Stockton and Detroit Exit Bankruptcy Leaving Pension Systems As-Is

The landscape for public employee pensions shifted in 2014 as federal judges gave credence to the idea that pension benefits may be cut in bankruptcy. This challenges the long held idea that pension benefits are impervious to cuts and most observers are wondering just how significant this shift will be going forward.

This fall, city leaders watched as federal judges approved debt-cutting bankruptcy plans in Stockton and Detroit, ending two of the largest municipal bankruptcy cases in U.S. history. Many speculated both cities could do more to ease their fiscal problems by making significant cuts and structural changes to public pensions. However, both judges demurred and moved forward with plans that eased a portion of the cities’ financial obligations, but largely protected pensions. The failure to significantly address public pension debt and make structural changes to the pension systems in both Stockton and Detroit does not bode well for the economic future of either city post-bankruptcy. It also presents an interesting conundrum for other cities in dire fiscal distress that bear significant pension costs and unfunded liabilities. Are more cities to follow the path to pension cuts in bankruptcy?

In Detroit, the nation’s largest municipal bankruptcy case ended on November 7, fifteen months after it began. The restructuring plan approved by Judge Steven Rhodes slashed $7 billion in debts with bondholders receiving between 14 and 74 cents on the dollar back from the city. Public pensioners did not see cuts as deep, thanks in part to the likes of Van Gogh and Renoir. Detroit’s so-called “grand bargain” transferred ownership of part of the Detroit Institute of Arts collection from the city to the nonprofit running the museum for $816 million. The money, to be paid out over 20 years, comes from state taxpayers and privately-donated funds raised to offset deeper pension cuts. Pensioners in Detroit’s general retirement system are taking a 4.5 percent cut to their monthly pension check, will no longer receive cost-of-living adjustments, and will see a reduction in medical benefits. Some members who received excess annuity payments from the city will also be required to pay them back. Police and firefighter pensioners will only see a reduction in cost-of-living adjustments from 2.25 percent to 1 percent annually.

The pension cuts, which have been called “modest” by both the Wall Street Journal and NPR are exactly that. Detroit’s unfunded pension benefits are still a risk to the city’s fiscal health. And the system still relies on unrealistic rates of return when calculating required pension system contributions—the General Retirement System assumes a 7.9 percent annual return and the Police and Fire Retirement System assumes 8.0 percent, even though the city has only been earning an average of 5.89 percent for the general system and 5.5 percent for the police and fire system over the last 10 years, from 2004 to 2013.

In Stockton, even less was done to address the city’s pension problems despite a golden opportunity to make significant reforms. On October 1, Judge Christopher Klein ruled that the city could reduce its payments to CalPERS and exit its contract with the pension administrator if the city wanted. It was in his purview to cut the pensions if he saw that as the city’s best course of action. But the city chose not to modify its pension benefits or leave CalPERS. On October 30, the fourth largest U.S. municipal bankruptcy case was settled when Judge Klein approved Stockton’s bankruptcy plan, leaving existing pension benefits intact. The city agreed to pay most bond creditors between 50 to 100 cents on the dollar. Investment firm and Stockton creditor Franklin Templeton received only $4.3 million back from a $36 million loan (or 12 cents on the dollar).

Judge Klein noted the reason he left public pensions untouched was because public workers had already suffered other cutbacks, including having their salaries and healthcare benefits reduced, and because redoing current employee pensions would not be a simple task. Franklin Templeton disagrees and is appealing the judge-approved plan at the Ninth Circuit Court for further remedies.

The so-called “California Rule,” which means pension benefits cannot be reduced for current employees, was once thought to be ironclad, but Judge Klein’s ruling opens up the possibility for a future bankrupt California city to challenge it by choosing to cut pensions or leave CalPERS entirely if the city ends up in bankruptcy. Some thought that San Bernardino, another city battling with CalPERS, may take this route. Yet after Klein’s October 31 ruling on Stockton, San Bernardino decided to pay full fare despite the fact that they had previously tried to reduce their payments to CalPERS. Like San Bernardino, Stockton missed an opportunity to shrink its $29 million annual pension costs that have led to both reduced services for the citizens of Stockton and a new sales tax.

Granted, though there are not a lot of cities currently positioned to challenge the California Rule, Moody’s Investors Services points out that Judge Klein’s October 1 ruling allowing cities to cut pensions may give cities more negotiating power with public sector unions. In reality, reducing pension benefits is likely only an option for larger cities where pension obligations and general fund costs make it reasonable to wager tens of millions of dollars on the litigious process so that they can reduce their pension liabilities in the hundreds of millions or billions of dollars. Los Angeles and Chicago, anyone?

Both Stockton and Detroit are still saddled with billions in unfunded pension debt even after exiting bankruptcy. The bankruptcy plans that both cities presented and got approved did nothing to even chip away at existing pension debt. It is unlikely that either city will be able to contain the pension debt that devours their budgets unless structural changes are made to the current defined benefit pension systems they have in place. Other formerly bankrupt cities, like Vallejo, California, have struggled post-bankruptcy because of pension debt and the same type of budgetary problems affecting Stockton and Detroit.

