Labor

Why California Will Get Even Sicker

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Is there any hope for the Golden State? Like many U.S. states, California is bankrupt in fact but unable to do anything about it in law. The state's vast number of taxes and fees are driving away both people (as seen in this Pew study on interstate migration) and businesses (as seen in this list of departing companies from Joseph Vranich). And the state's massive commitments to public sector pensions and contracts make it impossible to work out the problem.

At City Journal, Steven Malanga details how the triumph of private and public sector unions created an unsustainable budget situation:

The unions' political triumphs have molded a California in which government workers thrive at the expense of a struggling private sector. The state's public school teachers are the highest-paid in the nation. Its prison guards can easily earn six-figure salaries. State workers routinely retire at 55 with pensions higher than their base pay for most of their working life. Meanwhile, what was once the most prosperous state now suffers from an unemployment rate far steeper than the nation's and a flood of firms and jobs escaping high taxes and stifling regulations. This toxic combination—high public-sector employee costs and sagging economic fortunes—has produced recurring budget crises in Sacramento and in virtually every municipality in the state…

This cartoon needs more callouts.

The SEIU's rise in California illustrates again how modern labor's biggest victories take place in back rooms, not on picket lines. In the late 1980s, the SEIU began eyeing a big jackpot: tens of thousands of home health-care workers being paid by California's county-run Medicaid programs. The SEIU initiated a long legal effort to have those workers, who were independent contractors, declared government employees. …

Municipalities around the state are also buckling under massive labor costs. One city, Vallejo, has already filed for bankruptcy to get out from under onerous employee salaries and pension obligations. (To stop other cities from going this route, unions are promoting a new law to make it harder for municipalities to declare bankruptcy.) Other local California governments, big and small, are nearing disaster. The city of Orange, with a budget of just $88 million in 2009, spent $13 million of it on pensions and expects that figure to rise to $23 million in just three years. Contra Costa's pension costs rose from $70 million in 2000 to $200 million by the end of the decade, producing a budget crisis. Los Angeles, where payroll constitutes nearly half the city's $7 billion budget, faces budget shortfalls of hundreds of millions of dollars next year, projected to grow to $1 billion annually in several years. In October 2007, even as it was clear that the area's housing economy was crashing, city officials had handed out 23 percent raises over a five-year period to workers. …

It will take an enormous effort to roll back decades of political and economic gains by government unions. But the status quo is unsustainable. And at long last, Californians are beginning to understand the connection between that status quo and the corruption at the heart of their politics.

Courtesy of Mish Shedlock. If you have not read Steven Greenhut's analysis of the dominance of public sector employees in California from the February issue of Reason, you should forthwith repair thitherward posthaste.

I am on record as believing that bankruptcy is the only way the Golden State can escape its obligations, but this can not happen. Slate's Christopher Beam explains why states are not allowed to declare bankruptcy, and his explanation suggests that the remaining option—federal receivership—would be even worse, as it would not allow Washington, DC to make the budget cuts necessary to eliminate a large chunk of the state government. Even if bankruptcy were an option, as it has been for the City of Vallejo, the political will is not there to make pension costs disappear.

In fact, based on the one modern example of a state defaulting on its debts—Arkansas in 1933—a California default would probably worsen all the problems described above. When the Razorback state got into hopeless debt through a road-building project, the solution included a new statewide tax and a decades-long moratorium on road-building. Higher taxes and worse roads would be a combination guaranteed to accelerate the state's decline.

Worse still, there is a large political force in favor of a "constitutional convention" that would eliminate California's few remaining brakes on increased spending and taxation. Here, my erstwhile colleagues at the L.A. Times editorial board enthusiastically stand up for a rewrite of the constitution to meet with the state's new "needs" and "aspirations." California's problem is both structural and willful: The state has lung cancer and the doctors can only recommend a switch to filterless cigarettes.

Are there any other options? California does sit on a major earthquake faultline, so there's always the possibility that the state might just fall into the ocean. But as the late Warren Zevon knew, even this option wouldn't allow Californians to get out from under their crushing debt burden: 

NEXT: Hash Bash

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  1. I linked to this one the comment threads this morning. And do I get any credit? No. Just exploitation by Reason.

