If Police Unions Were Abolished and Police Associations Were Restored

Police tapeEarlier this month the New York Times ran an editorial entitled “When Police Unions Impede Justice.” They make the point that collective bargaining agreements for police employees often make it very difficult to hold police officers accountable for misconduct. When you have nearly 1 million sworn police officers in the United States, you’re bound to have a few bad apples. According to the NYT, these collective bargaining agreements discourage citizens from lodging misconduct complaints, micromanage investigations, and minimize disciplinary sanctions.

This isn’t news. It’s one of the reasons collective bargaining agreements for police officers are especially problematic. The other big problem with collective bargaining agreements for members of public safety are the often excessive and unaffordable benefit packages they’ve “negotiated” with the politicians whose careers are made or broken by these same unions. So what if police unions were abolished?

One may argue that abolishing police unions in favor of police associations – which could not engage in collective bargaining – would actually benefit all parties. An immediate benefit would be greater accountability for police officers. Why wouldn’t greater individual accountability be supported by the overwhelming majority of police officers who are conscientious, humane, compassionate members of the communities they serve? In turn, why wouldn’t greater police accountability foster rapprochement in neighborhoods where mistrust has developed between citizens and law enforcement?

With respect to pay and benefits for police officers, the risks of abolishing collective bargaining may be overstated. As it is, rates of base pay for police officers are not excessive by market standards. If they were, it would be easier to hire police officers. The primary economic problem with police compensation is retirement benefits, which in California now easily average over $100,000 per year for officers retiring in their 50’s after 25+ years of service. As the unions defend these excessive pensions, younger officers are left with far less generous benefits. The perpetually escalating contributions the pension funds demand – for all public employees – are behind virtually all tax increases being proposed in California. It can’t go on.

So abolishing collective bargaining for police would lead to several benefits (1) more police accountability and improved community relations, (2) minimal impact on base police pay, and (3) quicker resolution of financial challenges facing pensions, which will increase the probability that the defined benefit will be preserved, and will increase the potential retirement benefit available to the incoming generation of new police officers.

Apart from ending collective bargaining agreements, abolishing police unions in no way abolishes the ability of police officers to organize in voluntary associations to pursue common professional and political objectives. Before we had unionized police forces, police associations were very influential in civic affairs and could be again. And there are broader political objectives that may animate these police associations, beyond protecting bad cops and fighting for financially unsustainable retirement benefits. Police and other public safety employees, whether they are part of a union or part of a voluntary association, should think carefully about where the United States is headed. This is especially true in California.

The most dangerous risk of politically active police unions is the fact that whenever government fails, whenever our common culture is undermined, whenever social programs breed more problems than they solve, we need to hire more police officers. And whenever government expands to regulate and manage more aspects of our lives, we need to hire more police officers. Social upheaval and authoritarian government create jobs for police officers. For a police union that wants more members, a failing society and an authoritarian government suits their agenda.

For this reason, police officers have a choice to make. Do they really want to enforce the laws emanating from the climate fascists, the tolerance fascists, the sensitivity fascists, the equality fascists, the multi-cultural fascists – the entire ostensibly anti-fascist fascist gang of elitists who currently control public policy in California? Do they want to deploy drones to monitor whether or not someone got a permit to install a window in their bathroom, or watered their lawn on the wrong day? Do they want to fine or arrest people who aren’t willing to adhere to speech codes, or who refuse to hire less qualified employees in order to fulfill race and gender quotas? Do they want to police a society that has fragmented irretrievably because we continued to import millions of unskilled, destitute individuals from hostile cultures, than indoctrinated their children in union-ran public schools to falsely believe they live in a racist, sexist society?

It’s a tough choice. Will politically active police organizations redirect some of their resources to support policies that might actually reduce the number of police we need? Abolishing collective bargaining may make the right choice easier, because police will then be less immune to the economic and social havoc the elitists are currently imposing on the rest of us.

Ed Ring is the president of the California Policy Center.

How Government Unions are Hypocrites that Betray the Public

UnionGovernment unions are not unions in any traditional sense of the word. They elect the bosses they “negotiate” with. They are paid through compulsory taxes rather than via a company that has to earn a profit in the competitive market. And they operate the machinery of government which allows them extraordinary latitude to intimidate any business interests who may challenge their agenda.

Among the informed, these assertions are beyond serious debate. Even supporters of government unions acknowledge them – just not on the record. But to inform the public, it is probably too abstract to question the legitimacy of government unions because they “elect their own bosses,” “use taxpayers money instead of earned profits” or “control the bureaucracy.” Perhaps instead it is better to explain how union control of government harms people in their everyday lives.