This is only the first couple of rounds of a long bout, as we learned from the lengthy reform processes in San Diego and San Jose. Pension systems like CalPERS have deep pockets and one can sympathize with the city manager or attorney who decides not to go for the option of challenging the increasing costs of pensioners even though legal precedence is tilting in their favor. No doubt, without substantive reform that provides for an affordable and secure retirement system for both the retirees and taxpayers, that pays down the debts sooner rather than later and requires that these jurisdictions pay their full pension costs, Detroit and Stockton will likely be back before a judge begging for more protection. Just ask Vallejo.

Lance Christensen is Director of the Pension Reform Project at the Reason Foundation, and Victor Nava is a Policy Analyst at the Reason Foundation.

An Economic Win-Win For California – Lower the Cost of Living

A frequent and entirely valid point made by representatives of public sector unions is that their membership, government workers, need to be able to afford to live in the cities and communities they serve. The problem with that argument, however, is that nobody can afford to live in these cities and communities, especially in California.

There are a lot of reasons for California’s high cost of living, but the most crippling by far is the price of housing. Historically, and still today in markets where land development is relatively unconstrained, the median home price is about four times the median household income. In Northern California’s Santa Clara County, the median home price in October 2014 was $699,750, eight times the median household income of $88,215. Even people earning twice the median household income in Santa Clara County will have a very hard time ever paying off a home that costs this much. And if they lose their job, they lose their home. But is land scarce in California?

The answer to this question, despite rhetoric to the contrary, is almost indisputably no. As documented in an earlier post, “California’s Green Bantustans,” “According to the American Farmland Trust, of California’s 163,000 square miles, there are 25,000 square miles of grazing land and 42,000 square miles of agricultural land; of that, 14,000 square miles are prime agricultural land. Think about this. You could put 10 million new residents into homes, four per household, on half-acre lots, and you would only consume 1,953 square miles. If you built those homes on the best prime agricultural land California’s got, you would only use up 14 percent of it. If you scattered those homes among all of California’s farmland and grazing land – which is far more likely – you would only use up 3 percent of it. Three percent loss of agricultural land, to allow ten million people to live on half-acre lots.”

So why is it nearly impossible to develop land in California? The answer to this is found in the nexus between financial special interests, who benefit from asset bubbles, and powerful environmentalist organizations who apparently view human settlements as undesirable blights that should be minimized. In the San Francisco Bay Area, to offer a particularly vivid example, the Santa Cruz mountains are being targeted to be cleansed of human habitation. Instead of creating wildlife corridors, they are eliminating human corridors. Is this really necessary?

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If you are familiar with the San Francisco peninsula, you will see that the area proposed for the “Great Park of the Santa Cruz Mountains” encompasses nearly the entire mountain range. A coalition of environmentalist organizations and government agencies are proposing to create a park of 138,000 acres, that’s 215 square miles, in an area that ought to make room for weekend cabins, mountain dwellers, and vacation communities. Why, in a region where homes cost so much, is so much land being barred to human settlement? The pristine stands of redwoods in Big Basin and Henry Cowell State Park were preserved a century ago. There is nothing wrong with preserving more land around these parks. But do they have to take it all?

This is far from an isolated example. Urban areas in California, primarily Los Angeles and the San Francisco Bay Area, have been surrounded by “open space preserves” where future development is prohibited and current residents are harassed. Ask the embattled residents of Stevens Canyon in the hills west of the Silicon Valley, if there are any of them left. Once you’re in a “planning area,” watch out. Backed by bonds sold to naive voters, endowments bestowed by billionaires, and the power of state and federal laws that make living on any property at all increasingly difficult, the relentless land acquisition machine continues to gather momentum. Anyone who thinks there isn’t a connection between setting aside thousands of square miles in California for “habitat” and the price of a home on a lot big enough to accommodate a swing set for the kids needs to have their head examined.

It doesn’t end with open space that is actually purchased, cleansed of humanity, and turned into government ran preserves for plants and wildlife, however. Acquiring permits to build on any land is nearly impossible in California. Land developers who fight year round to try to build housing for people shake their heads in disbelief at the myriad requirements from countless state, federal and local agencies that make the permit process take not months or years, but decades. And it isn’t just farmland, or wetland, or special riparian habitats where development is blocked. It’severywhere. Even semi-arid rangeland is off limits for housing unless you are prepared to spend millions, fight for decades, and have the staying power to pursue multiple expensive projects simultaneously since many will never, ever get approved.

What is the result? Here is an aerial photo of a subdivision in the Sacramento area, one that every hedge fund billionaire turned environmentalist in California – especially one who runs cattle on his own special 1,800 acre fiefdom in the Santa Cruz mountains on a property that just happens to be in a “non-targeted area” – might consider living in for the rest of his life in order to understand the human consequences of his ideals – cramped homes on 40′ by 80′ lots, at a going price in October 2014 of $250,000. Notwithstanding being condemned to a claustrophobic existence at a level of congestion that would drive rats in a cage to madness, $250,000 is a pittance for a billionaire. But for an ordinary worker, $250,000 is a life sentence of mortgage servitude. And even this, the single family dwelling, is under attack by “smart growth” environmentalists and public bureaucrats who prefer density to having to divert payroll and benefits to finance infrastructure. The excess! The waste! Stack them and pack them and let them ride trains!

