California Cuts Services, Staff to Pay Pension Costs

POLICY – Across California, many local governments have raised taxes while cutting services. Local officials desperate for union support have made irresponsible deals with public employee unions, creating staggering employee costs. Taxpayer money meant to provide essential services to the least well-off instead goes directly to higher salaries and benefits.

In Santa Barbara County, the 2017-2018 budget calls for laying off nearly 70 employees while dipping into reserve funds. The biggest cuts are to the Department of Social Services, which works to aid low-income families and senior citizens. Meanwhile, $546 million of needed infrastructure improvements go unfunded as Santa Barbara County struggles to pay off $700 million in unfunded pension liabilities. County officials estimate that increasing pension costs may cause hundreds of future layoffs.

Unfortunately, Santa Barbara County is far from alone. Tuolumne County is issuing layoffs in the face of rising labor and pension costs from previous agreements. In Kern County, a budget shortfall spurred by increased pension costs has led to public safety layoffs, teacher shortages, budget cuts, and the elimination of the Parks and Recreation department, even as Kern County’s unfunded pension liability surpasses $2 billion. In the Santa Ana Unified School District, nearly 300 teachers have been laid off after years of receiving pay raises that made them unaffordable, including a 10% raise in 2015.

In Riverside County, non-union county employees took the blow for the county’s irresponsible pension deals, as all but one of the 32 employees the county laid off this June were non-union members. This came after contract negotiations granted union employees hundreds of millions of dollars in raises. The Riverside County DA said these raises caused public safety cuts. In addition, Riverside County imposed an extra 1% sales tax to pay for these benefits. Across California, citizens suffer as local governments give away their money while cutting their services.

Government projections continually underestimate pension costs. According to a new study by the Hoover Institution, pension liabilities are understated by trillions of dollars. This happens because governments assume unrealistic rates of return on pension investments. The California Public Employees’ Retirement System, the agency managing pension and health benefits for most California employees, will assume a rate of return of 7% starting in 2020 (the current assumption is 7.5%), however, last year, CalPERS earned a return of 0.6%. California’s defined benefit system for public employees means that governments must pay their employees a fixed amount regardless of how pension plans perform. Rosy estimates for future pension performance make government obligations look smaller than they are.

Unrealistic projections also allow government officials to award big pensions, as officials argue that the big future returns they have assumed can pay off the costs. When reality hits and pension returns fall short, taxpayers are left footing the bill. This year, Californians paid $5.4 billion because of this baseless confidence, more than the state spent on environmental protection, drought response, and fighting wildfires combined. Short-sighted government optimism has real consequences for citizens forced to live in the real world.

The future of government finance throughout California looks bleak due to government mismanagement of taxpayer funds. Local representatives grant unions generous terms, and those unions in turn donate to re-election campaigns. This vicious cycle costs Californians essential services. Agreements between government officials and union bosses allies harm taxpayers, service beneficiaries and even some union workers, who find their representatives complicit in laying them off.

Government does not exist to give taxpayer money to the politically connected. Because of their twisted incentives, California’s elected officials are directly responsible for the state having the highest poverty rate in the country, and the second most unfree economy. Instead of working to fix California’s challenges, many local officials create them by refusing to serve their constituents and instead forcing citizens serve the government. If public servants are serious about real improvements, they need to push for changes to the public pension system and for limitations in every interaction between lawmakers and public employee unions.

David Schwartzman is a Policy Research Fellow at the California Policy Center.  He is a rising senior studying economics, mathematics, and finance at Hillsdale College.

This article was originally published by CityWatchLA.com

What if California’s Government Never Unionized?

UnionA story that still makes the rounds in Sacramento is that Gov. Jerry Brown, speaking off-the-record to a group of business leaders back around 2009, admitted that the worst political decision of his life was signing legislation to permit public employees to form unions and engage in collective bargaining.

Whether or not Gov. Brown actually said this, it is tantalizing to wonder what California would be like if over 1 million state and local government workers did NOT belong to a labor union. How would things be different?

Perhaps the biggest casualties of public employee unionization are California’s public schools. In 1975 the California Teachers Association (thanks to Brown signing the Educational Employment Relations Act) transitioned from being a professional association into a labor union. The negative consequences are far reaching.

The obvious way that unionizing teachers harms public education are the many work rules that have been negotiated. It is nearly impossible to fire a teacher for poor performance, instead – as was argued in the Vergara case, bad teachers get transferred to schools in disadvantaged communities where competent teachers are most needed. When layoffs occur, seniority is prioritized over merit. And tenure, i.e., lifetime employment – a concept originally developed in universities to protect free scientific inquiry –  is granted K-12 teachers after less than two full years of classroom evaluation. All of this guarantees that California’s public schools do NOT have the caliber of educators they could, and union work rules are the reason why.

The less obvious ways unionizing teachers have harmed public education are equally significant. The rhetorical focus of unions is inherently adversarial. Us vs. them. Worker vs. oppressor. In California this rhetoric has been politicized by the left-wing activists who dominate the positions of leadership in the teachers unions. From the top down, it permeates public education, indoctrinating teachers and students with a one-sided, confrontational world view. Students are taught that Western Civilization is the villain of history, that “people of color” are always discriminated against, that “gender” is arbitrary, and that authoritarian solutions are necessary to protect the environment. Almost none of this is true, but nearly two generations of Californian voters were immersed with this propaganda throughout their K-12 years.

