Sunday, January 31, 2010
Public Employee Unions Are Sinking California
...None of these ideas will ratchet down state spending.
To do that California needs to take on its public employee unions.
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....
Leviathan stirs again
...Today big government is back with a vengeance: not just as a brute fact, but as a vigorous ideology. Britain’s public spending is set to exceed 50% of GDP (see chart 1). America’s financial capital has shifted from New York to Washington, DC, and the government has been trying to extend its control over the health-care industry. Huge state-run companies such as Gazprom and PetroChina are on the march. Nicolas Sarkozy, having run for office as a French Margaret Thatcher, now argues that the main feature of the credit crisis is “the return of the state, the end of the ideology of public powerlessness”.
“The return of the state” is stirring up fiery opposition as well as praise. In America the Republican Party’s anti-government base is more agitated than it has been at any time since the days of the Gingrich revolution in 1994. “Tea-party” protesters have been marching across the country with an amusing assortment of banners and buttons: “Born free, taxed to death” and “God only requires 10%”. On January 19th Scott Brown, a Republican, captured the Massachusetts Senate seat long held by the late Ted Kennedy, America’s most prominent supporter of big-government liberalism. ...
...Yet even before Lehman Brothers collapsed the state was on the march—even in Britain and America, which had supposedly done most to end the era of big government. Gordon Brown, Britain’s chancellor and later its prime minister, began his ministerial career as “Mr Prudent”. During Labour’s first three years in office public spending fell from 40.6% of GDP to 36.6%. But then he embarked on an Old Labour spending binge. He increased spending on the National Health Service by 6% a year in real terms and boosted spending on education. During Labour’s 13 years in power two-thirds of all the new jobs created were driven by the public sector, and pay has grown faster there than in the private sector (see chart 2).
In America, George Bush did not even go through a prudent phase. He ran for office believing that “when somebody hurts, government has got to move”. And he responded to the terrorist attacks of September 11th 2001 with a broad-ranging “war on terror”. The result of his guns-and-butter strategy was the biggest expansion in the American state since Lyndon Johnson’s in the mid-1960s. He added a huge new drug entitlement to Medicare. He created the biggest new bureaucracy since the second world war, the Department of Homeland Security. He expanded the federal government’s control over education and over the states. The gap between American public spending and Canada’s has tumbled from 15 percentage points in 1992 to just two percentage points today....
...Another form of the advancing state is more insidious. Annual lists of the world’s biggest companies have begun to feature new kinds of corporate entities: companies that are either directly owned or substantially controlled by the state. Four state-controlled companies have made it into the top 25 of the 2009 Forbes Global 2000 list, and the number is likely to grow. Chinese state-controlled companies have been buying up private companies during the financial crisis. Russia’s state-controlled companies have a long record of snapping up private companies on the cheap. Sovereign wealth funds are increasingly important in the world’s markets....
More Union Members now Work for Governments than for Businesses
For the first time in U.S. history, the majority of the country’s union members work for government, the Bureau of Labor Statistics reports....
...In Oregon, public employees unions spent almost $4 million supporting ballot initiatives to raise personal income and business taxes by $733 million. The Service Employee International Union (SEIU) spent millions in California campaigning for higher oil, gas and liquor taxes. In Arizona, the Arizona Education Association lobbied successfully against repealing a $250 million-a-year statewide property tax. Even in the conservative state of Alabama, the Alabama Education Association’s annual convention endorsed tax increases on businesses, cigarettes and soft drinks - while voting down measures supporting spending restrictions to combat the state’s budget shortfall....
...And how great is unions’ involvement in politics? Six of the top 10 — and 12 of the top 20 — donors to political campaigns during from 1989 to the present are unions, according to the Center for Responsive Politics. That the American Federation of State, County & Municipal Employees (AFSCME) is the second overall donor shouldn’t be surprising. Unionization in government is greater at the state and local level, so AFSCME has the most to gain from government budget bloat....