Priced to Sell at $250,000 – Housing for Humans on 40′x80′ Lots

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When public employee union leadership talk about the importance of paying their members a “middle class” package of pay and benefits, they’re right. Government workers should enjoy a middle class lifestyle. But they need to understand that the asset bubbles caused by high prices for housing are not only making it necessary to pay them more, but are also creating the inflated property tax revenue that they rely on for much of their compensation. They need to understand that the phony economic growth caused by everyone borrowing against their inflated home equity is what creates the stock market appreciation that their pension funds rely on to remain solvent. And they need to understand that all of this is a bubble, kept intact by crippling, misanthropic land use restrictions that hurt all working people.

There is another path. That is for public employee union leadership to recognize that everyone deserves a chance at a middle class lifestyle. And the way to do that is not to advocate higher pay and benefits to public employees, but to advocate a lower cost of living, starting with housing. One may argue endlessly about how to regulate or deregulate water and energy production, essentials of life that also have artificially inflated costs. But as long as suburban homes consume less water than Walnut orchards – and they do, much less – build more homes to drive their prices way, way down. There’s plenty of land.

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

Obama Admin Plots New Teacher Training Regulations

Fed up with teacher education programs it believes routinely underperform, the Obama administration wants to compel states to start rating the programs programs based on how well they prepare students for the profession.

And teachers are not happy about it.

Recently, more focus has given to the perceived need to boost the quality of America’s teachers, especially in the country’s most struggling schools. Activists on every side of the debate have pushed a variety of solutions, from restricting tenure so that ineffective teachers can be easily fired to greatly boosting teacher pay so that better teaching candidates are attracted to the profession.

A new rule announced by the Obama administration on Tuesday night attempts to influence teacher quality at the source, in the country’s hundreds of different teacher education programs. The rule will, for the first time, compel each state to establish standards for evaluating and rating training programs for teachers. Programs that are found lacking in each particular state will in turn be punished with the loss of certain federal funds.

Currently, the federal government dispenses TEACH grants to education students who agree to begin teaching in disadvantaged schools after graduating. The grants are up to $4,000 per student and amount to over $150 million per year. Under the newly announced rule, TEACH grants will no longer be universally available, but will instead only be granted to aspiring teachers attending programs that are found to be performing well by their state.

Whether a teacher-training program is up to snuff will be based on a variety of factors, including what percentage of its graduates quickly find jobs, how well the program is evaluated by graduates, and, critically, how well graduates’ students perform on standardized tests.

The proposal to incorporate testing into the evaluation of teacher programs has many traditional Obama allies up in arms. Since students in disadvantaged schools almost always perform worse on standardized tests, they argue, the rule could end up cutting off funds to the programs that are sending the most new teachers into disadvantaged schools.

The American Federation of Teachers (AFT), the country’s second-largest teachers union, swiftly released a statement condemning the plan, saying it showed a lack of vision.

“By replicating the K-12 test-and-punish model…the administration is simply checking a box instead of thoughtfully using regulations to help craft a sustainable solution that raises the bar for the teaching profession,” said AFT president Randi Weingarten. Weingarten added that the administration’s action would be ludicrous if applied to any other field. ”Would you rate the dental school programs that serve low-income communities, where patients come in with a high number of cavities, unsatisfactory? No,” she said.

The National Education Association (NEA), the country’s largest teacher union, was more charitable in its outlook, lauding the desire to improve teacher education but also noting that they “are opposed to the use of flawed tests and value-added measures to make high stakes decisions about students, teachers, or teacher preparation.”

Secretary of Education Arne Duncan defended the government’s proposal, telling the press that test scores are necessary to see whether students are improving under certain teachers. More broadly, he said, a federal nudge was needed because many states are failing to hold teacher education programs accountable in any way.

Foes, however, might be able to use the Department of Education’s own rhetoric against it. In a press release announcing the planned rule, the Department lauded recent efforts in over ten states to either collect more information on their teacher prep programs or hike the admissions requirements at the schools themselves. If so many states are making progress as-is, opponents might reasonably suggest that a federal intrusion is unnecessary and could potentially hinder further innovation at the state level.

Unhappy teachers will have ample time to work against the proposed rule if they so choose. While the final rule publication is planned for 2015, states would only be expected to start gathering the relevant data in 2016, and full implementation with the potential loss of federal funding will only arrive at the end of the decade, as Obama is leaving office.

This article was originally published by the Daily Caller News Foundation

“Unfinished Business”: Chuck Reed’s Just Getting Started On Pension Reform

All Chuck Reed needs is $25 million, and that’s all he needs.

“For me, it’s unfinished business,” says Reed, the outgoing mayor of San Jose, California. “I’m stubborn, persistent, whatever you want to call it.”

He’s talking about his plans for a statewide pension reform initiative in 2016; the $25 million is the cost of taking the message to the streets. While some observers may have thought he’d abandoned reform after his abortive 2014 attempt, Reed says he’s just getting warmed up.

“The fight will continue,” he says. “I’m going to work on fiscal reform issues, on the state and national level.”

For Reed, it’s personal.

“The problem is still threatening my city,” he says. “Retirement costs continue to go up, and this year the costs ate up all my revenue.”

And this was after voters in San Jose passed pension reform.

