Archives for December 2013

Was 2013 the year that Americans lost their liberty?

From The Daily Caller:

The year 2013 began with a debate over private ownership of guns and ended with a failed launch of Obamacare. It has seen government encroachment into the lives of Americans, first with the IRS scandal — which saw government agencies target conservative groups — and later, the shocking revelations divulged by leaker Edward Snowden that the NSA has been spying on American citizens both online and on the phone.

Trevor Loudon, an author and blogger from New Zealand who has spoken to over 200 tea party groups in 30 states, decried the “normalcy bias” that blinds Americans from seeing a future America without liberty, the Constitution and military strength in an exclusive interview with The Daily Caller.

(Read Full Article)

Barack Obama

Who’s Looking Out for the Middle Class?

Thirty years of political engagement in California politics has led me to the realization that the middle class is woefully underrepresented in this state. Not only that, but this injustice seems amplified with every passing year.

This column has covered the lack of meaningful representation for ordinary citizen taxpayers for more than a decade. Indeed, in October, we exposed the unfairness of Assembly Bill 8, a massive $2.3 billion car tax increase on everyone who relies on their cars for work, errands and everyday life.

Assembly Bill 8 was nothing less than a deal among very powerful interests who had no problem throwing taxpayers under the bus. Who were the winners? Environmental extremists (with support from Governor Brown) who got funding for a dubious “Hydrogen Super Highway.” Also, manufacturers of “green cars,” like the hyper-expensive Tesla, got big tax breaks. Regrettably, some of our allies in the agriculture and trucking industry were in on the deal as well. In exchange for their imprimatur, they received much needed relief from some absurd regulations which seem to proliferate in California like amorous rabbits.

Standing alone against all these well-moneyed interests was the Howard Jarvis Taxpayers Association. And while we are acknowledged as a powerful voice for California taxpayers for our unwavering defense of Proposition 13, the interests of homeowners and citizen taxpayers, there are times when our advocacy is steamrolled by those with more money, power and influence.

If there is any good news here, it is that the plight of the middle class is starting to attract much needed attention. In perhaps one of the best columns on the subject ever written, noted historian and classicist Victor Davis Hanson reveals how the political machinations at the state and federal levels treat middle class citizens more as second class indentured servants.

Hanson starts with noting what Obamacare does to the middle class: “The problem with Obamacare is that its well-connected and influential supporters — pet businesses, unions and congressional insiders — have already won exemption from it. The rich will always have their concierge doctors and Cadillac health plans. The poor can usually find low-cost care through Medicaid, federal clinics and emergency rooms. In contrast, those who have lost their preferred individual plans, or will pay higher premiums and deductibles, are largely members of the self-employed middle class. They are too poor to have their own exclusive health care coverage, but too wealthy for most government subsidies. So far, Obamacare is falling hardest on the middle class.”

Hanson then points out that policies of higher education — with expensive tuitions — protect the wealthy and the poor but hit the middle class hard, very hard: “Consider the trillion-dollar student-loan mess. Millions of young people do not qualify for grants predicated on income levels, ancestry or both. Nor are their parents wealthy enough to pay their tuition or room-and-board costs. The result is that the middle class — parents and students alike — has accrued a staggering level of student-loan debt.”

Next comes immigration. Open borders advocates and corporations have more in common than Americans concerned about finding and keeping their jobs. Hanson notes that “illegal immigration also largely comes at the expense of the middle class.”

Davis doesn’t stop with immigration. Policies on gun control, energy and the Fed’s quantitative easing are revealed to have deleterious effects on the middle class while sparing the rich and poor.

So what can be done to afford the middle class the degree of representation they are due? First, the middle class should realize that they — by virtue of their sheer numbers — constitute the largest block of registered voters. If citizen taxpayers ever come to grasp this simple truth and realize that they have little in common with powerful special interests, they could assert themselves more effectively in the political arena.

Second, ordinary taxpaying homeowners should focus more on the actual policies coming out of Washington and Sacramento and less on party affiliation or political labels such as “liberal” or “conservative.”

Third, the middle class should ignore the political messaging emanating from the political elites, including those in the anointed main stream media and do their homework to educate themselves on what is really going on. After all, veritas vos liberabit (the truth shall set you free).

(Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights. Originally published on HJTA.)

