See Tax Increases, Think Pensions

Despite the ridicule heaped on bonuses offered public workers for simply doing their jobs – just one prime example: a librarian earning a bonus for helping members of the public find books – the California Retirement System (CalPERS) board last week made sure the bonuses added to salaries will be part of pension calculations.

While the exact cost to taxpayers is uncertain, the price tag for pensions because of this move is certain to go up. State and local governments have contributed four times to CalPERS what they contributed just a decade ago.

Local budgets are being eaten away by the pension and health care obligations. In the City of Los Angeles, for example, pensions costs took 3% of the city budget in 2002-3, it was eating 18% of the budget in 2012-13.

Or as an official with the Wall Street rating service Fitch was quoted in a recent Los Angeles Times article concerning the 99 new bonuses that increase pensions, “Cities and taxpayers will undeniably face higher costs. Pensions are taking a bigger share of the pie, leaving less money for core services.”

So, what’s the magic formula officials and activists look to cover these increased costs? Taxes.

They’ll never say that, of course. They’ll argue that new tax money is needed for direct services for residents. But, the bonuses, which appear less than deserved, and their inclusion in the pension calculations, shows there is little regard for taxpayers.

As the Los Angeles Times article noted, “With $300 billion in investments, CalPERS estimates it still needs an additional $100 billion from taxpayers to deliver on its promised pensions to 1.7 million public workers and retirees. That amount would be enough to operate the 23-campus California State University system for 16 years.”

Expect a push for more taxes.

As reported here last week by David Kline of the California Taxpayers Association, 53 jurisdictions are seeking sales tax increases and 40 are asking voters to approve parcel taxes. When you see tax increases on the ballot think pension costs. Money in government budgets is fungible to some extent. If you cover specific agency costs with a tax increase, that frees up general fund money for other items, including pensions.

There are groups of liberal activists who are spending time right now trying to figure out how they can convince voters to agree to a number of tax increases all at once on the 2016 ballot – an extension of Proposition 30, a property tax increase for commercial property, an oil severance tax, a cigarette tax and who knows what else.

If and when you see those tax increases on the ballot, think pensions.

Until there are reforms put in place in the pension system so that taxpayers are not forced to cover someone else’s unreasonable pension costs – like costs tied to bonuses that are part of the job description — while struggling to save for their own retirement, the argument for more tax revenue is impossible to justify.

A sidebar to the Times article listed some of the 99 bonuses that will boost pensions. You can find them here.

This article was originally published on Fox and Hounds Daily.

Minimum Wage Truth and Consequences: Who’s Listening?

Let’s hope that voters become more engaged in the minimum wage debate than some elected officials.

Voters will be subject to counterarguments in the minimum wage debate. Raising the minimum wage will undoubtedly make things better for minimum wage workers – more to spend, raising some out of poverty. At the same time it likely will cost some minimum wage workers their jobs and raise costs for all consumers, including, of course, those minimum wage workers who get a raise.

California cities are in the forefront of the debate. San Francisco voters will consider raising the minimum wage from $10.74 an hour to $15 by 2018. Oakland voters will be asked to raise the minimum wage from $9 an hour to $12.25 by March 2015. San Diego faces a referendum in two years over a minimum wage increase passed by the city council over the mayor’s veto.

In Los Angeles, the mayor is proposing a $13.25 minimum wage with future increases tied to inflation. The L.A. City Council couldn’t wait. They already passed a $15.37 minimum wage for hotel workers and some councilmembers want to introduce a minimum wage increase to $15.25 for all city workers by 2019.

The Congressional Budget Office laid out the consequences of raising a federal minimum wage from $7.25 an hour to $10.10 an hour. Most workers would receive higher pay, some would lose their jobs, and the share of low-wage workers who are employed would fall.

There is the additional concern of setting off some inflationary movement as costs go up putting pressure to raise wages across the board.

Many businesses worry about continued government dictates to business. Small business in particular is worried how raising the minimum wage will affect their ability to hire new employees or even to stay in business.

The job loss threat should be considered real. When the Los Angeles City Council passed the minimum wage for hotel workers, economist Christopher Thornberg opined in the Los Angeles Times after studying the matter for the council that the results of his study “strongly suggest that such a steep increase in the minimum wage could result in a sharp decline in the number of jobs in the hotel industry.”

More troubling was Thornberg’s assertion that the council didn’t bother to look at his findings. Thornberg wrote, “But the City Council never seemed interested in really examining the potential economic consequences of the ordinance. We got our instructions about what questions to address just two weeks before the vote, and we were surprised to learn that the council intended to vote on the day after we turned in our final analysis, which suggests none of the members spent time looking at our findings.”

Further, Fernando Guerra, head of the Center for the Study of Los Angeles at Loyola Marymount College said of the message sent to the business community opposing the hotel minimum wage increase, “This decision seemed to say: ‘Not only are you going to lose, we’re not going to listen to you. You’re a non-factor.’”

Will those members of the business community who oppose the minimum wage increase have any better luck with the voters? History indicates that voters tend to support minimum wage increases.

Importantly, will the voters be willing to listen to arguments about the consequences of raising wages and balance that against any pluses that come with the government order?

A possible outcome of the minimum wage debate may produce a third way. Call it job wage classification: for example, increasing pay for some minimum wage jobs but keeping a lower cap on other jobs for new workers so they can enter the job market.

Job wage classification may occur because the one size fit model doesn’t satisfy all companies, especially small businesses. But be wary and concerned about such a move. Job wage classification for minimum wage is more micromanaging government interference with businesses.

This article was originally published on Fox and Hounds Daily

 

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