Since 2005, the number of retirees in the California Public Employees’ Retirement System (Calpers) with six-figure pensions has tripled, and pension debt for local governments is expected to increase by as much as fifty percent over the next five years.

Reed says something’s gotta give.

“The legislature is not going to take action,” he says. “So the best approach is working at the local level to create political momentum with a statewide initiative, allowing voters to go over the head of the legislature.”

Although he’s still hashing out what the initiative will look like, he says the main thrust will be to give state and local governments authority to alter future pension formulas for current employees.

“The retirees are the last people who should be impacted because they’re already retired,” he says. “That’s why I focus on current employees, because they still have the capacity to earn. The younger employees understand that it’s something that’s not sustainable, and they are the ones who are going to get hurt.”

Among the members of Reed’s reform posse are Stephanie Gomes, a former vice mayor of Vallejo, who was also a member of its city council while it clawed its way through bankruptcy.

“Our elected officials have to get off their behinds and represent the people who elected them,” says Gomes. “I don’t have faith that’s going to happen, so it’s got to be the will of the people to get our fiscal house in order, to get it right for the taxpayers and the employees, who still deserve a pension. It has to work for both.”

Like Reed, Gomes is a Democrat who says she’s been painted “as a Republican, against working families.”

“The public sector labor unions have become what they were formed to fight,” she says. “It’s about them protecting their own interests and they were lucky enough to get those high pensions and benefits, and they’re not going to let them go without a fight.

“This fight is not about ‘R’ or ‘D,’ it’s about services that we’re not getting any more because of these high pensions.”

“Calpers is raising rates,” she says. “They can just hold our their hand and say ‘give it.’ Cities at some point are going to have to cry uncle. When they can’t pay Calpers, it’s all going to topple down, because cities are in a straightjacket.”

A spokeswoman for Calpers says they won’t speculate on the proposed ballot measure, but in regards to the 2013 initiative, Calpers commented “that any changes to pension benefit levels should be determined by the employer and the employees, and not at the ballot box.”

Gomes believes the only chance for change is at the ballot box. A turning point came for her during an all-time low on her time in city government.

“It was the night the Vallejo city council, in the middle of bankruptcy, still approved a new police contract that had raises for two years and free medical,” she says. “I’m in the minority and watching the lights go up, and it was the most painful moment of my career in public service. They were serving the special interests that paid to get them in office.”

Protecting the status quo is big business in California. Unions spent $85 million in 2012 to support Governor Brown’s tax hike and to defeat a measure that would have prohibited collecting union dues for political campaigns. Since 2002, the California Teachers Association has spent about $170 million on political campaigns, according to the National Institute on Money in State Politics. The CTA just spent $11.2 million on independent expenditures to re-elect State Superintendent of Schools Tom Torlakson against an education reform candidate.

Another California mayor working closely with Reed, Anaheim’s Tom Tait, says it’s about gaining the power to act locally.

“To even begin to fix an unsustainable system, California cities need the ability to locally negotiate future pension earning formulas,” says Tait. “It is clearly in everyone’s best interest to address this problem sooner rather than later. The longer the state delays, the fewer options there are, and none of them easy.”

Marcia Fritz, a pension reform advocate and Democrat who advised Governor Brown on his 2012 pension reform law known as PEPRA, says Reed and his team should be meeting with Brown now. In 2012, she helped convince Brown’s advisors the only way they’d get their Prop 30 tax increase passed is if they enacted pension reform.

Fritz says today, the song remains the same.

“Brown needs to give the voters something in order to get them to agree to extend the Prop 30 tax increase,” she says. “He may ask to make the tax increase permanent to keep teachers’ retirement funds solvent. So, he might just embrace Reed’s measure to get buy-in.”

She says the recent Stockton bankruptcy decision, where a federal judge declared pensions can be cut during bankruptcy, is spooking unions and that Reed can capitalize on this fear.

In a written statement, Calpers CEO Anne Stausball commented that the federal ruling is not legally binding on any of the parties in the Stockton case, and when Stockton got the greenlight to emerge from bankruptcy without cutting pensions, Stausball noted: “The judge recognized that the city’s employees and retirees have already made significant concessions.”

While Reed’s hitting the trail to raise the major funds needed for a statewide initiative, he’s got a few items of business to clear up. He’s waiting for a hearing date on a lawsuit against California Attorney General Kamala Harris over the description of a previous pension initiative. The lawsuit claims the initiative’s wording was fatally biased.

He also initiated a federal corruption probe into the San Jose Police Association, claiming its union president fouled up recruitment efforts. The SJPD counterpunched, initiating an investigation of Reed.

It’s all bare knuckle politics, and it all takes time, something California may be running short on.

Reed says he’s undeterred.

“The pain of doing nothing is worse than the pain of taking on the issue,” he says.

This piece was originally published at Fox and Hounds Daily

Former Investigative Producer for Fox 11 News in Los Angeles and the Creator and Host of the Economic Series, “Saving the California Dream.” She is currently directing a film on the nation’s public pension crisis.

Californians Vote for More Taxes and More Borrowing

It has been argued that California’s voters defy their political stereotype when it comes to taxes. California’s property tax revolt in 1978 resulted in the passage of the historic Prop. 13, which limits property tax increases to 2 percent per year. As recently as 2009, California’s Legislature joined with Gov. Schwarzenegger to place Propositions 1A through 1E on the state ballot. All of them would have raised taxes, and all of them were defeated by voters.