    1. Maybe you should be in a union.

    2. You’re a member of the privileged white male middle class. You’ve already gotten enough credit. Credit has been given to a random peasant living in the Qinghai province of China.

      1. +100

      2. Please post the name and contact info of a random peasant in Qinghai Province so I can send a thank you note. Actually, the name and email address of the Governor of the province would be better – I could thank all the peasants.

    3. Balko did that to me once. Got lots of hits and not even a hat tip. Must be a Reason thing.

  2. I love that cartoon. Tuesday funnies – now with actual funny!

  3. Tim,

    I think you missed the best part of the article. The article gives a very good history of how unions corrupted the political process over the past 40 years. They basically used their money and clout to elect their own bosses and strong arm anyone who stood in the way. Here is an example of the particularly despicable police unions taking a scalp by lying about someone who had the nerve to vote against pension increases back in the 1970s.

    “The pattern was set in 1972, when State Assemblyman E. Richard Barnes?an archconservative former Navy chaplain who had fought pension and fringe-benefit enhancements sought by government workers, including police officers and firefighters?ran for reelection. Barnes had one of the toughest records on crime of any state legislator. Yet cops and firefighters walked his district, telling voters that he was soft on criminals. He narrowly lost. As the Orange County Register observed years later, the election sent a message to all legislators that resonates even today: “Your career is at risk if you dare fiddle with police and fire” pay and benefits.”

    1. Right on, John.

      Shorter version: Next time you want a 100 percent pension, call a hippie!

      1. I don’t understand.

        1. Allusion to the old saying when people complain about the cops: “If you hate the cops so much, next time you get mugged, call a hippie!”

          1. At least the hippie wouldn’t mug me again.

          2. “If you hate the cops so much, next time you get mugged, call a hippie!”

            We did.

          3. Typical cop response: “I’ll be there after you get mugged. On second thought, don’t call me at all. I retired at 50 with 90% of my salary and am working a second job for fun.”

  4. It’s like someone was trying to write a textbook on why government employees should not be able to unionize and needed a real world example so California said “I’ll do it!” Way to take one for the team.

    1. From TFA:

      New York City mayor Robert Wagner started a national movement back in the late 1950s when he granted negotiating rights to government unions, hoping to enlist them as allies against the city’s Tammany Hall machine.

  5. This ought to be very interesting. I’m going to stock up on booze and steaks, fire up the grill, sit back, and watch.

    1. MNG will be here to tell us how unfair we are being to that pig in the cartoon. He bargained for all that stuff fair and square. Don’t you believe in contracts?

      1. Yes, and how much nobler government workers–and union members too, a twofer!–are than those greedy evil people working in private industry.

      2. We’ll have to remind him that bankruptcy exists for those who are unable to fulfill their contracts. A “fresh start” and all that.

        1. Non-union workers are horrible employees.

          Watch my show on MSNBC!

          1. I would watch your show but I don’t want to get all the ballyhoo of being the 10th viewer you have.

  6. With California, we’re watching a slow motion train wreck.

    It’s gonna get real ugly.

    1. It’s worse than a train wreck. Train wrecks aren’t communicable diseases.

      1. Washington state is already infected, but the disease hasn’t reached full incubation. We’re where California was 15 years ago.

    2. Yeah, a train wreck where 40,000 unionized state employee “passengers” with pensions and benefits were added after the collision started.

  7. I think you are identifying the most frustrating aspect of the whole debt crisis–as it plays out globally at every level of government–it’s just taking too damn long! And in the delay, some factions will promote status quo solutions that make the eventuality of austerity worse in scale than it might have been with a few reasonable actions.

    1. The Worse the Better ?
      Crash the System now ?

      There was a literal train wreck,
      which was made worst case by trying
      to get past the next curve, while
      the train sped up until it could
      not make the last curve; The Eng-
      ineers knew this would happen, but
      could not bring themselves to run
      the train off the rails. 🙁

  8. Gee none of the liberal trolls have shown up. What a surprise.

  9. I’m a lifelong Californian with no foreseeable plans to leave the state, and even I can’t help reacting with schadenfreude to my home state’s coming dark night of the soul.

