Dems Put Brakes on Budget Train Wreck

MARCH 28, 2011

By WAYNE LUSVARDI

A new Field Poll  found that a supermajority of Democrats has swung against tax increases and wants to halt what appears to be an unstoppable future state budget train wreck.

In what should have been unsurprising to Gov. Jerry Brown and the Democratic Party-controlled Legislature, as well as to the media, the poll  found 68 percent of Democrats want pension payout ceilings and 66 percent want government employees to contribute a greater share toward their own retirement.  And half of Democrats support the Little Hoover Commission’s recommendations to create hybrid pension packages with 401(k) plans coupled with a reduction in current pension benefit levels.

Some Democrats want to jump onto the runaway train of the state budget and reverse the perilous track the governor, the Legislature and the public-employee unions have put it on.  Only the media are misreporting the recent state budget impasse as caused by Republican train wreckers.

Every decade or more Hollywood puts out films that try to capture  the imagery of what is happening in the larger society. In 2010, 20th Century Fox released the film “Unstoppable” about a runaway train. The movie is about how an excursion train of school children becomes driverless and starts “coasting,” then defaults to full throttle.  The movie has a happy ending when one of the heroes that is able to finally stop the train goes into retirement afterwards with “full benefits.”

Unfortunately, we need a movie to tell us that the state budget and environmental programs and regulations are a runaway train wreck waiting to happen and can only be fixed by slowing the train down and finally stopping the out-of-control spending, while also deregulating environmental policies that are too strict and kill jobs.

Democratic State Treasurer Bill Lockyer has asserted that pensions won’t crush local governments and wants the Hoover pension report re-written.

Contradicting Bill Lockyer is Marcia Fritz, president of the California Foundation for Fiscal Responsiblity. She told the Wall Street Journal, “The taxpayer as well as government services are being crushed by unsustainable pension obligations.”

She goes so far as saying she wants a ballot initiative put to the voters authorizing a rollback in public pension levels.

Fritz also is a Democrat. Whoops! A passenger in the caboose of the runaway state budget train wants to tell the locomotive operator to put the engine into reverse.

Democratic Uncoupling

In other words, the recent state budget impasse is not as the mainstream media spins it as “mean” Republicans blocking the railroad tracks for passage of a balanced budget, while public schools and the public safety net are suffering.

It is Democrats waking up to the fact that pensions will soon crowd out basic lifeline services and funding for public schools that is creating havoc for the Democratic Party. It isn’t Republican Party infighting that is the problem, as reported by the media, but a divide in the Democratic Party.

Today California has an $86 billion General Fund budget that is running a $25  billion deficit. In 2015, even with the continuation of Gov. Jerry Brown’s tax increases, and pension payouts beginning to spike, the budget will balloon to more than $110 billion, despite some recent cosmetic budget cuts by the Legislature.

That means the tax increases won’t lower the deficit or the debt. In other words, the state budget is on autopilot and is headed for a train wreck. Brown’s budget fix will not stop the coming train wreck. It will only speed up the train.

Remote-Control Budget

Imagine being able to take over the controls of a train by remote control and the train engineer has no way to stop it. That is what “off-budget” environmental programs do. They make California’s budget train wreck unstoppable.

The above budget projection doesn’t even consider all the “off-budget” costs that will be increased on California households by unelected environmental regulatory agencies such as the State Water Quality Resources Control Board, the California Air Pollution Control Board (CARB), the California Environmental Protection Agency and many others.

The cumulative costs are staggering for imposing “cap and trade” controls on industries, eliminating ocean water cooling for 19 coastal power plants, building redundant green power plants and making perchlorate safety levels more stringent with no demonstrable improvement in public health.

When all the environmental and green power programs and regulations are rolled out starting in 2012, they will crowd out expendable money in state households for tax increases to plug the state general-fund budget.

Like the movie about a runaway train, applying brakes to all the state environmental programs and regulations will be too late to stop the budget train wreck once the train leaves the station.

7 comments

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  1. EconProf
    EconProf 28 March, 2011, 21:17

    Thank you for telling the truth that the Pension Tsunami will eat the budget of every left-favored program. The hypocrisy of the public employee unions in their claim to help the poor and downtrodden is revealed. They have Cadillac pensions and pay and are bleeding the state of businesses and middle-class taxpayers, dooming us to a third-world state of haves and have-nots. Our unemployment rate is now second-worst in the nation…so much for helping our workers and poor who want jobs. Thanks, public unions.

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  2. John Steele
    John Steele 29 March, 2011, 08:23

    It’s about time that the voters start to wake up and see what the politicans and Unions have done to a once great State. Even Democrats voters and politicans are starting to see the disaster coming. Instead of trying to extend taxes. Jerry should just start taking an ax to the state budget and cut it by 26 billion. Let the cards fall were they may.