Union work rules haven’t just protected bad teachers while driving good ones out of the profession. This is true throughout the public sector, from teachers to public safety to bureaucrats. And thanks to unions, pay is not only disconnected from performance, but the rate of pay has gone out of control. California’s public servants, on average, now collect pay and benefits that are twice what a private sector worker earns for full time work.

Public sector benefits are even more out of control than public sector pay – a public sector retiree in California after a 30 year career can expect a pension that is 26 percent more than private sector workers still on the job; four-times what the average retiree can expect from Social Security.

Other than driving California’s cities, counties and state government to the brink of bankruptcy, and nearly destroying our system of public education, what are the other consequences of unionized government? That answer is simple – they have taken political control of every supposed democratic institution in the state. Their political spending – they collect and spend over $1 billion in dues every year – dwarfs that of any other special interest. Their financial clout over politicians, combined with their influence over thousands of career operatives throughout the state’s regulatory agencies, force all other special interests to go through them. If you want legislation passed, you have to make deals with the government unions.

The core moral principle of unions, collectively standing up to oppression, is perverted in the public sector. Government workers, if anything, are tools of oppression, not victims of it. As it is they have set up two classes of citizens in California. Unionized government workers have job security, health security, retirement security, and pay scales that help to exempt them from the consequences of a politically contrived, punitively high cost of living. And then there are private sector workers, who have none of these privileges, yet pay the taxes to support this.

Unionized government protects its own interests before the public interest. It destroys public financial health, it undermines democracy, but worst of all, it takes away the sense of shared fate that is perhaps the most essential precondition for good government.

Imagine California without government unions. Public education would work because teachers and administrators could be held accountable. Policies to create prosperity and abundance would be endorsed by all voters, because all voters would share in the benefits. Government agencies at all levels would be lean and efficient because a billion dollar per year lobby perpetually favoring bigger government would not exist. Oligarchs and authoritarians would not have access to an omnipotent broker controlling the levers of power, which they could cozy up to for the benefit of the few, to the detriment of the many.

Ed Ring is the vice president of policy research for the California Policy Center.

This piece was originally published by UnionWatch.org

What Californians Could Build Using the $64 Billion Bullet Train Budget

California’s High-Speed Rail project fails to justify itself according to any set of rational criteria. Its ridership projections are absurdly inflated, its environmental benefits are overstated if not actually net detriments, and its cost, its staggering cost, $64 billion by the latest estimate, overwhelms anyone with even a remote sense of financial proportions. To make this final point clear, here is an assortment of California infrastructure projects that could be paid for with a $64 billion budget.

If these projects were built, instead of the bullet train, Californians would have abundant, cheap electricity, abundant fresh water, and upgraded roads and freeways capable of handling all the traffic a surging economy could possibly dish out.

What Californians Could Build on a $64 Billion Budget

20170321-what-we-can-do-w-64B-1

(1) Build 10 natural gas power plants generating 6.2 gigawatts of electrical output for $5.7 billion.

According to the U.S. Energy Information Administration, a modern natural gas power plant generating 620 megawatts can be built at a capital cost of $568 million. Someday, when electricity storage technologies are inexpensive and safe, the solar age can ripen to maturity, but in the meantime, California’s private energy companies can tap abundant in-state natural gas reserves, enabling California’s public utilities to provide cheap electricity to the public.

Since California’s peak demand rarely exceeds 50 gigawatts, increasing capacity by 12 percent will drive the price for electricity way down, making California competitive again with other states. Cheap electricity will also obviate the need to force consumers to purchase extremely expensive “energy sipping” appliances that are internet enabled, monitor your behavior and penalize you if you run your dryer at the “wrong” time, break down a lot, are unnecessarily complex, and require ongoing warranty and software upgrade payments forever.

Who needs that? Build natural gas power plants and develop natural gas.

(2) Build plants to desalinate 1.0 million acre feet of seawater per year, supplying 1/3 of ALL California’s residential (indoor and outdoor) water requirements for $15 billion.

Desalination plants are being developed all over the world, and California, with only one major desalination plant operating (Carlsbad in San Diego), is way behind. Desalination requires no more energy today than the amount of energy already being used to transport water from California’s northern regions several hundred miles south (and over the Tehachapi mountains) to Southern California’s coastal cities. The California current, second in flow volume only to the legendary Gulf Stream, can easily disperse the brine left over after extracting fresh water. The energy and environmental issues surrounding desalination have been addressed, and nobody would ever build these plants more responsibly than Californians.

While desalinating water from the sea, at a capital cost of $15,000 per acre foot of annual output, is the most expensive means of increasing California’s water supply, it has the unique virtue of being the only way to actually create fresh water, as opposed to reuse or redistribution. It is a technology that has been proven at large scale for decades and is a necessary part of California’s strategy to increase water security as the state alternates between wet and dry multi-year weather cycles.

(3) Build plants to reclaim and reuse 2.0 million acre feet of sewage per year, supplying 2/3 of ALL California’s residential (indoor and outdoor) water requirements for $10 billion.

Californians produce about 3.0 million acre feet of sewage per year, and today only a small fraction of that sewage is treated to “potable” (drinkable) standards. In California’s huge coastal urban centers this sewage is treated sufficiently to be released into the environment where it wasted as outfall into the ocean. A recent installation in Orange County, the “Ground Water Replenishment System” (GWRS) plant, reclaims as indirect potable water 70,000 acre feet of sewage per year, at a capital cost of only $350 million (not much when compared to the bullet train budget). This equates to a capital cost of $5,000 per acre foot of annual output, which is one of the most cost-effective ways to increase the supply of fresh water for Californians.

