Firstly, I’m not Californian. I just focus on that state because it’s the biggest, baddest example, but similar problems are occurring all over the country.
You’re correct that the ballot initiatives and various instances of malfeasance have contributed to California’s disaster. However, as I see it, the costs of paying for public workers are the big problem that has to be dealt with. It’s worth remembering that the crisis of the last few years is just the preview. The main event is the pension shortfall, which this report measures at $500 billion. If California spent every penny on that for six years, it would barely cover the necessary amount. The cause of that shortfall is clear. Large numbers of employees and their families getting benefits, benefits that are ridiculously generous (retirement at age 50), tiny individual contributions to the system, and inadequate funding for the system from the government. If these issues are not addressed, California will repeat its disaster in the years to come.
Now the entire report is 47 pages, and even that links to another 33-page report. But I slogged through both reports and was able to glean the following:
The “tiny individual contributions to the system” come from some local government employees, whose pensions are administered by the state, but paid by local government. Actual California state employees pay a share toward their pensions more in line with other states.
While for most categories of employees, moving from a defined benefit to a defined contribution system will save the state money, for a few categories it will actually cost more. There is no single solution.
“The current language of SCA 13 does not include enough details for anyone to properly analyze its impact.” Which means the actuaries had to make their own assumptions. They assumed a 4.5% rate of return (which seems generous, compared to what my investments are getting, but anyway…) They also assume an employer contribution of 2%-4% salary (compare that to your own employer’s contribution, if any.) And with all that:
The total cost savings works out between 1.0% and 3.1% depending on the category of employee.
Granted, 3 percent is better than nothing. But if that’s all that can be wrung out of the system, it suggests to me that “chopping down” pension benefits is just the latest boogyman for people who want a quick fix to a long-term problem.
I’m not arguing for the Republican plan. Despite insinuations from some pundits that the Republicans intend to have Grannie picking through garbage cans to find her next meal, their budget cuts at federal and state levels are always pretty timid. I’m simply trying to point out that state and local governments are steering us into a financial disaster.
Let me present some numbers briefly. Many public employees get “20-and-out” pensions plans. Any employee who works for twenty or so years gets a pension for the rest of his life that provides the entire salary that he had at retirement (or close enough). Basic math tells us that an employee could work to age 45, then retire and pull down benefits for the next 40 or 50 years. The cost of his pension could easily be more than double the entire amount of salary that he earned while he was working. And that doesn’t even count health care expenses, which are also covered for life. And it doesn’t count health care expenses for his family. So all in all, the expenses for hiring this guy can amount to many times more than the salary that he earned in his lifetime. Now multiply that by the ridiculously high salaries that many public employees make and multipply the result by 380,000 public employees in California alone. The result tells us that California’s state and local governments are paying too much money, and as the number of retirees piles up they will have to pay out more and more.
By comparison, must of us humble folks who aren’t in government have to retire at age 67 to get full benefits from Medicare and Social Security. For some that will mean working more than twice and as long as the 20-and-out crowd, and the benefits we get as a result will be far less generous. Few of us can expect to earn as much money per year in retirement as we did when employed. Our health care plans are much less generous as well. What’s seems to be missing is an explanation for why public employees should work half as much as we do and get vastly better benefits? The other thing that’s missing is any will to change the system before it causes disaster. You, obviously, are willing to think seriously and do some research about the financial issues facing governments. However, as anyone can see by some of the other responses in this thread, other folk prefer a ‘shoot the messenger’ approach. They lash out at anyone who even talks about the issue. Hence the fear that we’ll see more and more states and cities governing by the California-Greece method: spend, spend, spend until the money just isn’t there.
They could get out of their budget hole by seceding from the union. Seriously, check it out. They could even keep all their “profligate” tax and spend policies and still come out ahead of the game if you don’t count all the money they’re sending to Uncle Sam that the US government then sends to the red states.
So while high taxes may or may not contribute itself to economic woes, the reason for high taxes is not a liberal legislature somehow enamored of teh tax, but at least partially necessarily in order to provide the same services as states that are net recipients of US cash rather than net donors.
First of all, a litttle background on Prop 13.
In the late 70’s there was a concern that people that bought their property decades before in large urban areas (LA, SF, SD, etc.) could not afford the taxes on their homes as their income became fixed and property values skyrocketed. Thus Prop 13 made property taxes dependent on purchase price and not assessed value. The housing market collapsed killed the Californian economy because houses were now selling for less than they were before, in some cases significantly less.
But wait, what happened to all of the money while housing was on the bubble? California budgeting is at best a black box and at worst a clusterf**K. Do you know what haapens when California gets money for education from the lottery or the Feds an equal amount is taken out of the education budget and put into the general fund to spend like a drunken Keynsian.
And let’s not forget that with the size of it’s economy and amount of foreign trade, California is in some respect just like it’s own country. I think an oft-quoted stat is that if it were independent, California would have the 9th largest economy in the world. It’s flag still represents the time it was an independent nation (Texans can relate to this) so to look at what happens in California and relate that to the other 49 simply does not work.
Yeah, man. Like, the union ain’t the boss of me! I’m the boss of me. Similarly, I’m good with “right to work” laws that let me come to work when I feel like it, dress how I feel like, and treat the public how I feel like.
If unions get no say in working conditions, why on earth should management?