That was then.

In 2012 Californians voted to raise sales and income taxes through Proposition 30, which supposedly was designed to collect an additional $6 billion per year to fund public education. And while 2014 did not include major new tax proposals on the state ballot, in cities, counties and school districts throughout California, tax and bond proposals were placed before voters. Most of them passed.

In the June 2014 primary, 47 local bond measures were proposed, with 36 of them passing. Also in June, 44 local tax increases were proposed, and 36 of them passed. That was just a warm-up for the November 2014 election, where 118 local bonds – most of them for public education – were proposed, along with a staggering 171 local tax increases. At last count, 72 of the bond proposals were passed, 15 were defeated, and 31 remain too close to call. Of the 171 local tax proposals, 98 were passed, 45 were defeated, and 28 are still too close to call.

These local tax proposals are necessary to meet runaway employee compensation costs, especially for pensions. These local bond measures are largely to fund deferred maintenance, activities that might have been funded through operations budgets if it weren’t for excessive compensation and benefit costs.

In Stanton, a city where local firefighters average $221,000 per year in pay and benefits, and local sheriffs average $112,000 per year in pay and benefits, a 1 percent increase to the local sales tax was approved by 54 percent of the voters. In Palo Alto, where the local firefighters “only” receive pay and benefits that average $181,000 per year, and the local police officers earn pay and benefits averaging $164,000 per year, a 2 percent increase in their hotel tax was approved by 75 percent of voters.

In California in 2014, based on returns so far, if a local city or county wants to raise taxes, there is a 72 percent chance voters will approve them. If a school district wants to borrow money – over $11 billion just this November – there is an 81 percent chance voters will approve them. And if the proponents of more taxes and borrowing are unlucky, they can always try again the next election. The odds are in their favor.

Local taxes and borrowing matter. California has relatively decentralized governance. Of the roughly $430 billion in estimated state and local spending in California for the fiscal year ending 6-30-2015, only $107 billion of that is state government spending. Estimating total state and local government debt in California is nearly impossible because the largest single borrower, K-12 school districts, have not submitted their financials to the State Controller for consolidation since 2002. But a California Policy Center study from April 2013 estimated total state debt from all sources at $132 billion, whereas the same study estimated total local government debt in California at over $250 billion. That estimate relied on 2011 and 2012 data, grossly underestimated K-12 bond debt, and did not include any unfunded liabilities for pension and retirement healthcare.

When it comes to taxes, borrowing, and overspending, most of the action in California is at the local level. And there should be no question that current spending levels are financially unsustainable. If all California’s state and local pension systems had to do was account for their liabilities according to the same rules that have governed private sector pension plans for years, California’s state and local debt – including unfunded liabilities – would be well over $1 trillion. Moreover, such reforms – playing by the same rules as the private sector – would grossly increase the ongoing normal cost to funding pensions for state and local government employees.

Sooner or later California’s taxpayers are going to wake up. Because the Government Accounting Standards Board, Moody’s Investor Services, and eventually the U.S. Congress, are being compelled by financial reality to enact reforms to pension and retirement healthcare accounting, asset management, and funding. Once government entities have to follow the same rules as the private sector, spending will skyrocket or services will be scuttled. What we’ve seen so far, grievous though it may be, is nothing compared to what is to come.

There is an alternative. A bipartisan will to defeat government unions by an awakened populace. It may take a few more years, but it is inevitable – the hidden agenda behind all of these tax increases and new borrowings will be plain for all to see.

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

California’s New Coalitions Defy Conventional Definitions

The 2014 mid-term elections will be remembered for many things – pioneering use of information technology to comprehensively profile and micro-target voters, escalating use of polarizing rhetoric, historically low levels of voter turnout, and historic records in total spending. In California, in spite of all this money and technology – or perhaps because of it – the political landscape is probably not going to change very much this time around. But appearances can be deceiving. While Democrats will still control California’s state legislature and nearly all of California’s large cities and urban counties, new fault lines are forming within California’s electorate that defy conventional definitions of Republican and Democrat, or conservative and liberal.

Because as it is, California’s schools are failing, businesses and middle-income residents are fleeing, and the cost of living is the highest in America. Three powerful groups benefit from and perpetuate this arrangement with their money and their votes:  Wealthy individuals and crony capitalists, unionized public sector workers, and low-income residents who have become entirely dependent on government and are susceptible to their rhetoric. The terms of this alliance are financially unsustainable and even now, they harm low income residents more than they help them. It will crack as soon as a viable opposition coalesces. And that is happening.

Here are examples of how coalitions are forming that defy conventional definitions of Republican or Democrat, conservative or liberal:

(1)  Financial sustainability is a bipartisan issue.

California’s cities and counties, despite revenues from an unsustainable asset bubble that has bought them time, are on a collision course with financial insolvency. This reality has already confronted every big city mayor in California. Some, including Democrats like San Jose’s courageous mayor Chuck Reed, are trying to enact reforms to save their cities. Over 80% of the non-federal government spending in California is at the local level, and sooner or later, liberals and conservatives are going to join together to demand realistic financial reforms to restore financial health to California’s public institutions.