To that end, here is a partial list of how the actions of government unions contradict their rhetoric, and betray the public they are supposed to serve:

(1) Demonizing “Profits.” From the classroom teacher to the professionally prepared press release, the rhetoric of government unions promotes the idea that “corporate profits” are unjust. The academic focus from primary school through public universities is invariably swayed, thanks to government unions, to challenge the capitalist system. Yet without profits there are no tax revenues. Governments survive financially because corporations make profits. Government unions support legislation that has made California the toughest state in the U.S. to do business. The impact: Brainwashed youth, and fewer successful companies offering fewer good jobs.

(2)  Demonizing “Millionaires and Billionaires.” Government union rhetoric frequently resorts to accusing anyone who wants to expose their destructive hypocrisy as funded by “millionaires and billionaires,” as if that should automatically nullify their arguments. These unions have carefully nurtured a public hostility and resentment towards individual wealth. The problem, however, is that almost anyone who retires after a full career in public service is a millionaire – often many times over. The average full career pension for California’s state and local government workers is over $70,000 per year. The ordinary private sector worker would have to save at least $1.5 million to generate a $70,000 annuity for the rest of their life – with no guarantees. The impact: Higher taxes and reduced services to support government worker pensions that make them all millionaires, leaving the rest of us behind to pay for it.

(3) Defending “Working Families.” That is one of the mantras of the government unions. Fighting for the “working families.” But how does this work in reality? California is one of the hardest states to practice a profession or trade. Certifications and licenses require prohibitive amounts of time and money, excluding the most deserving, aspiring citizens. Workman’s Compensation insurance rates are among the highest in the U.S., making it much harder for small companies to compete and grow their businesses. Crippling regulations. Absurdly time consuming and expensive permitting processes. The impact: Reduced upward mobility, far less opportunities for low income entrepreneurs.

(4) Always “For the Children.” The level of hypocrisy here almost defies description. Government unions have imposed their agenda on education, turning public schools into propaganda mills, indoctrinating students to believe their success or failure in life is primarily determined by whether or not they have “privilege,” and whether or not the state provides sufficient benefits, instead of teaching them the skills they will need to succeed in life on their own. Government unions have defeated any meaningful attempts to hold teachers accountable, or allow principals and superintendents to effectively manage. What they have done to California’s rising generation of students can be accurately characterized as child abuse. The impact: A generation of Californians who are unprepared to assume the responsibilities of adulthood.

(5) Respect for “Contracts.” The selective moral outrage mustered by government unions when it comes to “contracts” is exemplified by their response to pension reformers who want to lower the pension benefit formulas – just for work to be performed in the future. Because back in 1999, these same unions lobbied successfully to raise pension benefit formulas not just from then on, but back to the day each active government worker began their career. According to the same body of California contract law, they claim these retroactive benefit increases were justified, yet they fight – and win – in court whenever anyone tries to decrease these same benefits only from now on. The impact: Taxpayers are condemned to bail out these financially unsustainable pensions.

(6)  Fighting “Big Money in Politics.” The problem with this ersatz fight by government unions is simple: In state and local elections in California, nobody spends as much money as government unions. Just government unions, just in California, collect and spend over $1.0 billion per year in dues. About one-third of that, nearly $700 million every election cycle, is spend explicitly on politics and lobbying. An equal share probably goes to public education campaigns designed to promote the government union agenda. There is no special interest anywhere with the means, much less the desire, to challenge these unions. They are active in every political contest, no matter how small or how big, with access to as much cash as they need. The impact: Unions are the “big money in politics,” and their interests trump the public interest.

(7) Fighting “Big Business.” By now it should be clear enough – “big business” has no interest in challenging government unions. They collude instead, in a partnership where the government unions – who control legislation that will either favor or thwart business interests – are the dominant partner. And why shouldn’t big business partner with government unions? When oppressive regulations drive innovative competitors out of business, the monopolistic established corporations have the financial resources to comply. Why not let excessive government regulations destroy the competition? The impact: Less innovation, fewer new jobs, higher prices to consumers.

(8) Fighting “Wall Street.” This is the most ridiculous claim of all by government unions. Because when government unions successfully negotiate pay, benefit and hiring decisions that cause government deficits, Wall Street firms make billions underwriting new bond issues. And when government unions negotiate pension benefit enhancements, the union controlled pension funds invest even more money with Wall Street firms including hedge funds and private equity funds. Government is Wall Street’s biggest customer. The Wall Street influenced policies that have destroyed the ability of ordinary Americans to save for retirement or buy an affordable home have been a boon to the super rich and the pension funds. The impact: The government union alliance with Wall Street is a major factor in the hollowing out of America’s middle class.

The fact that most Californians still don’t understand the difference between government unions and private sector unions should come as no surprise. Government unions have spent literally billions of dollars over the past decades, hiring the best professional public relations talent in the world, to convince Californians they are on their side. But they’re not. Quite the contrary. Their hypocrisy is only matched by their corrosive impact on our economy, our freedom, and our democracy.

