Special Interests vs. Fiscal Reform

It is impossible to easily summarize all of the efforts government worker unions have mounted in California to consolidate their power. But the efforts by these unions to disrupt reform initiative efforts, as well as undermine the initiative process itself, is worthy of special mention, and is the focus of this post.

As Californians realize that unions stand firmly opposed to reducing government worker pay and benefits as one way to reduce government deficits, and further realize that their elected officials are controlled by these unions and unable to enact reforms, the citizens initiative has become their tool of last resort. Across the state, grassroots organizations have mounted initiatives designed to reduce government expenditures – through banning Project Labor Agreements, or right-sizing government worker pensions, or through campaign finance reforms that target unions alongside large corporations. These measures constitute a profound threat to government union power.

Here are some of the ways government worker unions have spent millions of dollars over the past six months to fight reform through the initiative process:

MISINFORMATION TO THEIR OWN MEMBERSHIP:
In mid-July the SEIU created a “think before you ink” flyer filled with misinformation and distortions regarding a major threat to their power, the “Stop Special Interests” initiative that would ban corporations or unions from withholding money from paychecks to finance political activity. The flyer claims, for example, that “business donates more to politics than unions by a ratio of 15-1.” Actually in California the unions spend more than business on politics, especially at the local level. It further claims that the Stop Special Interests initiative is funded by “out of state billionaires,” yet not one out of state donation had been received according to this campaign’s June 30th financial statement posted on the California Secretary of State’s website. And finally, the flyer claims that the Stop Special Interests initiative will “deny our membership the ability to voluntarily contribute to politics.” If you read the initiative, however, actually it will require voluntary contributions. Currently these political contributions are, if not forced, assessments that require a laborious “opt-out” process to avoid workers making payments to the unions via automatic deductions their paychecks.

ORGANIZED EFFORT TO INTIMIDATE PETITION GATHERERS AND SIGNERS:
In mid-July, the LA County Federation of Labor AFL-CIO, and the SEIU Local 1000 in Sacramento, along with others, created an 800 number for people to call and report signature gathering in process. Observers reported the unions were paying homeless people in LA and San Diego to do this. Then the unions would send a “truth squad” to block the signature table and intimidate both signers and gatherers. Sources at signature gathering firms reported that the harassment from these “blockers” has never been this organized or intense.

SEVERAL PIECES OF LEGISLATION DESIGNED TO UNDERMINE THE INITIATIVE PROCESS:
This year the unions have pushed at least four pieces of legislation to curb the initiative process:

ACA 6 – Prevents passage of initiatives that reduce tax revenues. According to bill sponsor Assemblyman Mike Gatto, ACA 6 “will require initiatives that spend money or create a new program or mandate to identify and specify the funding to pay for it.” The practical effect of this bill, which would require language in any initiative specifying a new source of tax revenue for any costs attendant to enforcing the initiative in excess of $5.0 million, would be to only allow initiatives onto the ballot that raised taxes. This law would leave the decision regarding the financial impact of a proposed initiative in the hands of the State Dept. of Finance, where they could anoint bills they favored, and subject the ones they don’t like to a slanted financial analysis, or, worse, delayed indefinitely in the limbo of an ongoing analysis. Still active.

SB 448 – Forces circulators of initiative petitions to wear a button that tells whether they are paid or volunteer. Sponsored by Sen. Mark DeSaulnier, SB 448 would require that people who collect signatures wear signs around their necks announcing whether they are a paid signature-gatherer or a volunteer signature-gatherer, and whether they are registered to vote. Vetoed by Gov. Brown.

SB 168 – Bans ballot committees and individuals from paying people who circulate petitions for initiatives, referendums and recalls on the basis of the number of signatures they collect. Instead of paying signature gatherers based on their productivity, these workers would be required to receive an hourly wage. Equally troubling, they would be required to be hired as full time employees – an utterly impractical approach to what is seasonal, temporary work. The practical effect of this law will be to double or triple the cost of putting an initiative onto the ballot, which drives out the grassroots organizations but leaves intact the prerogatives of powerful special interests. Vetoed by Gov. Brown.

ACA 10 – Would allow the Legislature to amend or repeal voter-initiated statutes after they have been in effect for four years. Again, the practical effect of this would be to force grassroots taxfighting organizations back into expensive initiative battles every four years, making it very difficult to implement lasting reforms. Still active.

