In June, in a move that rated only a brief in the local newspaper, one California county found a way to express this frustration:

At the urging of Supervisor Ryan Coonerty, the Santa Cruz County Board of Supervisors voted Tuesday not to invest for five years with the five banks that recently agreed to plead guilty to felony charges.

 

The Department of Justice announced in May that four major banks — Citigroup, JP Morgan Chase, Barclays and the Royal Bank of Scotland — have agreed to plead guilty to felony charges of conspiring to manipulate the price of U.S. dollars and euros exchanged in the foreign currency exchange spot market. In addition, a fifth bank, UBS, has agreed to plead guilty to manipulating the London Interbank Offered Rate and other bench mark interest rates.

 

While the action of Santa Cruz County alone may not have a major impact on Wall Street, Coonerty will be contacting other local jurisdictions across the country to urge them to consider taking similar action in order to send a message to Wall Street.

That’s the entire item in the Santa Cruz Sentinel. Scroll down; it isn’t the lead item in that day’s news briefs.

Former secretary of labor offers praise

But if this gesture wasn’t seen as very important in Santa Cruz, former Clinton administration Labor Secretary Robert Reich, a UC Berkeley public policy professor, disagreed later in June on his personal blog. Here’s part of the lengthy post:

A strong case can be made that employers shouldn’t pay attention to criminal convictions of real people who need a fresh start, especially a job.

 

But giant banks that have committed felonies are something different. Why shouldn’t depositors and investors consider their past convictions?

 

Which brings us to Santa Cruz County.

 

The county’s board of supervisors just voted not to do business for five years with any of the five banks felons.

 

The county won’t use the banks’ investment services or buy their commercial paper, and will pull its money out of the banks to the extent it can.

 

“We have a sacred obligation to protect the public’s tax dollars and these banks can’t be trusted. Santa Cruz County should not be involved with those who rigged the world’s biggest financial markets,” says supervisor Ryan Coonerty.

 

The banks will hardly notice. Santa Cruz County’s portfolio is valued at about $650 million.

 

But what if every county, city, and state in America followed Santa Cruz County’s example, and held the big banks accountable for their felonies?

 

What if all of us taxpayers said, in effect, we’re not going to hire these convicted felons to handle our public finances? We don’t trust them.

 

That would hit these banks directly. They’d lose our business. Which might even cause them to clean up their acts.

Coonerty hopes that other government bodies follow suit. The reprinting of Reich’s commentary on some prominent left-wing sites gives him  hope. He’s also now getting more favorable coverage of his plan from his hometown paper.

Whether or not it becomes a national cause, in California, it could possibly become a ballot initiative to help get out the liberal vote in the 2016 election. As this Southern California Public Radio story notes, ballot measures on “hot-button” issues are just another tool in the voter-turnout playbook in the Golden State for liberals and conservatives alike.

Measure D, officially the City of Berkeley Sugary Beverages and Soda Tax, last November overwhelmingly was passed by 76 percent of city voters. The tax is a penny per ounce. So a 16-ounce Coke would be hit with 16 cents. There are exceptions for small businesses.

The measure passed even though the soda industry spent $2.4 million against it, an estimated $30 per registered voter. Opponents warned of increased costs to consumers.

The pro-Measure D coalition called itself Berkeley vs. Big Soda. It maintained on its website, “We face a serious health crisis: 40% of kids will get diabetes in their lifetimes unless we do something about it. The link between sugary drinks and diseases like diabetes is undeniable.”

Former Labor Secretary Robert Reich, a Berkeley resident, wrote in the Huffington Post in favor of the tax, “Berkeley’s Soda War pits a group of community organizations, city and school district officials, and other individuals (full disclosure: I’m one of them) against Big Soda’s own ‘grassroots’ group, describing itself as ‘a coalition of citizens, local businesses, and community organizations’ without identifying its members.”

The text of Measure D claimed “this Ordinance is to diminish the human and economic costs of diseases associated with the consumption of sugary drinks by discouraging their distribution and consumption in Berkeley through a tax.”

Measure D set up a new bureaucracy, the Sugar Sweetened Beverage Product Panel of Experts, to recommend to the City Council how to spend the taxes collected.

Compliance

But things are turning out more complicated than expected. Camilo Malaver co-owns the San Francisco-based Waterloo Beverages company, reported Berkeleyside. “In January, when the tax was implemented, Malaver decided to stop restocking his supply of craft sodas and naturally sweetened beverages in Berkeley to avoid further confusion. … His frustration was aimed primarily at the city for what he saw as a poor job relaying information on how to comply with the tax.”

