CalPERS, Corruption And Cronyism

The California Public Employees’ Retirement System, which has a history of making poor choices, plans to become a lending institution. A healthy pension fund wouldn’t be making such a risky decision. 

Still hurting from $100 billion in losses from the Great Recession, CalPERS was bruised again by the coronavirus pandemic. Now, funded at only 71%, it’s scrambling to recover. 

“We need every arrow in the quiver we can get, and private debt is one of the critical ones,” explains Dan Bienvenue, CalPERS’ deputy chief investment officer. “There isn’t a no-risk choice.” 

The plan, approved last month by the board, allows “CalPERS to put up to 5% of its total value into ‘opportunistic’ investments, which includes private debt. That works out to about $20 billion,” CalMatters reports. The Financial Times says leverage could reach “as high as 20% of the value of the fund, or nearly $80 billion based on current assets.” 

State Treasurer Fiona Ma, also an ex-officio member of the pension fund’s board, believes that “allocating more of CalPERS’ nearly $400 billion portfolio into private equity and private debt, thereby investing in ‘better assets,’ is a reasonable” plan. 

“This approach is specifically designed to overcome the challenges of low interest rates, high asset valuations and low economic growth that are pervasive in the investment markets today,” Ma wrote in Pensions & Investments

Only a single board member dissented. Margaret Brown said she didn’t “agree with leveraging the fund up to $80 billion.”

“It is way too risky,” she told the Financial Times

“It reminds me what CalPERS did back in 2008 when we used leverage and lost close to $100 billion,” Brown said.

“Red flags about the growing riskiness of CalPERS’ portfolio” were visible but nonetheless ignored, even as the fund was making “ever riskier bets,” and struggling with risk management, Reuters reported in 2009.

According to David Crane, a longtime and level-headed CalPERS critic, the assumed return of 7% from the direct loans will not close the gap – the “unfunded liability” – between the assets managed by CalPERS and the “pension liabilities owed by the employers for whom CalPERS administers pension obligations.”

“In fact,” the Stanford lecturer and president of Govern For California notes in Medium post, “CalPERS has to earn much more than 7% for the unfunded liability not to grow.”

CalPERS management has to know this. And in fact does. Chief Investment Officer Ben Meng has acknowledged that the 7% threshold is not enough. That being the case, the pension fund will have little choice but to make riskier, and therefore more volatile, loans. While doing so will increase the fund’s potential to meet its return targets, it also sets it up for a “greater chance of catastrophe,” says Don Boyd, a researcher at the Rockefeller College for Public Affairs and Policy at the University of Albany.

Taking injudicious risk is by no means a break with the past for CalPERS. It has a history of making lousy choices. Along with CalSTRS, the California State Teachers’ Retirement System, CalPERS has adopted an investment strategy based not on returns but politics, and when that is a greater concern than fiduciary duty, the outcome is usually substandard. Investments made in companies judged by the left to be “responsible” or “woke” simply cannot match the returns that a broad-based index fund produces.

Last year, an American Council for Capital Formation paper reported that CalPERS prioritized politically driven investments at the expense of returns. Particularly egregious were the investments made in green energy ventures. Even as Suntech, a Chinese solar panel maker in China, was going through a Chapter 15 bankruptcy in the U.S., CalPERS increased its position in the company by 40.4%. It also sunk retirement dollars into other “clean energy” losers simply because the companies’ operations were consistent with a political agenda. 

CalPERS has a history, as well, of steering “billions of dollars into politically connected firms,” City Journal’s Steven Malanga wrote some years ago. Will it follow that precedent and loan to companies favored by board members or even lawmakers in Sacramento? The latter is by no means unimaginable. A former director once complained lawmakers “wanted us to invest in government buildings.” Will there be safeguards to prevent an elected official from pressuring the fund to make a dicey loan to a business owned by his or her brother-in-law, or maybe a campaign donor? 

If not, CalPERS might want to redefine itself as a credit union for political cronies.

Kerry Jackson is a senior fellow with the Center for California Reform at the Pacific Research Institute.

This article was originally published by Fox and Hounds Daily.

California Cancels School – Puts Teachers’ Union Interests Over Those of Children and Families

On July 8, the California Teachers Association (CTA), the most powerful public-sector union in the Golden State, issued a statement asserting that, due to coronavirus concerns, state schools should not open this fall. The following day, the United Teachers of Los Angeles (UTLA) released a 17-page “research paper” in which concerns about coronavirus were secondary to sweeping political demands — including Medicare for All, guaranteed housing, a wealth tax, a millionaire’s tax, defunding the police, financial support for illegal immigrants, and a moratorium on charter schools. The UTLA ended its manifesto by asserting, without evidence, “the only people guaranteed to benefit from the premature physical reopening of schools amidst a rapidly accelerating pandemic are billionaires and the politicians they’ve purchased.”

