountains and canyons in and around Eureka, drenching them with rain, nourishing endless groves of the tallest trees on earth, the magnificent coast redwoods. Gushing rivers run through thick green forests scented with maritime air. Downtown, the mansions of the 19th century lumber barons defy time, marvelous, intricate, stunning. And on postcard perfect shorelines, the rugged Pacific surf surges against the rocks. It’s hard to imagine a more beautiful place.

But when it comes to government unions making sure their compensation crowds out any hope of fiscal sanity, Eureka is as ordinary, and as challenged, as every other city in California.

A few weeks ago the California Policy Center released a study “California City Pension Burdens” that compiled key financial indicators for every city in California. When it came to pension contributions as a percent of general fund revenue, the city of Eureka made the top ten. That is, in 2015, Eureka will send 11.3 percent of its entire incoming revenue from taxes and fees to the giant pension fund, CalPERS.

These findings, covered in the Eureka Times-Standard, earned this rebuke in a guest editorial submitted by Eureka City Councilmember Linda Atkins on March 17th:

“… the California Policy Center, a renowned conservative pressure group disguised as a “think tank” that’s out to push the California public into believing that they deserve government services for free and that a secure retirement is only for those with enough income to provide it for themselves. Their hope is to dismantle all reliable retirement systems, including Social Security, so that you and I will live a frightening old age in poverty, while the execs and corporations rake in the billions.”

One may attack the messenger, or face facts. The city of Eureka has an officially recognized unfunded pension liability of $53 million, which equates to $4,529 per household. That number, of course, does not include the additional liability facing local taxpayers for Humboldt County’s pension liabilities, or local school districts, or state agencies. And if there is another market downturn, these unfunded liabilities and the city’s required annual contribution will go way up.

No reasonable person expects government services to be free. But in Eureka during 2013 the average full time police officer collected pay and benefits – including the city’s contribution to CalPERS – of $110,280; the average full-time firefighter, $120,243 (download spreadsheet). The average pension collected in 2013 by retired city employees with 30+ years of service, public safety and miscellaneous combined, was $58,397. All of this in a town with a median household income of $36,393 and an unemployment rate of 9.7 percent. It should be possible to question these rates of pay and pensions for Eureka’s city employees while still respecting and appreciating the work they do.

To set Ms. Atkins’ mind at rest, on the topic of retirement security, here are just two of the California Policy Center’s well-documented recommendations for rescuing the finances of cities and counties in California, including Eureka:

(1) Preserve Social Security by enrolling every government employee in the program, subject to the same rules and benefit formulas that apply to current participants. In terms of return on investment, Social Security pays high income individuals far less in retirement compared to low income individuals. Therefore, because government workers make so much more than private sector workers, enrolling America’s millions of highly compensated government workers in Social Security would significantly reduce any eventual financial challenges the system will face.

(2) Preserve defined benefit pensions for government employees by changing the benefit formulas, retroactively, to the precise annual multipliers and retirement ages that were in effect prior to 1999, when pension bankers and unions began pressuring politicians into enhancing these benefits, retroactively, to levels far beyond what is fair to taxpayers or financially sustainable. Alternatively, simply suspend pension cost-of-living increases, change benefit formulas prospectively, and raise employee contribution rates, until the systems are 100% funded.

We invite Ms. Atkins to identify any “right wing pressure group,” anywhere, that supports either of these recommendations.

Atkins is at her most thoughtful when she describes the crash of 2008. She writes:

“Then came the criminal actions from Wall Street that caused the Great Recession, where risky mortgages were “bundled” into investment instruments that were sold to many retirement funds as “safe” investments. Investing in Americans’ mortgages used to be very safe; people were vetted very well before they were given the opportunity to buy a home. Then came Wall Street with “sub-prime” mortgages, giving loans to people who never had a chance of being able to pay them back. The banks then bundled these loans and offered them as stable investments. Then came the crash of 2008. Who got hurt? All the pension fund investors who purchased the bogus “bundles” and of course the rest of America who lost jobs, homes and futures because of the greed and avarice of those Wall Street bankers.”

All true. But what Atkins doesn’t care to admit is that public sector pensions are the last, best con job of the most corrupt among these “Wall Street bankers.” Just as people bought overpriced homes who could never afford to pay them back, pension funds – who are the biggest players on Wall Street – are pretending they can earn high-returns forever. And just like the big bankers, the pension funds expect taxpayers to bail them out.

There is a hypocrisy involved in lumping advocates for pension and contribution reform in with “execs and corporations” who “rake in billions.” Because the high returns pension funds currently earn depend on a rising stock market, jacked up by debt fueled, unsustainable consumer spending. Without corporate profits, corporate stocks don’t appreciate, and pension funds go broke. No profits, no pensions.

The hypocrisy doesn’t end there. When pension funds struggle financially – which they will more than ever when we return to sustainable rates of asset appreciation – the government unions and their supporters call on us to “tax the rich.” But those taxes aren’t for us. Those taxes are to pay government employees twice as much, or more, as ordinary private citizens.

But all of this is far too big to constitute a “sound bite,” so none of it can possibly be true, right Councilmember Atkins? It’s much easier to suggest that any criticism of pension excess must emanate from a “right wing pressure group.”

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

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