Lights, Camera, Inaction

Fox & Hounds Daily, 8/19/10.

By David Crane, Special Advisor to Governor Schwarzenegger for Jobs & Economic Growth

Some politicians must think Californians are fools. Either that or they must believe the Titanic wouldn’t have sunk had just the tip of the iceberg been removed while the rest of it stayed hidden below the surface.

The politicians I’m referring to are those engaged in vigorous grandstanding about the city of Bell’s compensation abuses.

So far we’ve heard calls to publish every government employee salary and to make Bell give its citizens refunds. But we haven’t heard anything that would actually make a difference in solving our state’s financial woes.

While government can and should make public every employee’s salary and benefits, that will do nothing to change exploding employment costs. In fact, politicians could get rid of every “spiked” government salary in California right now and still not make a real dent in government budgets.

Spiked salaries didn’t force Oakland to lay off police officers, Vallejo to enter bankruptcy, San Francisco to cut public defender budgets, Los Angeles to face a future in which a third of its revenues is dedicated to retirement costs, or the state to cut general fund spending on parks by 40%. No, all that is happening for reasons those politicians don’t want to discuss.

The painful truth – the iceberg below the surface – is that stopping a few spiked salaries will do nothing for government budgets and even less for our massive retirement debts to government employees because the real culprits are the excessive growth of employment costs and decades of unfunded retirement promises to government employees.

At the state level, more than 50% of the increase in state revenue this year when compared to state revenue ten years ago will be spent on increases in employee compensation and benefits, which grew at twice the rate of inflation (even after netting out growth in headcount, which actually grew slower than population).

Retirement benefit costs alone are doubling in size every 4.5 years, and they will keep doubling at that rate or faster because the state has accumulated more than $500 billion of pension debt and $100 billion of retiree healthcare debt. Those retirement promises are contractual and thus, unlike even Social Security and Medicare, that debt is binding.

All of this could have been avoided in the past if politicians had not excessively increased salaries and not passed unfunded increases in retirement benefits. But we can’t change the past. So what we need now isn’t grandstanding, but rather honesty and real reform.

The truth is that all we can do now is stop that debt from growing (by reducing retirement promises to new employees and requiring honest accounting and funding of those promises as they’re made) and mitigate the consequences of past excesses (by requiring larger pension contributions and other concessions from existing and future employees). But these politicians would rather rail against Bell for the cameras than actually address the problem.

Worse, they have allowed the iceberg to grow. For years the Governor has asked the legislature to stop pension debt from growing by repealing SB 400, the bill they passed in 1999 that boosted unfunded pension promises. Every day that SB 400 is in effect is a day that adds to pension debt. Moreover, legislators know that SB 400 was passed in error. In fact, members of the current legislature who voted for it have said that had they known of the risks to the budget from passing that bill, they wouldn’t have voted for it.

Yet they still refuse to repeal SB 400. Why? Because the government employee unions they depend on to win elections have told them they must get something in exchange. In fact, those politicians faithfully recite the union shibboleth that SB 400 must be collectively bargained when the truth is that the pension increase granted by SB 400 was enacted statutorily in large part because the unions at that time wanted to take the pension issue out of collective bargaining. Lewis Carroll himself couldn’t have written a more upside-down story.

So don’t be distracted by all the grandstanding. Instead, demand action on the real problem. By tomorrow the legislature could repeal SB 400, demand transparent accounting from state pension funds, and require larger pension contributions from government employees. Now those would be great headlines.

Link to full article: http://www.foxandhoundsdaily.com/blog/david-crane/7619-lights-camera-inaction