By Joseph Perkins

As I watched the election returns this past Tuesday night (and into the wee hours of Wednesday morning), I was reminded of a line from “The Tempest,” one of the Bard’s greatest hits:

“Hell is empty and all the devils are here.”

Indeed, with California Democrats at long last attaining two-thirds majorities in both the State Senate and Assembly, and with the governorship already in the hands of Democrat Jerry Brown, the devils, er, the Democrats now enjoy complete control in Sacramento.

They can raise California’s existing taxes, which are already sky-high, even higher. And they almost certainly will come up with new taxes – a mileage tax, a plastic bag tax, a soda tax, ad infinitum.

Not even the sky’s the limit anymore with the Democrat supermajority in the Legislature; and with the Republican minority thoroughly emasculated.

So what will Democrats do with all the additional tax dollars flowing into the state treasury? Well some will go, as promised, to close the state’s budget deficit. But some more will go to new spending.

Like high-speed rail to nowhere. And state subsidies of Hollywood movie and television productions. And handouts to “green” companies like Solyndra, the bankrupt solar company, and Fisker Automotive, the floundering electric car company.

More tax revenue also will enable the Sacramento Democrats to reward their special interest friends.

Expect them to rehire all the public school teachers laid off during the past three years (notwithstanding that from 1992 to 2009 the number of teachers increased 36 percent while public school enrollment increased over 24 percent).

Also look for them throw a few billion dollars at enviros for clean energy projects and energy efficiency in public buildings.

There will be hidden tax hikes as well

Then there are the hidden taxes that almost certainly will proliferate with Democrat hegemony in the state capital. Indeed, if the Golden State’s CEOs thought their various industries overregulated before Tuesday’s election, they ain’t seen nothing yet.

How about a regulation, targeting home builders, requiring cities to take into account access to healthy food and urban agriculture as a condition of approval for all new residential developments? Or a reg, targeting fast-serve restaurants, banning ion polystyrene food containers?

Yet, while there is much gnashing of teeth in California’s over-regulated business community, among couples earning $250,000 or more that will be hit with Gov. Brown’s new “millionaires” tax, among those who fear even greater special interest influence in Sacramento, all was not lost on Election Day.

For the tempest that swept Democrats into their new supermajority could ultimately prove the party’s undoing; could ultimately lead to a GOP revival in California. That’s because, as Gov. Brown likes to quote, “To whom much has been given, much will be expected.”

The voters have given Gov. Brown and his fellow Democrats near absolute power in Sacramento, so they rightfully expect the Democrats – facing no obstruction to speak of from Republicans – to solve the state’s longstanding problems; to give the Golden State the good government it has so sorely lacked for so many years.

That means growing the state economy. Getting the nearly 2 million jobless Californians back to work. Balancing the state budget on time, and with no legerdemain. Improving the performance of public school students. Reducing state energy prices, including electricity and gasoline. And lowering the cost of doing business in the Golden State, which remains the nation’s highest.

I don’t expect the Democrats to achieve all of these things. But, if they somehow surprise, I’ll be the first to give the devils their due.

BY WAYNE LUSVARDI

Bill Lockyer’s recent harsh criticism of a bluntly honest Little Hoover Commission report, “Pensions for Retirement Security,” sounded more like Shakespeare’s King Lear than that of the Treasurer of the State of California.  Lockyer is so mad about the Hoover Report that he posted personal opinion “comments” on the State Treasurer’s website usually reserved for objective staff reports. He also issued an open letter rebuking the commission and asking them to revise the report more to his liking. So much for independent commissions!

If you remember the story of Shakespeare’s play, King Lear was an old deranged ruler who wanted an early retirement and foolishly disposed of his estate to two of his three daughters based on flattery — instead of to his daughter Cordelia, who was too honest for him — bringing tragic consequences for all who later tried to claim his estate.  King Lear was based on the legend of Llyr, a king of pre-Roman Britain.

Lockyer is the King of State Bonds and he doesn’t want anything to lower the state’s general obligation bond credit rating, already ranked the lowest in the nation and only one notch above post-earthquake and tsunami Japan.   He wants to preserve over-promised pension benefits for unions that flatter him with political contributions and favorable media coverage.

Lockyer’s outcast daughter, the Little Hoover Commission, doesn’t tell him what he wants to hear or what he wants bond underwriters and Wall Street to hear. And what Lockyer wants them to hear is that the alarm about California’s burgeoning pension obligations is overblown and that the state is not going to go bankrupt or default on its general obligation bonds. This may be true, but it is a rhetorical half-truth, as the state is shifting its unmet pension obligations to local governments that are vulnerable to going broke.

Lockyer’s pronouncements must sound like those of the insane King Lear after independent studies by both the Kellogg School of Management at Northwestern University and Stanford University both indicated state and local pension systems poised for a future nuclear meltdown.

Let’s look at Lockyer’s criticisms of the Hoover Commission report.

1. Lockyer: The report fails to address, in any meaningful way, the foundational question of what constitutes adequate retirement security.

