In the depth of winter, I finally learned that within me there lay an invincible summer.
Albert Camus
Jerry Brown and California Pension Reform:
A First Step But Not Good Enough
Governor Jerry Brown (D-CA) is an interesting enigma. Brown opposed Proposition 13 in 1978; property taxes had soared, in part due to strong housing demand pushing up prices, outstripping homeowner incomes (particularly older ones on more fixed income), as home prices doubled during the 1970's. The state Supreme Court made some equal protection public school rulings that, among other things, redistributed "surplus" property tax revenues (a principal source for local school funding) to unrelated poorer districts. In addition, other taxes had also significantly increased as public sector employment outstripped private sector job growth and California relative public sector expenditures were considerably above the national average.
Proposition 13 lowered property tax rates and significantly limited taxable increases in assessed values (until a change in ownership, new building, etc.); it also limited the ability of legislators to work around these limits and established super majority roadblocks to raise compensatory tax increases elsewhere. From a conservative standpoint, the results are mixed; conservatives hoped to starve the beast, but instead what has developed is a system whereby the state returns roughly two-thirds of revenues back to local entities. In essence, this fosters undue dependence on the state. Since local governments are not held responsible for the politically difficult issues in raising a significant amount of their revenues, there's moral hazard.
Proposition 13 has become the third rail in California politics, just like senior entitlement programs have become the third rail at the federal level. But Jerry Brown was so zealous in enforcing Proposition 13 back in 1978, despite active opposition against its passage, that Jarvis, the principal sponsor, endorsed his reelection months later and others started calling Brown "Jerry Jarvis".
Jerry Brown mangled a quixotic 1992 campaign against Clinton (for some inexplicable reason preannouncing Jesse Jackson, whom has been known for saying provocative things about Jews, as his VP choice), but he famously promoted a 13% flat tax The flat tax and Brown's antipathy to that piece of work, Bill Clinton, show two examples of good judgment.
My quick take on the Brown state/local/county pension reform proposal:
On the positive side:
- raised retirement age (55 to 67)
- restrictions on pension base period income spiking
- double-dipping reforms (e.g., salaried public employees drawing state pensions)
- mixed retirement system (pension plus 403B-style)
- employee cost sharing on pension contributions
- pension board reform (independent public vs. labor representatives)
On the negative side:
- little short-term relief/modest long-term relief
- need to renegotiate existing union agreements for givebacks
- need for compensation cuts/caps for current or near-term pensioners
- need for all new or younger (e.g., < 40) employees in defined contribution plans only
- need for substantive collective bargaining reforms
I think if it took anti-Communist Richard Nixon to reestablish diplomatic relations with the People's Republic of China, it could take union-supported Jerry Brown to make a first serious step towards fiscal sanity in California. But let's temper our enthusiasm here: we are literally just a few years away from a third of the Los Angeles budget devoted to pensions, and Jerry Brown seems to be doing the same old same old that we're seeing in Washington DC: whenever we talk about cuts, politicians don't have the balls to cut CURRENT budgets. They play games with automatic increases--in future years! I'm not going to give Jerry Brown a lot of credit here--he's inherited a mess, and the writing is on the wall: the pensions are unsustainable. Brown can't sweep it under the rug. But even more notably: Jerry Brown has been part of the problem; he's the guy whom opened up the Pandora's box of unsustainable collective bargaining agreements.
It's tough enough for business owners in California without being tapped, despite already stiff taxes, to give Los Angeles and other California public entities more money to avoid making the politically tough decisions regarding unconscionable, unsustainable union demands. The last thing California workers need is anti-business growth tax hikes. So many progressives, pressing for Proposition 13 changes, are already demanding a two-tier tax structure where individuals are exempted from sharing in the economic pain--businesses are "less equal". It's about time California Democrats put the interests of the California residents over their parochial political interests. The issue is not that Californians are taxed too little: it's that California politicians spend too much!
Humor
Eighth-month-old Micah rejects the job rejection letter to his Dad. "I praise you, Father, Lord of heaven and earth, because you have hidden these things from the wise and learned, and revealed them to little children." Matt 11:25
Musical Interlude: My Favorite Grapevine
CCR, "Heard It Through The Grapevine". CCR's remake of the Marvin Gaye classic is worthy. Fogerty, as usual, has mad vocals. Even his accent ("I he-oid it through the grapevine") starts growing on you. That gravelly blue-eyed soul voice fits the verses like a glove.