(2)  Quality public schools is a bipartisan issue.

California’s public schools will not be improved by spending more money, they will be improved by making fundamental reforms to how schools and school districts are managed. The Vergara lawsuit, funded almost entirely by conscientious Democrats, proves how committed everyone is to restoring accountability to public education. The success of charter schools proves that superior educational outcomes can be had for less money than is currently made available to public schools.

(3)  The mission of public sector unions is inherently in conflict with the public interest.

Both of the examples just mentioned – quality education and financial health – are the priority of any civic minded private citizen, but are not the priority of the public sector unions who control California politics. The reason California’s schools are failing is because of union work rules that prevent innovation and accountability. The reason California’s government finances are perennially challenged is because for decades, public sector unions have pressured politicians to grant pay and benefit increases that have become unfair and unaffordable.

(4)  Private sector unions are fundamentally different from public sector unions.

The growing rift within Democrats, and the growing consensus among all California voters, is based on a fundamental fact: Criticizing, or even abolishing, public sector unions does NOT represent an attempt at a broader war on labor, working people, or private sector unions. There are serious issues relating to the role and optimal regulations for private sector unions, but they play a legitimate, vital part in American society. Public sector unions, on the other hand, should be abolished.

(5)  No party, platform, or person has all the answers.

This is not a new reality, but today in California it is being increasingly recognized by reformers across the political spectrum. And there is a new, unifying theme – the need for public sector union reform, fostered through education reform and fiscal reform. While politicians and citizens may disagree over the size of government and the role of government, they are agreeing, more than ever, that government unions have skewed this debate and taken options away. Can we improve and enhance government services, or invest in ambitious new infrastructure projects? No, because tax revenue must pay over-market compensation to government workers. Can we streamline and modernize a government agency or effectively manage a school? No, because of union work rules.

New coalitions are forming that will not accept failing schools, or cities and counties in a perpetual state of financial crisis. They will fight together for educational excellence and fiscal health. And because nothing matters more than our children and our ability to earn a living, they will recognize the unpleasant truth – to restore public education and public finance requires fighting public sector unions.

In California, the outcome of the 2014 election is sadly predictable. But change is coming.

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

CA Teachers Brace for Impact on Election Day

The expensive race for California superintendent of public instruction may have the biggest education impact of any election Tuesday.

Regardless of its outcome, the race will send shockwaves across the country and set the national tone for how strong unionized teachers remain in an era of rapid change for public education.

The showdown is between incumbent superintendent Tom Torlakson and challenger Marshall Tuck, both Democrats. Torlakson easily won the primary over the summer, taking 46 percent of the vote to Tuck’s 29 percent (California uses a nonpartisan primary in which the top two candidates advance to the general election, regardless of party). Since then, however, the gap has narrowed tremendously, and the final outcome is completely uncertain. The final polls prior to Election Day show the candidates tied with 28 percent support each, while an incredible 44 percent of voters are undecided.

Torlakson is a pro-union Democrat, an individual representing the symbiotic relationship between Democrats and organized labor that has existed since before the World War II. A former science teacher, Torlakson spent years in California’s State Assembly and Senate, where he helped boost funding for after-school programs and low-performing schools by billions of dollars. As the state’s top education official, he has helped lead the legal battle against the Vergara v. California decision that gutted California’s tenure law and other generous job security protections that have made it excruciatingly difficult and costly for teachers in the state to be fired. He opposes using standardized test scores to evaluate teachers, is skeptical of charter schooling, and favors traditional union goals such as reducing class sizes.

Tuck, on the other hand, represents every trend in the Democratic Party that teachers fear. Unlike Torlakson, Tuck has never been a public school teacher, and his primary experience is as an administrator for various charter school efforts. He supports the Vergara court ruling, wants to tie teacher pay to performance and has pledged to shake up California schools that he says have grown too comfortable with poor performances on standardized tests. More broadly, he embodies a new movement in the Democratic Party, one willing to question whether the interests of teacher unions and students perfectly coincide. A win by Tuck would be an electoral vindication for Democrats who take up the mantle of aggressive school reform rather than the pro-union status quo.

Tuck also represents the growing role of business leaders in influencing educational policy. His campaign has been substantially helped by the generosity of a few big donors from the business world. Billionaire Eli Broad, the founder of SunAmerica and a major proponent of education reform, has given him at least a million dollars. Other big donors include former New York mayor Michael Bloomberg, Silicon Valley investor Arthur Rock, and Wal-Mart heiress Alice Walton. Among teachers, distrust for the intentions of these current and former moguls runs high, with many arguing the money comes not from altruism but rather from a desire to expand the operations of for-profit standardized testing companies, charter schools, and technology firms.

Tuck’s business ties have been furiously attacked, with one ad from the American Federation of Teachers labeling him a “Wall Street banker” (he worked in finance for a short period after college) and saying he would “turn our schools over to for-profit corporations.”

Tuck may have Wall Street on his side, but teachers have ensured he has no money advantage. The 325,000-member California Teachers Association and several other labor groups groups backing Torlakson have spent nearly $14 million to support his candidacy directly, along with another $7 million on issue ads that reflect positively on him. They’ve also spent close to $3 million on ads attacking Tuck. Altogether, spending in the race has surpassed $30 million, more than any other race in the state and among the most expensive non-gubernatorial state elections in the country’s history.

