On Thursday, Governor Arnold Schwarzenegger continued to push for a rollback on pensions back to 1999 levels, prior to the current safety enhancements which have pushed local governments to the brink.
“Our pension crisis is a real problem that gets worse every day. California has $500 billion in unfunded pension debt that, without reform, will continue to grow and crowd out funding for programs and services Californians hold dear such as higher education, parks and environmental protection,” said Governor Schwarzenegger. “The state has a duty to ensure taxpayer dollars go to things the taxpayers care about, and that’s why I will not sign a budget that does not include pension reform.”
In continued, “This year, taxpayers are being required to divert nearly $3.8 billion from state programs and services to pay for retiree benefits provided by CalPERS, five times more than CalPERS projected in 1999. Over the past ten years, CalPERS’s projections were off by $20 billion, and now CalPERS predicts state costs will total $270 billion over the next thirty years and still leave pensions only 75 percent funded. Worse, that projection assumes the stock market will double every ten years – if not, the costs will be higher.”
At a press conference the governor said, “All I’m asking is for them to reform and roll it back and we will be home free.” He suggested that such reform would save billions that would otherwise go to finance retirement for public employees. A huge amount of that comes from local government.
Making things a bit more interesting is that the Governor is enlisting a critical new ally in the fight, former Speaker Willie Brown. The former speaker joked that “I’m sure glad you said 1999 because I had departed. It’s one of the few things I can’t be blamed for.”
However, he also acknowledged, “I don’t come to this issue, frankly, with clean hands. I did a lot of stuff when I served as a member of the Legislature.”
As we suggested a couple of months back, the critical turning point for him was moving from state to local government, he like many Mayors and Councilmembers recognized the impact of such policies on local government.
Back in January he noted in a weekly column 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,” Brown asserted. “But we politicians — pushed by our friends in labor — gradually expanded pay and benefits . . . while keeping the job protections and layering on incredibly generous retirement packages. . . . This is politically unpopular and potentially even career suicide . . . but at some point, someone is going to have to get honest about the fact.”
While at the state level, Republicans and conservatives have led the way on pension reform, at the local level, as cities grapple with spiraling unfunded liabilities, they have found liberal allies. My concern has always been trying to protect the pensions of the average person at the bottom while reforming the pensions that are dragging the system down, safety enhancements and management pensions on people making several hundred thousand a year, who are spiking and double-dipping into the system.
Unions need to recognize that change is coming and work with the more reasonable voices. Frankly a rollback to 1999 levels is entirely reasonable and could prevent worse encroachments into pensions.
Meanwhile we note an op-ed in the Gilroy Dispatch that looks at the contract the city of Gilroy made with their firefighters.
“Gilroy’s firefighters agreed to pay 9 percent into the CALPERS retirement fund, thereby assisting the city and ultimately the taxpayers with the obligation,” the editorial read. “That represents cash into the city coffers now.”
However, the deal goes even further, with firefighters accepting a second tier retirement benefit. “Firefighters also agreed to a reduction in retirement benefits for new hires, hopefully setting a reality-check trend,” the paper said on Thursday. “The second tier retirement benefit is still defined and nothing to sneeze at, but the 2 percent at 55 is far more reasonable long-term than the present, 3 percent at 55. For comparison purposes, Gilroy’s contract with police officers calls for the “3-percent-at-50″ retirement plan, meaning that officers who retire at age 50 can get 3 percent of their highest salary times the number of years they have worked for the city up to 90 percent.”
We note that the city did this despite binding arbitration and the firefighters went even further with conessions. “Firefighters also agreed to eliminate the requirement, won in binding arbitration, that mandates four firefighters per engine and agreed to no new wage increases while also eliminating scheduled wage increases.”
According to the paper this staffing will increase overtime expenditures, “The 9-firefighter minimum staffing level will increase city overtime expenditures, but the trade-off is that the third fire station in the city’s Northwest Quad will remain open.”
They conclude, “It means renewed respect for firefighters, it means a city budget that should become more and more balanced so there’s money available for recreation programs and capital projects, it means better protection for residents and it means that jobs will be preserved. “
The paper thanks the firefighters for putting the community first. Unfortunately, our firefighters, most of whom do not live in our community, have not done likewise. Gilroy shows us an example of what should have occurred in Davis nine months. Instead, we have an MOU signed for THREE YEARS that does little to change the reality of pension obligations. The fact of the matter is, even if the Governor succeeds in getting the roll back of pensions, which is doubtful at least for current employees, it will still take the city to act to implement it at the local level.
On Wednesday, Rich Rifkin in his Davis Enterprise column noted that, “one reason we are in a budget crisis now and we face terrible long-run problems is we are paying too much to just about everyone else on the city payroll. In the past, I have demonstrated how overpaid our firefighters are. They work few hours and make big salaries with lots of overtime.”