On Board with Obamacare


Can Tim Donnelly Save California?

From The Daily Caller:

Tim Donnelly, the Republican front-runner in the 2014 California gubernatorial race, refuses to accept that the odds are stacked against him. The conservative Twin Peaks assemblyman actually thinks he’s going to beat Jerry Brown. Talk to him long enough and you just might start thinking the same.

Lapping his nearest GOP challenger and bracing for a general election race in which 29 percent of the voters are still undecided, Donnelly is in a nice position to speak his mind about the institutions that usually hold candidates like him down.

(Read Full Article)



California to Business: Get Out!

Firms are fleeing the state’s senseless regulations and confiscatory taxes.

Last year, a medical-technology firm called Numira Biosciences, founded in 2005 in Irvine, California, packed its bags and moved to Salt Lake City. The relocation, CEO Michael Beeuwsaert told the Orange County Register, was partly about the Utah destination’s pleasant quality of life and talented workforce. But there was a big “push factor,” too: California’s steepening taxes and ever-thickening snarl of government regulations. “The tipping point was when someone from the Orange County tax [assessor] wanted to see our facility to tax every piece of equipment I had,” Beeuwsaert said. “In Salt Lake City at my first networking event I met the mayor and the president of the Utah Senate, and they asked what they could do to help me. No [elected official] ever asked me that in California.”

California has long been among America’s most extensive taxers and regulators of business. But at the same time, the state had assets that seemed to offset its economic disincentives: a famously sunny climate, a world-class public university system that produced a talented local workforce, sturdy infrastructure that often made doing business easier, and a history of innovative companies.

No more. As California has transformed into a relentlessly antibusiness state, those redeeming characteristics haven’t been enough to keep firms from leaving. Relocation experts say that the number of companies exiting the state for greener pastures has exploded. In surveys, executives regularly call California one of the country’s most toxic business environments and one of the least likely places to open or expand a new company. Many firms still headquartered in California have forsaken expansion there. Reeling from the burst housing bubble and currently suffering an unemployment rate of 12 percent—nearly 3 points above the national level—California can’t afford to remain on this path.

Illustration by Sean Delonas

California first began to tarnish its business-friendly reputation in 1974, when Democrat Jerry Brown became governor. Government’s job, in Brown’s view, was to restrain growth, not to unleash it (see “The Golden State’s War on Itself,” Summer 2010). His administration proceeded to scuttle some infrastructure spending, limit development, and expand environmental regulations. In 1977, Time declared that “the California of the 60s, a mystical land of abundance and affluence, vanished some time in the 70s.” And by 1978, the Fantus Company, a corporate-relocation firm, was ranking California the fourth-worst state for business.

Brown’s two Republican successors determined to restore California’s economic luster. George Deukmejian, who served two terms as governor starting in 1983, and Pete Wilson, governor from 1991 through 1998, worked to cut back existing regulations and reject new ones, and they trimmed some taxes and other costs of doing business, including onerous workers’-compensation assessments. Sacramento also created economic “quick-response” teams, whose mission was to persuade companies considering relocation to stay. California’s tax burden, ranked fourth-highest in the nation in 1978 by the Tax Foundation, had dropped to 16th place by 1994. “Companies are once again looking at California as a good place to do business,” a Fantus executive declared a few years later.

All that changed for the worse again when Gray Davis, Brown’s chief of staff during the late 1970s, became governor in 1999. Elected with heavy support from labor unions and trial lawyers, the Democrat signed 33 bills that the state’s chamber of commerce called “job killers.” One of the bills, for example, contributed to an increase in the payments that companies made into workers’-compensation funds from $2.30 per $100 of payroll to $6.44; the annual cost to businesses nearly tripled, from $9 billion to $25 billion. After voters booted Davis out of office in a 2003 recall election and replaced him with Arnold Schwarzenegger, the new governor promised to address the business community’s complaints. Schwarzenegger did pass one significant pro-business reform—reducing those workers’-comp fees—but otherwise made little headway. Worse, in 2006, he signed the Global Warming Solutions Act, a measure to reduce greenhouse-gas emissions that, some critics say, could boost electricity costs in the state by 20 percent or more.

