Rebecca Friedrichs

Faced with the greatest legal challenge to their core source of revenue, California unions have braced for defeat and scrambled for alternatives.

Some time after its new term begins this month, the Supreme Court will hear arguments in Friedrichs v. California Teachers Association, which challenges the union’s collection of mandatory fees from members. The case’s stakes have been raised as high as possible by plaintiffs’ supporters. “We are seeking the end of compulsory union dues across the nation,” said Terry Pell, president of the Center for Individual Rights, according to the Sacramento Bee.

“Since 1997, the Supreme Court has held that requiring non-union members to pay the cost of collective bargaining prevents ‘free riders,’ meaning workers who get the benefits of a union contract without paying for it,” as NBC News noted. “But in subsequent rulings, several of the court’s conservatives have suggested that the decision should be overruled.” Legal analysts suggested the track record implies a victory for California’s plaintiffs. Erin Murphy, a federal appeals lawyer, told NBC News she “would not feel very good about my prospects if I were the unions.”

Crisis mode

At the end of the Legislature’s final session, pro-union Democrats attempted an unusual “gut and amend” maneuver, wherein a bill’s contents are wiped out and completely replaced without revisiting the standard hearing process. The new language would have required one-on-one, union-sponsored “public employee orientation” for existing and new employees. The content of the orientation “would be the sole domain of the union and not open to negotiation,” with employees “required to attend in person during work hours. Taxpayers would pick up the tab,” the Heartland Institute added in a critical summary.

Although the effort failed, it was a notable reflection of state unions’ concern that they can’t rely on the Supreme Court to protect their current practices. “Public employee unions haven’t had mandated orientations because they don’t need them,” U-T San Diego’s Steven Greenhut observed, calling the last-minute gut and amend a “pre-emptive strike” on the court’s hearing of Friedrichs. “Newly hired workers must already pay dues to the recognized union.”

Not all union supporters have framed the impending decision as a crisis, however. “Even some pro-union voices have argued the Friedrichs case doesn’t portend the end of the world for public-sector unions, in that it might force them to become more responsive and democratic,” Greenhut suggested.

But the court’s decision is likely to hinge on more fundamental questions pertaining to the very definition of a union.

What’s a union?

One element of the problem has been that unions fear members just won’t pay dues if they can get away with it — the so-called “free rider” problem, familiar from the idea that many fewer Americans would pay taxes were they merely voluntary. “No one knows how many would, with annual dues in the CTA, for example, often topping $1,000,” according to the Los Angeles Daily News. “That makes this a life-and-death case for the unions,” which fear the political power of their main adversaries — certain large corporations and high-net-worth individuals — would go undiminished. It would be very difficult, in other words, for the court to successfully separate the question of unions’ political power from the question of their existence.

That has led analysts to focus on a second aspect of the problem of what a union really is. One Justice, Antonin Scalia, has indicated in the past that the existence of unions within the American system of law depends on their ability to generalize the burdens of keeping them running. “In a 1991 case, he wrote that because public sector unions have a legal duty to represent all employees, it’s reasonable to expect all workers to share the costs,” the Daily News noted.

For that reason, the question of what counts as political expenditures would likely come to the fore before the court. But the plaintiffs in Friedrichs have anticipated the controversy, because they see it as the foundation of their entire case. “All union fees, they argue, are in some way used for political activities and since they don’t always agree with the union’s stance, having to pay any fees is an infringement on their first amendment rights,” the Guardian reported.

The news added a fresh twist to the state’s long-running game of political cat and mouse, which has seen state officials labor to cast would-be reforms in a negative light.

Switching gears

Previously, former San Jose Mayor Chuck Reed and former San Diego City Councilman Carl DeMaio had forged ahead with a proposal that would subject all pension increases to voter approval.

But that initiative’s path forward was complicated by Attorney General Kamala Harris, who is legally responsible for summarizing initiatives on the ballots used by Californians statewide. As the Sacramento Bee observed, the language used in the summaries has proven significant “because it appears on petition materials used to qualify them for the ballot, often shaping voters’ first impression of an initiative’s contents. Perhaps even more important, the wording affects potential contributors’ willingness to underwrite a campaign.”

