Comprehensive Pension Reform and other Myths

by on March 26, 2012 · 3 comments

in California, Civil Rights, Economy, Labor, San Diego, Under the Perfect Sun

This just in: Carl DeMaio’s Comprehensive Pension Reform measure is a sad hoax. While it is likely that DeMaio’s deeply deceptive measure will pass overwhelmingly, that has more to do with the successful demonization of city workers and the nearly universally distorted local media lapdog chorus than it does with facts.

Last week, the city’s Independent Budget Analyst found that if DeMaio’s plan (which is also favored by Fletcher and Dumanis) passes, “Pension changes are projected to cost a net $13 million over 30 years ($56 million when adjusted for inflation).” All of the potential savings in the plan come from freezing salaries for six years but, as the report notes, “the ballot measure does allow the City to negotiate salary increases with employees.”

Hence, there is no guarantee whatsoever that all of the proposed savings in the plan will come to fruition. Thus San Diegans may go to the polls and vote to stick it to all those rich librarians and garbage truck drivers but, in actuality, they will be sticking it to their city’s finances instead.

As Bob Filner, the only honest person in the race for mayor, told KPBS:

“It doesn’t save a nickel. The referendum itself does not save a nickel. All the savings are predicated on a pay raise of zero percent for the next five years for employees. That is subject to negotiations with the employees, you cannot decide that in the referendum, and it’s doubtful that it’ll ever be zero for five years in a row. It’s a fraud if I could put it most charitably.”

Sadly it is no longer possible for a more rational solution to be worked out—one that stops future abuses, actually saves the city money, but doesn’t maliciously punish workers for mistakes that were not their doing.

This might not have been as popular or gratifying as siding with millionaires and the city’s power brokers while they screw over firefighters and lifeguards, but it would have been the right thing to do.

If only the Democratic majority on the City Council had had the vision and courage to put up an alternative plan, we’d have a real debate. But unfortunately, more profiles in cowardice were abundant on that front. Hence, we’ll throw our city’s workers under the bus while we continue to dole out largesse to the powerful.

When it comes time for giving away public money to private enterprise however, mayoral contender DeMaio and our city’s establishment have a long history of generosity which will surely be pushed to the next level if we elect DeMaio, who earned his fortune showing corporate interests how to gorge themselves at the public trough . It will be tough to top this week’s shameful giveaway of control of the convention center to a private consortium,  but with so many blank checks to go around, you can be certain the rulers of America’s finest Tourist Plantation will continue to ride the gravy train.

A Win for Progressives?

Interestingly, after my column last week in which I outlined how the “compromise” between the Governor and the forces behind the Millionaires Tax initiative was the result of threats and coercion by Brown and his allies in the Democratic party and labor, much of the mainstream press coverage completely ignored that reality and instead lambasted the Governor for making a deal with my “backwater union,” as the Republicans fondly refer to the CFT.

In the LA Times, establishment moderate George Skelton complained that the compromise represented a deal between the left and the left, completely ignoring the fact that many inside the CFT and elsewhere had serious issues with the deal. Rather than engaging the debate around the Millionaires Tax, Skelton bemoaned the fact that “California’s right is left behind” and skewered the Governor for caving in to the “soak the rich crowd.” Other editorialists also protested that, “Brown let himself get rolled by the soak-the-rich crowd, giving up his long-running mantra of “shared sacrifice” without even a fight.”  Alas, if only that were true!

On the more liberal side the California Progress Report celebrated that:

At the end of the day, the compromise was something progressive backers of the Millionaire’s Tax can be proud of. Jerry Brown’s initial measure would have put 40% of the tax burden on a sales tax increase. This new compromise puts 85% of the new tax burden on incomes making over $250,000 and $500,000. Consider that California’s income tax code currently makes no difference between anyone making $50,000 and $900,000 a year – and you start to understand why this compromise is both good policy, and very good politics to bring our forces together.

Because the compromise is a new tax measure, there won’t be very much time to gather signatures to put it on the November ballot – which will require serious resources to make it happen. Now that the Democratic Establishment has learned they can no longer ignore or belittle progressive activists on this issue, it’s time we work together to get this compromise on the ballot – and fight to win voter passage in November, as a crucial first step for California.

Again, alas, I fear the lesson that was learned was that threats and political coercion ultimately still work in Sacramento politics at the end of the day.

