Calif. Descends Into Class Warfare

APRIL 27, 2011

With the sharp political divide found in just about every issue today, class warfare has taken an interesting turn. Issues including education, food choices, housing, health care and even pet care no longer are just defined as tensions between groups of different social classes

Now, class warfare has surfaced in the workplace. The war is between public employee unions and the private-sector workforce.

Gubernatorial candidates in states across the country campaigned last year on property tax caps, state employee salary freezes and even took on public-sector unions. Currently, Ohio and Wisconsin Govs. John Kasich and Scott Walker, both Republicans, have made collective bargaining for government workers the top priority for changes needed in their states.

But in California, after getting elected for a third term with 28 years in between, Democratic Gov. Jerry Brown is the sweetheart of the state’s public employee unions. And in California, the divide between the public and private employment sectors is only growing more pronounced.

As the economy has soured, the dramatic differences between public and private sector employees have become more pronounced. The two groups live in very different worlds.

In the private sector, employees pay the majority of their own health care, retirement plan contributions and long-term medical care, and have limited time off.  Private-sector employees usually have to contribute 100 percent to a defined-contribution pension plan for retirement, such as 401(k) plans, and have been faced with across-the-board pay cuts, cuts to benefits and time off, layoffs and downsizing.

While some public sector employees in the state have faced furloughs, there have been no substantial layoffs. In fact, the state is still hiring. And as threats of budget cuts continue, tales from disgruntled state employees are leaked to the public about coworkers who perform no real jobs, problem employees being transferred to other departments instead of being terminated, and rich benefit and pension packages getting richer thanks to negotiations with the governor.

The way the system works is no secret: Government unions use their political clout to help elect politicians in exchange for generous taxpayer-paid contracts and benefits. The twist is that it’s the politicians who will determine the pay for public-employee union workers. It’s like being able to vote yourself a big salary and benefits.

But even faced with the overly generous public employee health care plans and pensions threatening to bankrupt many cities and counties, California politicians just keep on supporting the union benefits increases.

More and More and More

As if California is operating on a parallel universe, in response to the crisis, government unions continue to demand more, and the higher taxes to pay for it all, with a complicit Legislature’s approval.

This just drives businesses and individuals out of California to states with lower taxes, fewer regulations and higher business incentives for job creators.

Only 10 days ago, a group of California politicians and business leaders traveled to Texas to meet with Republican Gov. Rick Perry and Texas state legislators and to hear from businesses that closed up shop in California and moved to Texas.

The delegation, led by Republican Assemblyman Dan Logue of Linda, not only met with Perry, but the California lawmakers participated in a hearing at the Texas state Capitol. “Texas has wrapped its arms around the future,” Logue said upon his return to Sacramento. “There’s just a different spirit there.”

Logue tells anyone and everyone, “Texas has added 165,000 jobs during the last three years while California has lost 1.2 million.” But California’s jobless rate of 12 percent in March, compared to 8.1 percent in Texas, seems to be lost on California’s Legislature, which continues to pass bills expanding state government.

Logue explained that Perry embraced the need for business-friendly changes immediately upon becoming governor. Perry moved the Texas economic development department right into the governor’s office as a statement of just how serious he was about changing the state’s attitude toward business. Logue reported that under Perry’s direction, Texas successfully got rid of the “gotcha” attitude many government agencies exude when dealing with business owners and employers.

Analyzing why the attitude change worked in Texas, Logue responded, “It has to come from the top.”

Texas, Here They Come

Last month, I attended Logue’s monthly Economic Recovery Group lunch meeting where Andy Puzder — the CEO of CKE Restaurants, whose biggest franchise is Carl’s Jr. — told how the company would not be expanding in California in the future. Instead it would be opening 300 new Carl’s Jr. restaurants in Texas.

I wrote:

Carl’s Jr. has 700 restaurants in California, one-half of which are owned by CKE Restaurants, and the other one-half are franchises. The company has more than 72,000 employees total, 18,500 of which are in California.

And while Puzder made very clear that Carl’s Jr. would be “maintaining” the status of their California restaurants, the company plans on opening 300 new restaurants in Texas.

Describing CKE Restaurants as a ” job creation machine,” Puzder said that the company had more than $4 billion last year in revenues, and paid $60 million in California taxes.

But more than just the large, Texas-sized revenue and tax bills, new Carl’s Jr. restaurants in Texas have already realized record opening-week sales figures, and much less upfront costs than the California restaurants.

“It costs us $250,000 more to build one California restaurant than in Texas” said Puzder. “And once it is opened, we’re not allowed to run it.”

Some have said that Texas has a plan and California does not. If predictability is a plan, then California is without one.

Jack Stewart, president of the California Manufacturers Association, went on the Texas trip. “Gov. Perry is prudent,” said Stewart. “He is working with state agencies to make sure that regulations will be workable with companies down the line.” Stewart described a “passion” that not only Perry has for the businesses and owners located in Texas, but a pride that is not happening in California. “Folks in Texas are proud of their state,” said Stewart — a pride Californians also once owned.

Ironically,  only hours after the legislators met with Mr. Perry, another business, Fujitsu Frontech, announced that it is abandoning California, reported John Fund in the Wall Street Journal.

Another one bites the dust.