The state is in a precarious position, with a 12.3% unemployment rate (more than two points higher than the national average) and a budget $20 billion in the red (only months after the last budget fix closed a large deficit). Productive Californians are leaving for states with less-punishing regulatory and tax regimes. Yet so far there isn't a broad consensus to do much about those who have prodded the state into its current position: public employee unions that drive costs up and fight to block spending cuts.
Earlier this month, Gov. Arnold Schwarzenegger proposed a budget that calls for a $6.9 billion handout from Washington (unlikely to be forthcoming) and vows to protect current education funding, 40% of the state's budget. He does want to eliminate the Calworks welfare-to-work program and enact a 5% pay cut for state employees. These are reasonable ideas, but also politically unlikely.
It's that last idea that intrigues me. Is a 5% pay cut that big a deal. Wouldn't you rather have a 5% pay cut than no job? But here's the rub:
Approximately 85% of the state's 235,000 employees (not including higher education employees) are unionized. As the governor noted during his $83 billion budget roll-out, over the past decade pension costs for public employees increased 2,000%. State revenues increased only 24% over the same period. A Schwarzenegger adviser wrote in the San Jose Mercury News in the past few days that, "This year alone, $3 billion was diverted to pension costs from other programs." There are now more than 15,000 government retirees statewide who receive pensions that exceed $100,000 a year, according to the California Foundation for Fiscal Responsibility.
Many of these retirees are former police officers, firefighters, and prison guards who can retire at age 50 with a pension that equals 90% of their final year's pay. The pensions for these (and all other retirees) increase each year with inflation and are guaranteed by taxpayers forever—regardless of what happens in the economy or whether the state's pensions funds have been fully funded (which they haven't been).
A 2008 state commission pegged California's unfunded pension liability at $63.5 billion, which will be amortized over several decades. That liability, released before the precipitous drop in stock-market and real-estate values, certainly will soar.
Fact: every industry that is unionized is in a world of hurt. Why? Because the economics of unionization don't work anymore. Once upon a time they did. Unions got fat and powerful (Thanks FDR!) and it's obvious they have completely consumed the industries that fed them for so long (e.g.,autos, airlines, steel, government, etc.)
This has been obvious for decades, and in the end, the unions will do what they always do: screw the rank and file. The money isn't there anymore; there's no one left to extort. Union benefits are and always have been a type of Ponzi scheme, and Ponzi schemes always collapse.
Always.
So, Ahnuld, you ain't getting $6.9 B from the feds, and you need to cut your state employee wages by 10% across the board and pension benefits by 15% across the board. It's called living in the real world.
As an aside, why do government workers need a union. Unions, after all, came into being to "level the playing field" and allow workers to negotiate with management on an equal footing. Before before the NLRB and other Democrat union boosting schemes, the thought was that unions needed protection from big, bad management and the government had to step in a referee their negotiations.
But for government workers isn't the government helping to protect the workers from...the government? That makes no sense at all.
Cut them 15% across the board. What is the worst thing that can happen: the level of service goes down?
How would anyone know?
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