Perhaps the most insightful commentary came not from the mainstream media or liberal bloggers but from the conservative, business friendly blog, Foxes and Hounds where Tony Quinn noted that:

In January, Brown proposed a tax initiative to raise sales taxes and high end income  taxes over three years to help balance the budget. Polling has shown that temporary tax increases to fund education are pretty popular, 68 percent favorable in one PPIC poll. But once voters saw the Attorney General’s title and summary for the Brown tax increase, they did not like the specifics. The latest PPIC poll showed it was only winning by 52 percent, with 40 percent voting no. That’s a sure loser. The sure winner was the tax the millionaires initiative proposed by groups on the left. Wall Street and millionaires are the new Great Satans in American politics; the millionaires tax campaign sent around poll after poll showing it was winning in the 70 percent range. . . . But Brown and Democratic leadership panicked and decided they had to kill this initiative on the grounds that more than one tax initiative meant sure defeat for all tax initiatives. So they have merged the two, but in so doing they have adopted the unpopular parts of the Brown initiative and dropped the popular parts of the millionaires tax.

After comparing the title and summary of Brown’s first initiative and the “compromise” measure, Quinn asks:

Can you tell the difference? Not very much is there. The sale tax hike is cut in half but the tax is still increased; the total tax take is increased from $4.8 to $6.9 billion in the original Brown initiative to $6.8 to $9 billion in the second, so the second is a bigger tax hike. Both measures raise taxes to “address the state’s budgetary problem by paying for other spending commitments” although the voters overwhelmingly oppose raising taxes to balance the budget. Only 11 percent favored that in the latest PPIC poll. So why would this new one do any better than the old one? And it does not solve the multiple tax  initiatives problem; millionaire Molly Munger is still there with her tax initiative to raise everyone’s income taxes. It is polling terribly; somehow the voters don’t buy the idea that they should raise their own taxes because some well meaning millionaire thinks it is a good idea.

While I fear that Quinn is correct that by keeping the sales tax, the compromise measure blurs the line between progressive and regressive taxation and that makes the issue less about economic inequality and social justice and more about “taxes” for the average voter, the most recent polling defies that analysis. Indeed, the LA Times/USC poll that came out yesterday shows the compromise measure doing quite well with 64% approval—still not as high as the now defunct Millionaires Tax, but much better than the Governor’s old measure was doing (52% in the last PPIC poll).

Clearly, lowering the sales tax portion of his measure and raising the taxes on upper income Californians, particularly those making over $500,000, seems to have greatly improved Brown’s prospects. Of course this is pre-campaign and doesn’t measure the effect of opposition arguments, but it is an early indicator that by co-opting some of the Millionaires Tax’s progressive thrust, Jerry may have salvaged his chances of winning.

Still, one wonders if people will be as sanguine if they figure out that the new measure does not specifically direct money to schools like the Millionaires Tax did—it will mostly go to reduce the deficit. Munger’s much more regressive proposal does send money directly to schools but it is a dead loser sitting at 32% approval in the new poll.

Hence those who care about education and vital public services are left with the compromise measure as the only real option, not to restore what has been cut, but to prevent more cuts from occurring.

This is a far less compelling case to make to the voting public but it’s the choice we are left with after the arm wrestling and sausage grinding in the back rooms of the Capitol. And if the compromise measure fails, we’ll all go down in the service of Jerry Brown.

 

{ 3 comments… read them below or add one }

avatar RB March 26, 2012 at 9:02 am

Those who are naive about finance ignore it’s fundamental principle of the link between risk and return. They ignore how much risk individuals or employers have to take to increase the guaranteed pension return to 7-8%, when risk free T-bills and CDs yield less than 1%. This proposition does nothing to change the potential return to employees from the plans investments. What this plan does is require employees to share the risk of the pension plan with the taxpayers. Whenever someone talks about return without risk ……..run away quickly.

It is a positive that the new plan does not have up front cost savings because it means the employees pensions are not paying for the new plan. The benefit of the new plan is control of risk not to reduce retirement prospects for employees.

The financially naive always focus on the name of the account as if a 401k, 403b, IRA or other defined contribution accounts will yield less return or have different investment than a defined benefits pensions. This is not true.

This ballot measure is proposing the same solution that the union and government owners of GM are using for their workers. IF THIS BALLOT PROPOSITION HAD PASSED 20 YEARS AGO THE CITY WOULD HAVE NO $2 BILLION PENSION DEBT.

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avatar Anna Daniels March 26, 2012 at 7:27 pm

RB- “The benefit of the new plan is control of risk, not to reduce retirement prospects for employees.” Did you sleep through the 2008 crash?

And of course none of the discussion addresses the fact that city employees currently do not receive Social Security. Unless the city opts into Social Security if the prop passes, city workers will not receive what private sector employees and some governmental employees do- a 401 K AND Social Security.

The ballot measure is punitive in intent and misleading in the purported “savings.” I am certain however, that the City is anticipating the lawsuits if the measure passes. A court of law is not the same as the court of public opinion.

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avatar The Gunny March 28, 2012 at 5:04 pm

20 years ago we wouldn’t need this kind of reform, we would have better leadership on C St and wouldn’t have to worry about the City Managers and Mayors shortending the pension to begin with.
Thanks Sue Golding wherever you are, not!

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