In California, we are all Europeans now
As it becomes increasingly clear that the post World War II European model of living well through social welfare is no longer a viable financial model, California would do well to pay attention to the European experience as the Golden State faces its own similar challenges.
Just as is the case in many European nations, the day of reckoning is at hand for California’s public employee pension programs. As retired government employees live far longer while being compensated in their sunset years far better that what was anticipated when these programs were created, the retirement funds responsible for these pay-outs are finding it increasingly impossible to make good on the obligation.
And it’s not just California.
Estimates place the current gap bewteen what is required by all the states in the union to pay public employee retirement obligations and what is available in public employee pension funds to meet those obligations at about a $2 trillion deficit and on its way to $3 trillion.
If you’re looking for an example of where this kind of a problem leads, look no further than Greece, Portugal or Spain.
In Athens, Aris Iordanidis, 25, an economics graduate working in a bookstore, resents paying high taxes to finance Greece’s bloated state sector and its employees. “They sit there for years drinking coffee and chatting on the telephone and then retire at 50 with nice fat pensions,” he said. “As for us, the way things are going we’ll have to work until we’re 70.”
Via New York Times
Mr. Iordanidis could just as well be speaking from a bookstore located somewhere in Los Angeles, as the state employee pension system sits at or near the center of the California’s own financial disaster.
While I would not suggest that California’s public sector employees ‘sit there for years drinking coffee’ – particularly those heroically serving in the public safety arena – there is no denying that the largest “stones” around the neck of California are the state’s financial obligations for education and state employee retirement costs and the prohibitive structure of state goverment that requires a 2/3 majority of the legislature to agree on all budgetary issues – a supermajority requirement that has never worked in any legislative body, at any time in history, and in any place in the world.
Still, logic instructs that the problem of unsustainable obligations to public employee retirement funds can be resolved only by making cuts in what is paid to retired public employees.
Of course, California being California, it’s not quite that simple.
The state’s constitution obligates the government to stand behind the pension obligations to its employees and prohibits a default on these debts– even as the gap grows between what is required to make agreed upon payments and the funds available to do so. Thus, even in crisis years, such as what California is currently experiencing, any deficit in the availability of pension funds required to honor the obligation must be paid by a state government that is broke.
And these benefits can be very generous indeed.
A survey by the watchdog group California Foundation for Fiscal Responsibility found that some 15,000 Golden State public employees are knocking down $100,000 or more, while some 200, mostly police and fire chiefs and school administrators, are members of the $200,000-a-year-and-up club.
Not bad for government work …. not so good for California’s sinking credit rating.
It’s not all about laws that don’t work. Like it or not, the state made contractual promises to past and current public employees and is ethically bound to honor those promises.
Nevertheless, given California’s lack of available funds, just as in the cases of Greece, Portugal and Spain, something’s got to give.
Unlike Greece, Portugal and Spain, there is no European Union to bail out California. Turning to the federal government is not going to fix this problem as the feds can hardly afford to take on California’s massive obligations -not to mention the impossible precedent it would set when it comes to all the other states in the nation hanging by a fiscal thread.
It’s going to be up to California to fix this and failure to do so means inevitable cuts to vital state and local services such as firefighters and police officers. It could also mean brutal cuts in the social safety net available to the state’s poor, elderly and infirm.
Natually, fixing the problem is far easier said than done.
State employees are represented by a variety of unions, including the notoriously powerful California Teachers Association. Making it all the more challenging is the fact that the state employees unions are among the very largest of political contributors, particularly when it comes to California’s elected Democrats who currently hold the majority in both the Assembly and the Senate with a strong possibility that that they will gain the Governor’s mansion come November.
This puts California’s Democrats is an extremely difficult position.
In a state where Republican candidates need only sign pledges not to raise taxes in order to be elected – even when reason would dictate that sometimes this must be done in order to serve the greater good – getting GOP legislators to focus on legitimate fixes has proven to be a useless endeavor.
This leaves the Democrats with the responsibility to champion those who so badly need the social safety net. As a result, California’s Democratic leadership is being forced to choose between the poor and the workers’ unions that have always been there for them. Indeed, GOP Governor Arnold Schwarzenegger took full advantage of this situation by presenting the Democrats with what he referred to as a “Sophie’s Choice”. The Guvernator did this by proposing a budget last week that virtually cuts all welfare to those who rely on the state’s assistance along with massive cuts in public services offered to shut-ins and other severely disadvantaged people who would have nowhere to turn should the state cut them off.
While the Governor’s approach is both unfeeling and deplorable, there is no denying that this ‘Sophie’s Choice’ is a reality in the state and one that the Democrats will have to confront if there is any hope of even beginning to solve the California crisis.
The good news is that there may be a glimmer of hope in the person of Speaker of the California Assembly, John Pérez.
Speaker Pérez, chosen to be the leader of the Assembly during only his freshman term in office, is an extremely bright and highly capable legislator. He might also have a unique edge when it comes to addressing the pension problem as, prior to entering elective office, Mr. Pérez spent his career as a union organizer and political representative. He is a man whom the unions trust and, hopefully, might listen to when it comes to finding a reasonable approach to solving the problem of reforming the public employees pension programs that California can no longer afford.
But make no mistake. Speaker Pérez is not in an enviable position. As the man charged with the responsibility to maintain the Democratic majority in California’s assembly, he has no choice but to keep an eye on political realities as he works towards a resolution of the budgetary issues. To be sure, one such reality of politics is that encouraging the anger and opposition of the unions is not the best way to go about keeping Democratic legislators in office.
Still, if anyone can create a meaningful discussion with the unions charged with representing California’s public employees, Speaker Pérez could be precisely the right man for the job.
Joseph Campbell defines a hero as a one who jumps into the bottomless chasm – not knowing if survival is possible- because it is the right thing to do.
Let’s hope that Speaker Pérez and his fellow Democrats are prepared to be heroes. Those of us who live in California know that we cannot look to our GOP to assume the mantle and must depend on our Democrats to find a way out of the thicket.