The Hijacked Public Interest in California

If you consider yourself an environmentalist, and someone who – unlike libertarians – believes in a strong role for government in our lives, it’s hard to watch what has been done to environmentalism and government in California. Environmentalists have been hijacked by the global warming lobby, and our state and local governments have been hijacked by labor unions. And if you don’t accept the premises of California’s environmentalists today – that reducing CO2 emissions is going to address an urgent environmental crisis at the same time as it helps the economy, or the premises of California’s public employee unions – that public employees are NOT over-compensated and therefore we must raise taxes so we can afford to pay them, you may logically conclude that California is akin to an occupied nation.

Notwithstanding the spectacular failure of the Meg Whitman campaign – more on that later – the problem in California politics is simple. The environmentalists get their backing from Wall Street plutocrats, who have correctly identified the opportunity to trade CO2 “emissions credits” and “offset credits” as the biggest opportunity for them to rob from the poor and give to the rich they’ve ever seen. Public sector unions get their backing directly from California’s taxpayers, since these unions pretty much compel California’s public employees to join and pay dues. Estimates of California’s public sector union total political spending reach a half-billion dollars on politics every two year election cycle (ref. Public Sector Unions & Political Spending). And these unions, just like the environmentalists, are best friends of Wall Street – those unsustainable pensions granted unionized public employees, retirement benefits that are anywhere between 3x and 10x more generous than social security – pour far more money into Wall Street pension funds than any other category of investment in America.

Because environmentalists have shifted their concern from the environment to becoming tools for Wall Street CO2 emissions brokers, and because public sector unions have succeeded in empowering public sector workers but have done nothing for the private sector workers whose taxes fund the public sector, these groups no longer operate in the public interest. While fiscal conservatives have been screaming about this for years, even liberals are beginning to see the light – particularly with respect to the antics of public sector unions, but recently, even the environmentalist agenda has begun to concern conscientious liberals who sincerely care about the public interest.

Which brings us to California’s recent election, where Democrats ran the table for higher state office. Republican Meg Whitman made several mistakes – explored adequately elsewhere – but her failure was illustrative of a fundamental reality in California politics: Democrats don’t have to raise money for their candidates from the grassroots, or from independent businesspeople, because they get their money from Wall Street plutocrats who masquerade as environmentalists (note the crushing defeat of Prop. 23 because it threatened their interests), and from public sector unions. And because election laws preclude a wealthy individual from making a substantial donation to a candidate they choose, the only way a Republican can afford to run for higher office in California is if they are themselves wealthy. That is a tough one – how many good candidates are wealthy? How many wealthy people make good candidates? And even if they would do a great job – and Meg Whitman probably would have done a great job – they are tainted by their access to money from the get-go. “Queen Meg.” The irony is almost too much to bear.

For these reasons, candidates in California can’t sit on the fence, nor can they adhere to an orthodox conservative ideology. A successful reform candidate in California will have to swing for the fences, identifying phony environmentalists and insatiable public sector unions as the villains in this drama, and courting liberals alongside conservatives down a path towards restoring a government that acts in the public interest. If California simply implemented a 20% headcount reduction and 20% pay-cut across the board to their public sector employees, put a ceiling of 3x the maximum social security benefit onto their pensions combined with a 50% employee contribution, built 3 nuclear power stations and two more reservoirs, most of California’s economic problems would disappear. People who care about the environment, the dignity of workers, and the public interest in general, should wonder why more politicians aren’t asking for these solutions.

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Fighting Bad Policy With Facts

A couple of months ago in a post entitled “Inflation, Population & Government,” I criticized California Senator Denham for making the following assertion in a press release: “between 1970 and 2010, for every 1 percent increase in population, our [California’s state government] spending has increased 20 percent.” In reality, if you adjust for inflation, that statement should read as follows: “between 1970 and 2010, for every 1 percent increase in population, our [California’s state government] spending has increased 3.4 percent.”

This is still a shocking statistic. California’s state government grew over the past 30 years at 3.4x the rate of population growth. Why make an unbelievable comment – 20x – when the inflation-adjusted indisputable truth is so dramatic?

Here’s another one, just for the record. In today’s Wall Street Journal, one of my favorite writers, George Gilder, has a guest column entitled “California’s Destructive Green Jobs Lobby.” In this column he makes some fundamental points about California’s failure on Nov. 2nd to pass Prop. 23, which would have slowed down implementation of AB32, the “Global Warming Act” passed by their legislature in 2006, and set to take effect in 2012. To paraphrase Gilder:

  • CO2 is not pollution.
  • Fossil fuel is cheaper and in many respects far cleaner than “alternative energy,” and there is plenty of it available within the borders of the United States.
  • Economic growth depends on basic resources such as energy costing consumers and businesses LESS, not more.
  • “Green plutocrats” ponied up tens of millions and were prepared to spend Prop. 23’s backers into the ground to make sure it was defeated.
  • The reliance on government edict to grow venture-backed “green” companies is undermining and corrupting the most competitive, innovative sector in the U.S. economy, the venture capital industry, with potentially tragic consequences to our national security, technological leadership and economic future.