So, since “the state’s constitution protects public employee pensions and benefits from being cut,” Reason noted, “when Harris summarized DeMaio and Reed’s ballot initiative, as the law requires her to do, she declared that it ‘Eliminates constitutional protections for vested pension and retiree healthcare benefits for current public employees, including those working in K-12 schools, higher education, hospitals, and police protection, for future work performed.'”

According to the original language of the withdrawn initiative, the state government “shall not enhance the pension benefits of any employee in a defined benefit pension plan unless the voters of that jurisdiction approve.” Harris’s language, critics said, uses grammatical sleight of hand to make it seem like benefits will be taken away, instead of simply not given in the first place. “It’s clear that ‘shall not enhance’ is not the same as ‘eliminates,'” as the Orange County Register recently editorialized.

Testing Harris

For DeMaio and Reed, however, Harris created a problem and an opportunity. By pulling the initiative in favor of a couple new and slightly altered proposals, the two hoped to show that Harris “used what they consider ‘poison pill’ language to describe the new measures as she has three previous pension change proposals since 2011,” according to the Bee.

“If she does, DeMaio said, ‘we think she’ll be giving us the evidence we need’ to successfully sue Harris for unfairly skewing her description of pension initiatives.”

If DeMaio and Reed wind up dissatisfied with Harris’s summaries of both proposals, Reed said, they’ll challenge her in court. If both pass their scrutiny, however, they would only move forward with one.

Public support

Although pension reform has become a political hot potato in California, public support has gathered for some kind of curbs on its excesses. A recent poll conducted by the Public Policy Institute of California revealed that “72 percent of likely voters say the amount of money spent on public employee pensions is a problem,” pollsters noted, while 70 percent prefer that voters make at least some “decisions about retirement benefits for public employees.” At the same time, only “24 percent say state and local governments should make all the decisions.”

Those numbers roughly reflected the level of concern over pensions measured nationwide. In a Reason-Rupe poll, 72 percent said they were “very” or “somewhat” concerned that state and local governments weren’t able to meet pension promises extended to public employees. “A similar number (74 percent) are concerned that state or local governments will raise taxes in the future in order to meet these pension obligations,” Reason added. “When asked to prioritize dealing with the pension crisis, 35 percent said pension reform should be a top priority, while 41 percent said pension reform should be an important but lower priority.”

“The owner of the Castro Valley care home where residents were all but abandoned after the state shut it down obtained her operating license even after government inspectors found she had put patients in ‘imminent jeopardy’ at nursing homes she used to run, records show.

“A spokesman for the state agency that granted the license conceded that officials hadn’t checked into Herminigilda ‘Hilda’ Manuel‘s history of running nursing homes before clearing her to operate the Castro Valley assisted-living center in 2008. Nine years earlier, federal officials ordered Manuel to pay more than $800,000 after inspectors found a long list of problems at her nursing homes, including staffers’ practice of tying patients to their beds without good cause.

“Such cross-checks of records are ‘not something currently being done on a regular basis,’ said Michael Weston, spokesman for the California Department of Social Services.

“Unlike assisted-living homes, nursing homes provide medical care. The two that Manuel owned received Medicare payments, so federal officials entrusted the state Department of Health Services to inspect for problems.

“Starting in 1998, the inspectors found numerous violations of federal rules at the Wisteria Care Center in Castro Valley and the Milpitas Care Center, both of which Manuel had run since 1994, state records show.”

A culture of complacency and indifference

The contrast with the private sector could not be more striking. Yes, of course, every year bad companies screw up and go out of business. But in the big picture, U.S. productivity keeps improving year after year after year, primarily due to the information-technology revolution but also due to the related rise of “big data” modeling. The emphasis on MBA-driven “best practices” also continues to spread from industry to industry. (Look at the Red Sox’ mini-dynasty; thanks to a brilliant billionaire owner, they’re a big-data/best-practices “Moneyball” team with money.)

In the government sector, automatic “step” pay raises, pensions and great job security make workers want to preserve the status quo, not shake it up.

Given the amazing frequency of stories about information-technology debacles involving government — here’s California’s latest — I wonder when someone will take a hard look at the possibility of passive-aggressive sabotage by implementers. Like the Luddites, they worry about losing their jobs.