Malaver said, “Berkeley is a good city to do business with the university, but now, it’s tough. We’re in limbo. Everybody’s lost and [we] don’t know what to do.” The university itself, as a state entity, is exempt from Measure D.

A problem is that the soda market has changed from the days when the market mainly was such Big Soda suppliers as Coca-Cola and Pepsi. As with the craft brew markets for beer, “craft sodas” have popped up like those sold by Malaver.

When potentially hundreds of different items are involved, that complicates trying to figure out if a beverage is taxed, or is exempt. For example, the ordinance taxes “heavily presweetened tea,” but not regular tea, or slightly sweetened tea.

The big distributors offering a limited number of different drinks more easily can comply than can the small or medium outfits. As Berkeleyside notes, “All but one of the distributors who spoke to Berkeleyside were small- to medium-sized local distributors that sell craft sodas, sweetened teas and energy drinks.”

The confusion over what to tax also is reminiscent of the controversy over the statewide 1991 Snack Tax. As part of a $7 billion tax increase to close the budget deficit of that year, the tax was imposed on formerly exempt snacks. Except that some snacks, such as nuts, remained exempt. But it wasn’t clear whether candy with nuts was taxed, or exempted.

The Los Angeles Times reported in October 1992, “SACRAMENTO — A year and a half ago, part of the answer to the state’s dire need for higher revenue was extending the sales tax to snack foods, candy and bottled water, passed by the Legislature and signed by Gov. Pete Wilson.

“Today, with the signatures of nearly a million Californians standing behind Tuesday’s ballot measure to repeal the tax, no one — not the governor nor a single lawmaker who voted for it — has stepped forward to support keeping the tax.”

On Nov. 3 that year, two-thirds of voters backed Proposition 63, which repealed the tax.

Dollar Tree

Meanwhile, one large outfit affected by the Berkeley soda tax is discount chain Dollar Tree. A 16-ounce soda formerly cost $1, plus Berkeley’s 9-cent sales tax. (In California, sodas are taxed, unlike most other food). Now on top of that is placed the new soda tax of 16 cents (1 cent per ounce). Total: $1.25.

Berkeleyside reported in January, “Dollar Tree — which sells a variety of products for $1 or less and has more than 5,200 stores in North America — decided to pull out sodas in its Berkeley stores when the soda tax went into effect on Jan. 1, according to Randy Guiler, vice president of investor relations.”

Guiler said, “Due to the increased cost from the Berkeley sugary drinks and soda tax, we are no longer able to carry sugary drinks and soda at the one-dollar price point.”

Ironically, Dollar Tree still sells fruit juice, even when it is saturated with sugar, because the beverage is not subject to the new tax.

Future taxes

A 2013 bill for a statewide soda tax, SB622, died in committee. It was by state Sen. Bill Monning, D-Carmel. According to the March 2 Sacramento Bee, it’s unlikely to come back in the Legislature any time soon.

A tax increase still requires a two-thirds vote in both houses of the Legislature. With Republican gains last year in the Legislature, Democrats’ two-thirds supermajority is long gone. And if there’s one thing Republicans can agree on, it’s opposing higher taxes.

That leaves anti-soda forces hopeful that Berkeley’s example can be poured out into other cities, even though 30 previous tries have failed.

“Future liabilities — to schools, public employees’ pensions and retirement health benefits, infrastructure debt, deferred maintenance, and unemployment insurance — total $355 billion. These liabilities were built up over decades, and likewise, it will take decades to pay them off.”

Now, a new view on fixing the pensions comes from Alexander “Sasha” Volokh, a professor at the Emory University Law School in Atlanta.

Volokh has been writing a series of “white papers” for the Federalist Society on public pension and public employee compensation (see here and here).  The Federalist Society is a group of conservatives and libertarians that favors decentralized government and local control.

In his recent white paper, “Can We Fix the ‘California Rule’ for Public Employee Pensions?” he moves from descriptions to prescriptions for fixing the state’s perpetual deficit spending on pensions.

California rule

Volokh defines the “California Rule” as:

“[The] constitutional protection not only to the amount of public employees’ pensions that has been earned by past service, but also to employees’ right to keep earning a pension based on rules that are at least as generous for as long as they stay employed.” (emphasis in original)

A problem Volokh identifies is that public employees and retirees consider their pensions to be a form of private property guaranteed by the taxpayers not only for today, but tomorrow. That is, if the pension payouts are raised, they never can be cut. And if taxes are needed to be raised to continue the payouts, then so be it. As he wrote:

“[I]n California (and some other states), the courts give constitutional protection not only to the amount of public employees’ pensions that has been earned by past service, but also to employees’ right to keep earning a pension based on rules that are at least as generous for as long as they stay employed. I argue that protecting pensions accrued based on past work is reasonable; protecting the current rules into the future is far less so.”