In this deep blue state, the final outcome of the race will be a critical bellwether about the state of education reform in the United States. For decades, teachers unions have provided Democratic candidates with money and volunteer muscle, helping them to win office and in return being rewarded with the strong pensions, benefits and job protections that offset relatively low salaries. Should Torlakson hang on, it will show that the public education establishment, despite all the attacks upon it from reformers, remain a tremendous force to be reckoned with and a potential kingmaker in Democratic politics. Should Tuck triumph, however, it will represent an overthrow of the old order, a changing of the guard that could last for years.

This piece was originally published at The Daily Caller News Foundation

Steven Greenhut: Brown pension plan going nowhere

From Redding.com:

Despite some encouraging details in Gov. Jerry Brown’s recently announced pension-reform proposal, there’s virtually no chance the state will seriously reform — or even seriously attempt to reform — a system creaking under the weight of up to an estimated $500 billion in unfunded liabilities.

The proposal isn’t bad. It doesn’t go far enough to fix the problem even if implemented in its entirety, but it goes further than most pension reform advocates had expected from a Democratic governor who, to date, has governed as an extension of the public-employee unions that elected him to office.

But the plan probably is dead on arrival in the union-dominated Legislature. One might even argue that Brown is being cynical here — offering reasonably tough reform proposals that he knows will go nowhere. Then he can claim that he has tried to fix the problem but could not surmount the insurmountable.

(Read Full Article)

The Union’s Occupation

Until recently, it’s been tough to pinpoint precisely where Occupy Los Angeles ends and public-employee union activism begins. For weeks, a large contingent of teachers’ union activists has mingled among the several hundred progressive malcontents encamped on the north lawn of Los Angeles City Hall. But the emergence of a new movement—“Occupy LAUSD”—will just about obliterate any distinctions between the two groups. Last week, 500 Los Angeles Unified School District teachers marched about a mile to demonstrate in front of their district’s headquarters. A few dozen hard-core activists joined them, camping out for five days before ending the “occupation” Saturday with a large union pep rally.

Truth is, parents and taxpayers—to say nothing of thousands of hard-working teachers—have plenty to gripe about. L.A. Unified is a picture of dysfunction, bureaucratic bloat, and massive waste. The second-largest school district in the United States, LAUSD has a $7 billion budget and enrolls (“educates” isn’t quite the word) around 600,000 students. The district is home to both the glistening, half-billion-dollar Robert F. Kennedy Community Schools complex, opened last year on the former site of the Ambassador Hotel (where Kennedy was assassinated in 1968), and Locke High School, one of the worst-performing high schools in California. Only 55 percent of LAUSD students graduate from high school after four years. The district is hindered, in large part, by its 350-page contract with United Teachers Los Angeles (UTLA), which enshrines seniority over quality and leaves younger, tatealented teachers most vulnerable to pink slips. Yet as Los Angeles education blogger Anthony Krinsky notes, despite three consecutive years of layoffs, “we have more teachers per student than we had 5 years ago, 10 years ago, 15 years ago, and 20 years ago.” For all of the manpower, student performance remains stagnant.

But the demonstrations at 4th Street and South Beaudry Avenue had little to do with those concerns. For Occupy LAUSD, all of the district’s problems could be solved with more money, more teachers, and less student testing. It’s no coincidence that the Occupy leaders were all top officials with the UTLA, which represents 40,000 LAUSD teachers, or that the marches and rallies preceded preliminary contract negotiations that had been scheduled for this week. What’s more, Occupy LAUSD got backing from the California Teachers Association (CTA), the California Federation of Teachers, and dozens of local teachers’ unions around the state. The CTA is the most powerful lobbying organization in Sacramento; it has spent more than $210 million in the past decade on lobbying, supporting liberal causes and Democratic candidates almost exclusively. The CTA’s state council recently authorized expending $8 million on next year’s elections, a number that’s likely to rise. (To be fair, however, new CTA president Dean Vogel wasn’t lying on Saturday when he counted himself among “the 99 percent.” With an annual salary of just under $290,000, Vogel is in merely the top 4 percent of American earners.)

Unlike the Occupy Wall Street protesters in Lower Manhattan, whose consensus-driven committees have offered an inchoate list of complaints and a hodgepodge of utopian remedies, Occupy LAUSD has issued demands easy to divine. They are precisely the same demands that UTLA has made for months, with derisive references to the rapacious “1 percent” tacked on to align the union’s public-relations campaign with the Occupy zeitgeist. Foremost among the demands is the union’s insistence that district officials use a $55 million budget surplus to rehire up to 1,200 teachers laid off in the past year. One teachers’ union activist—writing for the Socialist Worker, no less—summarized the larger goals of the occupation: “Tax the 1 percent to fully fund our schools; keep our schools public—by the 99 percent, for the 99 percent; and democratic community-based schools, not corporate Wall Street reform.”