Sewage reuse combined with desalination not only have the potential to fulfill 100 percent of California’s residential water requirements for a combined price of $25 billion, but the treated water can be injected into coastal aquifers, combating saltwater intrusion. Currently these aquifers are often replenished with water transported from rivers hundreds of miles to the north, at equal or greater cost.

(4) Build the Sites Reservoir for $4.4 billion.

Anyone who has taken a look recently at the San Luis Reservoir in Central California, now 100 percent full, can appreciate the beauty of off-stream storage. Fed by surplus run-off water that is delivered there by aqueduct, and available for farms and urban use, this reservoir minimizes environmental harm because it doesn’t block the flow of any river. Like San Luis and just as big, the proposed Sites Reservoir, with a planned capacity of 1.8 million acre feet, will be situated in the semi-arid foothills of California’s Central Valley. Unlike San Luis, the Sites Reservoir will require almost no aqueduct, because it will be up in the northern Central Valley, immediately west of the Sacramento River. If the Sites were available today, it would already be filled up with runoff from this year’s many storms, and filling it would have taken pressure off of levees from Sacramento all the way to the delta.

The vast, 100% full San Luis reservoir, 84 square miles, holding 2.0 MAF.

(5) Build the Temperance Flats Reservoir for $3.3 billion.

While this proposed reservoir is in-stream, and would dam the San Joaquin River, it nonetheless has virtues that make a strong argument for its construction. First of all, there are already dams on the San Joaquin River, which would be submerged beneath the larger Temperance Flat dam. With planned storage of 1.3 million acre feet, the Temperance Flat reservoir would guarantee more water to farmers in the dryer reaches of the San Joaquin Valley even during droughts. It would also ensure a reliable flow into the San Joaquin river, to protect its riparian habitats during droughts.

(6) Widen and resurface every major interstate (and then some) in the entire state.

Are you tired of risking your life on Interstate 5 when it’s only two lanes in each direction, and trucks clog the slow lane and speeding tailgaters own the fast lane? Then spend $15.4 billion to add lanes and resurface the entire length of Highway 101 (807 miles), Interstate 5 (796 miles), Route 99 (415 miles), Interstate 15 (294 miles), Interstate 10 (243 miles), Interstate 80 (204 miles), and Interstate 8 (172 miles). According to the American Road and Transportation Builders Association, this will cost $5.25 million per mile, and the freeways just listed total 2,931 miles.

(7) Fix the Potholes.

With everything noted so far, we have only used up $53.8 billion. That is, for only 84 percent of the bullet train budget, we have delivered to Californians cheap, abundant energy, abundant water, and unclogged our major freeways. But we still have $10.2 billion left. What to do? Why not fix the potholes? For $10.2 billion, we can resurface 8,160 miles of 4-lane roads, or, presumably, an even greater length of 2-lane roads. Isn’t that the first thing that goes when governments go astray, and prioritize pet (and useless) environmentalist mega-projects ahead of serving the public? Potholes?

Apart from the fact that a few farms have been purchased in Fresno County, and a few pylons have been stuck in the ground, and a handful of extremely well-paid bureaucrats are doing everything they can to preserve their jobs, why is high-speed rail still being pushed? The reasons are a disappointing example of our dysfunctional democracy here in California. Because you could accuse every project on the above list of being susceptible to cronyism and cost-overruns, and you’d be right. Just as the Bullet Train will never get built for a mere $64 billion, it is likely these projects will also, in aggregate cost more than $64 billion. But we’d have abundant energy, abundant water, and a 21st century network of wide, upgraded freeways. If you’re going to play the innately corrupt game of public works, build things that help people live better, more prosperous lives!

Instead, California contends with an alliance of financial oligarchs whose pecuniary interests depend on Californians paying punitive prices for energy and water. Their green energy and high-tech ventures depend on forcing Californians to completely retool their homes with new, upgraded appliances (all of them – washer, dryer, dishwasher, air-conditioner, furnace, refrigerator) that are efficient to the point of diminishing returns. As mentioned, these appliances now double as surveillance devices that will force us to live our lives according to utility company algorithms. Utility companies, of course, no longer make profits based on the quantities of energy or water they deliver, but rather on fixed percentages over cost, which means to please their shareholders, units of energy and water have to cost more. Much more. And manufacturers are thrilled to design all this frippery into their appliances so they can sell them as a service requiring perpetual payments, instead of a durable good.

Our household has a washer that we bought, already used, for $25 in 1999. It has never broken down. No ongoing warranty payments. No ongoing “software update” payments. Do you think you’ll be able to say any of that about any appliance purchased in the last few years?

For anyone who wants this lucrative, exploitative party for the oligarchs to continue, high speed rail is a good place to put what remains of California’s public financing capacity. The environmentalist lobby, firmly in the pocket of these oligarchs, offers up high speed rail to private construction unions, who lack the clout or the vision to demand something that might actually adhere to their ideals – i.e., the projects listed above, that would help ordinary working families in California.

Ed Ring is the vice president of policy research for the California Policy Center.