    1. Same here, lifelong Californian, schadenfreude, yadda, yadda. But I am a little spooked by the constitutional conventioneers who want to eliminate those few shackles we have been successful in placing on free-spending, law-happy pols over a span of decades. If things get too bad, they may actually be able to sell the idea of a CC to the enraged public. I am recommending tossing out the incumbents first and seeing what happens. That’s equivalent to antibiotics. The CC would be similar to taking Chemo … with luck, only as a last, desperate measure.

      1. Well at least the constitutional convention is off the front burner…until next time!

      2. Now if we can just convince people that there will be blood in the streets if they try to repeal Prop 13 I will be able to sleep a litle better.

        1. oh snap, I didn’t realize prop 13 WAS a constitutional amendment. Silly me.

        2. Recall the past riots in L.A. and their causes, then multiply
          the extent of the rioting by the increase in the causes.

          Ask someone you trust, who works in the state infrastructure
          (police, fire, water, whatever) what will happen if there is
          even a one week interruption in the services they provide.

          If the above does not convince you to leave, well, I hope
          you make it across the state line to the Refugee Camps,
          and do not have to stay there permanently.

    2. Another lifer (well, since I was a kiddo at least). I’m enjoying watching it collapse. The only thing is that my girl is a soon-to-be teacher. Its a tough proposition. I keep telling her we need to get the hell out of here because the system is going to collapse and her paychecks will bounce soon, but I wanna collect the last gasping breaths of public money and her bloated pay first.

  10. As California has immunity frrom its creditors, does it not also have immunity from defaulting on its contracts.

    I have no problem with a default as no legislature should be able to bind the decisions of future legislatures.

    1. I agree with this. States have sovereign immunity. If the state legislature passed a law slashing pension payments to zero, what are the pensioners going to do? Sue? They can’t legally. All they can do is convince existing workers to strike.

      As such, if the state government finally gets in order politically, all its financial problems can go away with a few months of strikes.

  11. Is it too late to give California back to Mexico? I can cough up a few extra bucks to sweeten the deal if I need to.

    1. Do you suggest negotiations with
      the Federales, or the Drug lords ?

    2. Nah… screw that. Just give the Californians to Mexico and keep the land.

  12. I thought it said “You’re just gonna have to tighten your butt.”

    1. insert Steve Smith joke here

      1. STEVE SMITH FUCKED TURKEY ONCE. IT WAS EASTER. STEVE SMITH MAKE FUNNY!

  13. Here, my erstwhile colleagues at the L.A. Times editorial board enthusiastically stand up for a rewrite of the constitution to meet with the state’s new “needs” and “aspirations.”

    I took a look at that. Pretty painful. I take it the favored afternoon break activity at the LA Times is a round of slam dance headbutting.

    1. Nah, their favorite break activity is bellyaching about Sam Zell.

      1. I fucking hate Sam Zell. Anyone who wants to bellyache about them deserves a cookie, even if they are statist worms. He is the dirtiest kind of businessman.

  14. Okay, so I know this isn’t the tightest reasoning but: could a constitutional convention really make things any worse?

    1. The not-so-secret aim of the constitutional convention is a) to repeal protections against property tax hikes and b) to allow tax increases with only a straight majority in the legislature.

      So yes, it could make things plenty worse.

      1. But isn’t the California Constitution a mish-mash of various initiatives that leave the legislature with very little discretion and hides public official accountability? And doesn’t Prop 13 just subsidize older homeowners over newer ones?
        All in all, it’s a pretty dysfunctional document, and has led to a dysfunctional political culture in Sacramento.
        We all worry about the tax monster, but the current structure is bad and needs to go. I’m sure something like Prop 13 could be incorporated into a new constitution. And if it is not, then I guess the will of the people would be against it.

        1. What is this “will of the people” you speak of?

        2. One of the major problems with Prop 13 is that it caused a spike in property values because of the low taxes. If you increase the taxes property values would collapse because no one would be able to afford the taxes on their 400k house in the ghetto.