There’s one more contrast between the public and private sector that’s worth noting: the utter lack of ethics and safeguards in government finance. The shady collapse of the tech and housing bubbles have produced a wave of regulation of Wall Street. But things are done routinely in California’s government that would generate prison time and SEC probes in the private sector.

On high-speed rail, the evidence is circumstantial but strong that the staff of the California High-Speed Rail Authority knew before the November 2008 state vote authorizing $9.95 billion in bonds for the project that the project didn’t have a legal business plan because the state couldn’t legally offer revenue guarantees to entice investors. Imagine what would happen if a corporation sold bonds without disclosing something like that.

On pensions, even as the tsunami hits, the leaders of the California Public Employees’ Retirement System constantly assert there is no pension crisis, or that it is deeply exaggerated. This even though it’s been four years since CalPERS’ then-actuary Ron Seeling warned that the agency’s status quo was unsustainable. Imagine what would happen if a corporation made such blatant misrepresentations about its financial health.

What will get the blame? Knowing CA’s media …

But this latest incompetence scandal, out of Castro Valley, already has a predictable arc. Instead of yielding stories about pervasive incompetence and corner-cutting in state government, we’re likely to see journalists lapping up the self-serving spin of government agencies. So the debacle will be blamed on … budget cuts.

Sigh.

“We see political spending as distorting markets in policy making and creating a skewed playing field,” said Bruce Freed, founder of the Center for Political Accountability, in a recent debate over corporate political speech.

Freed’s organization and other leftist groups have been pressuring corporations to eliminate or at least disclose their political spending. But a recent Common Cause study of $220 million in independent expenditures for candidates in California from 2000 to 2012 shows that unions spend much more than businesses.

“[L]abor unions are the largest source of independent spending, focusing primarily on governor’s races,” the study states.

Some findings:

— Union-backed independent expenditure committees outspent business-backed committees three-to-one: $90 million to $27.7 million.

— Three-quarters of the donations exceeding $1 million came from unions.

— Seven unions are among the top 10 donors.

— Business-backed committees accounted for 12.5 percent of independent expenditures.

— Chevron, the largest corporate contributor to independent expenditure committees, ranked 28th among all donors.

Professors target corporate speech

But a political playing field skewed in favor of unions hasn’t deterred a group of law professors from filing a petition with the Securities and Exchange Commission that has the potential to significantly decrease corporate political spending.

“We ask that the Commission develop rules to require public companies to disclose to shareholders the use of corporate resources for political activities,” the July 2011 petition states.

It makes several assertions:

— Public investors have become increasingly interested in receiving information about corporate political spending.

— In response, a large number of public companies have voluntarily adopted policies requiring disclosure of the company’s spending on politics.

— Disclosure is important for the operation of corporate accountability mechanisms, including those that the courts have relied upon in their analysis of corporate political speech.

Fifty of the 465 shareholder proposals on company proxy statements in 2011 were related to political spending, including one-fourth of the S&P 100, according to the petition.

The petition addresses the pro-corporate speech argument that there are already numerous regulations governing corporate political spending. It states that the information is scattered “among several federal, state and local government agencies, presented in widely varying formats, and is ill-suited to giving shareholders a good picture of a particular corporation’s political spending.”

And much information remains undisclosed, the petition states, including contributions to intermediaries like 501(c)(4) organizations that are not required to disclose their donors. The petition concludes:

“Shareholders in public companies have increasingly expressed strong interest in receiving information about corporate spending on politics, and such spending is likely to become even more important to public investors in the future. Furthermore, shareholders need to receive such information for markets and the procedures of corporate democracy to ensure that such spending is in shareholders’ interest. Still, while many large public companies have begun to provide such information, no existing rule requires disclosure of this information to investors, and corporate political spending remains opaque to investors in most publicly traded companies. The Commission should address this lack of transparency and, drawing on its expertise and experience in designing rules for disclosure of other information that is of interest to investors, should adopt rules concerning disclosure of corporate political spending.”

Not a priority for SEC — so far

The SEC has yet to act on the petition, and may take its time doing so. The petition was recently placed in the long-term action category of the “reg flex” agenda, said SEC general counsel Brian Cartwright at the Society of Corporate Secretaries & Governance Professionals conference.

