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.The math will just not work for California to keep paying out these sorts of pensions and pay all their other expenses. And every year, it will just go up and up.
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.
Many have argued that there is a fundamental difference between a union in a regular privately owned business and a public employee union. In the former, the workers face off against the owners who have something to lose if they give in to the unions. In the latter, they face off against bureaucrats and politicians who have nothing to lose by giving more taxpayer-paid benefits. And so it's much easier for public employees to win gold-plated contracts since the politicians are playing with someone else's wallet - yours.
And once those benefits have been granted, no politicians wants to run against cutting benefits to policemen, firemen, and teachers. However, when pension benefits like these are unsustainable, someone has to come in with the knife and start cutting them. Whether the politicians will realize that that has to be done and have the political courage to do it before the state is totally bankrupt is doubtful. Perhaps the best thing would be for the state to reach such a dire state that they are forced the make those cuts. They can't keep cutting current expenses to pay for retired employees. As the politicians compete for Californians' votes this fall, these are the question the public should be demanding of the contestants for the governor's seat. And perhaps more importantly, those running for the l
And other states should be paying close attention so that they don't fall into the same dangerous trap. egislature.
Daniel Henninger also wrote this week about how all public spending in some states is being sucked into paying for public employees and their benefits.
According to a study done for the Massachusetts Institute for a New Commonwealth, spending in specific public categories there skyrocketed the past 20 years (1987 to 2007).Some states, like New York, already have, but other states should learn to avoid the quicksand of making unkeepable promises to their own employees.
Public safety: up 139%; social services, 130%; education, 44%. And of course Medicaid Madness, up 163%, before MassCare kicked in more Medicaid obligations.
But here's the party's self-destroying kicker: Feeding the public unions' wage demands starved other government responsibilities. It ruined our ability to have a useful debate about any other public functions.
Massachusetts' spending fell for mental health, the environment, housing and higher education. The physical infrastructure in blue states is literally falling apart. But look at those public wage and pension-related outlays. Ever upward.