This is more nonsense. Nobody has ever had union dues confiscated against their will: as with right-to-work, you always have the right to find a job at a different place.
But if you choose to work at a place where the majority of current workers want a union, then you’re choosing to work at a place with a union. And paying for the choice you make is very sensible. When you get tired of paying for the union that the workers there want, feel free to work somewhere where the workers don’t want a union.
I don’t know if this is exaggerated, but I agree that OP places too much emphasis on tax-rate differences between states. His own link shows California at 10.5% and most states outside Deep Dixie at 9.0% or more … not that huge a difference IMO.
(I’m curious whether non-personal taxes are included in that table. The outliers of Nevada and Alaska may be explained by revenue from casinos and pipeline.)
I’m on the calPERS website right now, (calpers.ca.gov) and it looks as though a regular public employee that retires at 50 with 20 years of service will receive 22% of their highest salary. In order to receive 100%, you would have to be 63+ with 40 years of service.
If you retire around 60 with around 30 years of service you are going to probably receive around 70%.
This seems like a pretty normal defined benefit system.
ETA: From looking at the site, it seems that 50 is the minimum retirment age
And CalSTRS (the teacher union) moved from defined benefits to defined contribution about 10 years ago meaning that teachers that start after that date have their pension amount controlled by the state of the economy.
Not only that, but ITR is exaggerating even the National Review’s argument: not conservative enough for him, he’s got to make the numbers even worse.
The closest anything in the article comes to his claim, AFAICT, is this:
As near as I can tell, it takes 30 years for an employee to reach 90% of their salary in pension, not 20, and ten of those years will need to be after age 50 in order for it to work out well. But I may be misreading.
In any case, ITR appears to be exaggerating in order to bolster the claim, unless he’s drawing his information from somewhere else. It seems to me that this isn’t the first time I’ve seen him do this.
I’m not finding where you got those figures. One of the articles that I linked to earlier says:
In June 2005, BusinessWeek reported that “more than 14 million public servants and 6 million retirees are owed $2.37 trillion by more than 2,000 different states, cities and agencies,” numbers that have risen since then. State and local pension payouts, the magazine found, had increased 50 percent in just five years.
These huge pension increases have eaten away at public finances, most spectacularly in California, where a bipartisan bill that passed virtually without debate unleashed the odious “3 percent at 50” retirement plan in 1999. Under this plan, at age 50 many categories of public employees are eligible for 3 percent of their final year’s pay multiplied by the number of years they’ve worked. So if a police officer starts working at age 20, he can retire at 50 with 90 percent of his final salary until he dies, and then his spouse receives that money for the rest of her life. Even during the economic crisis, “3 percent at 50” and the forces behind it have only become more entrenched.
If Reason is too biased to trust, the union itself agrees that “3 percent at 50” exists. The article by Patrick Brennan also mentions a retirement plan in Massachuesetts that gives nearly full benefits after 25 years. So while I may have been wrong about plans that gives 100% benefits after 20 years, there are plans that gives public employees extremely generous pensions after pretty short careers.
The main point, though, is simply that pension costs are large enough to flatten many state and local governments. I’ve already linked to a report giving a projected shortfall of $500 billion for California. It’s easy to find equally bad outlooks in many other places. The city of Providence, RI, has a pension system underfunded by almost a billion dollars. The city’s annual budget is $640 million. The pension system in Illinois is $83 billion in the red, while the budget is less than $30 billion. Los Angeles faces a $27 billion shortfall, and its annual budget $7 billion. The point being, a lot of state and local governments are spending huge amounts of pensions when they can’t afford to do so.
I’m assuming that everyone agrees that we don’t want to see more government bankruptcies or California-style financial crises. So if anyone has a plan to stop these problems before disaster strikes, I’d love to hear it.
Hey, if you don’t like your job then “fuck you” find another job, unless the reason you don’t like your job is that you have to join a union to get the job. Then we absolutely must do something to fix the situation. Making me pay dues is a lot like slavery. Why do you liberals keep defending slavery?
In fact, I live in Nevada, which is a right-to-work state. I’m curious about where exactly you think there exists a place where by force of law you could be compelled to join a union?
I’m curious as well about this; where it is that you think there are laws that compell anyone to pay union dues or “have them confiscated from their pay checks”?
You ask “Have I been whooshed?” Let me simplify Damuri Ajashi’s comment, and let’s see if your level of whooshedness becomes clearer:
If your current job displeases you, then it’s your own fault. Except if the reason for your displeasure is having to join a union. THEN it’s slavery, so we (society, government) must step in to protect you from union membership!
Step 1) Federal legislation that prevents states and local governments from competing for business via directed tax incentives.
Step 2) Significant raising of taxes in California. They may (may!) be high by US standards, but they’re pitifully low by the standards of the industrialized world.
Step 3) Stop blaming unions for negotiating on behalf of their members.
I’m with you on Step 3, but step 2 seems a little nutty. IIRC, California taxes the heck out of businesses. In the news a few days ago, they have Texas as the best place for business, while California, for like the 8th year in a row, was the worst. I’m not saying lowering California taxes is the best plan but…
Could you explain how raising taxes AND stopping California from trying to lure business with tax breaks would help that? Would we not make up the difference with payroll taxes, property taxes, sales taxes?