The Los Angeles Unified School District fell into line on July 13, announcing that students will not return to the classroom in the fall because of the virus. The circle was completed on July 17, when Governor Gavin Newsom shut down in-person education in 33 of the Golden State’s 58 most densely populated counties, which account for over 80 percent of the state’s school-age population. But in a confusing twist — the details buried in a press-release footnote — individual counties can apply for a waiver for elementary school students, exempting them from the shutdown.

The notice explains that “a waiver may only be granted if one is requested by the superintendent (or equivalent for charter or private schools), in consultation with labor, parent and community organizations. Local health officers must review local community epidemiological data, consider other public health interventions, and consult with CDPH (California Department of Public Health) when considering a waiver request.” The process for getting permission to open grade schools is thus onerous and opaque. As EdSource’s John Fensterwald points out, thestate “does not elaborate on which conditions must be met before a county health officer could allow in-person instruction.”

While California is canceling school for millions of kids in the name of science-based public health, many child-health experts are urging schools to reopen with in-person classes this fall. The venerable American Academy of Pediatrics, having weighed the pros and cons, maintains that schools should reopen for in-person learning for children’s overall well-being. The AAP strongly advocates that all policy considerations for the coming school year “should start with a goal of having students physically present in school. The importance of in-person learning is well-documented, and there is already evidence of the negative impacts on children because of school closures in the spring of 2020.” A new report by the National Academies of Sciences, Engineering and Medicine reports similar conclusions.

Opposing the shutdown, the Center for American Liberty will sue the state on the grounds that its constitution promises children a basic education and that online learning is insufficient to this guarantee. Harmeet Dhillon, the group’s head, argues that Governor Newsom has gone too far. “This issue affects not just the kids,” she says, “but their parents, and their parents who have jobs, and all the workplaces that are impacted. This is actually a catastrophe for California, and we are intending to challenge it legally.”

The best way out of this mess: fund students, not the education bureaucracy. If a school district or the state decides not to hold classes, parents should be able to use education dollars to pay for their child’s education elsewhere. As Corey DeAngelis, director of school choice at the Reason Foundation, wrote recently, “If a Walmart doesn’t reopen, families can take their food stamps elsewhere. If a school doesn’t reopen, families should similarly be able to take their education dollars elsewhere.”

Though private and religious schools are included under Newsom’s shutdown order, direct funding of students in the form of vouchers would still be a blessing for many families, who could use the money to help defray the costs of educating their kids via a homeschool co-op, for example. After Newsom’s announcement to shutter schools, California assemblyman Kevin Kiley stated, “today’s decision elevates the appearance of safety over actual student safety. A growing body of evidence suggests school closures do little to flatten the epidemic curve, while an abundance of evidence shows they are a calamity for kids.” Kiley added: “By giving himself political cover, Governor Newsom has exposed millions of kids to untold trauma and loss. The impacts of school closures will be devastating for working parents, academic equity, and mental health.”

For too long, the interests of schoolchildren and their parents have taken a backseat to those of education bureaucrats, teachers’ unions, and politicians. The situation is long overdue for a radical change.

Larry Sand, a retired teacher, is president of the California Teachers Empowerment Network.

This article was originally published by City Journal Online.

Massive New CA Tax Increase Proposed

Gutting-and-amending a bill originally related to local governments in the Public Resources Code, Assembly Bill 1253 now proposes a massive tax increase on thousands of sole proprietors and high-income Californians. AB 1253 was amended on July 27, the Legislature’s first day back from its extended summer recess.

Originally authored by Assemblyman Robert Rivas when it dealt with the Strategic Growth Council, the bill is now jointly authored by eight Assembly Members: Santiago, Bonta, Carrillo, Chiu, Gonzales, Kalra, Stone, and Wicks. Assembly Members Chu, Jones-Sawyer and Ting are coauthors, while Senators Skinner, Durazo, Gonzalez, and Wiener are also coauthors.

AB 1253 would add Revenue and Taxation Code Section 17044 to create three new tax rates for amounts of income above specified thresholds. As a tax levy, it would take effect immediately upon the Governor’s signature and chaptering by the Secretary of State. The bill would apply retroactively to tax years beginning on or after January 1, 2020. As a tax increase measure, it would require a 2/3 vote of both houses of the Legislature pursuant to Article XIIIA, Section 3 of the California Constitution.

Specifically, AB 1253 would add a new section to the Revenue and Taxation Code to provide the following three higher tax rates (in addition to the existing ones):

  • A 1% tax on income above $1 million, but not over $2 million
  • A 3% tax on income over $2 million, but not over $5 million
  • A 3.5% tax on income over $5 million

These thresholds would have to be recomputed for each tax year beginning on or after January 1, 2021 based upon the California CPI.

