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June 6, 2012

Big Blue Hammered in California

Wisconsin wasn’t the only place in America voting on the blue social model last night, and Wisconsin wasn’t the only place where the blue social model took it on the chin.

As reported here yesterday, voters in San Diego and San Jose, California (both among the largest ten cities in the United States) had referendums on the ballot that would cut pension costs.

The results of those votes are in this morning, and both measures were passed by overwhelming majorities. In San Diego, 68 percent of voters supported the cuts. In San Jose, 71 percent voted against Big Blue.

It’s easy to understand why. Over generous promises made in the past were not adequately funded, and suddenly both cities have been hit with massive pension bills that have forced service cutbacks. As the AP reports:

San Diego’s payments to the city’s retirement fund soared from $43 million in 1999 to $231.2 million this year, equal to 20 percent of the city’s general fund budget, which pays for day-to-day operations.

As the pension payments grew, San Diego’s 1.3 million residents saw roads deteriorate and libraries and recreation centers cut hours. For a while, some fire stations had to share engines and trucks. The city has cut its workforce 14 percent to 10,100 employees since Sanders took office in 2005.

San Jose’s pension payments jumped from $73 million in 2001 to $245 million this year, equal to 27 percent of its general fund budget. Voters there approved construction bonds at the beginning of the last decade, but four new libraries and a police station have never opened because the city cannot afford to operate them. The city of 960,000 cut its workforce 27 percent to 5,400 over the last 10 years.

Put this news together with the Wisconsin results, and it’s easy to see that the public sector unions face huge problems in this country. Voters are unwilling to pay the taxes or accept the service cuts required to keep unionized civil service workers in the lifestyles to which they have grown accustomed.

There are going to be lots of court cases in California and elsewhere as judges sort out the legalities of pension obligations, but Via Meadia‘s advice to public sector workers remains unchanged. If your pension looks too good to be true, it probably is. You should not believe either the union officials or the politicians who tell you not to worry. These pension plans are not safe, and those affected should begin, now, to make changes in spending and saving patterns to guard against sudden and unpleasant shocks that are all too likely to be heading your way.

Change is coming, and faster than you think. America is reinventing itself to retool for the 21st century, and many of the assumptions and institutions of 20th century politics are fading away.

Posted in Blue Social Model, Economics & Business, Politics, Quick Takes
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  • Carol Simpson

    Do you think this union shake-up gives Democrats an opportunity to recreate or reform themselves? I would think it would be liberating for them to not have to be beholden to big labor. Real progressives would favor more flexibility by government to do what’s really needed to promote investment and growth.

  • Kenny

    Public-sector unions should be outlawed.

    Even a lefty like FDR warned against them.

  • WigWag

    Professor Mead is absolutely right; public sector workers are going to have to accept the fact that they are subject to the same downward mobility that most private sector workers have experienced. Just as private sector retirement plans have been severely abridged, the same thing is going to happen to public sector retirement plans. It’s just part and parcel of the version of capitalism that we have in the United States.

    The returns on which both public and private sector pensions depended were destroyed by financial executives so greedy that they were willing to bet everything to insure their multimillion and in some cases multibillion dollar bonuses. Despite their irresonsibility those same executives are amongst the few who are still prospering in our increasingly broken economy.

    If public sector workers don’t like it; it’s just too bad. Just like it was too bad for steel workers, auto workers, machinists and construction workers. Those private sector workers and now the cops, firemen, teachers and librarians really have no one to blame but themselves; if they wanted to support their families and enjoy a secure retirement, they should have become hedge fund managers.

    The slouch towards the nation that “inspires” Professor Mead continues. Will it stop before he can proudly say,
    “We’re all Ghanans now?”

  • Anthony

    WRM, our governments (national, state, and local) are caught between slow growth economically and unsustainable spending obligations – now how do we get our politicians to recognize seriously impending fiscal crisis sans partisan ideology (to better inform citizenry of tough choices ahead)?