*   *   *

Ed Ring is the president of the California Policy Center.

Government Unions Benefit from the Asset Bubble that Harms Workers

Earlier this month the California Policy Center released a study that provided additional evidence that the U.S. stock indexes are overvalued by approximately 50 percent, along with calculations showing the impact of a major downward correction on the solvency of California’s state and local government pension systems. Stocks are now at unsustainable bubble valuations.

Not covered in this study, but equally overvalued, are bonds, which pension systems misleadingly categorize as “fixed income” investments in their portfolio disclosures. CalPERS even went so far as to trumpet their success in earning a 9.29 percent return on “fixed income” investments in their most recent press release – a healthy return that offset losses elsewhere and allowed them to earn a marginally positive return of 0.61 percent last year. But “fixed income” investments usually refers to bonds, and bonds are also at unsustainable bubble valuations.

Here’s why bonds are overvalued today: Whenever new bonds are issued at lower fixed rates of interest than the bonds that were issued before them, then those older bonds that pay higher fixed rates of interest can be sold for more money than their original price. This is because on an open market, buyers will price a resold bond at a value calculated to equalize returns. When rates go down for new bonds, the prices for existing bonds go up. The problem is that back in the 1980s, bonds were being issued at rates as high as 16 percent, and today, they’re being issued at rates close to zero. After a 30 year ride, interest rate drops can no longer be used to elevate the value of bond portfolios.

At a macroeconomic level, every possible investment in the world is overvalued today, because central banks have lowered interest rates to zero in a desperate attempt to continue a decades long disease in which they have spent more than they’ve collected. Governments got to borrow money for next to nothing, and assets kept appreciating. But the binge is almost over, and unlike the savvy super-rich, pension funds can’t just take their winnings off the table.

New Bond Issues, Rates by Nation – June 2016 (red = negative)

Bond issue rates
Negative coupon bonds, a desperate experiment that isn’t going to end well.

This is all tedious drivel, however, if you are a unionized public employee in California. Your retirement security is guaranteed by “contract.” It’s the result of deals cut between union “negotiators” and the politicians they make or break. As a government employee in California, if you’ve worked 30 years, the average annual retirement benefit you can expect if you retire this year is worth over $70,000. To honor that expectation, CalPERS is already mid-way through their latest reassessment, a 50 percent increase to their collections from participating agencies. And if there is a 50 percent market correction (“fixed income” and equity), expect them to double or even triple their collections from taxpayers.

If you are a private citizen trying to prepare for retirement today after, say, 45 years of work and saving, good luck. Because there is no safe investment left in the world. And while you are likely to have to cope with, for example, suspended dividend payments on stocks that are down 50 percent, expect your taxes to go up in every imaginable category – sales, property, income, and hidden taxes embedded in your utility bills and phone bills. It will be “for the children” and “for public safety.” And if there’s a vote required to increase the tax, it will usually pass, because most voters don’t pay property tax, or income tax, or if they do, the taxes are indirectly assessed and invisible to them.

This is the oppressive hoax that government unions have perpetrated on the working families they claim they want to protect. They have exempted their own members, government workers, from the consequences of a corrupt financial system where they are leading partners. When governments spend more than they make and have to borrow money, central banks lower interest rates to make it easier to work the payments into the budget. At the same time, lower interest rates goose the value of stocks and bonds, helping the pension funds claim they can earn 7.5 percent per year. And when the house of cards collapses, taxpayers bail out the banks and the government pension funds.

The next time a spokesperson for a government union speaks disparagingly about Wall Street corruption, remember this: They are partners with Wall Street. They support overspending for their own compensation and benefits, creating deficits that have to be covered by taxes and borrowing. Their pension funds demand high returns, and the bankers comply, with rates that encourage borrowing and deny ordinary people the ability to save. Now that interest rates have hit zero and are even going negative in an exercise of monetary chicanery that has no rival in history, the end is near.

Public sector union leaders need to start remembering they represent public servants, not public overlords who are exempt from the reality that you can only spend as much as you earn. As it is, these union leaders are the overpaid mercenaries of capitalism at its most corrupt.

*   *   *

Ed Ring is the president of the California Policy Center.

Californians Overwhelmingly Support New Local Bonds and Taxes

Two weeks ago, using information supplied by the California Taxpayers Association, we called attention to “$6.2 Billion in New Borrowing on June 7th Primary Ballot.” As noted, “Next week voters will be asked to approve 46 local bond measures totaling $6.18 billion in new debt, along with 52 local tax proposals. If history is any indication, more than 80 percent of them will pass.”

So how did they do?

The following table shows the results so far. With bonds, the trend is clear – they nearly all still pass. That’s partly because school bonds only require a 55 percent majority to pass, whereas with most tax increases, passage still requires a two-thirds vote. And while the rate of passage is lower for tax increases, the latest election shows two out of three passing.

