City services will get slammed as public pay goes up

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It must be nice being a public-sector employee, especially in California’s cities and urban school districts. Even when private-sector employees’ wages fall behind the inflation rate, theirs keep up – or go even higher. It’s one reason why urban residents get so little bang for their buck in terms of public services. As these wages increase, expect even less from your local governments.

Consider these recent increases:

University of California Health. In February, unionized medical residents at UC’s six urban medical centers (in Sacramento, San Francisco, Los Angeles, San Diego, Riverside and Orange) were prescribed 16-percent raises over two years.

Los Angeles. In April, teachers in the Los Angeles Unified School district went to the head of the class with a raise of 21 percent over three years, “raising the average teacher salary to $106,000 while averting the potential of a second strike this school year,” reported the Los Angeles Times.

San Diego. In May, the city granted 6,500 workers pay boosts of 22.8 percent over two years, even though that is “likely to increase the city’s pension debt beyond $3 billion,” reported the San Diego Union-Tribune.

Oakland. The Oakland Unified School District offered a contract boosting first-year teachers’ pay 19 percent, to almost $63,000; and for experienced teachers 11 percent, to almost $110,000. Yet the teachers held a strike in May that lasted a week even though, reported Oaklandside, the main dispute was “over proposals from the teachers union regarding issues beyond compensation” According to the Oakland Education Association’s May 5 counterproposal, these included allowing the “District Wide Community Schools Steering Committee” to run “community schools.” Ultimately, the union got most of what it wanted.

Understandably, part of those raises cover the inflation of the post-pandemic years. Excessive federal government spending, which funds large parts of these California government systems, itself is to blame for much of the boost in prices. The problem has lessened a bit recently. “Inflation Eased in April but Remains Stubbornly High,” headlined a recent article in The Wall Street Journal. It’s still a problem that’s slicing into municipal budgets.

Unlike ordinary workers, unions are able to extract higher wage increases through their political clout. The funds are not private dollars, but public funds collected through taxes. The burden obviously falls on the taxpayers, so higher salaries raise taxes and cause a continuing upward cost cycle. So how are wages doing for those not in unions with massive clout in state capitols and on city councils and on boards of supervisors and education?

“Last year wages increased by 5.34 percent,” Raymond Sfeir told me; he’s the director of the A. Gary Anderson Center for Economic Research at Chapman University in Orange, Calif. “In the first quarter of this year, the increase was 4.46 percent over the first quarter of 2022. In April of this year the increase was 4.45 percent over April 2022.” These numbers “are not close at all” to the pay increases received by those with union contracts.

So far, he said, overall U.S. unemployment has not risen. But that’s about to change because, he said, “the labor market will become weaker in the second half of this year and we will have a slowdown in the economy.” Unemployment will rise.

To be fair, those on Social Security this year enjoyed a cost-of-living adjustment of 8.7 percent. But that’s from a federal law passed in 1975 linking the payments to the rate of inflation. It’s really another government program with a strong special-interest constituency, seniors, who vote in higher proportions to the rest of the electorate. And like high union pay contracts, it’s unsustainable. Currently, the Heritage Foundation calculated, “Medicare and Social Security face about $50 trillion in long-term unfunded obligations, adding steadily to the public debt as Congress borrows growing sums each year to pay promised benefits.”

Fiscal Uncertainty

Another factor in these new California union contracts is the underlying condition of the government budgets paying for them. The best indicator is the Unrestricted Net Position, found in Annual Comprehensive Financial Reports. These are actual audits, not budget wish lists. And in recent years they included unfunded retirement and Other Postemployment Benefits (OPEB), especially retiree medical. Here are th numbers for the budgets listed above, according to their ACFRs of June 30, 2022 (except for Oakland Unified):

  • University of California: Unrestricted Net Position of -$24.2 billion. Factoring California’s population of 39 million, that comes to $625.5 owed per capita.
  • City of San Diego: UNP of -$2.3 billion. For a population of 1.38 million, it’s $1,667 owed per person.
  • Oakland Unified School District: UNP of -$408 billion in 2019. For a population of 430,198, it’s $949 per capita. (Note: I had to use 2019 numbers from an outside study by former Sen. John Moorlach because my requests to access the audit reports online have not been returned. I’ve looked at thousands of ACFRs online now, and this is the only finance department that doesn’t just put them on an open page for easy access.)

More Fiscal Malfeasance

The above unsustainable pay contracts are just part of the state’s descent into fiscal unreality. Gov. Gavin Newsom’s May 12 Revision to his budget proposal for fiscal year 2023-24, which begins on July 1, is part of that. Of course, Proposition 98 funds K-12 schools to the mandated tune of 40 percent of the budget.

The revised deficit is projected to be $31.5 billion, $10 billion more than his January estimate. That’s after the previous year’s nearly $100 billion surplus.

The threat to city, school and other budgets is further cuts from the state, crimping budgets in a time of pay increases. Expect a slew of tax increases put on the June and November ballots in 2024. That will only make it tougher for California cities to provide quality and affordable public services.

John Seiler is on the Editorial Board of the Southern California News Group. Email him at [email protected]

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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