  • Jacksonian Libertarian

    The TEA Party’s principles of Limited Government, and Fiscal Responsibility are victorious yet again. Just because the TEA Parties got sick of the wasted effort of the TEA Party Rally’s, doesn’t mean they aren’t still around and gaining strength.

  • thibaud

    “America is reinventing itself to retool for the 21st century, and many of the assumptions and institutions of 20th century politics are fading away.”

    Even leaving aside the gobbledygook phrasing – how does a non-tool “reinvent himself to retool”? – this concept is so squishy as to be almost meaningless.

    There’s a world of difference between an assumption and an institution. One can change the assumed solvency ratio for a government pension plan, for example, without destroying the institution of public pensions. You could move from defined benefit to defined contributions, raise the retirement age, change the pension fund management structure and raise the quality of pension fund managers.

    All of these are improvements to a system that remains intact. They are not radical or even fundamental changes to the core institution, or even the core social value embedded in that institution, which is that the government will continue to provide pensions for government employees.

    A better version of this thesis would entail scrapping the overblown and ill thought-out “Blue Model” flapdoodle and sticking to a simple argument against regulatory capture – by anyone, be it greedy police unions or prison guards unions, or TBTF banksters or predatory mortgage lenders or for-profit health insurance scammers.

    This is nothing more than bringing basic transparency and honesty into a system that has been corroded by “pay to play.” It’s not changing an _institution_ any more than is outlawing, say, price-gouging or Wall Street front-running.

    An honest critique of this rot would give at least as much emphasis to the health insurance mafia and the TBTF banksters as it does to public employee unions.

    In this regard, Via Meadia is committing the exact same sin as the people on the left whom he decries. Tendentious hackery that ignores OurSide’s regulatory capture artists is still hackery, no matter how much it pretends to be a grand analysis of an entire Social Model.

  • http://Calwatchdog.com Wayne Lusvardi

    If 2007 operating budget in San Jose had remained flat with no increases public pensions would have grown to 37.8% of the budget by 2012. In another five years they would have exceeded 50% of the budget.

  • bobby b

    I have one quibble with the idea that hugely overgenerous pension agreements over the years – meaning, some sort of outrageous overreaching by the unions – bears full responsibility for the shortfalls.

    Once a government has concluded negotiations with its employees for a set period of time, it must then live up to its agreements. It must pay its employees the wage agreed upon, and it must put aside the proper level of money with which to fund those benefits that it has agreed to provide in the future.

    But, in almost every instance, the bodies involved breached their contracts whenever they could.

    Obviously, they couldn’t simply choose to pay lower wages to their employees. The employees were right there, well aware of their contracts and empowered to enforce them.

    But what they could do, and what they all seem to have done repeatedly, was to choose to take that money that was to be put aside to fund future benefits, and spend it on new toys and powers and features for themselves, in the present.

    Thus, a city that knew, without a doubt, that it needed to deposit $1 million today to cover the future retirement benefits that its employees had already earned during that year would simply decide that it wanted a new zoo, or more police, or higher-paid managers, or lower property taxes, and it would then appropriate that $1 million away from where they had promised to deposit it, and redirect it to their own benefit.

    Since that money wouldn’t actually have someone coming around to collect it for many years, there was no constituency with enough interest in it to use legal force to make the governments do with it what they had promised to do.

    But each such misuse was still a contractual breach.

    And now, when the ex-employees are coming around to collect that part of their promised wage, the cities and counties are crying about the overly-generous pension promises that these ex-employees are trying to enforce.

    To the extent that equity enters into the solutions that we arrive at, we need to keep this history in mind. Frankly, it all sounds somewhat like a bank robber claiming that he cannot repay what he stole, because it’s a huge amount, and he already spent it all on himself.

  • constitution First

    Bobby, you missed the point entirely. Politicians promised what could never be delivered, in many (if not all) cases without the knowledge or input of the very taxpayers that would be on the hook for the bill. Now the same politicians are conveniently nowhere to be found. Public sector unions were untenable from the very start, and now you have your proof. These fraudulent contracts are all the reason we require to start dissolving public sector unions, right now.