“If I were advising [SEC Chairman] Mary Jo White, and she decided this is something she was not interested in, I would advise her to put it in the long-term action category rather than take it off the reg flex agenda altogether,” said Cartwright. “Because you would have to take a whole bunch of arrows you don’t need to take if you do that. So I would say for the near term this has been very substantially downgraded for SEC action. This late in the year nothing could impact the 2014 proxy season.”

When the petition does reach the SEC board, at least one commissioner, Daniel M. Gallagher, may be skeptical, judging by his remarks at the SCS&GP conference on July 11. He agreed that there are benefits for investors from more disclosure, but he draws a tighter line on how much needs to be disclosed.

“[T]he disclosure regime was [not] meant to guarantee that investors receive all information known to a public company, much less to eliminate all risk from investing in that company,” said Gallagher. “Instead, the point has always been to ensure that they have access to material investment information.”

‘Regulatory creep’ leads to information overload

He went on to say:

“Arguably, the Commission’s disclosure regime has been subject to the classic Washington scourge of regulatory creep, in spite of the principle that investors should have access to ‘basic facts.’ The beauty of the disclosure regime as created by Congress almost 80 years ago was that it did not require government regulators to judge the merits of a company, its board or management structure, or its business practices –– those judgments were intended to remain in the hands of investors armed with the knowledge provided by the disclosure of material information. Today, however, some of our disclosure rules are being used by special interest groups, who do not necessarily have the best interests of all shareholders in mind, to pressure public companies on certain governance and business practices.”

Gallagher also warned about the potential for information overload:

“As Justice Thurgood Marshall warned almost 40 years ago, disclosure requirements with ‘unnecessarily low’ materiality standards risk ‘simply bur[ying] the shareholders in an avalanche of trivial information — a result that is hardly conducive to informed decision making.’ When investors are inundated with immaterial information, it increases the likelihood that they will miss key disclosures. Even more likely is the possibility that investors, despairing about the voluminous compilations of corporate minutiae contained in company filings, will never even look at disclosure documents. In either case, the result is that investors are left less informed when making investing decisions than they would be if presented with a document that didn’t require a magnifying glass to read and a PhD to understand.”

The quantity and length of the documents needing to be reviewed by shareholders has increased by about 50 percent from 2003 to 2011, he said. As a result, Gallagher pushed for streamlining regulations.

“Given the importance of this issue, it is critical for the Commission to engage with issuers and shareholders to rethink whether the mandatory disclosure rules in their current form are still valuable, and whether in some cases it may be better for investors if there was a lower volume, but an overall higher quality, of disclosure,” he said. “As I’ve noted repeatedly, disclosure is not costless to issuers, and we cannot forget — because far too many policy makers do forget — that it’s the shareholders who ultimately bear the burden of increased costs on issuers.”

Overreach of SEC authority seen

Former SEC Commissioner Paul Atkins is strongly opposed to the disclosure petition. He discussed the issue at a Pacific Research Institute luncheon in San Francisco last year, and wrote a petition response, “Materiality: A Bedrock Principle Protecting Legitimate Shareholder Interests Against Disguised Political Agendas.” It makes several arguments:

— The SEC does not have the authority to require disclosure of information on these sorts of expenditures because such information is immaterial.

— Should the Commission decide to proceed, which would harm rather than protect investors, the Commission would be unable to satisfy its legally mandated cost-benefit analysis because the alleged benefits are outweighed by the significant costs of mandated disclosure.

— It would be inappropriate for the Commission to move forward with a rule-making related to corporate public policy spending at a time when it must address myriad issues related to the financial crisis of 2008, as well as those that are central to the economically important capital-raising functions of the capital markets.

“Ultimately, the SEC is not the appropriate body to address this issue, primarily because SEC does not have the authority to require disclosure of information on these sorts of immaterial expenditures,” wrote Atkins. “Rational shareholders, considering their economic interests and not political interests, do not consider this information material to their investment decision making.

