Tag Archives: Steven Greenhut

Pension Reforms from California Progressive Leaders

California’s pension tsunami is a few years from decimating the cities. In 2015 it is estimated one-third of Los Angeles’ budget could go to pay for employee retirement costs. Steven Greenhut reports at City Journal these facts have touched off calls for reform not just among fiscal conservatives but among several prominent progressive leaders in the state.

San Francisco Public Defender Jeff Adachi is a Democrat and the sponsor of “Proposition B” or the Sustainable City Employee Benefits Reform Act which will appear on the November ballot. If passed, the measure requires uniformed police and firefighters to dedicate 10 percent of their income to their retirement.(City employees would have to increase their contributions to 9 percent).

While unions and their political backers are likely to challenge any alteration to the status quo, a shift in thinking may be taking place, as Greenhut reports. Governor Schwarzenegger’s pension adviser, David Crane, points out the price for ignoring pension reform is less public funding for progressive programs. That tradeoff is real and significant. In the next five years the cost for San Francisco’s employee benefits are slated to rise from $413 million to $1 billion. Charles Lane writing at The Washington Post puts it another way: “Nothing threatens the political consensus of progressive government more than the widespread impression –and reality– that public employees have captured government.”

In other words, profligate fiscal policy doesn’t just affect taxpayers and weaken economies. Unsustainable spending also harms beneficiairies by undermining expectations and trust — a recipe for dysfunctional government.

Using the “B-word” in California’s Public Sector Pensions

At City Journal, Steven Greenhut writes that cities in California are becoming increasingly comfortable talking about bankruptcy. Los Angeles and San Diego have their eyes on the city of Vallejo which filed for Chapter 9 in 2008. What drove the port city of 117,000 to this point? Benefits and salaries for public sector workers. To see the handiwork public sector unions on Vallejo’s fiscal plight consider that 74 percent of the city’s budget is spent on police and firefighter salaries and benefits. Some highlights include $300,000 a year for police captains, and average fireman’s compensation of $171,000. The looming question for Vallejo and cities and states across the country is how to pay for pensions. Vallejo was given a chance to void its existing union contracts by the court but chose to buckle. Now the options are between the impossible and the unpalatable. Vallejo can ask bankrupt Sacramento for a bailout or they can raise taxes on city residents.

How Vallejo manages will be an early indicator for the rest of the nation. State pensions face an unfunded obligation of $3 trillion, nearly triple what is officially reported. Johnathan Lang writing for Barron’s offers a few possible scenarios in the near future for state and local governments including higher property, sales and income taxes, cuts in essential services, debt defaults and bankruptcy filings. He writes, “The possibility of taxpayer revolts and likely insolvencies has shaken some investors’ confidence in general-obligation bonds–those backed by the “full faith and credit” of the states or localities.”