Local Tax and Bond Ballot Propositions – June 7th 2016
Status of passage as of June 14th, 2016

Local Tax and Bond Ballot Propositions

The data after one week, as shown, indicates that if the “too close to call” decisions end up splitting at the same ratios as the already decided propositions, 66 percent of the tax proposals will pass, and a whopping 93 percent of the bond proposals will pass.

Why?

To answer this question, here are some comments from Jon Coupal, head of one of the largest and most effective taxpayer organizations in the U.S., and asked him. He listed a few key reasons:

(1) The true tax impact is not evident from the ballot label.

(2) There is a lot of voter of misunderstanding about how much money we already spend on education. Very few Californians realize we spend, at a minimum, 40 percent of our general fund budget on education.

(3) Local taxpayers don’t have nearly the resources or the sophistication to run big campaigns against the teachers unions and the construction industry.

(4) Many times, these proposals are placed on the ballot in a way to ensure there is no opposition argument – for example, they are added when there are only 72 hours left to get an opposing argument submitted. Procedural rules are manipulated to suppress opposition.

When asked how this could change, Coupal did not seem optimistic, but had a few suggestions. He noted that his organization and other reform groups are supporting bills to require greater transparency on taxes and bonds. In particular, he stressed the need for more public disclosure of the financial impact. Coupal also mentioned the need for more public education, stating that “voters don’t understand that when people say it’s for the kids, it’s actually for the unions.

With what data is available, it’s interesting to review some of the tax proposals that did not pass. The following table shows the proposed tax increases that voters turned down on June 7th:

Failed Local Propositions to Increase Taxes – June 7th 2016

Failed Local Propositions to Increase Taxes

Without dissecting the specific campaign dynamics, voter demographics, and other particular conditions in each case, there isn’t a clear indication why some local tax proposals failed, while two-thirds of them passed. One of the most expensive of all proposed parcel taxes, failed Measure C-16 in San Luis Obispo County’s Cayucos Fire Protection District, would have increased the annual assessment per house for fire protection services from $100 to $500. On the other hand, thrifty voters in Siskiyou County rejected a parcel tax that would have only cost each household $5 per year.

Similarly, when it comes to failed proposals to increase sales taxes, there is no common theme in the data. The failed proposals ranged from an increase of an eighth of one percent to a full percent, which mirrored the range of the measures that passed. The explanations were various, including public safety, general services, road and transit upgrades, and library services. Interestingly, two of the failed tax increases, in Napa and Solano counties, only required a majority vote.

Ultimately, despite California’s sporadically rebellious populace when it comes to new state taxes – state Propositions 1A through 1E on the state ballot in 2009 were all rejected by voters – their track record on local taxes and bonds remains consistently pro-tax. Voters need to realize that local tax increases do not begin to cover already scheduled increases to pension fund contributions, to fund pension benefits that are – even for non public safety – two to three times more generous than Social Security. Voters need to realize that school bond measures are usually to fund work that used to be paid for out of operating budgets, before the pension and compensation commitments got out of control.

And behind these hidden agendas impelling new tax increases, behind every broken budget and faltering service, voters need to understand that government unions are the cause.

*   *   *

Ed Ring is the president of the California Policy Center.

Practical Reforms to “Right-Size” Government Unions

Rolling back the power of government unions in a state like California is almost impossible. Their power has been unchallenged for so long that they now virtually control the state Legislature, and their grip on local politicians extends to nearly every city, county, school district and special district.

Unions2But there have been reforms in some places, and they can serve as examples for municipalities throughout the state. Several Orange County cities have tried transparency ordinances of variable effectiveness. San Jose has restricted the use of binding arbitration. Voters in San Jose and San Diego have both passed pension reform measures. Cities scattered throughout California have grappled with unions over project labor agreements and prevailing wage laws. And in the courts, reformers have won the first round in the Vergara case, which challenges union work rules governing teacher dismissals, layoff preferences and tenure requirements.

Against the remorseless advance of the government union agenda, these and other measures are decidedly incremental. They are often overwhelmed by deceptive union measures that carry the reform label but are actually reactionary shams, designed to turn back the clock. Or they are challenged in court by an avalanche of suits and counter-suits designed to eviscerate reforms that voters overwhelmingly supported.

The game is rigged, but the nonpartisan hunger for quality public education and civic financial health is universal. Sooner or later, the will of the people will always prevail. Here then is a partial list of public sector union reforms that have been tried, or should be tried, in every city and county in California:

(1)  “Right-to-Work” for all government workers:

This would forbid government unions from getting a government employee fired simply because they didn’t want to join a union. Right-to-work is especially compelling in government organizations, where altruistic individuals who want to become public servants may not wish to financially support the political agenda of their union. Because government unions negotiate over work rules that determine how we manage our public institutions, virtually all union activity is inherently political. Right-to-work in government organizations therefore not only forces unions to be more accountable to their members, but is based on an employee’s constitutional right to free speech.