“But it is a mistake to think the firefighters, because of their political moxie, are the only overpaid city employees,” he writes.
He notes that the Deputy City manager, which he calls equivalent in the private sector to “administrative services supervisor.”
“The city position pays $103,368 per year. According to Salary Wizard, the private position (in the Sacramento region) pays $52,600,” he writes.
That money comes with huge side benefits that the private sector employee does not make. “The public job comes with $70,484 in additional annual costs from the pension contribution, health care premium, life and long-term disability insurance, survivor benefits, worker’s compensation, Medicare and, though not funded, an amount I estimate at more than $18,000 a year in accrued retiree medical benefits.”
So for the deputy city manager, according to Mr. Rifkin’s figures, “The total yearly cost for the public position is $173,852. The private worker costs his employer $70,090. In other words, the taxpayers in Davis are paying $103,762 more than market value for that one position.”
There is a notion that these types of studies somehow demonize the workers. I certainly have my share of complaints about how this city is run at times, but ultimately this is not about the workers so much as our ability to pay them and still pay the vital functions of society.
“It’s one thing for the city of Davis to spend 2.5 times as much on labor if being overly generous is our community value, if our city can afford it and if we still receive all of the services we require and are paying for,” Mr. Rifkin notes. “But it’s quite irresponsible if the result of this largesse is that we are not able to ensure public safety and our streets are not being maintained.”
At some point, we need to figure out what we have to spend money on, what we should be spending money on, what we might like to spend money on, and what we really do not need to be spending money on.
It is clear from watching Police Chief Landy Black flirt with leaving and Superintendent James Hammond leave (although that was not over money) that good leaders at the top come with a premium and if we wish to retain them we may have to pay more than perhaps we would like.
Rich Rifkin notes, “We also pay a lot of money for our city attorney’s services, because getting second-rate legal advice is more expensive than getting it right.”
Given our figures on the amount of claims against the city under previous Chief Jim Hyde versus that for Landy Black, we could make the same case there. But for the most part, we are paying too much for compensation and city’s are culpable in bidding against themselves.
Will this change? With a new council, hope abounds, but the tough work lies ahead.
—David M. Greenwald reporting
Arnie is on the right track for once, though it is a bit late and much more pension reform is necessary.
Let’s hope he also suggests extending the sales tax to out of state purchases (e.g. Amazon) and services.
Re: “Let’s hope he also suggests extending the sales tax to out of state purchases (e.g. Amazon) and services.”
Californians are already required to total their out-of-state purchases that would be taxable if bought in California, assign the appropriate state and local sales tax value to them, report these amounts on their Schedule 540, and pay the resulting tax. But hardly anybody ever does it. There are billions of unpaid taxes each year as a result.
Ditto to the above. It is absurd that one can avoid California taxes by buying at Amazon.com. How can local merchants compete, especially on big-ticket items when they have to add 8.75% to their lowest bid for taxes while the Amazon seller doesn’t? This has to end.
Did you hear about the Congresswoman who wants to put a 1% tax on all of your ATM withdrawals? Think about it, you put money into your account that’s already been taxed and now she’s proposing to have you taxed again to just get access to your own money. Government is getting out of control, they need to reel in the spending, pure and simple.
I agree with Alan and “Observer” on sales tax. While I think our state sales tax is too high*, it is ridiculous to have a system which gives customers an incentive to not shop locally if they can avoid the tax by making an online purchase.
As everyone in Davis knows, we have our own half-cent local sales tax on top of the state tax. An interesting facet of that is that if you live in the City of Davis but you, say, go to Vacaville to buy a car**, the Vacaville seller still has to charge you the half-cent Davis sales tax and that money is transmitted to the City of Davis. In an age of computerized sales records — notwithstanding John Chiang’s technological mendacity — it is very easy to write software to direct remote tax collection to the destination it belongs.
Making this change will not dent the California fiscal mess. However, for the sake of local retailers who are struggling to keep afloat, the current tax scheme is terribly unfair to them.
*Prop 13 is not the only reason California’s sales tax is so high. Our state (since 1978) has been far higher than average among the 50 states in property tax collection in relation to income, yet we still have the highest sales tax of all states. Most of the reason is just because our state government spends too much money. We have lacked fiscal restraint for decades. It’s pretty much the same story with out ridiculously high state income taxes, which have been driving high incomes out of our state in the last 10 years and thus generating less in revenues than expected.
**I don’t know what other products face this Davis tax outside of Davis. I would imagine boats, RVs, motorcycles and anything else like that which has to be registered for vehicle taxes does. However, I have bought some large appliances out of town and paid no Davis tax on them.