Under existing law, the highest base rate for individuals and sole proprietors is 9.3%. There is also the “millionaire’s tax” of an additional 1% for income in excess of $1 million.

Due to a statewide ballot measure, there are four additional tax rates (above 9.3%) ending at 13.3% for incomes above specified amounts. They are 10.3% for incomes between $269,000 – $322,000; 11.3% for incomes between $322,000 – $537,000; 12.3% for incomes between $537,000 – $1 million; and, 13.3% for incomes above $1 million.

If AB 1253 were enacted, the 13.3% rate would rise to 14.3% for incomes above $1 million and the state’s highest rate would be raised to 16.8% for incomes above $5 million.

California already has the highest tax rate in the nation of 13.3 percent, while the lowest is 1 percent in Tennessee, according to the Tax Foundation. Hawaii is the second highest at 11%. The Foundation also notes that nine states have single-rate levies on individuals’ income, while 32 states have graduated-rate income taxes. Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming do not impose an income tax.

AB 1253 is pending a hearing in the Senate Governance and Finance Committee.

Chris Micheli is a lobbyist with Aprea & Micheli, as well as an Adjunct Professor of Law at the University of the Pacific McGeorge School of Law.

This article was originally published by California Globe.

Nine California Statues Vandalized or Removed

There have been countless times when I’ve walked by a shapeless, twisting sculpture on public property and shuddered at the thought of how much it cost taxpayers.  But it never occurred to me to take a sledgehammer and “cancel” the object d’art.  Last time I checked, it was against the law, not to mention disrespectful to the artist and the community that placed it there.  This simple bit of self-restraint, practiced by almost everyone, has its roots on the founding principles on which America was built – equality, free expression, and the rule of law.

Over the last few weeks, nine statues have been vandalized or removed across the state, according to a list compiled by Virginia Allen of the Daily Signal.  When these monuments were erected, the city residents intended to memorialize these leaders for their extraordinary contributions to California and to the nation, not because they were perfect.

General Ulysses S. Grant, head of the Union Army and later president, played a critical role in ending slavery in America.  But a mob of 400 gathered at San Francisco’s Golden Gate Park to topple his bust because he had married into a slave-owning family and owned one slave for a year. The same mob also knocked over a statue of patriot Francis Scott Key, who penned “The Star-Spangled Banner.”

Among Californians, a bronze of John Sutter, a settler and businessman whose employee James Marshall’s discovery ushered in the Gold Rush, was removed by workers at the Sutter Medical Center in Sacramento after it was defaced with graffiti.  In Los Angeles, Sacramento, and San Francisco, statues of Saint Junipero Serra, a Catholic missionary from Spain who established missions throughout the state, had been knocked down or vandalized.

Staying on the empire theme, lawmakers removed a beautiful and moving sculpture known as “Columbus’ Last Appeal to Queen Isabella” from the rotunda of the State Capitol in Sacramento. The sculpture had been there since 1883.

Another vandal spray-painted the words “[expletive] Colonizers”on the base of a monument known as El Soldado in Sacramento.  Mexican American mothers erected the monument to honor their fallen sons and daughters who served during World War II.

Lastly, there was the statue of John Greenleaf Whittier, a 19th century Quaker poet and abolitionist.  The Whittier Daily record reported that he was a delegate to the first meeting of the American Anti-Slavery Convention. Nevertheless, the vandal or vandals, spray-painted “BLM” and “[expletive] Slave Owners” on the monument.

Nikole Hannah-Jones, architect of the New York Times’s 1619 Project, told CBS that “Destroying property, which can be replaced, is not violence.” Try explaining that to the baffled residents of Whittier, or South American Pope Francis, who canonized Father Serra; or to the thousands of small business owners across the state and the nation who lost a lifetime’s work.

Spencer Klavan of the Claremont Institute puts it starkly: “Either we believe that everyone, of every color, must be guaranteed the right to his own property both physical and spiritual, or we do not.  If we allow ourselves to be gulled by ideologues who despise us into qualifying our national creed, or apologizing for it, or declaring it with anything other than pride, then we will have abandoned our fellow man and forsaken the only remedy for tribalism and injustice known to us this side of heaven. It’s America or bust.”

Rowena Itchon is senior vice president of Pacific Research Institute.

Time to Begin Learning About Those Confusing Ballot Propositions

For voters who don’t spend their days engrossed in policy issues, the uncomfortable initiative season is upon us. How to decide on the 12 propositions on the November ballot? 

Reading through the arguments both pro and con can be confusing if the voters don’t take the time to dig deeper. That probably means getting off to an early start. One good place to begin is getting a jump reading the arguments in the ballot guide.