“Even if the SEC were to forge ahead and consider a rule, an impartial economic analysis of the costs and benefits of such a requirement would find that the costs exceed the purported benefits, because the narrow interests of an extremely vocal minority of shareholders (and even non-shareholder activists) could more easily intimidate value-creating corporate behavior, create brand damage to the disclosing companies, and stifle corporate speech, all of which would have a detrimental economic effect on the company and its shareholders.”

One of the disclosure advocates, Freed, suggested that he might not be bothered were the SEC to reject the disclosure petition.

“I think when you’re looking at the work we have done on political disclosure, we are not talking about regulations,” he said. “We are talking about companies adopting policies that govern their political spending practices. This is very, very important. Voluntary disclosure as a result of shareholder engagement has laid a strong foundation for broader disclosure.”

Even if SEC passes, state-level action proceeding

But if the petition is rejected, corporations won’t be able to breathe easy. Disclosure advocates have started lobbying state legislatures.

“At the state level there’s quite a bit of ferment,” said Freed. “Disclosure laws have passed in Iowa and Maryland. There’s strong support for disclosure legislation in Texas and Montana. The Texas legislature passed a very strong disclosure bill that was vetoed. In Montana there was very strong bipartisan support. In New York state, regulations were issued by the attorney general requiring  501(c)(4) disclosure. California is getting very active in this area. So there’s quite a bit of ferment there.”

Between the fomenting from disclosure activists and the regulatory fermenting in state legislatures, free market supporters will need to stay alert lest the already-skewed political playing field be totally forfeited to one team.

By Chris Reed

Last year, the Los Angeles Department of Water and Power imposed an 11 percent rate hike — which it called a “rate change” — on its power customers, while water customers saw rates go up 5 percent.

Millions of Angelenos will no doubt be thrilled to know what this is paying for: $70,000 a year janitors. No wonder DWP unions want to keep pay data secret.

This is from the L.A. Times:

Average DWP pay: $101,237. It’s good to be DWPer

“Los Angeles County Superior Court Judge James Chalfant stared in disbelief Tuesday at a list of hundreds of Department of Water and Power employees who have asked that their names and salaries be withheld from the public, citing safety concerns.

“On the list were mechanics, typists and meter readers.

“‘This is frivolous on its face; I mean, these are DWP employees,’ Chalfant said, noting that the names of government employees are public and even undercover police officers have a hard time demonstrating they would be in danger if their names appeared on a list of department employees. …

“The average DWP employee, including everyone from the highest-paid engineers to the lowest-paid temps, made $101,237 in 2012, the data show.

“Among the job titles that saw the biggest average pay increases over the last five years were custodians, up 25%, from $56,060 to $69,995.

“Welders’ and machinists’ pay grew 18% on average to $132,548 and $142,562, respectively. Those figures represent full-time employees who worked entire years in 2008 and 2012.

“Employees seeking anonymity made $110,730 on average in 2012, 12.4% more than workers whose names were released.”

White House hearts federal employees

Meanwhile, elsewhere on the public employee gratification front, The Washington Post reports the Obama administration is seeking a raise in pay for all federal employees.

The raise may be small (1 percent), but the same “step” pay raise policies seen in California government are used in the federal government, so the claim that federal employees have gone years without pay hikes is simply wrong. And aren’t we supposed to see belt-tightening and shared sacrifice in this post-sequester era?

Instead of pragmatism, we get disinformation. “As the President stated in his [fiscal year] 2014 Budget, a permanent pay freeze is neither sustainable nor desirable,” a White House statement noted.

The myth of a ‘permanent pay freeze’

What “permanent pay freeze”? Hundreds of thousands of federal workers have gotten step raises in recent years.

And who says a pay freeze for government employees — with raises earned for performance, not for staying alive — “is neither sustainable nor desirable”? Turnover among federal employees is minuscule. That indicates compensation is far more than adequate.

Government employees aren’t just a protected class in California. It’s a federal phenomenon as well — a depressing one.

By Chris Reed

One of the worst failings of journalists who cover California government is their failure when writing about budgets to always mention the automatic “step” raises that many public employees get each year, including most teachers, just for accumulating time on the job. These auto raises explain why government agencies depict any reduction in proposed spending increases as “cuts.” But they don’t explain why reporters do so.