As the 2000s proceeded, firms got more and more disgruntled. In a 2004 survey of California executives by the consulting firm Bain & Company, half of those interviewed said that they planned to halt job growth within the state, while 40 percent said that they planned to send jobs elsewhere, with Texas the most frequently mentioned domestic destination. Flash-forward to the present, and you’ll find bosses’ views grimmer still. In a 2011 poll by various California business groups, 82 percent of executives and owners said that if they weren’t already in the state, they wouldn’t consider starting up there, and 64 percent said that the main reason they stayed in California was that it was tough to relocate their particular kind of business. Nor do executives think that things will get better. For several years in a row, California has ranked dead last in Chief Executive’s poll about states’ business environments.

Labor groups, environmentalists, and some politicians say that such polls merely reflect businesses’ craving to get fair taxes lowered and reasonable regulations repealed. Responding to the most recent Chief Executive poll, for example, Steve Smith of the Labor Federation of California charged that it represented “little more than corporate honchos throwing around their weight to try to further strip working people of important protections that improve lives.” Similarly, though an older Jerry Brown—returned to the governor’s office in 2010—has acknowledged that California’s approach to retaining businesses may need some work, his administration considers worry about the business environment overblown. “Rhetoric aside, there are many indications that California is outperforming most of the country from an economic and productivity standpoint,” Joel Ayala, director of the governor’s Office of Economic Development, said earlier this year.

But numbers from the National Establishment Time Series database tell a more disturbing story. During the period from 1994 through 2008, the latest year for which data are available, California ranked 47th among the states in net jobs created through business relocation, losing 124,000 more jobs to other places than it gained from other places. Some argue that this exodus is inconsequential; a 2010 study by the California Public Policy Institute found that jobs leaving the state through relocations amounted to only a small percentage of California’s total job loss. But the numbers show that California isn’t creating jobs in other ways, either. It generated just 285,000 more jobs from new businesses than it lost to business failures, placing 29th in the country (first-place Florida gained 2.4 million net jobs). What’s particularly disturbing, as Wendell Cox demonstrates in “The Long Stall,” is that nearly none of those net jobs were created between 2000 and 2008, meaning that start-ups haven’t contributed to California employment for more than a decade.

The evidence also shows that California is losing the battle for new investment. From 2007 through 2010, according to a study by the California Manufacturers and Technology Association, 10,763 industrial facilities were built or expanded across the country—but only 176 of those were in California. That amounted to 4.8 facilities per 1 million people, the lowest rate of any state; the national average was more than 40. The same study found that of the nation’s $350 billion in investments in manufacturing facilities, just $8.7 billion was spent in California, a per-capita rate of investment less than one-fifth the national average.

California’s defenders argue that the state continues to incubate cutting-edge companies in places like Silicon Valley, where investment remains vigorous, thanks in part to the area’s muscular venture-capital industry. And it’s true that California entrepreneurs and early-stage firms still get one-third of all venture funding nationwide. Unfortunately, if those firms actually succeed and start creating jobs, California has difficulty cashing in. In 2007, California-based Google built a new generation of server farms not in its home state but in Oregon, employing 200 people. The following year, one of California’s most successful tech companies, Intel, opened a $3 billion production facility in Phoenix, Arizona. Earlier this year, eBay, based in San Jose, said that it would add some 1,000 back-office jobs in Austin, Texas, over the next decade.

Smaller firms have exhibited the same pattern of expanding outside the state. In fact, Silicon Valley lost one-quarter of its computer, microchip, and communications-equipment manufacturing jobs from 2001 to 2008, say Valley entrepreneurs (see “The Silicon Lining,” Spring 2010). “Every state in America is focusing on California,” Dave White, an economic-development official who tries to lure companies to Colorado Springs, told the Orange County Register last year. “It’s low hanging fruit.”

California’s suffocating regulations have a lot to do with these lousy indicators, says Andrew Puzder, the chief executive of CKE Restaurants, which operates more than 3,000 Hardee’s, Carl’s Jr., and other eateries. In a recent op-ed, Puzder called his company’s home state “the most business-unfriendly state we operate in. While we kept our corporate headquarters here, our company’s real job-creating engine has already moved.” Indeed, CKE has stopped opening restaurants in California, where the process can take up to two years because of regulations, and plans to open 300 in Texas, where a new place can debut in just six weeks. Because those two years are spent on expensive administrative work—everything from negotiating permits to filing planning documents—it can cost $200,000 more to open a restaurant in California than in Texas. And once open, a California restaurant costs more to operate, too, thanks in part to the state’s complex labor laws, including the requirement that employers pay overtime after eight hours of work in a day. California treats even service employers like CKE as if the harsh industrial conditions of the 1930s were still prevalent, Puzder complained: “It’s not like we have kids working in coal mines or women working in sweatshops.”