Secretary of State Alex Padilla has posted on the SOS website the current draft of the ballot guide for the propositions. The reason that what is posted is not a final copy is that material can be changed when a court orders alterations after a challenge to the language in the titles and summaries written by the attorney general’s office or the ballot arguments offered by proponents and opponents. 

The legal action will happen soon and must be resolved by August 10. All ballot inspired-lawsuits must be filed in the Sacramento Superior Court and there is no appeal to the superior court judge’s decision.

But with that warning, it would still be helpful to read what is in the draft guide as posted by the Secretary of State. Most of the basic back and forth arguments will undoubtedly remain about the same and voters will have a head start in doing some digging to clarify arguments in the guide

Take the first item voters will face, Proposition 14, the stem cell research bond.

The right of the state to fund stem cell medical research and create the California Institute of Regenerative Medicine (CIRM) was approved by voters along with a $3 billion bond in 2004. Now there is about $130 million left in the fund and Proposition 14 is offered to replenish the kitty to the tune of $5.5 billion to pay for stem cell and other medical research, training, medical facility construction and administrative costs.

Promises that accompanied the 2004 campaign besides medical breakthroughs were that the bond money would stimulate economic activity, create jobs, and return money to the state’s General Fund when new inventions backed by the CIRM created profits.

Those points are at issue with Proposition 14.

While those in favor of the bond say CIRM is building on successes with 92 approved FDA trials in progress and 2900 medical discoveries to date and offer success stories, those opposed argue that no federally approved therapy has resulted and the promised bonanza of jobs and windfall of money for the state did not come close to materializing.

So, what to believe? Voters will have to do more digging. 

Yes, there are rebuttal arguments against the main arguments, but contrary opinions lay there as well.

For instance, in answering the charge that no substantial economic activity and jobs were created, the proponents point to a study by the USC Shaeffer Center for Health Policy and Economics. The report titled, “The Economic Case for Public Investment in Stem Cell Research,” does claim that 56,000 jobs were created (directly and indirectly) along with adding $10 billion to the state’s economy. The report goes on to say, “if” the research develops important therapies then the return on investment will be invaluable.

So, does that back the opponents’ argument that no recognized therapies have been developed? How to know? As with many ballot measures, voters have to weigh what might happen in the future if a proposition is approved.

The promise that money would be returned to the state because of new inventions has not exactly been gangbusters so far. The Legislative Analyst reports that money started coming only recently in 2017 but has totaled just $350,000 so far. However, the Analyst notes in his Proposition 14 review, past revenue collections “might not accurately predict future revenues.”

Once again, a crystal ball to the future would help, but the voters don’t have one, so they’ll have to try to understand the strengths and weaknesses on this and other measures. 

No time like the present to start.

This article was originally published by Fox and Hounds Daily.

Roundup of Wasted Taxpayer Money

Money

Anyone who’s ever managed a household knows that it’s not only how much money you make that matters. It’s also how much you spend.

California’s budget is vastly more complicated, and less transparent, than family finances. So it’s even more important for taxpayers to watch closely as elected officials spend our money.

The Howard Jarvis Taxpayers Foundation released its annual “Follow the Money” report on July 15, coinciding with this year’s postponed Tax Day. It’s a catalog of careless, excessive and wasteful spending, or, as some might have it, business as usual.

For example, the Department of Motor Vehicles had years to prepare for the launch of the national “Real ID,” but failed to do so. The agency was rewarded with an additional $242 million in new spending to try again.

State Auditor Elaine Howle found misuse of state resources in county fair funds, documenting $318,000 in misspent funds, including more than $30,000 for “excessive and unauthorized travel expenses,” lavish dinners and alcohol.

In another audit, Howle discovered that the California State University system hid $1.5 billion in an outside account to spend on operating costs, while raising tuition almost yearly and asking the Legislature for more funding. CSU has nearly doubled tuition from 2008 to 2018.

To read the entire column, please click here.

Congress Is Paying People a Lot of Money To Not Work

Perhaps the simplest and most important lesson in economics is this: Incentives matter. If you tax an activity, you make it more expensive and get less of it. If you subsidize an activity, you make it more lucrative and get more of it. It stands to reason, then, that if you respond to a pandemic by offering people more money to stay unemployed than their former employers can afford to pay them, you’ll make it less likely that people will return to those jobs, causing long-run disruptions of the labor force and worsening COVID-19’s impact on the economy.

Roughly speaking, that’s what happened with the CARES Act, the $2.2 trillion relief package passed in March as part of the congressional response to the coronavirus. Among the bill’s largest provisions was a four-month federal boost to unemployment insurance (U.I.) benefits, adding $600 a week on top of whatever amount state programs already paid. In a typical state, where unemployment benefits often pay around $275 per week, that meant furloughed and unemployed workers could collect nearly $900 a week. In a state like California, which offers as much as $450 per week, seven days of not working was, all of a sudden, potentially worth more than $1,000.