In failing to offer this context, journalists let down their readers in many other ways as well. “Step” increases explain why pensions get so high and why so few public employees leave their jobs compared to those in the private sector. They also help explain why the productivity revolution never arrived in the public sector. The government status quo may be inefficient, but if it means there are lots of jobs where few people get fired and many/most people get automatic raises, then there is a huge constituency to keep it inefficient.

A reporter who provides context: It can be done

Which brings us to two very different recent stories in the California media.

Here’s what a sharp journalist sounds like when talking about how public employee pay works in California. It’s Will Carless of the Voice of San Diego in an Q&A with Bernie Rhinerson, a top San Diego Unified official:

“… three years ago, the board decided to hand out a whole slew of raises.

“Collective bargaining is give-and-take, and concessions.

“At that point in time, teachers gave up five days of paid work; they gave up almost 3 percent of their salary to get a promise of raises in the future. They got the kids through another year without big layoffs.

“And our teachers hadn’t had a raise in years.

“They had a raise in 2008, two years earlier.

“Well, that was before I came.

“They had had a raise, though.

“Well, that was five years ago now. Have you had a raise in five years?

“Sure, but now you’re repeating another canard. Most teachers in the district get raises every single year, just for staying alive. My wife does. Yes, I’ve had a raise, maybe one a year, but so have most teachers. As a communications person, don’t you think that we should start to be a bit more frank about terms like that? Why is an across-the-board raise any different (from) a step-and-column raise? They’re both raises.

“I’m not going to argue about the system in California.”

A reporter who is clueless: California’s sad norm

This sort of context should be required. Unfortunately, even in 2013, this sort of coverage of from the Los Angeles Daily News’ Christina Villacorte is still the norm:

“Los Angeles County employees, who are demanding pay raises after five years of going without, could see as much as $285 million in additional salaries and benefits in the coming fiscal year.

“The county is still negotiating with its various labor unions, but it provided that estimate to Moody’s Investors Service during an evaluation of its creditworthiness.

“County’s spokesman David Sommers emphasized that pay raises are a possibility — not a given.

“‘There are a number of proposals floating around about different scenarios of what salary and cost-of-living increases could look like,’ Sommers said. ‘That’s just one possible computation.’

“Sommers said the county provided that estimate because ‘the potential of salary increases — whether they happen or not — are things which rating agencies take into account when thinking about what’s next for us financially.'”

Don’t blame journalistic lapses on newspaper downsizing. It’s incompetence.

Note that Sommers apparently didn’t bother to tell Villacorte that, yes, lots of L.A. County employees got annual step raises, whether or not supervisors increased the broad pay scale of county employees in general after collective bargaining.

But why should he? Shouldn’t the Daily News reporter know this?

Of course.

But don’t blame this on the loss of “institutional knowledge” that resulted from the gutting of newspaper staffs over the past decade. I’ve lived in California since 1990. Even the Los Angeles Times at its bloated biggest — from, say, 1995 to 2003 — never routinely mentioned “step” pay hikes in writing about the state budget.

Why? Who knows? But it’s a black eye for California journalism whatever the reason.

By Chris Reed

Well, that didn’t take long.

Bob Filner — a paleoliberal former Democratic congressman who was elected mayor of San Diego in November — is embracing the same sort of ridiculously generous public-employee compensation policies that led to his city’s immense fiscal crisis a decade ago. That crisis amounted to an early warning of the now at-hand pension tsunami afflicting local and state governments around the nation. It was so severe that it led to San Diego being called “Enron by the Sea.”

However, since 2005, seven years of prudence from Republican Mayor Jerry Sanders have actually left San Diego in far better shape than many other California cities. But Filner is determined to change that:

“City politicians already have voted themselves the richest pension benefits of any city employees, but under a new proposal by Mayor Bob Filner, city politicians will have even more to look forward to once they leave office.

“Mayor Filner is asking the City Council to pass an extraordinary law this month to allow former city politicians to “double dip” by collecting full city pensions while being eligible to be rehired by the city with full salaries simultaneously. …

“Filner’s proposal for ex-City Council people is not the only effort to expand pension ‘double dipping’ at City Hall.