REFERENCES

(1-a) Cost for modern natural gas power plant generating 620 megawatts
Source: U.S. Energy Information Administration
https://www.eia.gov/outlooks/capitalcost/

(1-b)  Peak megawatt demand in California (July 24, 2006) just over 50 gigawatts
Source: California ISO, California Peak Load History 1998 through 2016
https://en.wikipedia.org/wiki/Energy_in_California

(2) Cost for desalination plants – global comparisons:
Source: California Policy Center, Rebuilding California’s Infrastructure – Desalination
http://californiapolicycenter.org/rebuilding-californias-infrastructure-desalination-part-4-of-6/

Recently constructed desalination plants in Israel, rest-of-world, and California:

(2-b) Annual water consumption in California (million acre feet):

Source: Public Policy Institute of California – Uses and Value of Water, Table 2.2
http://www.ppic.org/content/pubs/report/R_211EHChapter2R.pdf

(3) Cost for sewage reuse plants:
Orange County GWRS IPR Project (2008) Fountain Valley
Source: California Policy Center, Rebuilding California’s Infrastructure – Water Reuse
http://californiapolicycenter.org/rebuilding-californias-infrastructure-water-reuse-part-2-of-6/

(4) Most recent and highest cost-estimate for Sites Reservoir:
Source: KCRA News
http://www.kcra.com/article/5-things-to-know-about-the-proposed-sites-reservoir/8593792

(5) Highest cost-estimate for Temperance Flat Reservoir (estimates range from $1.2 billion to $3.3 billion):
Source: U.S. Bureau of Reclamation
https://web.archive.org/web/20120316022146/http://www.valleyvoicenewspaper.com/vv/stories/2009/vv_temperanceflat_0164.htm

(6 and 7 – a)  Cost to add lanes and resurface freeways:
Source: America Road & Transportation Builders Association
http://www.artba.org/about/faq/ 

(6 and 7 – b) Length of California’s principal highways and freeways:
Source: CaHighways.org
http://www.cahighways.org/itypes.html

Ex-Government Workers in California Make More Than Those Still Working in the Private Sector

Last week the California Policy Center released a new study that compared the average full-career government pension to the average annual earnings of a full-time private sector worker. Not surprisingly, at least for anyone paying attention, ex-government workers make 26 percent more than people make in the private sector who are still working. The average government pension after 30 years work? $68,673. The average private sector pay? $54,326.

Pension moneyHow is it possible to pay government workers more when they’re retired than the rest of us make while we work? How can we afford this? When you try to answer this question, you begin to see just how misguided the left in California has gotten – at least the “left” as it is conventionally understood.

Because the left wants everything. And the government unions who control the “left” in California, along with the state Legislature and nearly every major city and county, promise everything. If any politician or public speaker stands up to them, they help organize demonstrations by left-wing activists, where, when they aren’t breaking windows and spraying innocent people with mace, they chant silly little phrases.

For example, they want to turn California into a “sanctuary” and invite millions of destitute immigrants to join the millions who are already here. But at the same time, they want to block development of land, energy, water and transportation assets, because that might harm the earth.

Please come on in, we welcome millions more
but building homes is sinful, so go sleep on the floor

The reason leftists are dupes is because despite all their resentment of “privilege,” they ignore the agenda of the most privileged special interest that has ever existed, which are the government unions in the state of California. They’re so busy insisting that California’s government invite the entire world’s destitute population – while simultaneously doing nothing to make room for them – that they’ve failed to realize that it is the government unions who are the only winners in this miserable equation.

Neglect the roads, let dams give way
but increase public servant pay

Every era has had its dupes, but the reason California’s leftists are the biggest dupes in the history of the world is because they haven’t figured out that their supposed friends are actually sleeping with the enemy. The left demonizes the wealthy, they demonize the banks, they demonize “Wall Street,” but fail to realize that their own state government – leftist to the core – is partnering with these corrupt financial special interests.

Who do they think invests nearly $800 billion of pension fund assets, collecting billions in fees? Who do they think lends billions to cash-strapped state and local governments that have gone broke paying government workers twice what ordinary citizens make? Who do you think benefits when restrictions on land and energy development cause asset bubbles at the same time as they drive the cost of living through the roof?

We hate wealth, we hate greed
but we are Wall Street’s friend in need

or

Invest your savings in the market, and lose it in the crash
but we’ll increase your taxes, so pension funds have cash

No expose of California’s left is complete without mentioning how they have corrupted environmentalism. In a practical world, we would strike a reasonable balance between development and preservation, so prosperity might lift billions out of poverty, empower women who actually need empowerment, and stabilize those burgeoning populations who eye the developed nations with understandable envy. Instead, California’s leftist oligarchs, supported by millions of leftist dupes, have decided to encourage immigration while actually curtailing our supplies of energy, water and land.

If this were all based on pure and naive idealism, one might forgive it. But these Malthusian, misanthropic masochists have embraced rationing as a substitute for development, abetted by surveillance systems that would make George Orwell blush, to make sure nobody uses a single kilowatt-hour or gallon of water more than they’re allotted. Want to plant a hedge, a lawn, or a “water guzzling” tree? Do you love to nurture living things on a lot bigger than a postage stamp? Not in California. Meanwhile, wealthy Silicon Valley “entrepreneurs” develop the mandatory sensors that will let your appliances monitor your behavior, at the same time as wealthy corporate interests plant vast new orchards of thirsty nut trees on the arid western acreage of the Central Valley.

Take short showers, pay excessive fees
so corporations can plant Walnut trees

California’s leftists aren’t helping themselves, the rest of humanity or the earth. They are dupes of the oligarchy. They have been duped into ignoring a profound, counter-intuitive, and very nonpartisan political reality: Government unions and wealthy elites are working together to undermine our liberty and our prosperity. At best, California’s leftists are blinded by their ideals and biases. At worst, they are seditious traitors to the people and the culture that gave them the time and the freedom to crowd our public spaces with their vandalism and their vacuous rhymes.

Ed Ring is the vice president of policy research for the California Policy Center.

