Headcount Cuts vs. Compensation Cuts

California is on track to have 2.0 million people working for state and local government. According to 2008 U.S. Census data (ref. 2008 Public Employment Data, Local, and 2008 Public Employment Data, State) there are 1.85 million non-federal government workers in California today. It is becoming increasingly understood by voters and policymakers that a worker’s compensation is not adequately measured simply by referencing their annual salary or total annual wages. Overtime, sick time and vacation time payouts, health benefits, preferred access and rates for loans and insurance, transportation reimbursements, and more, are all examples of current year compensation that belong in any properly compiled estimate of a worker’s total annual compensation. And a heretofore arcane yet huge component of any worker’s total annual compensation is the current year funding requirements for future benefits – such as their retirement pension and their retirement health benefits.

In an analysis posted earlier this year entitled “California’s Personnel Costs,” the average total compensation for state and local government employees in California was estimated at $94K per year. In reality we feel this amount is still significantly lower than the true average because (1) public employee retirement pension funds are below the asset value necessary to ensure long-term solvency and therefore current-year payments into them on behalf of public employees will need to be further increased, and (2) assigning a value of $10K per year for [...] Read More

U.S. Senate to Force Unionization of Police?

Within the next few days the U.S. Senate may consider Senate Bill 3194, the “Public Safety Employer-Employee Cooperation Act,” that will require states to grant collective bargaining rights for all public safety workers, including police, firefighters and emergency medical workers.

Residents of California have had a front row seat to witness the consequences of allowing unrestricted collective bargaining by public employees. It is increasingly arguable that the root cause of many of California’s most serious problems – the insolvency of the State and most local governments, and the mediocre public school system, to name two big ones – are because of the influence of public sector unions. And public sector union control over California’s State government, which most insiders will acknowledge is “absolute,” is matched by union control over California’s county and city governments. Now we’re going to export California’s problems with public sector unions to the rest of the United States?

A report written by Kris Maher for the June 17th, 2010 Wall Street Journal entitled “Bill Gives Public Workers Clout,” quotes the Executive Director of the 325,000 member National Fraternal Order of Police, Jim Pasco, who said “unions wouldn’t be able to negotiate wages and benefits that governments couldn’t afford.” It’s interesting to wonder how Pasco can justify this statement, because if history is any indication, the opposite is going to happen.

As documented in “The Price [...] Read More

The Price of Public Safety

There is nothing wrong with paying a premium to public safety personnel because of the risks they take. And while it is true there are other career choices that are riskier than public safety jobs, and while it is also true that on average, public safety personnel in California – according to CalPERS own actuarial data – have life expectancies that are virtually the same as the rest of us, it is still appropriate to pay public safety personnel a premium. After all, we never know when these people may stand on the front lines when something extraordinary happens – such as what occurred in New York City on Sept. 11th, 2001. People who work in public safety live with this knowledge every day, and they should be compensated appropriately for that.

The question is how much of a premium is appropriate, and how much of a premium can we afford as a society? Should a fire fighter make more than a medical doctor? Should a police officer make more than an engineer?

In order to get an idea of what public safety employees in California actually make, I obtained a roster that showed the total compensation paid to each employee of a Southern California city. Out of respect for the employees noted on this roster, I won’t identify the city, much less reveal the names of these individuals. And it is fair to state this city probably has a median income somewhat higher than the average for California. It [...] Read More

Logic and Emotion in Politics

Winston Churchill’s famous quote on this topic goes as follows: “If you’re not a liberal at twenty you have no heart, if you’re not a conservative at forty you have no brain.” Depending on your political persuasion this is not necessarily the most endearing polemic to lead off with, but it certainly frames the issue. Are fiscal liberals governed primarily by their emotions? Are fiscal conservatives governed primarily by their logic? There are countless ways to examine this – to wit:

Did the entirely valid emotional desire to see financially less-fortunate families become homeowners create the edifice of sand upon which the financiers of Wall Street built their derivatives house of cards?

Did the hyper-literate, ruthlessly logical calculations of economists and bankers – who thought they had mastered the art of risk management – completely backfire on them? Was the forest of fundamentals obscured by trees of logic?

In the above set of scenarios, emotion and logic both backfired, but a cynic would disagree with both assessments. A cynic would suggest policymakers knew perfectly well their attempts to sell homes to anyone regardless of their earnings or credit history was bound to fail, and that they pushed these manifestly irresponsible policies because they were taking money off the table the whole time. A cynic would make a similar claim against the Wall Street folks – that they knew the whole scheme was going to crash, but they collected their bonuses, bet against their own clients, concocted elaborate models that obfuscated [...] Read More

The China Bubble

With over a billion people and an economy poised to surpass Japan’s as the 2nd largest in the world, it seems everything that happens in China has an oversize impact on the rest of the world. So what if China’s economic growth turns out to be as reliant on inflated collateral and unsustainable debt as the Europeans or the Americans? Is there a China bubble?

A recent report on CBS “60 Minutes” provided visceral evidence that formation of a real estate bubble is undoubtedly already well underway in China. The report showed entire cities in China’s northeast that were newly constructed and completely unoccupied. This anecdotal evidence is backed up by other reports, such as noted by fund manager Jim Chanos in an interview on Charlie Rose on April 14th, 2010. In the transcript, “Jim Chanos on China’s Property Bubble: Charlie Rose Interview,” Chanos is quoted as saying “The fact of the matter is the game [real estate speculation] has to keep going…because so much of their GDP growth is in construction…50% to 60% of China’s GDP is in construction.”

The more you dig, the more it appears China is not just starting to inflate their real estate bubble, but that China’s real estate bubble is about to pop. China is doing almost exactly the same thing the Americans did – and the fact China has stricter regulations on mortgage lending, with between 30%-50% down payments required on real [...] Read More

Sustainable Economic Returns

John Maynard Keynes, in his General Theory of Employment, Interest and Money, advocated deficit spending during economic downturns to maintain full employment. It is fair to say the theories of Keynes have been embraced by U.S. economic planners, and Presidents, for several decades – and each decade seems to have outdone the preceding one. But what sort of government deficit spending? During the 1930′s we built dams and power plants. During the 1950′s and 1960′s we built the interstate highway system and sent astronauts to the moon. During the 1980′s we invested in our military and won the cold war. These programs delivered a temporary stimulus to the economy, but they also yielded lasting benefits. The physical infrastructure, the strategic dividends, and the technological spinoffs outlasted the spending programs. There was a return on investment beyond the temporary stimulus – and this is the crucial difference between what we’ve done before, and what we’re doing now.

A good example of where deficit spending should go, but isn’t, is the F-22 Raptor, a fifth generation fighter that development began on over 20 years ago. Originally the F-22 was intended to replace the F-15, America’s current air-superiority fighter, and at least 750 of these advanced aircraft were supposed to be built. Today, with only 186 planes built, President Obama has canceled the F-22 program and their assembly lines are scheduled to be dismantled.

One would think the lessons learned during the Cold War – that deterrence depends on fielding an equal or [...] Read More