Lockyer states that the Hoover report’s assertion that public retirements have become “wealth generators” rather than “retirement security” is “long on rhetoric and short on thoughtful analysis.”  But Lockyer offers no analysis of his own and uses a number of diversionary rhetorical devices.

Like all good liberal politicians in California, Lockyer is always playing the “look at the other guy” game instead of focusing on his job of being accountable for California’s pension system funding levels. Lockyer wants to reverse roles and make the Little Hoover Commission accountable to him in kingly fashion.

When Lockyer doesn’t sound like old King Lear, he sounds like the California version of the philosopher Descartes: “I say it, therefore it is!”  He’s the King of the State Treasury, so take it on his authority that he is right! No evidence, just an appeal to his authority.

“What’s so bad about public employees retiring with pensions reflecting 75 percent of their former salaries?” asks Lockyer. This dodges the bigger questions of the huge unfunded future deficit in state and local pension systems. And how would the treasurer recommend plugging it without strangling the entire state economy or resulting in business flight to other states?

Deficits aren’t necessarily bad if you have growing revenues.  But California hasn’t the prospect of growing revenues soon even as the tsunami of pensions will hit California beginning in about 2015 or sooner.

Nor does Lockyer try to explain the downside risks involved with CalPERS’ current 7.5 percent target return on its pension portfolio.  CalPERS lost $96 billion from 2007 to 2009 gambling on high-risk investments in speculative real estate projects with even higher expected returns, and thus higher risk. Lockyer doesn’t want it widely known that CalPERS gambled and lost.

Neither does Lockyer want everyone to know that the state pension system is structured on plugging the funding gap between contributions by member cities, counties and special districts with investment returns from speculative and risky Wall Street investments, including hedge funds. The Little Hoover Commission apparently wants “secure” contributions and investments, not hedge funds and unrealistic interest rates, backing up constitutionally entitled pensions.  This is why the Little Hoover Commission wants pension funds valued by a safe return rate (say 4 percent), not the nearly double 7.75 percent rate CalPERS had been using up until this week, when it lowered its target rate to 7.5 percent.

Taxpayers should seek to legally void guaranteed pensions above member contributions and a safe rate of return on its pooled resources as “gambling,” and thus an abrogation of the pension social contract with taxpayers. This is why Rep. David Nunes (R-Visalia) has introduced the Public Employee Pension Transparency Act (PEPTA).

According to a Wall Street Journal study, the assumption of 7 percent to 8 percent annual returns is a practice confined to U.S. public pension funds and is not used in Canada or other Western nations.  The Stanford study cited above found that if a 4 percent rate were used, California’s unfunded pension obligations would mushroom to $500 billion!  That is why King Lockyer wants the truth-speaking Little Hoover Commission report squashed.

2. Lockyer: The report’s central recommendation — reducing unaccrued benefits for current workers — has no foundation. The report distorts testimony to make its case for the central recommendation — and to support its claim that pension costs “will crush government.”

Lockyer refuses to accept that the most sound way to deal with unfunded pension liabilities is to lower them to realistic levels, instead of continuing to gamble in the stock and hedge fund markets, hoping for some federal bailout that won’t happen because the feds are broke, or for a return to the high rolling bubble economy, which is unlikely and risky.

What makes Lockyer really mad is the Little Hoover Commission statement that pension costs will “crush government.”  He says there is no foundation for such a statement. But Lockyer apparently suffers from political dementia.

The Northwestern University study mentioned above found that, out of 50 municipalities surveyed nationally that are in potential financial insolvency due to future pension obligations, 18 of them (or 36 percent) are in California. Pensions would eat up the following percentage of annual general fund revenues from the California counties listed below, depending on a no-growth scenario or a growth scenario of 3 percent per year:

Percent Municipal Revenues Consumed by Pensions:

In other words, under the worse-case scenario, Fresno and San Diego counties would have to completely shut down and increase taxes 19 percent to 42 percent to only pay pension obligations.  There might be enough money for Los Angeles, San Bernardino, Kern, Ventura and San Francisco counties to operate their courts on a barebones budget, but nothing else under the worst-case scenario shown above.

Even under a best-case scenario, pension costs would rise to 34 percent to 78 percent of county budgets.  What would you call this but pension costs “crushing government”?  A king can issue decrees and use his bully pulpit to intimidate the public and the press to accept his version of reality, but that doesn’t change the reality.

3. Lockyer: The report ignores or dismisses inconvenient data. The report takes rhetorical pot shots that undermine its credibility and reveal its bias.

At best state Treasurer Bill Lockyer is apparently trying to protect the state pension fund from further downgrading by bond underwriters; at worst he is buying time and deflecting blame for the looming wave of pension debts that will hit state and local governments about 2015 or sooner.

Demanding the Little Hoover Commission alter its report to not recommend any pension reductions is not a solution, nor is it full disclosure to pensioners and taxpayers alike that California still has no plan, other than continued gambling, to meet public pension shortfalls.

Lockyer should heed the advice of the “Fool” in Shakespeare’s play King Lear, who advised the king:

Have more than thou showest,
Speak less than thou knowest,
Lend less than thou owest.

— William Shakespeare, King Lear, 1.4.132