          1. One of the major problems with Prop 13 is that it caused a spike in property values because of the low taxes. If you increase the taxes property values would collapse…-skr

            You don’t know how Prop. 13 works, do you? Under Prop. 13 the assessed value of a property jumps (above changes due to inflation, capped at 2% annually) when it sells for a higher price. Think real hard how that affects what buyers are willing to pay. Take a basic sales and marketing class at a local night school if you must. And think.

            1. Prop 13 is very simple: you pay 1% of the value of your house in property tax per year. The value is established not by assessment, but by its actual sale price or by the actual remodeling improvement costs. If you add $300K in remodeling, that actual number gets added to your assessed value and the taxes go up.

              If I bought a house in 1980 for $135K and have not remodeled it, I pay about $2,900 per year in property taxes (they go up about 1% per year from the original $1,350 per year). If you buy that same exact house from me for $800K tomorrow, you pay $8,000 per year for the same house.
              Moral of the story: don’t improve your house and don’t keep trading “up” to more expensive houses and your taxes stay low.

              The reason Prop 13 came about in 1978 was because people on fixed incomes in houses they had fully paid off were being reassessed each year as the “value” rose until they were forced to sell the house because they could not pay the taxes.

              This was a most egregious example of the power to tax being the power to destroy.

              I fully agree that should Prop 13 be overturned, and taxes be allowed to float to whatever the government assessor wants them to be to meet the union demands for pensions and benefits, property values will collapse even further and a full-fledged revolt will erupt.

              I’d rather like to see an initiative that states, “If you own your house free and clear and do not have loans or liens against it, you pay no property tax at all. Your home is truly yours. The state cannot seize it for non-payment of taxes.”

              1. Hey, I like that idea. A government incentive to pay off your mortgage. Never happen.

      2. Why? People won’t leave in even bigger droves once they’re paying even more in taxes, most of which are funding pube-sec pensions, and the libraries and senior centers still have to close!

    2. could a constitutional convention really make things any worse?

      Of course. Iron Law (proposed)

      It can always get worse.

      1. Bill Cosby beat you to that one. 🙂

        See also his story about the Flood:
        God to a reluctant Noah:
        ‘How long can _you_ tread water ?’

  15. I’m a lifelong Californian. When I was younger (and dumber?), I was opposed to Prop 13. (Property tax limits). At the present time I don’t own a home, so I not talking from a vested point of view.

    The only way I could support a Constitutional Convention would be if it was prohibitted from modifying Prop. 13 and prohibitted from repealing the 2/3 requirement to pass a budget or to raise most types of taxes.

    These are the main protections Californians have left from an out of control state government.

    California in bankruptcy or recievership? Let it happen. The government has no intention of controlling itself.

  16. Let’s see… the california prison system is already overcrowded, yet their Union is spending multi-millions against decrim in california. How obvious can they make it that they don’t have any interest in MJ one way or the other – they’re only interested in increasing the amount of criminals in their already overstuffed, privatized prisons.
    And then you have the Teacher’s Union, which has come out in support of decriminalization. Whom doesn it make more sense to listen to? People who want to be paid on overtime to tell you when you get to piss, shower shave etc? Or people who are taking lower paying jobs because they want our children to be informed and successful?

  17. Much more appropriate Zevon song:
    http://www.youtube.com/watch?v=wwQjy_ZTaRM

  18. The funny thing is, when California is finally totally out of cash, they’ll just eliminate everything but the union slop bucket. California will end up with billions in pensions for cops, but no cops on the streets.

    Unfortunately the Californians are coming to Texas. Fuck.

    1. It’s kinda like plague fleas hopping off the dog once it dies.

    2. Unhappy that Californians are coming to Texas? Well, bubba, you sent us Willie Brown. Consider it payback.

    3. Lots of luck to any immigrants
      trying to Californicate Texas. 🙂

  19. Unfortunately the Californians are coming to Texas. Fuck.

    Texas is a big state. It’ll take more than a few grifting hippies to change things around here.