Many firms share this frustration with California’s regulations, and for good reason. A 2009 study by two California State University finance professors estimated that regulation cost the state’s businesses $493 billion annually, or nearly $135,000 per company. That weight, the study found, fell disproportionately on small firms and pushed California’s overall employment down by some 3.8 million jobs.

California’s regulations often utterly defeat entrepreneurs. John Bowen, the owner of an 82-year-old family-run business, King Kelly Marmalade, sold his firm to an out-of-state operator in 2007 after tiring of the ceaseless regulatory battle. At one point, Bowen started counting the government agencies that he had to deal with to run his business; he gave up when he reached 44. Bowen’s biggest woe was complying with the state’s aggressive air-pollution laws, wastewater regulations, and workplace rules. “I loved the work,” he says. “This decision [to sell] was largely as a result of excessive and oppressive government rules.”

As Bowen’s example suggests, California’s environmental regulations are particularly intrusive. Cemex, a manufacturing firm, announced last year that it would shutter its Davenport, California, plant, which employed 120 people, citing environmental regulations as one reason that the facility was the most expensive to operate of its 14 American plants. Solar Millennium, an energy company, canceled plans to build a facility in Ridgecrest, California—an undertaking that would have created 700 temporary jobs and 75 permanent ones—after lengthy delays caused by state environmental reviews, including one on the project’s impact on the Mojave ground squirrel. CalPortland, a cement company, recently shut down its 109-year-old Colton facility, laying off about 125 workers and blaming the closure on California’s environmental rules.

California prides itself on being a leader in the environmental movement, but now even some green manufacturers say that they can’t afford to stay there. Earlier this year, Bing Energy, a fuel-cell maker, announced that it would relocate from Chino in San Bernardino County to Tallahassee, Florida, where it expected to hire nearly 250 workers. “I just can’t imagine any corporation in their right mind would decide to set up in California today,” Bing CFO Dean Minardi said. Other California green firms staffing up elsewhere include Be Green Packaging, a Santa Barbara recycling company, which decided to build its first U.S. manufacturing facility in South Carolina; AQT Solar, an energy-cell maker based in Sunnyvale, which will employ 1,000 people at a new 184,000-square-foot manufacturing plant, also in South Carolina; Biocentric Energy Holdings, a Santa Ana energy company that moved to Salt Lake City; and Calisolar, a Santa Clara–based green-energy company building a factory in Ontario, Canada, that will employ 350 workers.

California seems to find innovative ways to expand environmental regulations every few years. Construction firms, recyclers, and other users of big off-road machinery, for instance, now face significant additional costs because new emissions standards will require them to replace much of that equipment. Executives at SA Recycling in Anaheim testified at a 2010 forum on business costs that their company had to spend $5 million for new parts and equipment to meet the standards. Of even broader concern are aggressive new environmental mandates, signed into law by Governor Brown, that require the state to produce one-third of its energy from renewable sources by 2020. In a state where average energy costs are 50 percent higher than the national average, businesses are understandably nervous about how such a shift will influence their bottom lines.

Yet the business community’s appeals fall on deaf ears. These days, it simply doesn’t have as much clout in Sacramento as the environmental lobby does. “The state’s environmentalists think capitalism is harmful to the environment,” says Assemblyman Dan Logue, chair of a GOP task force on jobs and the economy. “They think jobs and people leaving the state are good.”