(2)  “Worker’s Choice” for all government workers:

This law takes right-to-work a step further, and should be implemented in tandem with right-to-work. One objection that unions make to right-to-work laws is that it allows those workers who did not join the union to become “free riders” who enjoy the alleged benefits of union representation but don’t pay any dues. “Worker’s Choice” allows workers under a collective bargaining agreement to opt-out and represent themselves individually in their wage and benefit negotiations with their employer. Something that professionals throughout the private sector do as a matter of course.

(3)  Union Recertification:

This would require government unions to regularly hold a “recertification” election, preferably once every year. The election would require secret ballots and participation by a quorum (usually a majority) of employees in the collective bargaining unit. Most government employees in California started working long after the unions took over. They should be able to decide if they want a union to continue to represent them. Recertification, like right-to-work and worker’s choice, is a practice that would ensure greater accountability by unions, because if they lose the annual election, they would be decertified and could not represent those workers until regaining their approval in an election to be held at least a year later.

(4)  Reduced Scope of Collective Bargaining:

This reform is recommended in order to provide elected officials the latitude to equitably balance the interests of taxpayers and government workers. It gives them the latitude to cope effectively with budget deficits caused by economic downturns that have already affected private sector workers. Limiting negotiations on compensation to current benefits, for example, would mean that elected officials retain the authority to modify pension benefit formulas. Not only budget issues but work rule issues could be restricted under this reform. For example, “last-in-first-out” layoff rules which favor seniority over merit could be scrapped.

(5)  Pension Reform:

The most likely way to implement effective pension reform – which, ironically, is the only way to rescue the defined benefit plan for government workers – is to revise the California constitution via a state ballot initiative. Such a reform, at the least, would give elected officials or voters the right to reduce pension benefit accruals earned by active employees for future work. It would require active employees to pay 50% of their normal contribution, calculated at a rate of return permissable under ERISA statutes, i.e., a truly “risk-free” rate of return. It would impose stricter curbs on spiking and double dipping that would be harder to circumvent in court. And it would provide tools to be implemented to ensure system solvency in a financial state of emergency, such as suspension of COLAs for retirees (retroactively if necessary), retroactive reduction in pension benefit annual accruals for active workers, raising of the pension-eligible retirement age, and a ceiling on benefits.

(6)  “Paycheck Protection”:

This would require unions to obtain permission, preferably annually, before deducting the political portion of their dues from worker paychecks. California’s government workers currently assert their right to not pay the political portion of their dues – notwithstanding the argument that ALL dues paid to a government union are used for essentially political purposes – via a cumbersome “opt-out” process. This reform would change that to an annual “opt-in” process, making it much easier for government workers to avoid having to support the political agenda of their unions.

(7)  “Dues Checkoff”:

Under this reform, government payroll departments would no longer be required (or allowed) to withhold union dues from government employee paychecks and turn that money automatically over to the union. Instead unions would be required to bill and collect dues without relying on payroll withholding, just like other membership organizations. This is particularly justified in the case of government unions, under the assumption that the government should not be acting as a collection agent for a private organization.

(8)  Clarification of “Public Employee”:

This is an interesting reform that can be interpreted in two ways. On one hand, by broadening the description to include government contractors, then in conjunction with other reforms, appropriate regulations restricting inappropriate union activity can be extended, for example, not only to home health care workers, but to construction contractors whose unions negotiate for project labor agreements and prevailing wage agreements. On the other hand, narrowing the description of what constitutes a public employee can counter the aggressive expansion of government unions in states such as California where there are virtually no checks on government union power. Either way, the principle governing the application of this reform would be that unions that operate in the public sector should be subject to more restrictions than those unions that operate in the private sector.

(9)  Transparency in Negotiations:

Lost on most voters is the fact that government unions epitomize the so-called abuses of the elite establishment. Powerful corporate and financial interests make deals with government unions in an Alliance of The Big. More regulations drive out innovative commercial competition at the same time as they expand unionized government. Transparency in negotiations, obviously, means that unions have to disclose their wage and benefit demands for public review. But it means much more than that. Disclosure of their financial and operating reports, their membership dues, their internal leadership election processes. And more than anything, a spotlight on how government unions collude with the most powerful and corrupt among the private sector elites they claim they are protecting us from.

(10)  Ban on Political Activity:

Public employee unions, if they should exist at all, should not be permitted to use their resources to conduct any sort of political lobbying or campaigning. There is an inherent conflict between the agenda of unionized government and the public interest. Government unions, by definition, want to increase their membership and want to increase the pay and benefits of their membership. That causes more government to trump good government. It causes more spending to trump efficient spending. At its root, it means that failure of government programs constitutes success for government unions, because their solution is inevitably to call for more government spending. Political activity by government union should be illegal.