CA’s Retired Public Workers Earn More Than Private-Sector Workers Still on the Job

As reported by KFI radio:

California’s retired government workers earn 26% more in retirement than private-sector workers earn while still on the job.

That’s the finding of an in-depth analysis released this week by the California Policy Center.

“This is an absolutely upside-down system,” said California Policy Center CEO Mark Bucher. “In the Golden State, it truly pays not to work.”

The new study found that the average pension for a retired public employee in California was $68,673 in 2015, before benefits. By contrast, active private-sector workers earned on average just $54,326.

That same year, the maximum Social Security benefit for a high-wage earner retiring at age 66 was just $32,244 – less than half the benefit of a retired government worker.

Study author Ed Ring analyzed 23 of the largest pension systems in California, representing 95 percent of all state and local government retirees – over 1 million retirees. …

Click here to read the full story

Hefty Paychecks for Police Officers and Firefighters in California

fire-truckIn 2015, five San Jose police officers each made more than $400,000.

A payroll error? In fact, they earned every penny by the book.

Hefty compensation, it turns out — including regular pay, overtime and benefits — is not unusual for public safety employees in California.

“It is routine now for firefighters to be up over $200,000, $300,000,” said Mark Bucher, chief executive officer of the California Policy Center, a public policy think tank. “Look at just about any city and you’ll see the same thing.”

Take, for example, the San Ramon Valley Fire Protection District, which covers a portion of southern Contra Costa County.

The county’s median household income is roughly $80,000.

One reason for the high compensation: It can be cheaper for jurisdictions to pay big overtime — at 1.5 times or double regular pay — than it would be to add staff because of the pension liabilities attached to each new hire.

For San Ramon firefighters, every dollar of salary means roughly one more dollar in pension contributions, said Paige Meyer, the fire chief. “When I’m paying over $2 for a full-time employee and I can pay a dollar and a half for overtime,” he said, “I’ve got a substantial savings.”

As a result, a firefighter paramedic with a salary of $87,700 who puts in long overtime hours can end the year with total compensation well above a quarter-million dollars.

Pensions guaranteed to California police and fire personnel allow them to retire in their 50s and draw 70 percent or more of their peak pay as long as they live. Most private sector employees have no pensions.

Public safety unions say the pay packages ensure a well-earned retirement for workers in bruising jobs. Mike Mohun, president of the San Ramon firefighters union, said the focus should be on lifting other occupations to the same standard.

“When I see someone attacking the benefits the Fire Department receives or the Police Department receives, my concern is: Why wouldn’t you expect the same for yourself?” he said. “We should act as a beacon.”

Public policy experts, however, say safety workers’ pensions are playing a part in pushing a number of California cities toward bankruptcy.

“We already have a crisis,” said Joe Nation, a professor of public policy at Stanford University. “How does it end? It will be a political fix. Or, you’ll have lots of cities that just say, ‘Uncle. We can’t do this.’”

For financially troubled cities, that could mean sharp cuts to basic services, he said.

This piece was originally published by the New York Times.

Increasing Water Supply Must Balance Conservation Measures

In a recent commentary, tax-fighter Jon Coupal exposed one of the hidden agendas behind Senate Constitutional Amendment 4, which was recently introduced in the California Legislature. Coupal writes: “They wish to charge those water users they perceive as ‘bad’ more per gallon than those users they perceive as ‘good.’ The beauty of ‘cost of service’ rates, however, is that they are fair for everyone: You pay for what you use.”

California’s consumers already endure tiered rates for electricity consumption, where if their electricity consumption goes beyond approved levels, they pay more per kilowatt-hour. At least with electricity, there is some rationale for tiered pricing, because when demand exceeds capacity the utility has to purchase power from the grid at the spot market rate. But in the case of water that’s a much harder case to make. Water prices are negotiated far in advance by water utilities.

The reason utilities want to charge tiered rates is so they can discourage “over-consumption” of water, in order for them to avoid running out of water during times of severe drought. What happened repeatedly over the past few years was that suppliers to many regional water districts could not meet their contracted delivery obligations. Understandably, water districts want to reduce total annual consumption so, if necessary, they can get by with, for example, only 60 percent of the amount of imported water they would otherwise be contractually entitled to.

Punitive rates for “overuse,” however, will effectively ration water, as only a tiny minority of consumers will be wealthy enough to be indifferent to prohibitively high penalties.

There is a completely different way for water districts to address this challenge. An optimal solution to California’s water supply issues should incorporate not only conservation, but also increasing supply. And to fund new supplies of water, utilities should experiment with tiered pricing that only incorporates moderate price increases. Doing this would mean a large portion of consumers will not be deterred from “overuse,” and the extra revenue they provide the utility could be used for infrastructure investment to increase supplies of water through myriad solutions – including runoff capture and enhanced aquifer storage, sewage treatment to potable standards, seawater desalination, and off-stream reservoir storage.

The following images excerpted from a spreadsheet provide a simplistic but illuminating example of how reasonable tiered pricing could, in aggregate, fund massive investment in additional supplies of water. In the first example, below, with assumptions highlighted in yellow, are water consumption profiles for a regional water utility district that engages in punitive pricing for overuse of water. As can be seen in the large yellow highlighted block to the center left, when unit costs for water are tripled for those consumers who “overuse” water, the number of “over-users” is a small 4 percent minority of all consumers, and the number of “super-users” is a minute 1 percent of all consumers. Consequently, the utility only collects $900,000 per month, barely 5 percent of its revenue from consumers, from households that are deemed to have overused water.