With liberal politicians and the environmental lobby setting the tone, the state’s regulatory bureaucracy has become uncompromising, with officials frequently interpreting regulations in the most punitive manner. The owners of one small San Clemente business, Racing Optics, departed for Las Vegas after enduring harassment and threats of fines from state and local authorities over trivial issues concerning their homes, including failure to recycle water properly and to obtain the proper hazardous-waste permit for disposing of oil. Expenses for the small company, which produces laminated stickers for helmets, goggles, and vehicles, are now 20 to 30 percent lower than they were in California, the owners told theOrange County Register. Similarly, a small hair-salon chain out of Sacramento, Hoppin’ Shears, fed up with the antibusiness attitude of the state, aborted plans to open 20 new California locations and is now looking across state lines. “We eventually want 20 units, but California is too unpredictable,” firm co-owner Alice Wagner says. “Mostly it is the adversarial environment in California—like business and their owners are the nasty unwanted necessity—that we face every day when running our business.”

Illustration by Sean Delonas

Taxes are another big reason for companies to leave California. According to the Tax Foundation, California imposes the nation’s second-heaviest tax burden on businesses. True, property taxes are relatively light, thanks to the 1978 initiative Proposition 13, which capped increases. But spendthrift California politicians responded to Prop. 13 by increasing revenues from other sources—including business owners, who get socked with a crushing array of levies.

Start with the state’s high individual income-tax rates, which disproportionately affect business owners, since their incomes are generally greater than the average worker’s. Though the highest bracket, 10.3 percent, applies only to millionaires, the second-highest, 9.3 percent, starts at incomes above just $47,000 annually. By contrast, in New Jersey, another high-tax state, the top bracket of 8.97 percent doesn’t kick in until filers hit $500,000 in income. California also extracts one of the nation’s highest marriage penalties for couples filing jointly, the Tax Foundation reports. Since married couples are more likely to be business owners than single filers, the marriage penalty creates yet another disincentive for entrepreneurs to locate or remain in California.

Add to that California’s corporate income tax, one of the few that has its own alternative minimum tax feature, which excludes companies from taking deductions beyond a certain point. And California’s sales tax, the country’s most onerous, reduces demand for in-state retail sales, with residents turning instead to “out-of-state, catalog, or internet purchases, leaving less business activity in state,” the Tax Foundation notes. All this piles up. “The tax burden for a company to operate a business in California is 13 to 14 percent higher than the rest of the country,” says Gino DiCaro of the California Manufacturers and Technology Association.

Sacramento is on the prowl for yet more tax revenues, one reason why financial executives surveyed by CFO recently ranked California’s tax bureaucracy among the country’s most aggressive. This year, even as business groups pointed to the growing number of firms leaving the state, California instituted a so-called Amazon tax, a sales levy that online retailers must collect from customers. To avoid having to collect taxes, Amazon, the giant Internet marketplace where many online retailers sell their wares, immediately severed ties with California-based merchants, leaving many without any business. In July, the Contra Costa Timesreported that states like Texas and Arizona were wooing these affiliates and that up to 70 had already left California to set up shop elsewhere and resume their Amazon ties, with perhaps hundreds of others contemplating doing the same. In September, California agreed to hold off collecting the tax for one year.

Defenders of high taxes often claim that such levies rarely drive a firm from a location, at least on their own. But many academic studies have shown that states with lower taxes are winning the jobs war. Plenty of low-tax spots, moreover, boast congenial lifestyles and great weather, just as California does. Take Colorado Springs, which has made poaching Golden State firms a specialty. The area’s economic-development agency estimates that 30 percent of its relocated firms come from Southern California. Dave White, the Colorado Springs economic-development official, told theOrange County Register that his area offered significant savings, including income- and corporate-tax rates less than half California’s and workers’-compensation charges 25 percent lower. The only thing that cost less in California, White boasted, was “citrus.” Owners who have fled California for Colorado Springs concur. Earlier this year, when Howell Precision Machine and Engineering, a Los Angeles County–based maker of military and aerospace parts, announced that it was moving to Colorado Springs, its owner said bluntly, “Our survival depends on our relocating to another state.”

As if California’s regulation and taxes weren’t sufficiently deadly to businesses, the state can also claim what may be America’s most expensive litigation environment for firms. The American Tort Reform Foundation recently named California one of the country’s five worst “judicial hellholes,” in part for its long history of “wacky consumer class actions.” Blame the state’s infamous consumer-rights law, which allows trial lawyers to sue firms for minor violations of California’s complex labor and environmental regulations. Abuses of the law earned California the reputation of being a “shakedown state,” with lawyers regularly sending out threatening letters in mass mailings to thousands of small businesses, demanding payments in return for not suing over purported minor paperwork violations. Outrage over the lawsuits led voters to pass a reform initiative, Proposition 64, in 2004. The new law, though, only limited the most egregious of the lawsuits by forcing attorneys, before they could sue, to show that they were representing plaintiffs who claimed to have been harmed.