Perhaps the most important point to be made in the context of these ten recommendations is that they are utterly nonpartisan. Unions in the public sector bear little relation to unions in the private sector, for reasons that are well documented: They don’t operate in agencies that have to make a profit, which limits how much private sector unions can ask for from their employers. They elect their own bosses through massive campaign spending, something unheard of in the private sector unions whose management is determined by shareholders. And they run the government, which allows them to make common cause with the most powerful and corrupt among the private sector elites. What part of this is partisan?

Californians of all political persuasions are going to eventually have to face the reality that government unions are the reason our schools are failing students and parents, and the reason we can’t balance our budgets and control our debt. These reforms are all ways to begin to reduce the power of government unions, which will be a giant step towards making California’s state and local governments truly accountable to the interests of all workers – not just government workers.

*   *   *

Ed Ring is the president of the California Policy Center.

Tough Education Reform, not More Borrowing and Spending, is What Students Need

School bond studyLast week the California Policy Center published a major new study that compiled, in exhaustive detail, both the amount that Californians have borrowed to finance public school construction and upgrades, as well as documented the abuses that have diminished the return on these substantial investments. Californians simply don’t realize how much borrowing is going on.

In 2001, voters passed Prop. 39, which lowered the threshold for passage of a school bond from 66 percent to 55 percent. Prior to the passage of Prop. 39, only 42 percent of school bond proposals would pass – since then, 88 percent of them pass. The scale of this borrowing is amazing: Since 2001, Californians have approved 911 local school bond measures totaling $110.4 billion. In addition to local bonds, voters approved three state measures which added another $38.8 billion.

If the proceeds of these bonds were being spent efficiently, on worthy projects, under repayment terms that were fair and appropriate, there would not be an issue. But they’re not. Thanks to costly project labor agreements, environmentalist lawsuits, and a shocking lack of public oversight, school construction projects – along with all public infrastructure projects – cost far more than they should.

When considering what projects might be considered worthy, at whatever cost, one of the biggest reasons cited for local bond proposals is to fund “deferred maintenance.” For examples of this, view the summary of the 2014 Local Elections provided by CalTax (scroll down to “Bond, School”), and read the “description” column. “Upgrade and repair,” “modernize and upgrade,” “fix leaky roofs,” “make safety repairs,” “repair outdated heating and ventilation systems,” etc., etc. But why can’t maintenance work come out of existing budgets? For that matter, why wasn’t the work done using funds from earlier rounds of local school bond proceeds, instead of deferred?

This is not a rhetorical question. California’s K-12 student population has been stable for nearly 20 years. At 6.2 million students, it has actually declined slightly. Meanwhile, over the past 14 years, $146 billion has been borrowed and spent to maintain and improve schools for these 6.2 million students.

That’s $10.4 billion in construction spending every year, which based on 30 students per classroom, equates to approximately $50,000 per classroom, per year. Could you maintain one classroom and that classroom’s share of common facilities if you had $50,000 to spend, year after year?

How much is enough? Since 2001, construction bond proceeds have poured $700,000 into every K-12 classroom in California. Why do the roofs still leak?

When it comes to the terms of this debt, the story gets even worse, because these bonds are complex financial instruments with ample room for “gotchas” that harm taxpayers. One of the worst examples of this are so-called “capital appreciation bonds,” which don’t require any payments for 10-20 years, then demand massive sums of principal and interest payments, long after the original promoters have retired, and often after the improvements and upgrades have worn out again.

It is relevant to discuss California’s $146 billion in school bond debt in the context of all California’s state and local debt. A few years ago the California Policy Center attempted tabulate it, including unfunded liabilities for pensions and retirement health care for state and local government employees. Those findings, using a 5.5 percent discount rate to estimate pension liabilities, and using our updated amount for school bonds, come in at $976 billion. That’s $76,250 of debt per household. Just interest payments on this debt, at 5 percent per year, come out to $3,812 per household per year.

The topic of school bond debt is vast and complicated, which is one reason why there is rarely meaningful public debate. The California Policy Center’s complete study on California’s school bond debt, including appendices, came in at 361 pages (view PDF), and took a team of researchers lead by policy analyst Kevin Dayton nearly a year to write. Here are key recommendations from that report:

  • Provide adequate and effective oversight and accountability for bond measures.
  • Enable voters to make a reasonably informed decision on bond measures.
  • Eliminate or mitigate conflicts of interest in contracting related to bond measures.
  • Reduce inappropriate, excessive or unnecessary spending of bond proceeds.
  • Improve understanding of bond measures through public education campaigns.