DECEPTIVE STATEWIDE RADIO CAMPAIGN WARNING PETITION SIGNERS AT RISK FOR IDENTITY THEFT:
Beginning in July and running through most of August, they have ran millions in radio ads across the state suggesting that signing a petition puts the signer at risk of identity theft.

POSSIBLE INVOLVEMENT IN MASSIVE NUMBER OF FRAUDULENT PETITION SIGNINGS?
There may be evidence that registered voters opposed to reform initiatives were encouraged to sign petitions multiple times in an attempt to disrupt the gathering of a sufficient number of verified individual signatures. According to these anonymous sources, in LA County, in random checks, petitions were signed by the same person four and even five times. According to anonymous sources elsewhere in California,  sets of petitions were found that had been signed by the same person as many as fifteen times. To find widespread examples of this during internal verification, is, if not the result of an organized effort to defraud the process with duplicates, something nearly impossible to occur randomly.

AGGRESSIVE HARASSMENT OF PETITION GATHERERS:
San Diego has had particularly bad experiences with aggressive union blocking efforts. The YouTube link references a 2 hour upcoming (Sept. 15) prime time television expose on the union war against petition gatherers in San Diego. Not included on this video are reports that signature gatherers are being followed home by union operatives after they’re finished working, and being harassed in their own driveways.
http://www.youtube.com/watch?v=yOrULwS_2go

LAST-MINUTE LEGISLATION TO LIMIT STATEWIDE INITIATIVES TO ONCE EVERY TWO YEARS:
This bill, SB 202, was gutted and amended late at night on Sept. 8th, the 2nd to last day of the legislative session for 2011. In its new form, it will prohibit initiatives from being on any statewide ballot other than November of every even numbered year. It appears to be a direct response to this – the Stop Special Interest Money Act – a statewide reform initiative for which the proponents are on the verge of completing signature gathering and filing for appearance on the June 2012 ballot. Governor Brown has 30 days to either sign or veto this.

What is especially disappointing about these efforts is that they are disrupting the ability of voters to even have a choice. Targeting the initiative process is an attack on one of California’s most resilient institutions, direct democracy. And it is quite ironic that these government worker unions characterize the grassroots organizations who are fighting desperately, with extremely limited funds, as backed by “billionaires and big corporations.” The money, as well as the institutional power, is clearly on the side of these government worker unions, since in these many counterattacks they clearly have spent many times what the reformers have managed to spend.

The Impact of Tax Exempt Pensions

It is surprisingly difficult to gather data on just how many public safety employees claim disability in their retirements, but this should not prevent us from estimating what the benefits bestowed on disability claimants cost taxpayers.

A common program to compensate public safety workers for job-related disabilities is to grant them a tax exemption, whereby 50% of their retirement pension is exempt from state and federal taxes. While it is virtually impossible to collect data from pension fund administrators on exactly how many retired public safety workers have retired with this benefit, a 2004 investigative report by the Sacramento Bee found that among retired members of the California Highway Patrol, 66% of the rank and file officers, and 82% of the chiefs retired with service disabilities. Similarly, a 2006 investigative report by the San Jose Mercury found that two-thirds of San Jose Firefighters retired with service disabilities. Neither of these reports remain available online, although a Google search on the term “Chief’s Disease” (a term coined by the Sacramento Bee) will find dozens of secondary references to these studies; you can start here, and here.

The point of this analysis, other than to point out the shocking lack of comprehensive data on this issue, is to perform a what-if, based on assumptions that might be reasonably extrapolated from the available data.

The first section of the table below, “Impact per Worker,” shows what a person receiving a service disability tax exemption is really making annually, based on normalizing the take-home, after-tax earnings between the case with a 50% tax exemption vs. one with no tax exemption. Column one shows an average annual pension for a recently retired California public safety employee – probably low – of $75,000 per year. It then shows what their tax burden would be based on 50% of that income being exempt from taxes – leaving a taxable income of only $37,500, which invokes far lower withholding percentages. As can be seen, someone with a gross income of $75K per year who only pays taxes on $37.5K will have an after-tax income of $67,999 per year.