“In December 2012, the city’s pension system announced that city employees could retire, start collecting a full pension, and return to work at City Hall on a full salary – provided that they simply wait six months.

“The city’s pension system formulated this policy to help retired city employees thwart IRS efforts to impose a pension penalty tax of 10 percent on government employees who retire and then return to work at the same government agency.”

That’s from Thursday’s U-T San Diego column by former San Diego Councilman Carl DeMaio, a libertarian Republican who lost narrowly to Filner in November.

Buyer’s remorse is likely to set in soon. When Sanders left office, he was very popular.

But despite Sanders’ endorsement, DeMaio was effectively demonized by public employee unions as a radical. Still, it’s doubtful that many of Filner’s voters wanted him to re-embrace the city’s old ways.

A city with a pothole problem that reminds many residents of life in the Third World doesn’t want to see the further enrichment of already well-paid public employees.

By Chris Reed

Happy New Year’s, everybody. I am sure that 2013 is the year that California turns the corner. OK, maybe not. But I am confident there will be 12 months this year, the Mayan crisis having passed.

The balance of power in California is so tilted in favor of public employee unions that I’ve often compared it hyperbolically to another one-party state, the one based in Pyongyang. But a story in the San Jose Mercury-News brings to mind another allegory for California: George Orwell’s “Animal Farm,” an amazingly durable fable about how power corrupts, the failed promise of collectivism and the disaster that was Stalinism for the socialist cause.

When the animals in Orwell’s novella take over Mr. Jones’ farm, they adopt the Seven Commandments of Animalism, in which the most important of the seven is the guarantee that all animals are equal. By novel’s end, the pigs have taken over, and the Seven Commandments have been boiled down to one: “All animals are equal, but some animals are more equal than others.”

In California, the Legislature kills legislation that would allow school districts to quickly fire teachers who are actual sexual predators. But what about public employees who watch depravity but don’t actually do things like feeding semen to schoolkids? If they’re not teachers, typically they’re out of luck and soon out of a job. This is from Monday’s Merc-News:

“The head of San Mateo County’s probation department retired Monday under the cloud of an investigation by federal authorities into whether he had child pornography, officials said.

“A family member of Stuart J. Forrest filed paperwork with the county’s public worker retirement system that made his departure effective immediately, county spokesman Marshall Wilson said.

“He had been on paid administrative leave from his $140,000 a year salary position since Dec. 21, when news broke of the investigation. …. Forrest began working for the probation department in November 1977 and was named its chief in April 2009. …

“If Forrest is charged and convicted of a crime, it could mean forfeiting rights to a county pension. Under a broadening of state law to take effect in January, public workers convicted of a job-related felony will lose their retirement benefits, according to Government Code section 7522.70.”

Yes, I get the point that all public employees in California are subject to loss of pension for a job-related felony, including teachers. But the story of Mark Berndt and how the Los Angeles Unified School District had to pay him $40,000 to get rid of him remains sickening.

You don’t see most white-collar unions putting up obstacles to removal of perverts from their jobs, much less succeeding with this tactic.

Yet in California Teachers Association-occupied Sacramento, that’s exactly what happened. The Seven Commandments of Unionism no longer hold sway. Instead, all public employees are equal, but some public employees are more equal than others.

By Mark Cabaniss

Democracy, it has been said, is two wolves and a sheep voting on what to have for dinner.

Yes, the sheep gets to vote.  And yes, in theory he could appeal to one of the wolves to break rank and vote with him instead of the other wolf.  But in reality, the sheep loses.  Every time.

The only way that the sheep could win, in a closed system, or zero-sum game, would be for him to convince one of the wolves that the other wolf would make a tastier meal than would the sheep himself.  Alternatively, he could try to convince one or both of the wolves that they are not, in fact, in a zero-sum game.  Historically, the sheep has had a difficult time doing this.

We can construct a simple model with only three voting blocs, each of which considers only its own economic interests when voting, each represented by one of the animals:

1. People who don’t pay taxes (Transfer Wolf);

2. Public employees (Public Wolf);

3. Private sector employees (Sheep).

At dinner time — oh, excuse me — voting time, there are two propositions on the ballot:

A. Shall we raise (or decrease) taxes and use the money to raise (or decrease) spending on Public Wolf?

B. Shall we raise (or decrease) taxes and use the money to raise (or decrease) spending on Transfer Wolf?

Voting

The voting goes like this:  On Proposition A, Public Wolf votes to raise taxes and raise his own pay.  Sheep votes to lower taxes and to lower Public Wolf’s pay.  Public Wolf and Sheep are at a stalemate.