And here are a few additional recommendations:

  • Make construction bond proposals contingent on enforcing the Vergara ruling – making it possible to fire bad teachers, changing layoff and retention criteria from seniority to merit, and extending the time period required to acquire tenure.
  • Hold teachers accountable for the academic progress of their students, and prohibit construction bond proposals for any school districts in violation of the state’s teacher evaluation law, the Stull Act.
  • Reduce the number of administrators and support staff, increasing the proportion of public education employees who actually teach in classrooms. This will result in a proportionate reduction in support facilities, at the same time as it frees up budgeted funds to be used to perform deferred maintenance.

The reason Californians have borrowed $146 billion in recent years for school construction is because Californians believe there is nothing more important than educating children. That’s a noble sentiment. It’s why Prop. 39 passed back in 2001, carving out an exception to California’s two-thirds vote requirement for new taxes. And while the process of approving and spending all this money has been riddled with corruption and excess, it would be inaccurate to say all of this money was wasted. But all the money in the world will not improve California’s educational system, if great teachers and principals aren’t given the latitude and incentives to inspire their pupils, and if poor teachers and administrators are not terminated.

Californians should reform their system of K-12 education before borrowing another dime for construction. The return-of-investment is simply far better.

*   *   *

Ed Ring is the executive director of the California Policy Center.

How Much Do Los Angeles Police Officers Make?

There’s a deep seated frustration and anger among the rank and file due to their low pay.
Det. Tyler Izen – President, Los Angeles Police Protective League, July 28, 2014, KTLA Channel 5

Low pay, of course, is relative. It’s very difficult to objectively determine what a police officer should be paid. There aren’t jobs in the private sector that are easily compared to police work. As a result, police officers typically compare how much they are making in their city to how much other cities are paying their police officers. The problem is no city wants to pay the lowest rates, which creates endless rounds of wage and benefit increases. But a city as big as Los Angeles doesn’t have the option of matching what a much wealthier, much smaller city may pay. Too many billions are involved.

Despite the difficulty in determining what may be a fair rate of pay and benefits for police officers, this very sensitive debate has to be waged. Because without debate, there can be no limit – how do you put a price on safety and security? How do you put a price on enduring the stress and the dangers that come with police work? You can’t. In that context, a fair wage will always be far more than any public institution can possibly afford.440px-LAPD_officers

Calculating Average Total Compensation for LAPD Officers

So how much do Los Angeles police officers make? This information is not easily found. Every year California’s cities are required to report to the state controller the individual pay and benefits for all of their employees. The most recent 2012 raw data for cities can be downloaded here. The information can be sorted by city, then by department. Within police departments, by sorting records by the reported pension benefit formulas, sworn officers can be differentiated from administrative police personnel. There is even sufficient data to eliminate records for officers who have not worked the full 12 months in the year being analyzed. Using all of these techniques, we were able to determine that the average LAPD pay and benefits during 2012 for full time sworn officers was $110,285. But the state controller’s numbers are grossly understated because they don’t include how much the city of Los Angeles paid for retiree health benefits or retiree pensions. This adds a significant amount to their actual total pay. Funding these benefits are part of any employee’s total compensation package.

How can that information be obtained for Los Angeles police?

If you review the Actuarial Valuation and Review Of Retirement and Other Postemployment Benefits as of June 30, 2013, performed by Segal Consulting Group for the city of Los Angeles Fire and Police Protection Plan, there is some pretty good information available. Exhibit B in the beginning of the document shows the retirement fund contribution rates as a percent of eligible payroll. The pension contribution last year was 37.82 percent of base pay, and the retirement health care contribution was 11.69 percent of base pay. An expert at the LAFPP office confirmed that these percentages exclusively represent the employer contribution and do not include amounts withheld from employee paychecks which are also contributed to their retirement funds. Therefore, the total of those percentages, 49.51 percent, can be applied to to the average LAPD base salary of $94,660 and apportioned per employee to accurately represent, on average, how much they are making in retirement benefits. As it is, that equates to $59,491 per year – meaning that the average total compensation for LAPD officers is actually $157,151.

LAPD Retirement Payments Affected by Investment Returns

It doesn’t end there, however. If the LAPD retirement systems fail to achieve forecast investment results, the amounts currently being paid by the employer – already nearly 50 percent of base pay – will have to increase. According to the Segal Report (Exhibit III, page 59), as of June 30, 2013 there were assets of $14.6 billion set aside for retirement pension liabilities estimated – using a discount rate of 7.75 percent – to have a present value of $17.6 billion, leaving a $2.6 billion unfunded liability. How confident can the LAFPP be that they will be able to grow a $14.6 billion fund at a rate of 7.75 percent per year? Using formulas provided for this purpose by Moody’s Investor Services, if you lower that annual projected earnings rate just a little, to a still very healthy 7.0 percent, the unfunded liability grows to $4.65 billion; at projected annual earnings of 6.2 percent, which represents the historical earnings rate of U.S. equities (including dividend reinvestment), the unfunded liability grows to $6.62 billion. And at the less risky 5.0 percent annual earnings rate of top grade corporate bonds, that liability grows to $10.1 billion.

