Farewell, My Lovely--How public pensions killed progressive California

How public pensions killed progressive California


Tim Cavanaugh from the March 2011 issue Reason.com

The Democratic Party has folded Sacramento into one of the tightest one-party grips in contemporary American politics. In November, bucking the national trend, Democrats in California won not just the governorship but 51 Assembly seats to Republicans’ 29, 24 state Senate seats to Republicans’ 14, and every statewide office. With the passage of a referendum lowering the number of legislative votes required to approve a state budget (from a two-thirds majority to a simple majority), California is that rarest of land masses for the 2011 Democratic Party: conquered territory. State Democrats have freedom to rule virtually unchallenged by the scattered, rusticated Republicans.

As 72-year-old Jerry Brown enters his second governorship, he has an agenda to match that power, with visions even greater than those that haunted his two-term administration of the 1970s and ’80s: building 20,000 megawatts of renewable power, laying a new high-speed rail network that will connect the state’s major cities, forging a statewide infrastructure for alternative energy, hiring thousands of green employees. The new governor’s environmental agenda is ambitious, untenably expensive, and indelibly popular with voters and lawmakers.

Yet when Brown looks out on Democrat-controlled California, he seems less like Caesar at the Rubicon than Wojciech Jaruzelski at the Gdansk Shipyard. Brown is champion of a workers’ party with monopoly control, yet all his plans are being derailed by a labor movement nobody can harness.

At press time, California was being governed under a state of economic “emergency” declared by Brown’s predecessor, Arnold Schwarzenegger, in light of a staggering $28 billion budget shortfall expected in the next 18 months.

It gets worse. Medium-term unfunded liabilities for government employee pensions are pegged by the Legislative Analyst’s Office at $136 billion—and that’s a lowball figure. Legislative analyst Mac Taylor acknowledges in his current fiscal outlook report that the estimate leaves out billions in funding shortfalls at the pension funds for public school teachers and University of California employees. In the next 10 years, taxpayers will most likely be on the hook for somewhere between $325 billion and $500 billion. (Over the past five years, state revenues averaged $94.5 billion per year.)

How did this happen?

California’s state and local governments employ somewhere between 1.5 million and 2 million workers, representing 4 percent to 5 percent of the state’s total population. When they retire, all of those employees are contractually entitled to generous pension benefits—so generous that, collectively, they can’t be paid even by a pension system that ladles out more than $20 billion a year and is one of the largest investment pools on Wall Street.

California is not the only state infected by pension liabilities, but the size of its economy (generally described as the eighth largest in the world) and its union-dominated politics make it a gravely stricken, and potentially contagious, patient. Organized labor contributed tens of millions of dollars to Brown’s campaign last year, and public-sector unions have long been the largest donors to the Democratic politicians who control the state.

“The unions have a stranglehold on this state,” says Marcia Fritz, a Citrus Heights accountant who serves as vice president of the California Foundation for Fiscal Responsibility, a pension reform lobbying group. “To engage them you need your biggest strategy. It’s like trying to topple a communist government.” But like communism, which eventually ran out of other people’s money, California is teetering on fiscal implosion.

Voters Demand Pension Reform

Union lobbying can occasionally be broken by direct democracy, although generally not when the stakes are high. In the November election, a total of 13 local ballot initiatives around the state promised to rein in excessive compensation, especially pensions, for government employees. Most of these measures were modest, applying only to future hires or instituting voter-approval requirements for future increases in benefits. In pension-crisis-wracked San Diego, Proposition D wasn’t really a reform at all, just a half-penny sales tax increase pegged to a review of employment practices.

Even these half-measures were popular in towns ranging from Redding, a Republican hamlet of 100,000 in Shasta County, to California’s third-largest city, the Democratic stronghold of San Jose. This popularity was consistent across economic bases: Eight out of Redding’s top 10 employers are governments, schools, and health care establishments, while six out of San Jose’s 10 biggest bosses are private tech companies. Out of the 13 pension reform measures on ballots, even in a pro-Democratic year, a dozen passed by wide margins.

But in San Francisco, where Proposition B would have made real progress by increasing employee contribution requirements for both current and future workers, the unions fired their heaviest weapons. Local firefighters sued to keep the measure off the ballot. The umbrella group Stand Up for Working Families spent more than $500,000 hiring Stearns Consulting and Burson-Marsteller to run a citywide anti-B campaign, and public unions pumped millions into the effort in the days before the vote.

“In San Francisco it’s known that if you want to get into office you’ve got to have labor support,” says Public Defender Jeff Adachi, the author of Prop. B. “Every elected official opposed Proposition B. Our opponents spent $2 million in the last two weeks. I’m told they bused in 400 people to protest, and it certainly appeared that way on the street.” The measure ended up failing, with just 43.3 percent of the vote.

The Democratic Party Class Struggle (Use link for the rest of this fascinating view on the task ahead)

http://reason.com/archives/2011/02/16/farewell-my-lovely