Rewarding public employees with new tax hikes on the private sector

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Under the “leadership” of Gov. Jerry Brown and legislative Democrats, the state government has increased its spending a dramatic $36 billion over the last six years, but never managed to put any additional funding into transportation and infrastructure — unless one considers the billions it’s spending to build a high-speed rail boondoggle.

Yet during recent legislative proceedings, one would think the state budget is stretched so thin that there just isn’t any cash left to rebuild its crumbling infrastructure of freeways, streets and bridges without a tax hike. So the state passed a massive one — 12 cents a gallon for gasoline, 20 cents a gallon for diesel and new fees for the registration of vehicles. (Never mind that a lot of the new spending goes to transit and bike lanes.)

There was no effort whatsoever to reform the California Department of Transportation. According to the nonpartisan Legislative Analyst’s Office, Caltrans has 3,500 excess employees who have little to do other than collect their big paychecks and amass large pensions. California spends far more on administrative costs per-road-mile built than other states, yet instead of outsourcing more of the work, legislators are proposing bills to slash what little outsourcing already takes place.

Yet national Democrats — and California columnists — continue to point to our state as an example of the way Democratic officials “get things done.” Yes, they are good at passing tax increases and providing generous salaries and benefits for the people employed by government. But our pothole-pocked and inadequate freeways and creaky system of dams and levees is starting to remind one of the final scene from Ayn Rand’s Atlas Shrugged.

Before anyone elsewhere in the country starts buying the idea that California is decently managed, they ought to pay attention to some statistics that Orange County Sen. John Moorlach, a well-respected fiscal watchdog who predicted the Orange County bankruptcy, detailed in a speech this week to the Howard Jarvis Taxpayers Association in Sacramento.

Chief Executive magazine named California the worst state to do business for a stunning 12th year in a row. California has the highest sales taxes, corporate taxes, developer fees and gas taxes in the nation. California’s top income tax rates of nearly 14 percent are by far the most punitive in America, which explains why millionaires keep heading elsewhere.

The progressive nature of our tax system — 17 percent of the population pays 87 percent of income taxes — assures that every new government program is basically “free” for most people, creating constant pressure for more social spending. Approximately 80 percent of transportation and road spending is outsourced in Arizona, where the roads are expansive and beautifully maintained. In California, it’s only 10 percent.

As Moorlach pointed out, California spends more than a half-million dollars per-mile to build roads, which is the fifth highest in the nation — and we have the fifth-worst road conditions in the country. Our unfunded pension liabilities are by far the worst in America, and even adjusted for population we’re near the bottom. California is edged out only by a handful of other mostly blue states, such as Illinois, New Jersey and Hawaii. In Los Angeles, public employee pension and health-care payments gobble up 20 percent of the city’s budget. In San Jose, the number is close to 28 percent. Most other big cities are in the 15 percent to 20 percent range.

During the Brown administration, the state’s “unrestricted net position” — i.e., its debts and liabilities — has soared to nearly $250 billion thanks to the governor’s inaction and new rules that require a more forthright accounting of the state’s fiscal perils. Meanwhile, the senator noted, all of his bills to promote better transparency and other reforms of the pension system are dead on arrival in the Legislature, which pretends there’s no problem at all.

As I argued in an op-ed after the massive gas-tax hike passed the Legislature (with the help of a Republican who was promised certain projects in his district), the gas tax in reality is a pension tax. For instance, the state’s pension’s contributions are soon expected to top $11 billion a year, which is more than double the amount of annual transportation funding that will be raised by the 10-year permanent tax-increase plan.

The governor passed an exceedingly modest pension reform measure in 2012, which had done almost nothing to control pension costs, given that it mostly applies to new hires. They won’t start retiring for 25 or 30 years. Since then, pension reform hasn’t even been on the legislative agenda. And the real reason for the passage of that little reform package was to help win the public’s support for Brown’s last successful attempt to raise Californians’ taxes.

Meanwhile, some of the state’s older, more decrepit cities are in financial peril and continue to cut back on public services in order to pay their increasing tabs to the California Public Employee’s Retirement System (CalPERS), which had returns on investment last year of less than 1 percent. Its expected rate of return was 7.5 percent, so each year the hole keeps getting bigger.

But the problems here have less to do with stock-market returns and more to do with Democratic priorities. The state’s leaders believe that Californians should always pay more taxes. They have no problem with typical six-figure salaries and pensions for government employees, who basically rule the Capitol with an iron fist. They don’t care that California has unaffordable home prices due to their growth-control efforts or that the U.S. Census Bureau pins our poverty rate at a nation’s high level of 24 percent using their cost-of-living-based standard.

Republicans not only have virtually no power here, but their numbers are dwindling. Republican voters keep fleeing to other states. As I reported for the Spectator last week, Democrats are busy rigging the redistricting game to get rid of the few remaining GOP powerbases (some Central Valley and Southern California counties). We are indeed a one-party state, but forget about the common idea that things will get bad enough that voters will wake up.

It’s not going to happen. California is still a long way from Greece. The fear isn’t a big financial collapse, but the slow-motion erosion of our economy and infrastructure. People adapt to reality, and don’t know any better. Pastoral oceanfront communities and trendy cities here will always remain magnets for wealthy trust-funders. Those of us who own homes and have families here might grumble about greener pastures, but most of us will stay put for a variety of reasons.

The gas-tax increase is just the latest reminder that unless some political paradigm shifts, California officials will never get the state’s debts under control, nor will they spend new money on the right priorities. Moorlach offered hope by pointing to Kentucky, where voters ousted large numbers of Democratic legislators in the Nov. 4 election. We all need hope, but the chances of such a thing happening in California seem more fleeting by the moment.


Image by Michael Warwick

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