Transfer Wolf sits this vote out.  Since he doesn’t pay taxes, he doesn’t care what tax rates are.  Nor does he care how much Public Wolf is paid, unless — unless he is paid to care.

On Proposition B, Transfer Wolf votes to raise his own benefits and to raise taxes to pay for them.  Both Public Wolf and Sheep vote against him.

Transfer Wolf has a problem. He has been outvoted.  But luckily for him, Public Wolf also has a problem: He is in a stalemate with Sheep.  The two wolves realize that they need each others’ votes, so they agree to work together, against Sheep.  Each will support the other’s position, and Sheep will be outvoted on both propositions.

In actual practice, the evidence suggests this is exactly what is happening — transfer payment recipients and government workers have formed a successful political coalition.  According to a recent article by demographer Nicholas Eberstadt, since 1960 total United States transfer payments have grown from $24 billion to just short of $2.2 trillion in 2010, nearly a 100-fold increase in the last half century.

Simultaneously, total government spending, federal and state and local, has gone from about 24 percent of GDP in 1960 to about 36 percent in 2010, growth of 50 percent.

Nash equilibrium

A Nash equilibrium, as popularized in the book and movie “A Beautiful Mind” about mathematician John Nash, posits a game stalemate dependent on two conditions: first, each player knows every other player’s strategy; second, despite knowing everything, each player is nonetheless unable to adjust his own strategy to make it more advantageous.

In politics, there are no secret strategies, since elections involve trying to gain adherents to your strategy over the other side’s.  But in our simple Fairy Tale, even though the first condition for Nash equilibrium is there — everyone knows everyone else’s position — there is nonetheless no equilibrium.

Public Wolf and Transfer Wolf will continue to vote in tandem, and thereby grow; Sheep will continue to be outvoted, and shrink.  If we graphed Sheep’s life expectancy, it would be a curve breaking straight down, inversely proportional to the growth of his two compatriots.

But when we consider the second condition necessary for a Nash Equilibrium, we see how Sheep can get out of his predicament: He simply has to change strategy and start competing with Public Wolf by directly bidding for Transfer Wolf’s vote.

Why hasn’t Sheep already thought of that?  He could, after all, promise to cut Public Wolf’s pay and then split the savings with Transfer Wolf, much as Public Wolf promises to raise taxes and split it with Transfer Wolf.

The reason for this is history, and the simple inability to think past it.

Sheep has always been opposed to raising taxes, whether it is to increase the size and pay of Public Wolf or whether it is to increase the size and pay of Transfer Wolf.

But, just because Sheep has always been opposed to these ideas in the past does not mean that he has to stay opposed to them in the future.  If Sheep could let go of his historical antipathy to Public Wolf and Transfer Wolf, he could seek to make a deal with one against the other.

Of course, there is yet one more way out for Sheep. He could potentially try to convince one or both of the wolves that their dinner choice is not a zero-sum game; that they could, in fact, join forces and go foraging in the woods together for something that all three animal friends could eat.

Historically, this approach has been a loser for Sheep.  At dinner time, both of the wolves are usually too hungry to listen to reasoned pleas about thinking outside the zero-sum model.

So the only bet for Sheep may be to undergo a paradigm shift, overcome his qualms, and make a deal with one of the wolves to dismember and eat the other.

The Sunshine Review, a nonprofit organization dedicated to government transparency, released its first state government salary report today, which analyzed public sector employee salaries in 152 local governments spanning eight states.

Taking data from the last four years, Sunshine Review investigated benefits information as well as information on government perks like car fleets and cell phones for public sector employees in California, Pennsylvania, Florida, Illinois, Michigan, New Jersey, Texas and Wisconsin.

California had 1332 employees making more than $150,000 annually. Illinois followed in second with 867 employees, and Texas is in third with 194.

Read the entire report HERE.