FINANCIAL IMPACT TO UTILITY OF PUNITIVE PRICING FOR “OVERUSE”

The next example, below, shows hypothetical consumption profiles for a regional water utility district that engages in reasonable pricing for overuse of water. Again, as can be seen in the the large yellow highlighted block to the center left, when unit costs for water are increased by 50 percent (instead of 300 percent) for those consumers who “overuse” water, the number of “over-users” is a significant 20 percent minority of all consumers, and the number of “super-users” is a substantial additional 10 percent of all consumers. Consequently, the utility collects $3,000,000 per month, 14 percent of its revenue from consumers, from households that are deemed to have overused water.

FINANCIAL IMPACT TO UTILITY OF REASONABLE PRICING FOR “OVERUSE”

This is a simplistic analysis, requiring caveats too numerous to mention. Utilities get much of their revenue from property taxes, not from consumer ratepayers, and fixed service fees still constitute most of the amount that appears on a typical household water bill. The utility’s internal cost for water, pegged here at $.20 per CCF, is actually calculated through a maddeningly complex and somewhat subjective cost-accounting exercise that takes into account the amortization of capital costs for treatment, storage and distribution facilities, operating costs, as well as actual contracted purchases from, for example, the California State Water Project. But there is a deeper debate over principles that these examples are designed to emphasize, one with profound consequences for our quality of life in the coming decades.

By implementing severe financial penalties to utility customers who “overuse” their water, electricity, or anything else, state regulators are effectively imposing rationing on all but extreme high-income households. Complying in the face of punitive rates for overuse requires consumers to submit to undesirable lifestyle adjustments including short duration, low-flow showers, low flow faucets that require long wait times for hot water to arrive through the pipes and long wait times to fill pots, remotely administered, algorithmically managed “affordable” times for washing dishes and laundry, mandated purchases of expensive new internet enabled appliances that are ridiculously difficult to simply turn on and use, require regular warranty payments because they break down so much, with annual fees imposed to update their software.

We don’t have to live this way. California’s residential households consume less than 6 percent of the water diverted and used in California for environmental, agricultural, and commercial purposes, yet by far they pay the most to maintain and upgrade this infrastructure. Indoor water overuse is a myth, as all indoor water is either being completely recycled by the sewage treatment utility, or should be. Raising rates causes consumers to under-use water, despite most of a utility’s costs being for the operations infrastructure, creating a vicious cycle of rate increases to maintain sustainable revenues. And when consumer water use is crammed down further and further, the overall system of water infrastructure is progressively downsized until there is not enough resiliency and overcapacity in the system to absorb a major disruption such as an earthquake, a dam failure, or acts of terrorism.

The conventional wisdom in California as expressed in policies enforced by an overwhelming majority of Democrats in the state Legislature is that we must live in “an era of limits.” But this motto, originally coined in the 1970’s by Governor Jerry Brown, is in direct conflict with the spirit and culture of Californians, as exemplified by the dreams they offer the world from Hollywood and the miraculous innovations they offer the world from Silicon Valley. The idea that California’s legislators cannot enact policies designed to increase supplies of water and energy enough to make life easier on the citizens they serve is absurd, and must be challenged.

Ed Ring is the vice president of policy research for the California Policy Center.

Is California’s Elite Willing to Fight for More Infrastructure? Or Just Bash Trump?

In the wake of unrest on the UC Berkeley campus last week, Robert Reich has managed to get himself some fresh national news coverage. Reich served as Secretary of Labor in the Clinton administration, and is currently a professor at the University of California at Berkeley. Reich made news by suggesting the rioters who forced cancellation of a speech at UC Berkeley by Milo Yiannopoulos were not left-wing rioters at all, but instead were right-wing provocateurs. On his own website, here’s Reich’s latest take on this: “A Yinnopoulos, Bannon, Trump Plot to Control American Universities?

It’s always tough to prove a negative, but Reich is on thin ice here. Were the rioters who nearly shut down Washington, D.C., during Trump’s inauguration last month right-wing provocateurs? Were the rioters who shut down a Yiannopolous appearance at UC Davis a few weeks ago right-wing provocateurs? Are the hundreds, if not thousands, of marchers, including rioters, who tore through a dozen major cities in the U.S. in the wake of Trump’s unexpected election victory all right-wing provocateurs? Is it right-wing zealots who are waging an ongoing war against every new pipeline in the nation? Or are they establishment reactionaries and their anarchist bedfellows?

Since Robert Reich made himself a household word this week, perhaps it is important to reiterate one of the most important lessons that the American electorate has taken to heart over the past few years, and certainly while observing the Trump phenomenon: The “establishment” in America is an alliance of extremely wealthy individuals, multi-national corporations and the professional class that serves them, big labor unions especially including public sector labor and the government agencies they control, the financial institutions, and the leadership of both major political parties. To describe this establishment as “right-wing” or “left-wing” misleads more than it illuminates.

Robert Reich is an elite member of this establishment.

Back in mid-2016 California Policy Center research Marc Joffe made Robert Reich a poster-child for establishment hypocrisy in his analysis entitled “UC Berkeley’s ‘income inequality’ critics earn in top 2%.” During 2015, Robert Reich earned $327,465, in exchange for teaching one class per week. This is about as perfect an example of elite establishment privilege as you can find. And no wonder college tuition has gotten so expensive.

Robert Reich’s resurgence in the public spotlight is based on him leveraging the name recognition he already had to turn himself into one of the most vocal critics of president Trump. But if Robert Reich, apart from costing taxpayers $327,465 per year to teach one class per week, wants to make an actual contribution to society, he should be thinking harder about what he’s for, and not just expand his fan base by bashing the new president.