For people making the minimum wage, this represented a substantial windfall. But even a full-time worker making more than $15 an hour—or about $600 a week—could see a bonus for staying off the clock. A May working paper by a trio of economists published by the Becker Friedman Institute at the University of Chicago found that under the expanded benefit regime, “two-thirds of UI eligible workers can receive benefits which exceed lost earnings and one-fifth can receive benefits at least double lost earnings.” The average replacement rate for all beneficiaries was 134 percent of previous earnings.

In theory, there were coherent reasons for giving workers a financial incentive to stay home initially. Starting in March, state and local officials forced many businesses to close, and those shutdowns fell hardest on service sector workers, many of whom are hourly wage earners. Plus, the coronavirus spread from proximity, including the sort of extended, indoor, close-quarters activity found in many workplaces. The boosted unemployment payments were designed to do two things: provide financial recompense for workers whose jobs were eliminated by government mandate, and slow the spread of the virus by making it lucrative to stay away from other people. Department of Labor data showed the biggest beneficiaries of the program were the nation’s poorest.

But over time, the problems with this approach became more apparent. As states began to reopen their economies in May, some employers—particularly restaurants, where job losses were concentrated—reportedly found it difficult to rehire workers who were earning more from unemployment benefits than they would make from working. For an employee making $10 or $15 an hour, the short-term financial incentive was clear: It would be better to stay unemployed and collect unemployment benefits until the federal supplement ran out.

Although the unemployment rate came in lower than expected—but still quite high—in June, this incentive could have ripple effects long after the pandemic has faded. One of the biggest challenges for even a healthy economy is matching workers with employers. By encouraging people to stay away from jobs they had previously worked at, the federal U.I. boost destroyed employer-worker matches that had functioned in the past. This made it more difficult for employers who wanted to reopen to do so. And it removed otherwise capable workers from the labor force, eroding their ties to productive employment. Yes, the U.I. boost eased the immediate pain of shuttering much of the economy, but it also made it harder to get things moving again. …

Click here to read the full article from Reason.com.

Appeals Court Makes Tax Increases Easier

The March primary election was rough on advocates of new taxes.

Hundreds of tax hikes — sales and parcel taxes, mostly — were placed on the ballot by cities, counties and school districts whose finances were being squeezed. However, voters rejected roughly half of them, reversing what had been a recent trend.

The election occurred as the COVID-19 pandemic was erupting, followed by widespread economic shutdowns to curb the disease. The March election results, the pandemic and the deep recession that resulted gave pause to local officials hoping to place tax increases on the November ballot and one-by-one, local governments have throttled back on their plans.

Amidst that situation, a state appellate court last month issued an opinion that could make passage of new local taxes easier in the future. The state constitution’s two-thirds voter approval requirement for single-purpose taxes doesn’t apply, the three-judge panel declared, if they reach the ballot via initiative petitions signed by registered voters.

The decision is the latest wrinkle in a legal squabble over such taxes arising from a somewhat ambiguous 2017 state Supreme Court decision called “Upland” because it dealt with a ballot measure on taxing marijuana in that Southern California city.

Writing the 5-2 majority opinion, Supreme Court Justice Mariano-Florentino Cuéllar declared, “Multiple provisions of the state constitution explicitly constrain the power of local governments to raise taxes. But we will not lightly apply such restrictions on local governments to voter initiatives.”

He thus implied that special purpose taxes placed before voters via initiative may not be affected by the two-thirds vote requirement for taxes sought by governments themselves.

Thereupon, advocates of new taxes quickly turned to the initiative process, hoping that Cuéllar’s opinion would allow them to succeed with only simple-majority votes. Several tests of the theory emerged from the 2018 elections, but trial court judges differed sharply on whether they should be validated.

Two of the tests were San Francisco taxes placed on the ballot via initiatives personally sponsored by members of the city’s Board of Supervisors, one for early childhood education, the other to battle homelessness. Both received less than two-thirds votes, but a local judge, Ethan Schulman, validated them anyway.

However, Fresno Superior Court Judge Kimberly Gaab went the other way on a sales tax measure to improve city parks that received just 52% of the vote. Gaab wrote, “The two-thirds vote requirement applies to all special tax proposals, regardless of the proponent of the proposal.”

Alameda County Superior Court Judge Ronni MacLaren agreed with Gaab, declaring a 2018 Oakland parcel tax for education a failure with 62% of the vote. “Allowing Measure AA to be enacted with less than two-thirds of the votes would constitute a fraud on the voters,” MacLaren wrote.

