Former Governor Schwarzennegger submitted an interesting article to the Wall Street Journal. While I will try to do it justice, I commit it to your reading. He begins by saying that despite critic statements to the contrary, he is not bullying state employees. He is concerned, however, that “California simply cannot solve its budgetary problems without addressing government-employee compensation and benefits.” His statement is equally applicable to many states.
California’s problem is that 80 cents of every government dollar in California goes to employee compensation and benefits. You should read that sentence again. This is bad and getting worse. “Spending on California’s state employees over the past decade rose at nearly three times the rate our revenues grew, crowding out programs of great importance to our citizens.” A major part of the problem is the unfunded pension and retirement health-care programs which are a part of a contract between the employees and the state. The retirement debt is $550 Billion
To put it in perspective, the retirement benefits in 2010 cost more than $6 Billion, more than California will pay for higher education. The typical situation is that a public worker will retire at 55 and receive an inflation protected check for $3000 per month for the rest of his or her life. To provide a similar benefit to a private worker, the private pension would have to have $1 Million in assets. Not many private workers have that resource to count on. At this rate, in 10 years, the public retirement costs will reach $30 Billion per year. You should read that sentence again.
The Governor proposed a number of actions. First, he wanted the Assembly to reverse the massive and retroactive benefit increases it passed 11 years ago. Second, it must prohibit the practice of spiking income in an employee’s last year of employment to unrealistically boost the pension benefits for the employee. Third, the employees must increase their contribution to their pensions. Fourth, pension funds must make truthful disclosures as to the size of their liabilities. He recognized this would not happen because “government-employee unions are the most powerful political forces in our state and largely control Democratic legislators.”
Just as the obligations of California have risen quickly, tax revenues have gone down. Over 1 million jobs have been lost and those with jobs often do not make as much as they did in the past. It is a perfect storm.
California and other states must do the right thing and they need to do it before it is too late.
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