    1. The great thing about being from Ohio is that no one, not even Californians, wants to come here.

      1. Dude, when reason finishes saving Cleveland that place is going to be wall to wall people.

      2. Why is that? I hear so many good and bad things about Ohio. Yet so many great things and people have come from there, and there are high-paying career opportunities for people with my background out there. I’ve never met an Ohioan I didn’t like, which I can’t really say about any other state which I’ve known anyone to be from.

  20. The nifty thing about Arkansas is that its 1933 budget diaster caused the state to adopt much tougher laws in terms of government spending and the budget, limiting the free wheeling politicians’ desire to spend vast sums of money they don’t have, or might lose in the future.

    As a result, Arkansas, from a State budget standpoint, is currently one of the best performing in the nation.

    1. Arkansas was often cited thru the 90’s (and maybe beyond – idk) as the nation’s poorest state. If AR has had the most spending-accountable government,as you say, then maybe “poor” was actually a misinterpretation of “poor division of wealth”?

    2. Arkansas is also a real s**thole in case you haven’t noticed. Maybe not the best example to offer of an “enlightened” state.

  21. Are there any other options? California does sit on a major earthquake faultline, so there’s always the possibility that the state might just fall into the ocean.

    Southern California spontaneously combusts every year. Maybe nobody has to try to put it out next time. Sort of a political cleansing.

    1. Afraid it won’t fall into the ocean. What will happen is billions or trillions of dollars in damage and fraudulent FEMA filings.

      If you think Katrina was a rathole of waste, just wait until San Francisco or Los Angeles falls in on itself.

      And it’s due….

  22. California does sit on a major earthquake faultline, so there’s always the possibility that the state might just fall into the ocean.

    Leaving a cool serenity known as Arizona Bay.

    1. and as for californians, someone tell them to LEARN TO SWIM!

  23. The people, via their government, should simply renege on the promises made to the public sector unions, quoting the immortal line from Animal House:

    “You f*cked up. You trusted us.”

    Essentially, the people (the taxpayers) should declare themselves bankrupt, and their “contracts” with the public sector unions nullified. Your average lefty has always been fine with personal bankruptcy laws. I don’t see why this should be any different.

    “Sorry dudes, we can’t pay you. All outta extra money. Got to feed and clothe our own kids. Go get another job in your old (55+) age.”

    1. Why does that bring to me an image of waiting for a fire chief to swipe my credit card before his crew begins to extinguish my burning house?
      Is it really the public’s fault that we still have unions in the public sector? Can we really trust federal/state governments to continue being fairer in general to their employees than the private companies are, if their employees couldn’t unionize?

      1. Is it really the public’s fault that we still have unions in the public sector? Can we really trust federal/state governments to continue being fairer in general to their employees than the private companies are, if their employees couldn’t unionize?

        How many private-sector unions can influence elections for corporate directors?

      2. Have you ever seen a mere child of 10 crippled after getting his buttocks caught in a copy machine at the bureau where he works to feed his family? People physically and spiritually broken after 20 harsh years of grueling 8 hour days (minus lunch break) pushing papers? Teachers dying of cancer because their callous employer saved money by replacing chalk with yellowcake uranium? When will we ever learn that capitalism democracy government doesn’t work?

  24. The white devils stole all the wealth from California’s union workers. The government must reverse this injustice.

    1. Danny Glover?

      1. Louis Farrakhan?

    2. I’m not very experienced in this, but I think this is some solid trolling. +1

      1. “Dan T.” has been very prolific today. A bit obvious, but at least it’s consistent and grammatically correct every time.

  25. The San Andreas Fault if not a vertical one, it is right lateral. That means no trip under water for the part west of the San Andreas. It does mean that LA can end up a suburb of Portland, or maybe the other way around.

  26. Tomorrow’s headline….today!

    “CALIFORNIA SLIDES INTO PACIFIC; PACIFIC THROWS IT BACK, SAYS IT ‘CAN’T AFFORD IT'”

    1. “…women and children hardest hit”

    2. Thank you for my beat laugh of the week! Frankly, this is one of the best sites for reasonably decent debate and when you add some of the fun wit it makes it a very good site. Thanks

  27. The California bill referred to in the article is AB 155 (read it at http://www.sen.ca.gov). The bill requires any local agency considering bankruptcy to get permission from the otherwise obscure, nine-member California Debt and Investment Advisory Committee — a committee dominated by union-friendly Democrats — before seeking bankruptcy protection.