    Reply this comment
  3. mesa15
    mesa15 29 March, 2011, 11:00

    wow… The truth about cal. You never see that. And I bet the hollywood film was filmed in canada

    Reply this comment
  4. CWPeters
    CWPeters 29 March, 2011, 12:02

    It is interesting to see how an article reads regarding public employee pensions is slanted given the background of the ‘journalist.’ As a current State employee I acknowledge that a growing number of public employee pensions are astronomical and unsustainable. However, things must be kept in context and the public should be made aware of the actual facts – not the ‘political facts, or the ‘popular opinion’ of the latest and greatest reform group of the week is.

    First, the public in general is not always aware that every pension that is managed and administered by CalPERS does not belong to a State employee. A significant number of these pensions are for the employees of Counties, Local Municipalities, and Special Districts throughout California. These government entities contracted with CalPERS to administer their pension plans, and most importantly these pension plans are the very plans in the greatest financial distress. The pension payouts for these plans are in many cases more generous than the standard CalPERS pension received by a State employee. Many of these non public safety employees receive a 2.7 at 55 pension payout. Until recently your standard State employee (Non Public Safety) would receive a 2.5 at 55 pension payout.

    Second, the salary schedules granted to most of the employees of contracted agencies is much more generous than the salary package received by a State employee in the same or very similar occupation. This point of fact is especially applicable when public safety and non public safety positions are compared. Remember the Cal-Trans executive who recently left State service to take over a large Southern California Transportation Authority? He negotiated a three-year deal and the accompanying annual salary was a hefty $255,000 that also included $75,000 in relocation costs, six months of severance compensation, and $25,000 in deferred compensation. His salary while a State employee was $150,000. How about the Fire Chief who served Orinda and Moraga whose annual salary was $186,000 and ‘legally’ spiked his pension with unused vacation and holiday leave to walk out with an annual pension of $241,000. To compound the matter this Chief was then re-hired as a consultant where he received $176,000 with no reduction in his pension payments. Situations similar to these occur regularly because significant numbers of government agencies have sought salary formulations that automatically create a ratchet effect on public employee compensation because the salary schedules are interconnected. Compare the figures described above to the $36,000 a year pension received by 78% of all CalPERS retirees.

    Third, much of the outcry that public employee pensions are unsustainable is recent and appears all too convenient. How many folks know that the State and many CalPERS contracting agencies were not required to make pension contributions during the boom years? The impact to CalPERS due to the recent economic distress is undeniable; however, it seems very ironic that little attention has been given to the recovery of the CalPERS balance sheet. It is also important to understand that current conditions will not persist. Pension plans rise and fall with the markets and trying to apply today’s conditions to the future is foolish and defies common sense. History has proven that markets will consistently provide steady returns between 8 and 10 percent over periods that exceed 10 years. Why does it seem everyone is in a rush to ‘reform’ public employee pensions before the economy has even recovered?

    Lastly, I do agree public employee pension reform is important and necessary. However, we all know that ‘reform for the sake of reform’ will wind up being symbolic at best and will most likely only impact the ‘average’ employee. I also believe the recent increase in employee contributions is a good start. However, as economic conditions improve and the sting of furloughs subside that public employees must consider additional increases if the economy continues to languish and the CalPERS portfolio does not recover entirely. Real and lasting reform can only be achieved by curbing the excesses seen in many local districts, by capping the amount of pension payout to that of Social Security ($106,000 w/ annual COLA), and by reevaluating the overly generous compensation received by local elected officials, political appointees, public safety employees, and special district employees.

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  5. Roy Bleckert
    Roy Bleckert 29 March, 2011, 12:22

    Fix for public employee pensions

    1) Tax all public employee pensions over 40,000 $ at a 90% rate

    Or

    2) Withhold the amount from current employee salaries the amount of money it will take to pay present and future benefits

    That would defacto either reduce the amount current pensioners draw or current employees will pay for current & future benefits ?

    If the Legislature & Governor would put that on the table ?

    Maybe Public Employees would renegotiate in good faith a equatable solution to the pension tsunami ?

    Reply this comment
  6. Charles
    Charles 29 March, 2011, 13:42

    1) Tax all public employee pensions over 40,000 $ at a 90% rate

    Never fly. Discriminatory and unconstitutional.

    2) Withhold the amount from current employee salaries the amount of money it will take to pay present and future benefits

    Subject to collective bargaining. Also you have to raise wages substantially or you would no workforce. This would essentially be a 40% wage cut.

    Reply this comment
  7. StevefromSacto
    StevefromSacto 30 March, 2011, 09:58

    We have gone to the point where even attempting to negotiate is verboten, it makes one cringe for our future. Legislators like Cannella and Berryhill are targeted because they dared to sit down with our governor to try to reach a compromise. How can we really have a workable state if we can’t even work together?

    Reply this comment

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