One particularly troublesome source of nuisance suits is the Americans with Disabilities Act (ADA). California law allows plaintiffs to sue for damages over even minor violations of the act’s architectural guidelines for accommodating the disabled. One plaintiff has sued 1,000 businesses, mostly restaurants, and won an average settlement of $4,000. At the same time, brick-and-mortar retailers find themselves under siege from lawsuits based on an obscure provision of California labor law that requires stores to have enough seats for all employees. Wielding that law, trial attorneys have filed about 100 lawsuits, claiming damages of up to $100 per employee, against chain retailers.

California business leaders and advocacy groups have proposed various reforms to improve California’s awful business environment. At the top of the list is creating an independent commission to evaluate the impact on employment of all proposed regulations before legislators vote on them. Another idea is a requirement for new regulations to sunset within four or five years unless the legislature renews them. This would force lawmakers to revisit regulations and consider their cost after several years. Assemblyman Logue has also proposed diverting regulatory fines imposed on California businesses into the state’s general fund, instead of letting them fill the coffers of the agencies that impose the fines. Bureaucrats would then no longer have an incentive to step up fines during periods of budget stress.

California should also pursue tax reforms, including lowering the state’s top corporate and personal income rates and sharing the tax burden among more taxpayers. The sharing could be achieved by eliminating features in the tax code that target certain firms or filers, such as the alternative minimum tax on corporations and the marriage penalty on individuals. And California urgently needs to find a way to lower its sales taxes, or it will keep driving retail sales out of state.

Finally, California must reform its civil-litigation laws so that they no longer encourage frivolous lawsuits. One practical reform proposed in Sacramento would require plaintiffs to inform a business of an alleged ADA violation and then give it 90 days to fix the problem before they could file a lawsuit. Similar legislation applied to a broader range of lawsuits against businesses, such as the wave of suits against retailers for not providing chairs, would greatly improve the legal environment in the state. As Tom Scott of California Citizens Against Lawsuit Abuse recently asked: “Why can’t we just give the employee a chair rather than filing a lawsuit?”

Back in April, when California sent a delegation to study Texas’s job-development strategies, Governor Rick Perry agreed to meet with the group because he said that California’s economic fortunes were important to the future of the United States. That’s true—but then, New York State’s economic performance was once crucial to the country’s economy, too, back when the Empire State boasted a more robust private sector. America eventually passed New York by, and California assumed New York’s place as the driver of the national economy.

Now, California is in danger of giving up that role to other states. Officials in California who doubt that that can happen aren’t listening to what the state’s businesses are telling them.

(Steven Malanga is the senior editor of City Journal and a senior fellow at the Manhattan Institute. His latest book is Shakedown: The Continuing Conspiracy Against the American Taxpayer. Originally published on City Journal.)

Agony of Defeat


Obama Approves Federal Worker Pay Raises in 2014

From Yahoo:

President Barack Obama, as signaled earlier in the year, signed an executive order on Monday setting federal civilian and military pay rates for 2014, and including the first raise for civilian workers in four years.

Military and civilian employees will get a 1 percent raise in the new year, consistent with the level laid out in Obama’s earlier budget proposal.

The order had to be signed before January 1 to allow federal agencies to update their pay systems for the new year.

 (Read Full Article)

Michelle Obama

CA Politicians, Special Interests Play ‘Economic Impact’ Game

From The Sacramento Bee:

One of the games that politicians and interest groups play is called “economic impact.”

The sponsors of a particular project or program, particularly a scheme that involves public funds, pay some consulting firm to gin up a report purporting to prove that it will generate gobs of jobs and other economic benefits.

democrat supermajority sacramento california

Desperate Hot Springs

Another California city teeters on the edge of bankruptcy.