In plain English – the unfunded liability for the LAPD pension fund could quadruple if the fund earns 5 percent per year instead of 7.75 percent. Just dropping the rate of earnings to 6.2 percent nearly triples the unfunded liability.

And it gets worse. The pension plan – officially analyzed at what some of us would consider to be a ridiculously optimistic annual 7.75 percent rate of return assumption, has a “funded ratio” of 83.2 percent. That should still alarm us, actually, because only 100 percent qualifies as fully funded, but 83.2 percent is a better ratio than most public employee pension funds out there. The other fund managed by LAFPP, however, for retirement health care, is only 38.5 percent funded (Segal Report, Valuation Results, Health Plan, page 4), although it is a much smaller fund – it’s officially recognized unfunded liability is “only” $1.6 billion.

There may be a lot of deep financial concepts and arguments in play here, but unfortunately, it’s not mere gibberish. There are real world consequences and tough decisions signified by these numbers. The city of Los Angeles is going to have to put more into these retirement funds then they already are, or they are going to have to cut benefits.

What Criteria: Comparable Pay, Affordable Pay, or Appropriate Pay?

If you look around Southern California it isn’t hard to find cities who pay their police officers more than LAPD. The California Policy Center compiled 2011 and 2012 data for a few cities in Orange County and here are some of the numbers they found for average annual total compensation for their police: Irvine, $168,336; Anaheim, $170.866; Costa Mesa, $181,709. One may reliably surmise that immediate neighbors such as the city of Beverly Hills also pay their police more than Los Angeles – and herein lies an irony that will justifiably grate on any officer of a large city like Los Angeles: The wealthy cities have less crime, but can afford to pay more to their police. But are the LAPD receiving low pay, or are the police in these other cities overpaid?

Moreover, there is a converse to this point – small cities cannot possibly absorb and employee thousands of police leaving because they want to earn more money.

Which returns us to the difficult question – is an average pay package of $157,151 really “low pay”? Beyond what rate of pay may be comparable or affordable, what is appropriate? Bear in mind the average LAPD overtime earned per officer, as reported in the 2012 data, was $1,691, which means that most LAPD officers are working the 4-10 or 3-12 shifts and not much more. According to an official summary of LAPD benefits, they also get 13 holidays, and three weeks vacation as rookies, which increases to 4.6 weeks after 10 years. And for all those contributions to their retirement benefits, after 30 years work the average LAPD officer can expect to retire with a pension and health insurance package worth between $90K and $100K per year (ref. Evaluating Public Safety Pensions in California, CPC, April 2014).

One of the most significant reasons the city of Los Angeles faces financial challenges is because personnel costs – for all departments – increased year after year, thanks to the power of collective bargaining. But was this appropriate? During the lean years after the internet bubble popped, and again after the real estate bubble popped, people in the private sector felt lucky to have jobs. Meanwhile, in the public sector, year after year, annual cost-of-living adjustments kept being awarded. And even in cases where, finally, cost of living increases were suspended due to financial constraints, “step increases” and “longevity pay” and other annual pay hikes continued per labor agreements. Worse still, the pension funds and retirement health care funds, which appeared to be flush during the bubble years, have now revealed themselves to be in serious trouble. When comparing their pay to what other cities pay, LAPD officers, and all public employees, ought to also compare their rates of pay to what private citizens have experienced. Making $157,151 per year is a LOT of money in virtually any profession in America, including police work if you venture outside of California, New York and a few other places where, arguably, public employee unions have taken over their local governments.

When confronting the continuous risk and inevitable tragedies that befall police officers, no amount of money will ever be enough. But the Los Angeles Police Protective League, and other public and private unions, should consider the deeper cause of middle class struggle, which is the artificially high cost of living in California. Despite well crafted arguments to the contrary, there is plenty of land and almost limitless conventional energy in California. And if the alfalfa farmers in the Mojave Desert were permitted to sell their water allotments to the LADWP, there wouldn’t be a residential water shortage even in this tough year. Taxes in California are among the highest in the nation, and taxes are driven primarily by public sector personnel costs, along with the costs for an unreformed welfare system that gives California the dubious distinction of having 12 percent of the nation’s population but 30 percent of its welfare recipients. Failed immigration policies further strain the system. Public employees could afford to make less, a lot less, and live better, if these needless hindrances to California’s prosperity were corrected.

Along with protecting one of the greatest cities in the world, and hopefully participating constructively in a tough debate over whether or not their compensation is appropriate and affordable – L.A.’s finest should consider the deeper roots of the economic hardships we share together, and how to engage on those fronts for the good of everyone.

Ed Ring is the executive director of the California Policy Center.