A proposal is one thing. But do such reforms stand a chance in a state where the unions hold so much clout?  

Fixes

First, Volokh rules out some fixes, such as local emergency reforms to resolve a fiscal crisis or looking to the U.S. Supreme Court for relief.

But here are the fixes Volokh considers possible:  

1.  A flexible definition of benefits.  Volokh believes that pensions can be modified based on “actuarial advice” as provided in the legal case of International Association of Firefighters vs. City of San Diego in 1983. This would get around the current problem of pensions being considered inflexible and inviolate.

2. Short-Term Contracts.  Instead of a life-long, lease-like pension, Volokh proposes short-term employment contracts. “If pension terms are enshrined in memoranda of understanding … that expire at a certain time, it seems hard to argue that the employees have acquired any vested right to compensation, benefits, pensions, or anything else beyond the term provided.” This would be difficult to get by unions unless their power is reduced.

3. State Constitutional Amendment.  Volokh brings up San Jose Mayor Chuck Reed’s Pension Reform Act of 2014, which could be on the November ballot.

Volokh acknowledges that, even if passed, the reform would only apply to employees hired after passage.  The prospects for passage of such an amendment may partially hang on State Attorney General Kamela Harris’ ballot argument, which was called biased not only by conservatives, but even by the left-leaning editorial page of the Los Angeles Times. The courts will decide the initiative’s final wording. But the San Jose Mercury News wrote that Harris’ tactics may be a way to stall the initiative  so it can’t gain enough signatures to appear on the ballot this year.

4. Changing State Case Law By Stacking the State Supreme Court. How this would ever happen in these times of Democratic dominance in the state is a good question. Democrats backed by unions likely will win future elections for the post of governor, who appoints court justices, and the members of the state Senate, which confirms the justices.

However, Supreme Court justices also have to be confirmed by state voters. And in 1986, voters removed from the court three justices, including Chief Justice Rose Bird, for refusing to allow executions under the state death penalty. So justices that rule against pension reform might be vulnerable.

5. Privatization. Volokh writes that “firing state employees is constitutional and providing pensions and retirement plans for the contractors’ employees will be left to the private employers.” The problem, again, is whether union power would allow this.

6. Defined Contribution Plans. Volokh proposes switching from a defined (assured) benefit plan to a defined contribution plan.  The California Rule on pensions does not protect contributions by government employers, only the benefits.

Crisis

Another trump card for Volokh, Reed and other reformers is that California’s pension crisis isn’t going away. The recent bankruptcies of the cities of Stockton, San Bernardino and Vallejo all were caused at least in part by an inability to meet hefty pension obligations.

Union power also may have peaked, as shown by the dissatisfaction even many progressives showed last year when union workers twice went on strike and shut down the Bay Area Rapid Transit system. As the U-T San Diego noted:

“Even in the strongly Democratic Bay Area, residents have very little sympathy for BART workers. In August, Sen. Mark DeSaulnier, D-Concord, said he was considering legislation that would deny transit workers the right to strike, which is the norm in most large U.S. metropolitan areas.

If pension costs rise even higher and threaten bankruptcy for more California cities, some of Volokh’s “fixes” could start popping up as potential solutions.

But sometimes, the government functionaries tell us what really goes on. Here's former Secretary of Defense Robert Gates from his new book, “Duty: Memoirs of a Secretary of War.” This is about the Pentagon and the federal government, but could be about any other part of the federal government, or the state government, or your local city, county or school government:

I did not just have to wage war in Afghanistan and Iraq and against al Qaeda; I also had to battle the bureaucratic inertia of the Pentagon, surmount internal conflicts within both administrations, avoid the partisan abyss in Congress, evade the single-minded parochial self-interest of so many members of Congress and resist the magnetic pull exercised by the White House, especially in the Obama administration, to bring everything under its control and micromanagement. Over time, the broad dysfunction of today's Washington wore me down, especially as I tried to maintain a public posture of nonpartisan calm, reason and conciliation.

And for a civilian take on government, this is from “Locked in the Cabinet,” by another Robert back in 1997, Robert Reich, Bill Clinton's secretary of labor. He quotes his wife:

“It's always the same thing. Who's up? Who's down? Who's in? Who's out? It's a one-company town, Bob. Everyone works for the same company [the federal government] in some way or another. Politicians, journalists, bureaucrats, lawyers, lobbyists. And all that really counts is your rank in the company. Power, power, power! No one cares about ideas or values, or even their families.” She's crying. “It was bad enough when we didn't have kids. But now I'm not sure I could stand it.”

That's what government really is about. Why do we keep giving these people more money and power?