An old friend of mine has a saying, “Even the worm learns.” Prod one several hundred times, he says, and it will learn to avoid the prodder. As California enters its annual budget drama, I can’t help but wonder if the wisdom of the elected politicians here in the state capital equals that of the earthworm.
The state is in a precarious position, with a 12.3% unemployment rate (more than two points higher than the national average) and a budget $20 billion in the red (only months after the last budget fix closed a large deficit). Productive Californians are leaving for states with less-punishing regulatory and tax regimes. Yet so far there isn’t a broad consensus to do much about those who have prodded the state into its current position: public employee unions that drive costs up and fight to block spending cuts.
Earlier this month, Gov. Arnold Schwarzenegger proposed a budget that calls for a $6.9 billion handout from Washington (unlikely to be forthcoming) and vows to protect current education funding, 40% of the state’s budget. He does want to eliminate the Calworks welfare-to-work program and enact a 5% pay cut for state employees. These are reasonable ideas, but also politically unlikely.
As the Sacramento Bee’s veteran columnist Dan Walters recently put it, the governor’s budget is “disconnected from economic and political reality.” Mr. Walters suspects what will happen next: “Most likely, [the governor] and lawmakers will, to use his own phrase, ‘kick the can down the road’ with some more accounting tricks and other gimmicks, and dump the mess on whoever is ill-fated to become governor a year hence.”
Mr. Walters’ Jan. 10 column was fittingly titled, “Schwarzenegger Reverts to Fantasy with Budget Proposal.” Shortly before releasing his budget, the governor and Democratic state Senate President Pro Tem Darrell Steinberg held a self-congratulatory news conference. Mr. Steinberg used the spotlight to bemoan what he deemed to be unfair attacks on California. Mr. Schwarzenegger told a hokey story about his pet pig and pony working together to break into the dog’s food. It was an example, he said, of how “last year, we here in this room did some great things working together.”
Meanwhile, activists are fast at work. For example, the Bay Area Council, a moderate business organization, is pushing for a constitutional convention to reshape California’s textbook-sized constitution. The council’s aim is to ditch a constitutional provision that requires a two-thirds vote in the legislature to pass budgets. Other reforms being proposed include a plan to institute a part-time legislature and another plan to require legislators to pass drug tests. None of these ideas will ratchet down state spending.
To do that California needs to take on its public employee unions.
Approximately 85% of the state’s 235,000 employees (not including higher education employees) are unionized. As the governor noted during his $83 billion budget roll-out, over the past decade pension costs for public employees increased 2,000%. State revenues increased only 24% over the same period. A Schwarzenegger adviser wrote in the San Jose Mercury News in the past few days that, “This year alone, $3 billion was diverted to pension costs from other programs.” There are now more than 15,000 government retirees statewide who receive pensions that exceed $100,000 a year, according to the California Foundation for Fiscal Responsibility.
Many of these retirees are former police officers, firefighters, and prison guards who can retire at age 50 with a pension that equals 90% of their final year’s pay. The pensions for these (and all other retirees) increase each year with inflation and are guaranteed by taxpayers foreverregardless of what happens in the economy or whether the state’s pensions funds have been fully funded (which they haven’t been).
A 2008 state commission pegged California’s unfunded pension liability at $63.5 billion, which will be amortized over several decades. That liability, released before the precipitous drop in stock-market and real-estate values, certainly will soar.
One idea gaining traction is to create a two-tier pension system to offer lesser benefits to new employees. That’s a good start, but it would still leave tens of thousands of state employees in line to receive lucrative benefits that the state must find future revenues to pay for. Another is to enact paycheck protections that require union officials to get permission from their members before spending union dues on politics (something that would undercut union power).
My hope is that these and other reforms find support in unlikely places. Former Assembly Speaker Willie Brown, a well-known liberal voice, recently wrote this in the San Francisco Chronicle: “The deal used to be that civil servants were paid less than private sector workers in exchange for an understanding that they had job security for life. But we politicianspushed by our friends in laborgradually expanded pay and benefits . . . while keeping the job protections and layering on incredibly generous retirement packages. . . . [A]t some point, someone is going to have to get honest about the fact.”
State Treasurer Bill Lockyer, another prominent liberal Democrat, told a legislative hearing in October that public employee pensions would “bankrupt” the state. And the chief actuary for the California Public Employees Retirement System has called the current pension situation “unsustainable.”
As the state careens toward insolvency, these remarks are the first sign that some people are learning the lesson of the earthworm.
Mr. Greenhut is director of the Pacific Research Institute’s journalism center and author of the new book “Plunder! How Public Employee Unions Are Raiding Treasuries, Controlling Our Lives and Bankrupting the Nation” (The Forum Press).