Californian infrastructure development, supposedly a critical focus of Reich’s labor movement, would be a good place to start. But even there, Reich is not being helpful.

Here is Reich’s most recent essay on the topic: “Trump’s Infrastructure Scam,” published on January 23rd. In this piece Reich argues that private sector participation in infrastructure development creates extra costs and drives funds into projects such as toll roads and toll bridges that generate high revenue to investors, but neglects other sorely needed amenities such as water treatment plants. There is some validity to some of the claims Reich is making. But he’s not offering a solution.

For decades California’s infrastructure has been neglected because (1) most public money that might have been spent on infrastructure went instead to government employee pension funds and government payroll departments to pay over-market compensation to unionized public employees, (2) projects had to pass muster with the environmentalist lobby, greatly shrinking the range of possible projects, and (3) to avoid conflict with the labor union lobby, approved projects were always needlessly expensive. Now we’re years behind.

Reservoirs

Build an offstream reservoir? Why work that hard? Bash Trump and be a hero!

California now has congested, inadequate roads that are embarrassingly, destructively pitted, costing billions in damaged cars and trucks and lost productivity. We have inadequate water storage capacity and cannot capture sufficient storm runoff. We are way behind deploying water treatment technologies that would render it impossible to overuse indoor water because 100 percent of it would be recycled. We only have one desalination plant of any scale on the California coast. The list goes on. In every area of infrastructure, we are behind most of the rest of the U.S., and we are behind most of the rest of the developed world.

Before Trump, and ever since Trump’s inauguration, what has Robert Reich been saying about infrastructure?

Nothing. If you look through the Robert Reich archives, you can go back to 2012 and not find even one commentary on the subject of infrastructure. Now he attacks Trump’s infrastructure proposals, seeing only the bad and none of the good, but for years he has been silent on this topic.

Overall, when it comes to Trump, where Reich complains, the rest of California’s establishment – the democratic wing of America’s bipartisan establishment – shrieks with indignation. Why figure out complex water ownership issues so we can finally build the Sites Reservoir, when you can stand in solidarity against Trump and earn headline after headline? Why do the hard work to develop a multi-state pool of pension fund assets that can be poured into arms-length infrastructure investment in water recycling, when you can heroically declare California a “sanctuary state?”

Establishment leaders like Robert Reich have a choice. They can acknowledge that we need more infrastructure here in California and figure out how to structure new initiatives that include federal funding, or they can hide behind the media-friendly politics of race, gender, and “climate” – abetted with crowd-pleasing Trump bashing – and do absolutely nothing.

*   *   *

Ed Ring is the vice president of policy research for the California Policy Center.

Questions for Someone Who Supports Superior Benefits for Government Workers

“Without disputing the figures, Monique Morrissey, an economist with the Economic Policy Institute in Washington, D.C., said the findings are misleading because they do not compare specific classes of employees or account for differences in education levels and total hours worked.”
California Is Golden State For Public Employees, by Michael Carroll, AMI Newswire, Jan. 31, 2017

Ms. Morrissey has a point, even though there was no intent to “mislead.” While our recent study “California’s Public Sector Compensation Trends,” found that full-time public sector workers in California earn pay and benefits that average at least twice as high as their counterparts in the private sector, going into comparisons by specific class of employee was beyond the scope of that particular study. But Ms. Morrissey is missing the forest for the trees.

First of all, as acknowledged in Carroll’s article where Morrissey is quoted, the study found that California’s public employees earn pay and benefits that average 39 percent higher than their public sector counterparts in the rest of the U.S. So especially in California, we conclude there are two classes of workers – public sector workers, whose 2015 pay and benefits averaged $139,691 for full-time work (if you properly fund their pensions), and private sector workers, who, very best case, earned pay and benefits that averaged $62,475.

Everybody knows that public sector workers have, on average, higher levels of education than private sector workers. Should this translate into average (and median, by the way) total earnings that are twice what all private sector workers receive? It challenges credulity.

Ms. Morrissey’s biography states, “She is active in coalition efforts to reform our private retirement system to ensure an adequate, secure,and affordable retirement for all workers.” Bravo. That is a goal we share. And so in the spirit of aligning ourselves with practical, feasible, equitable objectives towards achieving that goal, Ms. Morrissey is invited to answer the following questions:

(1)  Do you think what public sector pensions (ref. CalPERS, the largest) pay to California’s government retirees should be three to five times what Social Security offers private sector retirees?

CalPERS pensions

(2)  The average current retiree pension – not including retirement health benefits – for a state/local government worker with 30 years of service is $67,762 per year (click on any pension system to see average per former employer). There are 10 million Californians over the age of 55, 25 percent of the total population. If all of them received a pension of $67,762 per year, that would cost $677 billion dollars, 32 percent of California’s aggregate personal income of $2.1 trillion. Do you think people who are retired should collect state-funded pensions worth more on average than the earnings of people who work? Do you think this is feasible?

(3) Defenders of unaltered state/local government pension benefits in California argue that pension benefits are primarily paid for via investment returns. But they claim investment returns can average 7.5 percent per year (4.5 percent after adjusting for inflation), “risk free.” Are YOU, Ms. Morrissey, willing to personally guarantee that MY retirement investments will earn this much? Because if you are, I’ll invest every penny I’ve got with you.