The trick will be to assure that Davis will get our fair share of internet sales tax. Will the State try to keep it? Will it be redistributed on a per-capita basis (which would hurt Davis)? Are zip-codes sufficiently consistent with municipal boundaries the state could rely on them as a basis for tax origin?
Glad to see many folks agree with my earlier comment on sales taxes.
The distribution of the local share of sales taxes in California is extremely unequal because it is based on retail in an area regardless of where the shopper lives. (For geeks–the Gini coefficient is something like 0.75 which is extremely unequal and frankly unfair.) The City of Industry and Colma CA have huge sales tax revenues per capita while other towns get little.
These arrangements have been linked to sprawl (since they encourage big box stores and create a beggar thy neighbor situation where municipalities compete for sales tax dollars.
The Serrano case in the 1970s lead to reforming the way schools were funded (before it was basically dependent upon local property taxes). Maybe there may come a time when sales taxes will have to be distributed in a more equitable manner ?? Redistributing online sales by zip-code is an interesting idea and might be a start. It would certainly help Davis.
Taxing Amazon and others would help bricks and mortars folks–its a huge benefit to Amazon.
Have you ever wondered why their closest distribution center is in Reno?
I don’t know if I am left or right, since I don’t believe in any of the existing political parties as I believe we have drifted away from FOR THE PEOPLE BY THE PEOPLE. However I am for FAIR TAX and do believe our current system is broken.
We need to implement a consumption tax
We are taxed at so many levels we don’t even realize it half the time. Gross Receipts, import, transportation, etc. And that’s on top of having the same GROSS income taxed at the federal, state, city, local levels. We are over taxed. A tax based on use of products and services USED and CONSUMED is far better.
A very large portion of the problem with our tax system today is because too many Americans have lost the ability or choose NOT take responsibility for themselves. This coupled with the ‘tax loop holes’ and our seemingly inherent need to ‘help everyone’ has got to stop.
craised: “I don’t know if I am left or right”… “We need to implement a consumption tax… Americans have lost the ability or choose NOT take responsibility for themselves… and our seemingly inherent need to ‘help everyone’ has got to stop”
You’re pretty far right, hope that clears up some confusion for you.
[i]”These arrangements have been linked to sprawl (since they encourage big box stores and create a beggar thy neighbor situation where municipalities compete for sales tax dollars.”[/i]
I think that is right. I also know anecdotally of another problem with our current system of distributing sales taxes for mid-sized or smaller municipalities in larger metro areas: they often become overly dependent on one store or one mall for most of their sales tax revenues (the way Davis is on our Auto Mall). If that one mall or large store goes bad — either due to poor management or more often due to a new competitor in a nearby town winning its customers — the town which hosts it can lose nearly all of its retail base and those sales tax revenues, even in a good economy.
A friend of mine who worked for Inglewood in metro L.A. as an accountant (back in the 1980s) told me at the time that his city got something like 95% of its revenues from The Price Club (which later was bought out by Costco). Then around 1990 he told me that Costco had decided to close that store and open a replacement store in Hawthorne. He said he and half of the people who worked in non-public safety jobs were going to be laid off as a result. That one corporate change would have also caused high-crime Inglewood to lay off much of its police force and to close a fire station.
However, under political pressure, Costco relented and has kept the Inglewood store (AFAIK) open ever since. But for a while at least, their sales tax revenues in Inglewood were way down.
I am not sure what the right way is to fairly distribute these tax revenues. But the current method is flawed and it incentivizes a beggar thy neighbor approach to planning.
tax the rich tax the rich tax the rich tax the rich!!!!!!
the poor and middle classed are being nickled and dimed on EVEYTHING!!!
If you ppl only want to focus on spending, then fine…we need to spend less money bankrolling the big businesses and billionaires in the form of tax credits.
Second, reel in military spending. Do you know how many military bases have a bunch of employees that essentially do NOTHING and get paid exhorbidant pensions and salaries?
Go after them too..trust me, if you cut the pensions and pay of the military by just 5%, the state will be sitting pretty.
1999 pensions for EVERY GOVERNMENT WORKER is reasonable. But first go after the highest earners. That’s where the government will really benefit.
Also, we need to get rid of this tax haven for the estate tax.
if a corporal or leiutenant makes 150k and his/her salary is cut 10% well, do the math…
10% cut in someone’s salary that only makes 50k is not as lucrative in savings as the higher ups.
i’m reading all these calls to nickel and dime the consumer to death in taxes….if you ppl haven’t already learned,
we raised the sales tax and it hasn’t resulted in much..why?