Given the obvious conflict posed by those and other trial court decisions, the issue was destined to hit the appellate courts and the first to make it was the San Francisco measure imposing new taxes on business to battle homelessness.

It resulted in last month’s declaration by San Francisco’s First District Court of Appeal that Cuéllar’s Upland decision does, indeed, mean special taxes proposed in initiatives require only simple-majority passage, not supermajorities.

It was a setback for antitax groups, but other cases are still pending, including one involving Oakland’s education parcel tax. So it’s certain that the issue will eventually make its way back to the Supreme Court for an unambiguous decision.

If the San Francisco tax’s validity is upheld, as seems likely, voters will see a cavalcade of new special tax measures in future elections.

Dan Walters is a columnist for CalMatters.

How Much Do California’s City Workers Make?

With the economic shutdown devastating private sector employment in California, with small family owned businesses the worst hit, how are California’s public employees doing? A recent report by NPR paints a grim picture, “Cities Have Never Seen A Downturn Like This, And Things Will Only Get Worse.” From the San Francisco Chronicle, “California cities warn of widespread layoffs and service cuts.” And from the Los Angeles Daily News, “LA County approves deep-cut budget plan, cutting thousands of positions.”

“Layoffs and service cuts.” “Cutting thousands of positions.” Is there an alternative?

In a word, yes. California’s public employers can make the same hard choices that private employers are forced to make when confronted with declining revenue. That is, they can not only layoff employees and eliminate positions, they can also cut the pay and benefits for the jobs that remain. To the extent they do this, they can keep more of their workforce employed, and they can keep more of their services intact.

In this context, it is useful to compare the average pay and benefits earned by California’s public servants to the average pay and benefits of the people living in the various cities where they work. With pay and benefit data for 2019 now available from the California State Controller for all of California’s cities, it is possible to accurately calculate compensation averages to provide current benchmarks.

How Much Do California’s City Workers Make in Pay and Benefits?

The first chart, below, shows the change in compensation in California’s cities over the past four years. As can be seen, in most categories, between 2015 and 2019 average compensation has gone up by between 11 percent and 14 percent. A notable exception to that is overtime, which is up by 21 percent for police, and 27 percent for firefighters. Another notable exception is the pension payment, which is slightly down in all three categories of employees: police, fire, and miscellaneous. The reason for this, however, is not encouraging. Starting in 2017, employers have not been required to include (ref. page 10, Step B13) the contribution towards the unfunded liability as part of an employee’s pension benefit. This merits further discussion, because the amounts are significant.

Omitting the payment towards the unfunded pension liability greatly reduces the amount of the reported pension contribution. As previously documented, employers routinely pay more towards reducing the unfunded pension liability than they pay in so-called “normal costs,” which is the amount necessary to fund pension benefits newly earned with current work. And if the “normal contribution” were ever an accurate representation of how much public employers actually have to spend to provide a retirement pension, then California’s pension funds would not have unfunded liabilities totaling hundreds of billions of dollars.

Discussing proper treatment of unfunded pension liability payments when calculating average pay and benefits for California’s city workers goes beyond the scope of this report. It would require assessing the unique liability profile of ever city considered, because, for example, there a few exceptional cities that have aggressively worked to pay down their unfunded liability. And unless literally every individual record were analyzed, active and retired, any calculations would have to rely on broad assumptions as to how much of that unfunded liability payment applies to already retired employees, and how much of the remainder appropriately ought to be included as part of the cost of an active employee’s benefits.

With respect to pensions, for this report one fact is sufficient: The average pension contribution amounts calculated are necessarily less than what these pensions are actually costing public employers and taxpayers. A lot less. This is the reason why the average pension benefit in 2019 is slightly less than the average for 2015, despite the fact that in 2018 CalPERS announced that they intended to double required pension contributions by 2024.

How Does Public Pay Compare to Private Pay in California?

It is often pointed out, with some justification, that average pay and benefits information for California’s city workers is not representative because police and firefighter compensation is included in the average, skewing it upwards. For this reason, this report shows all three rates of total compensation as separate calculations. And for all “miscellaneous” (non-safety) full-time employees working for a California city, the average rate of pay and benefits was $130,719 in 2019.

By contrast, according to the Bureau of Labor Statistics, the annual average wage estimate for all private sector occupations in California in 2019 was $61,290. Even when making generous assumptions regarding average employer benefits – 6.2 percent for Social Security, 1.45 percent for Medicare, 3 percent for a contributory 401K, and $500/mo towards health benefits – this average pay and benefits estimate still only equates to $73,817 per year.

This means that in California, non-safety city employees make at least 77 percent more than the private sector workers they serve. And in several respects, this understates the disparity. As noted, the public sector average does not include the cost to the employer of fully funding their pension benefits. It also doesn’t include the cost of pre-funding the public employee retirement health insurance benefits. And it doesn’t take into account the vast difference in average days of paid time off per year.