In what may be the most embarrassing California-related headline to appear in a while, Reuters announced last month: TONY RESORT CITY MULLS BANKRUPTCY, BLAMING WAGES, PENSIONS. That supposedly “tony” city is Desert Hot Springs, on the northern edge of the Coachella Valley near Palm Springs. Though it’s certainly true that Palm Springs and many of its suburbs are booming resort and retirement meccas, Desert Hot Springs long ago picked up the nickname “Desperate Hot Springs.” It’s a magnet for parolees and poor retirees living in low-cost tract houses and trailers.

On November 19, the Desert Hot Springs city council declared a fiscal emergency, usually a precursor to bankruptcy. The city has $20 million in annual budgeted expenses and only $14 million in revenues. As is common these days, city officials blamed outside forces: the economic downturn, the housing bust, lagging development. The downturn has eased, though, and most California cities are recovering from the housing bust. And it’s no real surprise that developers shun the city, given that a Desert Hot Springs address is practically the kiss of death in the Coachella Valley.

Desert Hot Springs, in fact, went bankrupt once before—in 2001, after the city lost a lawsuit against a developer who claimed discrimination when officials stopped him from building a neighborhood of manufactured homes. The city’s crime problem grew so severe that Riverside County officials launched a military-style invasion. “Hundreds of law enforcement officers backed by armored cars and Black Hawk helicopters swept into the city . . . in a massive show of force that stunned the gangs, parolees and street thugs who had terrorized the community for years,” the Los Angeles Times reported in 2009. Crime has since fallen, thanks to a greater police presence and expansion of community anti-gang programs. But the city still struggles with persistently high unemployment and a generally impoverished population. In short, there’s nothing “upscale” about the place.

Now things could get even worse. Officials fear that cuts in the budget—70 percent of which goes to the police department—will undermine the progress made on public safety. But one need only look at the city’s salary schedule to understand what’s really going on. The average annual wage in the police department is $119,000 a year, with the average total compensation topping $164,000. And that doesn’t include the unfunded liabilities—the unaccounted-for costs to pay for generous retirement benefits. Wages for all categories throughout the city are astoundingly high, with many officials earning total-compensation packages well above $200,000 a year. The city manager’s salary and benefits top $300,000 annually.

The plight of Desert Hot Springs has prompted concern among California’s hardy pension reformers, who see it as a sign of things to come. But the state’s legislative leaders have mostly shrugged, perhaps because Desert Hot Springs, like other cities sliding into Chapter 9—Stockton, San Bernardino, Vallejo—happens to be on the economic margins. These economically troubled cities, the thinking goes, aren’t reflective of the state as a whole. But is that correct?

Leading the charge to get a statewide pension initiative on the November 2014 ballot is Democrat Chuck Reed, mayor of one of California’s wealthier cities, San Jose. Recently, Reed noted that San Jose’s police costs had soared in recent years, even as the city has significantly cut the police workforce. He blames this reduction in services on San Jose’s uncontrolled pension debt (the city’s pension-reform measure, which passed overwhelmingly last year, remains in legal limbo).

As they ignore cascading budget crises in California cities, the state’s unions have been ramping up their attacks on Reed and his measure. Assembly Speaker John Perez’s former spokesman, Steve Maviglio,lambasted Reed on behalf of a union-funded think tank—though he didn’t address any of the specifics of Reed’s measure. Instead, Maviglio dismissed the idea that pension reform is a bipartisan cause, pointing out that the measure enjoyed “right wing” financial support as well as the support of this “conservative” writer. “Right out of the gate,” Maviglio wrote, “the state’s leading Democrats blasted the proposal. And aside from Reed himself, not a single big city mayor—Democrat or Republican—joined Reed’s effort. In fact, one of the Democratic mayors that Reed initially had on board is expected to renounce his support.”

While the Democratic leadership opposes a measure that takes aim at one of its vital constituencies, a few serious Democrats are backing Reed—not because of some supposed right-wing conspiracy, but because they have enough foresight to see what’s happening to municipal services. California’s roughest cities are harbingers. “All of the cities that have gone into bankruptcy have different variables that have contributed to their problems,” said Jack Dean, vice president of California Pension Reform. “The one consistent theme that all of them have is high payroll and pension costs.” Unless those costs are reined in, Desert Hot Springs won’t be the last city to find itself in desperate straits.

(Steven Greenhut is the California columnist for U-T San Diego, formerly the San Diego Union-Tribune. Originally published on City Journal.)

GOP Obstructionists