(4) Our “apples-to-apples” comparison of California’s new “Secure Choice” pension option for private citizens yielded the following comparisons: (a) Public sector: Teachers/Bureaucrats, 30 years work – pension is 75 percent of final salary. (b) Public sector: Public Safety, 30 years work – pension is 90 percent of final salary. (c) Private sector: “Secure Choice,” 30 years work – pension is 27.6 percent of final salary. Do you think this disparity is fair to private sector workers?

(5) Can you explain why public sector pensions are not subject to the same conservative funding and investing rules as private sector pensions are under ERISA?

(6) Do you support government programs that offer ALL American workers the SAME retirement benefits, subject to the SAME formulas and incentives, or not?

In reference to our recent CPC study, Ms. Morrissey is also on record as saying, “There have been a lot of attacks on public-sector unions because their members have been a stalwart voting block for the Democratic Party, but that doesn’t mean they’re overpaid.” This remark suggests Ms. Morrissey thinks nonpartisan “attacks” on government unions aren’t justifiable and won’t happen. That is incorrect.

Government unions, unlike private sector unions, have the ability to negotiate for financially unsustainable pay and benefits because they control their bosses through campaign contributions, because their bosses are politicians instead of business people, and because these pay and benefit packages are paid for through coercive taxes instead of via allocations of precarious profits.

Government unions have created two tiers of workers in this country. Government workers not only have unaffordable pay and retirement security, but their union leaders have an incentive to support government policies that destabilize and divide this nation, because that will create the need for even more unionized government workers. Government unions, intrinsically, are economically damaging and politically authoritarian.

“Unsustainable” means that sooner or later an end will come. When the money is gone, Morrissey and her gang will have a lot more questions to answer.

Ed Ring is the director of policy research for the California Policy Center.

Government Workers in CA Make TWICE as Much as Private Sector Workers

money bagOn Tuesday, the California Policy Center released a study that provided facts about government compensation. It examined state and local payroll data provided online by the California State Controller and proved that the average pay and benefits for a full-time state/local government employee in 2015 was $121,843.

At the same time, the study found that the average pay and benefits for a full-time private sector worker in California in 2015 was half that much, $62,475.

Moreover, the study found that if the pensions these state/local workers have been promised were being properly funded, their actual pay and benefits in 2015 would have averaged $139,691. And that elevated figure still didn’t take into account the impact of properly pre-funding their supplemental retirement health care, nor did it normalize for their myriad paid days off – typically including 14 paid holidays, 12 “personal days” and 20 or more vacation days as they acquire seniority. And let’s not forget the “9/80” program, common in California government but virtually unheard of in the private sector, where public sector salaried professionals can skip a few lunches and show up a few minutes early or depart a few minutes late each workday, and take 26 additional days a year off with pay because, every two weeks, they worked “nine hour days for nine days, then took the tenth day off.”

If you’re not counting, that adds up to 72 days off per year with pay for a seasoned public sector professional. The study didn’t take that into account.

Similarly, the study had to assume that fully 50 percent of full time private sector workers in California are getting excellent comprehensive health care coverage 100 percent paid for by their employer, a 3 percent employer matching payment to a 401K retirement savings account, along with making employer contributions to Social Security and Medicare (and even that does not occur for the millions of independent contractors working full-time in California). But the study made the 50 percent assumption just to ensure that the average, $62,475 per year, was not understated.

Finally please note that in the public sector, the study found that the differences between “average” and “median” total compensation are negligible, with the median often actually exceeding the average. Not true in the private sector, where the impact of ultra-wealthy individuals truly skews the average well above the median.

So welcome to Feudal California, where crippling taxes and regulations are destroying the middle class, while a burgeoning dependent class pays no taxes, and hence votes for every tax proposal they see. Welcome to Feudal California, where the super rich support policies designed to create asset bubbles that make them richer, and don’t care about taxes because they’re so rich they can pay them.

It’s not enough to merely point out the fact that government workers make twice as much as ordinary workers in California, and that the gap is widening. The problem is that the unions who represent government workers control policy in California, and those policies are the reason that private sector workers can’t get ahead. Every major policy in effect or being contemplated in California is designed to raise the cost-of-living, and while the private sector middle class is crushed, the unionized government workers make twice as much, which is enough to survive.

At the same time, the challenges posed by a high cost-of-living are almost entirely regressive, harming the poor disproportionately. It doesn’t matter to a wealthy person if their gasoline costs $2.50 vs. $4.50 per gallon, or their electricity costs $.04 per KWH vs. $.40 per KWH. It doesn’t matter to them if a home costs $150,000 or $650,000. They’re rich. They can afford it.

So instead of fighting to lower the cost-of-living, California’s wealthy elite makes common cause with government unions, working to create artificial scarcity. This creates asset bubbles that translate into more property tax revenue for governments, more investment returns for the pension funds, and gilds the portfolios of the wealthy. And if anyone objects, they’re “deniers.”

California’s elites – wealthy individuals and their government union allies – have cleverly employed the politics of race, gender, and environmentalism to enthrall millions. California’s citizens, by and large, have become convinced that identity grievances and extreme environmentalism matter more than the fact they are in debt to their eyeballs, living from paycheck to paycheck. In a brilliant inversion of reality, these feudal overlords have actually convinced Californians to attribute the reasons for their poverty on race and gender discrimination, rather than economic policies that have made it nearly impossible for anyone to be upwardly mobile – regardless of their race or gender.

The public sector union leadership that runs California is incorrigible. They have bribed their members, and they have convinced their victims to enthusiastically support a political agenda that itself is the real reason they are victims.

Ed Ring is the vice president of research policy for the California Policy Center.