Normalizing for paid time off would have to include 14 paid holidays, 12 “personal days” and 20 or more vacation days as employees acquire seniority. And then there is the “9/80” program, common in California government but nearly 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.” That adds up to 72 days off per year with pay for a seasoned public sector professional.

Finally, in the public sector, 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 skews the average well above the median.

For these reasons, it is reasonable to assume that non-safety public sector employees make roughly twice what private sector employees make in California. Some of this can be explained by the higher educational requirements, on average, that apply in the public sector vs the private sector. But does that disparity justify paying public servants twice as much, on average, as private sector employees earn?

Not emphasized, but worth mentioning, are the average rates of pay and benefits for California’s police and firefighters. The average full-time firefighter employed by a California city in 2019 made an astonishing 213,473, which, inexplicably, greatly exceeded the still impressive $176,226 earned by the average full-time police officer.

Often brought up in debates over public sector pay are the levels of stress and the extraordinary responsibilities confronting public servants, especially public safety employees. This is especially true at times like the present, with social unrest and a raging pandemic. This is obviously a serious concern. But the ability of public sector agencies to deliver services is heightened during these difficult times, and it is a false choice to suggest that the only options are to layoff employees and cut services.

The reasonableness of pay and benefit cuts as an option is particularly evident when comparing the situation in specific California cities.

What California Cities Pay the Most to Their Public Servants?

The next chart shows those cities in California that pay the most to their full-time, non-safety employees. Sunnyvale and Santa Clara, both nestled in the wealthy Silicon Valley, stand out from the pack, with the average miscellaneous worker in both cities earning around $200K per year in pay and benefits. Much of this is attributable to overtime, which typically is not out-of-control among miscellaneous employees.

The column on the far right of the chart helps put these public sector earnings into a local perspective. “TC/MHI” stands for “Total Compensation / Median Household Income,” with the median household income for each city taken into account when calculating the ratio. As can be seen, even though they serve these two wealthy suburban communities, Sunnyvale at 1.7X and Santa Clara at 1.8X have among the highest multiples.

When taking into account the fact that the difference between average and median compensation results among California’s public sector workers is negligible, whereas in the private sector, averages are pulled way up by a handful of very wealthy individuals, these multiples ought to indicate some wiggle room in terms of lowering the pay of public servants in these cities. That the comparison is between average individual earnings and median household income ought to further strengthen the case for lowering public pay instead of cutting public sector jobs and cutting public services.

Perhaps a particularly egregious example of inappropriate public sector compensation can be found in Oakland, where the average full-time bureaucrat earned base pay of $98,000 per year in 2019, in a city beset with high crime rates and myriad social problems. Imagine how much more effectively Oakland’s municipal government could cope with the challenges facing their city, if instead of paying their non-safety employees more than twice what the residents manage to earn, they lowered that ratio from 2.0X to, say, 1.5X, and put that many more people out on the streets to provide services to the residents?

When it comes to public safety compensation, it remains a mystery why California’s police officers make less than California’s firefighters. Both jobs carry similar levels of risk, but police, not just these days but historically as well, confront continuous stress as they deal with criminals and an often hostile public. Moreover, it can at times be difficult to find qualified recruits to join police departments, whereas fire departments never have that problem. With everything police are going through these days, it is difficult and arguably inappropriate to argue they are overpaid, but at the least in some California cities one must ask that question.

In Berkeley, for example, the average full-time police officer makes 3.7 times the median income. Notwithstanding the fact that in Berkeley, some might say the police aren’t even allowed to do their job, is it necessary for them to earn a pay and benefits package worth $280,000 per year? Many private sector critics of public pay, particularly police pay, cringe at the idea of suggesting pay cuts. But the fiscal conservatives that successfully run for local elected office are usually either well paid attorneys or prosperous businesspeople. They need to realize they are not typical; that very, very few people in private life can ever hope to earn a pay and benefits package in excess of $100,000 per year, much less $280,000 per year.

Police themselves may ask; what would it be worth to have far more members available to be on patrol? How much safer would that make both civilians and police? And what is that worth? As an aside, it has to be acknowledged that California’s liberal state legislature has made the jobs of all police in California far more difficult, with a host of laws that make it very hard to maintain public order.

Of all the public sector jobs where rates of pay have gone completely out of control, however, firefighting has to be number one. As previously noted, the average full-time firefighter in a California city in 2019 made a pay and benefits package that cost taxpayers $214,000. And as mentioned, that amount does not take into account the full cost of paying down their unfunded pension liability, nor does it take into account the cost of pre-funding their retirement health insurance. But while the statewide average is high, the average in some specific cities is astronomical. Redwood City and Santa Clara, both Bay Area enclaves of high-tech wealth, share top spot at $299,000 each. Even more shocking is the City of Richmond, also located in the San Francisco Bay Area, where the average pay and benefits for one of their full-time firefighters in 2019 was nearly five times the median household income in that city.