District officials reacted to the union-led occupation with frustration and dismay. Superintendent John Deasy, a reliable liberal, professed his bewilderment at the protests in front of his office. “Occupy LAUSD is both misinformed and contrary to the spirit and intent of Occupy Wall Street, Occupy L.A., and the other laudable movements for economic justice that have sprung up around the country and the world over the last month,” Deasy said in a statement. “It is an insult for these protesters to equate a school district that during the past four years has experienced a $2 billion loss of dollars in state and federal funding, with policies and institutions that have systematically hurt the poor and middle class.” Deasy’s befuddlement may have been confounded further by Occupy LAUSD’s response. “It is hard for him to understand what the 99 percent movement is really about because he represents the worst of the 1 percent,” said Jose Lara, a board member of UTLA and chief spokesman for Occupy LAUSD.

For people like Lara, the “1 percent” consists of people such as Microsoft’s Bill Gates and Los Angeles real-estate mogul Eli Broad, both of whom support charter schools and contribute heavily to education-reform efforts. References to “keeping schools public” and rejecting “corporate Wall Street reform” are code for long-standing union opposition to school choice and suspicion of private philanthropy. Gates and Broad come up again and again in union talking points. “We reject the premise that the 1 percent billionaires—Bill Gates and Eli Broad—should be allowed to seize our public schools by buying seats on school boards that dismantle our schools, lay off thousands of teachers, and then award dozens of public schools to private charters, while denying teachers collective bargaining rights,” reads an October 22 UTLA press release outlining the themes of Saturday’s rally.

Beyond union rabble-rousing ahead of what’s sure to be a contentious contract negotiation, Occupy LAUSD highlights a stark and widening disagreement about what American public education should be. With their billion-dollar endowments, Gates and Broad are powerful players among an ideologically diverse coalition of reformers that includes conservative Republicans, Milton Friedman libertarians, and urban Democrats. But Gates and Broad are hardly the prime movers or the last word in education reform—a point that UTLA and its left-wing union allies refuse to concede. In general, reformers hold that public education should teach students how to be autonomous, knowledgeable, and self-governing citizens. The how and the wherematter less than the what. So reformers advocate empowering parents with a range of options, whether they’re charters or “virtual schools” or opportunity scholarships aimed primarily (but not exclusively) at lower-income families. Traditional public schools should compete with alternative models. Excellent teachers should be rewarded with higher pay. Bad teachers should be eased out of the system.

When Deasy took office this summer, he laid out a handful of proposed contract changes, including more school-site flexibility with hiring (thus curtailing the “dance of the lemons”), overhauling tenure rules, and experimenting with merit pay. Occupy LAUSD opposes every one of those ideas. For the occupiers, public education means tax-funded schools operated by union-organized administrators and teachers with little testing and accountability and no choice. Seen in that light, Occupy LAUSD is less radical than reactionary.

(Ben Boychuk is an associate editor of City Journal, where this article first appeared.)

Why You Should Care about Pension Reform

The current pension reform debate – with proposals from the governor and now from a team of Republicans via ballot initiative – is drawing considerable media attention.

It’s hard to understand why.

The debate has almost nothing to do with the broader public.

The pension changes being talked about won’t change all that much or save much money for other public programs. And the plans being offered don’t respond to the real problem in matters of retirement savings.

The problem? That the number of Americans participating in retirement plans is on the decline.

You read that right. I just finished reading a chilling new report from Michael Calabrese of the New America Foundation (full disclosure: I’m a New America fellow). His conclusion:  “the majority of American adults do not participate in any retirement saving plan—whether pension or 401(k) or Individual Retirement Account (IRA). Participation in employer-sponsored plans peaked in the late 1970s and appears to be at its lowest level in more than 30 years.”

In that context, any debate about public pensions that doesn’t talk about the lack of retirement savings is missing the point. The question ought to be how do we increase retirement security for the broad majority of Americans – by getting them to save and participate in retirement plans. Because that’s the real unfunded obligation – those who don’t have retirement savings will have to rely more on Social Security or other forms of public assistance.

So if you want meaningful pension reform (meaningful enough for the public to care), a proposal must focus on ways to reshape public employee pensions not merely to save money but to provide some sort of basis for greater retirement savings by people who don’t work for the government.

And the California reforms on the table don’t meet either test. Both Brown’s plan and the initiatives filed this week would set up two-tiered pension systems – different for current and new employees. The savings in such systems are likely illusory because two-tiered pension systems are unstable (they end up becoming one tier again in good times) and because savings from new employees are likely to be minimal (especially in an era when there aren’t many new employees).

And yes, both Brown’s plan and the initiatives demand more in contributions from current employees. That’s good – but it’s not enough. If current employees are going to be asked to take hits – and they should be asked, and pressured to do so – they should be asked to move into defined benefit programs that are so safe and sustainable that other Californians and their employers outside the public sector could participate in them.

That kind of program would require not only more in contributions from employees (and from employers) but also much more conservative assumptions about investment returns.

That would mean less in pensions for public workers – but much, much more in retirement, and in retirement security for the rest of us.

For now, however, the pension reform debate remains one of those Sacramento conversations that has almost nothing to do with the lives of Californians.

(Joe Mathews is a Journalist and Irvine senior fellow at the New America Foundation, Fellow at the Center for Social Cohesion at Arizona State University and co-author of California Crackup: How Reform Broke the Golden State and How We Can Fix It (UC Press, 2010). This article was first published in Fox & Hounds.)