    In essence the bill protects labor unions’ contracts with cities, counties and special districts if a bankruptcy is pursued.

    Fare thee well California…

  28. Once the millions of illegal aliens in California are naturalized, get on the dole, and crowd into the polling booth to vote Democrat, California will be finished, permanently.

  29. Dear Lord!

    Reading all this, I’m inclined to buy guns, ammo, and MREs by the hundredweight, and keep my cistern topped up.

    Once California goes into Federal Receivership, or whatever it’s called, what’s to stop the Feds from taxing the rest of us to keep California’s show going? Is this going to turn into one massive national flight to the bottom?

    1. Federal Receivership, or whatever it’s called
      It is called Martial Law; Just until things are back under control. 🙁

    2. You ever look in a toilet when you flush? That’s CA, spiraling down the drain.

    3. I’m not sure ‘Vote for me, I gave all your money to CA’ will be a very effective reelction theme for Senators and Representatives from the other 49 states.

  30. The dumbshits who talk about giving CA back to Mexico will simply expand the border with Mexico by 1000 miles, with Nevada and Oregon on the border.

    As if those states would not attract illegals…

    Idjits….

  31. After reading things like this I get worried, then I give thanks for what I have, resolve again not to spend more money than I have, remind myself that as Mark Twain said, “I’ve had a lot of problems in my life and most of them never happened”, then remind myself “the best retirement plan is to die before retirement” and move on. Doesn’t have to work for anybody else but me.

  32. It’s too bad; I have a soft spot from living in SF for one year – despite its loony politics and snooty populace. But I am going to bookmark this article and refer all my pro-union friends to it. Been looking for a comprehensive argument like this for awhile.

  33. I dunno….I lived in Nevada right next door where unions are few and far between and they had some pretty horrific budget battles too. I guess the question is: whether to drag public sector workers down to the point where they are as poorly paid and treated as private sector workers OR promote policies that encourage private companies to pay workers better so they won’t feel the sting in their wallet as much.

  34. I missed it until this morning, but yesterday in Atlanta, MARTA (Metro Atlanta Regional Transport Authority) workers, protesting possible budget cuts, painted big red “X”s on the side of 30% of the buses and trains in Atlanta. This to let people know what budget cuts might mean.

    I didn’t hear too much about the defacement of public property, but the protest was slightly stymied when a passenger posted a YouTube video of a MARTA bus driver urinating out the front door of his bus.

  35. Instead of declaring bankruptcy, can Californians outlaw public sector unions and pass a right-to-work law via the ballot?

  36. Always the worker who is wrong, never the boss.

    Fuck you all, you wished you could join a union.

    1. So, what is it about California’s situation that tells you the boss is wrong, in this situation?

      I return your kind salutation, and note it’ll be a cold day in hell before I join a union.

  37. Because the average American operates in a climate of work, pay my bills, raise my family, feel sorry for the “Less Thans”, the average American has been hijacked by the Progressive ideology-pay taxes to help the poor, feed the poor, house the poor, help the “Less Thans” and the average American said “Yes, for not to do so goes against my belief in helping the “Less Thans”. The average American allowed themselves to be hijacked into an ideology that was never made clear. Now that ideology is clear – we will tax you and tax you and tell you what you can eat, how clean your air must be, when you can obtain medical care, shut up-if you don’t shut up you are racist and against the “Less Thans”. What the Progressives do not want to acknowledge is that the average American always has held and continues to hold the key to freedom-the minds that produce, create, prosper. The average American, if forced, will quietly go about their business and put into place their own economy – of barter, exchange of ideas, building a network of like-minded individuals who know that their minds are really what the Progressives cannot touch. All the average American needs to do is live as they have and awaken to the idea that they hold the key to success and those that do not use their minds to create and produce will lose this battle of ideologies. It is a basic truth of man. The Progressive agenda is over. Done. The average American does not need to commit violent, obscene acts, the average American just knows how to live and produce.

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