Local elected officials in cities like Richmond need to ask themselves one very simple, but very tough question: If they lowered the pay and benefits package for a full-time firefighter down to $200,000 per year, would they still attract qualified applicants? What about $175,000 per year? What about $150,000 per year?

One city that has gotten their fire department costs under control is Placentia, in Orange County. They withdrew from the Orange County Fire Authority to form an independent fire department that makes use of trained volunteers, part-time firefighters, and a contracted ambulance service. They also replaced their pensions with a 401B defined contribution plan. They are saving millions, and represent a model that other California cities should consider.

It isn’t necessary to be a libertarian extremist to question the pay and benefits packages that are, now more than ever, challenging the budgets of California’s cities. In fact it would run utterly counter to libertarian orthodoxy to suggest that if pay and benefits to California’s local government employees were lowered, more government employees could be hired, increasing the effectiveness of social programs and public safety.

In California, it rarely matters if a few voters are enlightened and begin to support fiscal austerity measures such as pension reform, overtime reform, or restructuring a fire department. In general the political power in California resides with the public sector unions. These unions engage in targeted campaign spending and lobbying that is perennial and relentless, forcing all other special interests to accommodate them. This is the reason that pay and benefits in California’s cities is so much higher than what ordinary people earn in the private sector. This as well is the reason that any practical conclusion to a survey of pay and benefit packages in California’s cities must include an appeal to these unions.

What is coming over the next few years is anybody’s guess, but with the disease epidemic, the social unrest, and the economic destruction that we’ve witnessed so far, there are tough times ahead. It is in these times that public servants, particularly when they wield so much political power, must themselves decide to do the right thing. Lower wages and benefits are not easy for anyone to accept, but to make common cause with the people they serve, and to ensure the solvency of our public institutions, they are necessary.

This article originally appeared on the website California Globe.

Latest Scene of Cancel Culture: SF Museum of Modern Art

A “white supremacist” organized exhibits for the San Francisco Museum of Modern Art for nearly 20 years? How did his hateful bigotry go undetected for so long in a city whose vanity is in large part fueled by its Wokeness?

Gary Garrels, the museum’s senior curator of painting and sculpture, resigned earlier this month over statements that are no longer acceptable in America. According to artnet News, Garrels’ sin was closing a presentation about new acquisitions from artists of color by assuring staff members that they shouldn’t worry, because “we will definitely still continue to collect white artists.”

He further sinned against the Church of Wokeness when he said it would be “reverse discrimination” if the museum stopped collecting from white artists.

Waiting for more? For newly discovered tweets of the white Garrels raging against people of color? For consorting with known racists? For the sudden appearance of a grainy decades-old video in which he argued white artists are superior to all others?

If so, it will be a long wait. No one is saying he is guilty of any of these or committed any genuine racist act. He uttered a matter-of-fact statement, which is both on its face true (would it not be discrimination if the museum excluded minority art?) and harmless.

Yet he was forced out, his reputation tarnished after a group of former employees started a petition demanding his “non-negotiable” removal. In asking “just how long have his toxic white supremacist beliefs regarding race and equity directed his position curating the content of the museum?” those who introduced the petition and everyone who signed it in solidarity with them smeared the man.

Garrels’ resignation-by-mob was not about fostering decency in the art community. It had nothing to do with making the museum a better place to work or upgrading its exhibits and visitor experience. It has no societal benefits, nor will it improve the lives of those he supposedly marginalized.

But it gave the blood-lust pack that took him down a chance to bully someone, a moment to have power over another person, an occasion to show off their woker-than-thou moral standard. It’s not every day we get to read that “reverse discrimination” is “white supremacist and racist language.” But the zealots who pushed Garrels into surrendering surely relished making sure that yet another benign term or phrase has been added to the list of “gotcha” words.

This event was no storm but a tempest in the tiniest of teacups. As of July 17, 10 days after the meeting in which Garrels had slipped up and spoke an obvious but unspeakable truth, only 273 had signed the petition.

But even that small number is misleading. Many signed just so they could make a comment about how outrageous the entire affair is. One, who clearly is familiar with the history of radical movements and revolutions inevitably devouring their own, warned the Woke signers that “the mob will come for you, too, eventually.”

It’s too bad for Garrels and other innocent victims of the cancel culture that it hasn’t consumed itself already.

Kerry Jackson is a fellow with the Center for California Reform at the Pacific Research Institute.

This article was originally published by the Pacific Research Institute.