California needs to tax the liberals and state employees

Tim Cavanaugh:

How would you like to be running the California Travel and Tourism Commission right now?

The state is generating an almost constant stream of alarming news. “Essential” services from libraries to police hours to public school teaching staffs are being drastically cut. Cities are going bankrupt. This year’s state budget—which currently boasts a $19 billion shortfall—has been delayed for nearly two months, with no agreement in sight between Gov. Arnold Schwarzenegger and Democratic lawmakers. Employees are being furloughed. The state will soon have to start issuing IOUs to cover its obligations. Sacramento announced Monday it would be unable to pay nearly $3 billion in school and county subsidies. Books with titles like Plunder and California Crackup detail how massive financial obligations have rendered the state essentially ungovernable.

In short, California can’t buy decent press these days. (And even if it could it wouldn’t have any money to do so.)

So why is this good news?

Because in a state that has seen three years of nearly solid financial pain, what is going on right now is pain with a purpose. Outgoing Gov. Schwarzenegger is using fiscal emergency as leverage toward a permanent solution to the public employee pension crisis that has gutted California’s budget and hamstrung other states. If he succeeds, the example could point to a solution for the many states that need to get a handle on their public employee commitments.

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Among these concessions: a 5 percent increase in employee pre-tax contributions toward retirement funds; changes in pension calculations to prevent pension “spiking”; and more honest disclosure of how pensions are funded. Another item that has long been on the governor’s wish list is a state “rainy day fund” of $20 billion—close to what Schwarzenegger believes the state would have saved in the absence of runaway public-sector pension payouts during the last decade.

Which brings us to the most important concession of all. Schwarzenegger is seeking to undo Senate Bill 400, a 1999 law that vastly expanded pension payouts to government workers. Passed after a mere five minutes of debate, based on some highly misleading documentation and unrealistic expectations from the California Public Employees Retirement System (CalPERS), SB 400 paved the way for a nearly 3,000 percent increase in pension liabilities for the state.

That debt is eating into other state funding. Since SB 400’s passage, expenditures on environmental protection and parks have actually decreased relative to inflation. It’s important to remember that Schwarzenegger’s struggle is not motivated by small government principle. His problem is that commitments to government workers are preventing the state from spending on other stuff.

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As of now, state employees are due for furloughs three days a month, which will amount to an average 14 percent pay cut. Critics and the media have questioned whether furloughs save the state’s budget as much as advertised, but the savings are a side benefit. The real aim is to put pressure on the Service Employees International Union (SEIU) and its clients in the state legislature. Union members see actual pay reductions, and eventually, so the thinking goes, they will demand their leaders work with the governor to do something about it. (That Schwarzenegger has negotiated new contracts—which roll back most of SB400—with six unions suggests the tactic works, though the largest union contract negotiations, including SEIU's, are still unfinished.)

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The pensions are going to have to be adjusted to meet the flow of revenue into the system. It is clear that California is out of options in increasing the revenue unless it passes a special tax on state employees to cover it. They could also pass a special tax for liberals to pay their "fair share" of the debt they are running up. Obviously they are already running out of other peoples money to cover their liberalism.