Still examining the “Impact per Worker” section of the table below, column two shows that in order to collect an after tax income of $67,999 per year, if one pays taxes on 100% of their income, would require an income of $90K per year, a 20% increase in gross income. This is the true value of the service disability 50% tax exemption. As retirement incomes increase, the disparity actually widens, because the tax brackets invoke higher withholding percentages. For example, a pension income of $100K – quite common among retired public safety workers – paying income taxes on only $50K, would deliver a take-home, after-tax income of $88,858. To earn this much while paying normal taxes without special exemptions would require an annual income of $128,363, a 28% increase. The reader is invited to verify these figures by referring to 2011 Federal Income Tax Brackets, and 2011 California Income Tax Brackets.

The second half of the above table, “Impact for California Taxpayers,” attempts to quantify what the prolific granting of service disability tax exemptions to retired public safety workers costs taxpayers. Based on updated 2010 data from the U.S. Census Bureau for California State Worker Payroll and California Local Government Worker Payroll, there were 222,898 full-time police, firefighters, and correctional officers working at the state and local level in California in March 2010. This amount does not include “full-time equivalents” who brought the total up to nearly 230,000 employees. On average, these full-time public safety workers earned $84,929 per year. Among firefighters, the average was $113,057 per year. Because public safety workers have life-expectancies that – according to CalPERS own actuarial data – meet or exceed national averages, and because they are eligible for retirement at age 50 (in some cases earlier), the calculations on the above table assume we are on track to have one retired public safety worker for every active public safety worker.

As can be seen, based on these assumptions – and the pension estimate of $75K per year is almost certainly quite a bit lower than the reality, since the average mid-career earnings of public safety workers is currently $85,000 per year, and pensions are calculated on end-of-career earnings – if 50% of public safety workers retire on service disability tax exemptions, the cost to California’s taxpayers is $1.7 billion per year.

Whether or not this is an accurate estimate, and available data suggests that this estimate is, if anything, on the low side, is almost beside the point. Where is this data? Why doesn’t CalPERS, and the other pension funds managing public safety employee retirement assets, release this data?

Nobody seriously questions that public safety workers deserve to make a premium for the work they do. The level of sophistication required to work in law enforcement and fire suppression today is far greater than it was 20 or 30 years ago. The value we place on life and personal security is also greater today than ever before. There is a price for this, and it is one taxpayers should pay without resentment. The question is how much of a premium is equitable, and how much of a premium is financially sustainable. A related question is how much of this premium paid to public safety workers, to the extent it is excessive, the result of powerful government worker unions who pool taxpayer’s money to control local elections with massive campaign contributions. How much is this pay premium elevated because public safety worker unions, and their PR firms, exploited their deserved hero status in inappropriate ways to manipulate the electorate to ignore fiscal reality?

When the question turns to pensions, however, the issue of whether or not a premium is appropriate for service in public safety may not be as justifiable. If public safety workers deserve a premium, it should be paid as part of their current compensation. This way they may share, along with all public employees, the same obligations to financially prepare for their retirement that face working private sector taxpayers. As for disability pensions, it strains credulity to think that over 80% of police chiefs and fire captains, and over 60% of other public safety workers are disabled in the course of their jobs. And even if they are, these disabilities can be remedied through far less expensive private disability insurance, not through the granting of service disability tax exemptions that increase the effective gross amount of their pensions by 20-30%.

Questioning whether or not we should offer pensions in excess of $75K per year to workers who retire in their early 50s, or then offer as many as half of these retirees with service disability tax exemptions, goes beyond questions of financial sustainability. It goes beyond questioning how much of a premium they deserve for the risks they take to protect the public. A deeper question is not how much we value the lives of those who protect us, but how much we value everyone’s life. Dozens of jobs are more dangerous than those in public safety. Logging, fishing, agriculture, and mining occupations claim thousands of lives every year, and maim thousands more. Few if any of these workers retire in their early 50s with pensions of $75K or more, and none of them receive service disability tax exemptions. Do we consume the products that these workers lose their lives and endure disabling injuries to provide for us? Can we live without those products? Are their lives any less significant than the lives of others who wear badges? For that matter, are the millions who toil in factories or in front of computers any less likely to wear out and become disabled through repetitive motions and eye strain? Are their injuries less debilitating? Is their life’s work undeserving of commensurate dignity?

Ultimately, we all share the fate of our mortality, the ultimate disability. We age, we wear out, we are progressively disabled, and then we die. Nobody escapes this verdict, whether our professions are public or private, intellectual or physical, noble or profane. This common denominator – tempered by considerations of what is financially realistic – should govern our common response to the challenges of disabilities, not privilege, nor political power, nor manipulative emotional appeals.