Well the answer’s pretty simple…
IF YOU DON’T HAVE MONEY, YOU WON’T SPEND IT..and right now, and for a long time, the consumer’s pretty tapped out…
it’s time for the rich to chip in a few…i’m sure they’ll do without that 100 million dollar yacht for a bit!
if a corporal or leiutenant makes 150k and his/her salary is cut 10% well, do the math…
Corporals and lieutenants make around $150K? That doesn’t sound right.
It isn’t correct. Maybe after 20 years of service, at the highest pay grade, they’d be close to that. Military salaries are available on line. But it’s irrelevant to this discussion. The statement “if you cut the pensions and pay of the military by just 5%, the state will be sitting pretty” is incorrect at so many levels, it would be a huge digression to even begin to refute it.
[i]”Corporals and lieutenants make around $150K?”[/i]
Current U.S. Army salaries (not counting other costly benefits) from the lowest to the highest by those ranks:
Corporal (E-4) with 2 or less years in the Army: $19,956/year.
Corporal (E-4) with 6 or more years in the Army: $24,216/year.
2nd Lieutenant (O-1) with 2 or less years in the Army: $28,992/year.
1st Lieutenant (O-2) with 6 or more years in the Army: $46,224/year.
Source ([url]http://www.us-army-info.com/pages/ranks.html#enlist[/url]).
tax the rich tax the rich tax the rich tax the rich!!!!!!
the poor and middle classed are being nickled and dimed on EVEYTHING!!!
….
it’s time for the rich to chip in a few…i’m sure they’ll do without that 100 million dollar yacht for a bit!
Robert Reich appears to aggree with at least some of your thinking:
[url]http://www.thenation.com/article/36893/unjust-spoils?page=0,0[/url]
On the related topic of minimum wage for state workers, today’s Sac Bee has a sobering article on the effects of such a measure on the Sacramento area:
[url]http://www.sacbee.com/2010/07/11/2882156/state-pay-cut-could-ravage-sacramento.html[/url]
As usual, this blog is carried away with pension hysteria.
First point, none of this pension stuff was an issue until the brilliant bankers and their credit default swaps sent the world economy into a tailspin. Gosh, now all the sudden it’s those public employee pensions. Don’t look behind the curtain at who is really to blame.
Second point, this blog starts out with Arnold’s push for rolling back state pensions to an earlier formula. I guarantee you that proposal will not be enough and those who manipulate the opinions of people like Rich Rifkin won’t be happy until there is no defined benefit pension left and no Social Security for anyone. Just a 401(k) for everyone that the finance industry can milk like a cow. That’s the real agenda.
Third point, there are probably a lot of other parts of the pension system that could be changed that would save money and still leave a good pension system intact. Arnold hasn’t shown that he is interested in any of that, but prefers to throw around his infamous “2000 percent” increase statistic. He picks the all time lowest state contribution to the PERS fund (nominal contributions when the stock market was way up) and compares it to a time when the market has tanked, picking and choosing his reference years. Cheap trick well known to anyone who’s taken a statistics class and didn’t flunk it.
Fourth point, I don’t trust Rich Rifkin’s “calculations”. I think he needs to show his work before I can grant him credit for solving this math problem. The broad rank and file simply doesn’t make the salaries and pensions he or any of the other pension haters imply. I do understand why he picks on the bigger ones as they help make his agenda points.
Finally, the real problem is how to finance health care and retirement security for EVERYONE. If you want to talk about index capping pensions, I’m interested. If you want to talk about increasing vesting times, I’m interested. If you want to talk about anti-spiking, I’m interested. I’ll even talk about cost sharing by employees for pensions. But your broad brush attacks are useless unless your real agenda is part of the cave-dweller agenda: Cut everything but mine.
And even more to the point is the issue of taxation. It was, is and will continue to be a problem whether there are public employee pensions or not. How did the conversation thread go from pensions to taxation? Well, it’s a natural enough progression because every issue that gets peoples blood pressure up usually has to do with money, sex or religion. All one needs to do is look at the fact that the concentration of wealth is at an all time high in the United States. More millionaires than ever and a growing underclass. The top one percent control 40% of the wealth, the bottom 60% control 5%. It’s getting worse, folks. And guess what? The top earners (nobody living in Davis) simply don’t pay their share. And as if that weren’t enough, they want what all the rest of us collectively and individually have managed to squirrel away from them. They want to privatize (confiscate public investment for their private control) reduce the deficit (only for social spending, not for military spending or bank bailouts) and cut taxes for the top earners. Meanwhile, they have a good laugh while we’re down there in the dirt fighting each other over sales tax.
Tax cuts lower revenue. Duh. http://www.cbp.org/pdfs/2010/100707_No_Free_Lunch_bb.pdf Even Republicans who actually study the situation agree.