It is difficult to overstate how much I agree with Mr. Gilder on these points, as any reader of CIV FI knows. That the destroyers of Prop. 23 really believe CO2 is pollution is plausible, although they ought to do their homework because CO2 is not pollution, it is a benign trace gas that plants depend on in order to live and helps make our planet habitable. But how can they possibly think putting California through the hardship of AB32 will actually make a difference in atmospheric CO2 concentrations, or empower anything other than their own financial returns along with enhanced revenues to the public sector? These billionaires were able to persuade economists to release studies claiming that subsidized “green” jobs, producing inefficient, expensive energy solutions, and forcing consumers and businesses to buy these “solutions,” would actually create economic growth. The whole thing is ludicrous. It is laughable. The backers of Prop. 23 should have publicized the names of these plutocrats, challenged their motives, and ridiculed their premises.

Here’s where Gilder got careless, however:

“What is wrong with California’s plutocratic geniuses? They are simply out of their depth in a field they do not understand. Solar panels are not digital. They may be made of silicon but they benefit from no magic of miniaturization like the Moore’s Law multiplication of transistors on microchips. There is no reasonable way to change the wavelengths of sunlight to fit in drastically smaller photo receptors. Biofuels are even less promising. Even if all Americans stopped eating (saving about 100 thermal watts per capita on average) and devoted all of our current farmland to biofuels, the output could not fill much more than 2% of our energy needs.”

Biofuel is indeed inefficient, but it isn’t that inefficient. There are roughly 470 million acres of active farmland in the U.S. (ref. Carrying Capacity Network, “U.S. Food & Land Production“), and bioethanol from corn can yield roughly 500 gallons per acre per year (ref. EcoWorld, “Is Biofuel Water-Positive“). There are roughly 81,000 BTUs of energy within a gallon of bioethanol (ref. “Gasoline Gallon Equivalents“), which means that if you produced corn ethanol on every available acre of farmland in the U.S., you would produce about 19.2 quadrillion BTUs per year. Since we use about 100 quadrillion BTUs of energy per year in the U.S., growing ethanol on every acre of farmland would deliver us about 20% of our total energy needs, not 2%. Gilder dropped a decimal.

The reason to stop California’s global warming act isn’t that alternative energy shouldn’t be promoted. The point is alternative energy, in most cases, is still too expensive to replace conventional energy development. There are parts of the world, such as Brazil – where you can get over 1,000 gallons of ethanol per acre from sugar cane – where biofuel makes economic sense (although the environmental price paid for all that acreage of sugar cane for transportation fuel is another story). There are off-grid applications of solar electricity that also make economic sense. But these are the exceptions, not the rule, and will remain so for a few more decades. All of Gilder’s fundamental points are completely accurate. The idea that we are about to force California’s industry to trade “carbon emissions credits,” so “green” entrepreneurs can make billions, and Wall Street brokerages can rake commissions off of trillions – all on the backs of the people least able to afford this – is truly deplorable.

When the facts are on your side, there is no need to inadvertently exaggerate them. And those who want to impose bad policy onto the backs of honest working people should examine their own premises.

Public Sector Deficits & Global Warming “Mitigation”

About the same time one might belatedly realize that reducing anthropogenic CO2 emissions will do absolutely nothing to alter or avert whatever climate “change” nature may have in store for us, might also be the time to realize the real reason we have chronic government deficits is because we not only have too many government employees, but we pay them too much. Connecting the dots, on July 2nd, 2008 in a post entitled “Breaking Down California’s AB32 Global Warming Act,” I wrote the following:

“Based on the potential of offset sales, carbon fees, and sales of emissions allowances, one may dismiss claims that AB32 will cost California’s government more than it will bring in revenues. AB32 will potentially cause tens of billions of dollars of net cash per year to flow into California’s public sector. Qualifying municipalities that enforce high density may earn carbon offset fees from polluters, based on how many vehicle miles they can calculate they eliminated through high density zoning. AB 2596 sets the stage for this. Redefining public sector jobs to address global warming mitigation may encompass a huge percentage of the public sector workforce, including construction, infrastructure, education, as well as explicitly environmentally focused agencies. Already California’s 400+ cities, 58 counties, and 32 air quality management districts are imposing new global warming related fees. Since global warming mitigation is a specific program – no vote is required to assess these fees. Auctions of emissions allowances to industry could pour additional hundreds of millions, if not billions, into the public sector each year.

…public sector agencies are salivating over cash flow potential associated with AB32. But why wouldn’t they? Nearly every public entity in California – and elsewhere in the USA – is at risk of bankruptcy, primarily because of grossly over-generous employee compensation, benefits and pensions. Other than carbon-related offset payments, fees and auctions – or massive tax increases – there is no new source of revenue even remotely capable of restoring solvency to public entities. Avoiding public sector reform in general, and avoiding public employee pension reform in particular, is the hidden issue that informs global warming alarm in the public sector.”

Now that California’s Proposition 23 – which would have suspended implementation of California’s Global Warming Act – has failed to pass at the same time as the looming insolvency of public sector employee pension funds is becoming common knowledge – the connection between public sector deficits and the potential revenues associated with global warming mitigation is coming more into focus. Here is more on how AB32 is going to try to rescue the finances of public entities, written in a post last week on CalWatchdog.com entitled “Expect More Population Flight,” by Wayne Lusvardi:

Utility user taxes provide a money lifeline for municipalities to raid water and power utility funds and shift them into their general operating and fiduciary retirement funds. When California’s Green Power law goes into effect in 2012 it is likely that municipal water and power funds will swell and the surplus siphoned into city and county general funds to meet pension obligations. Voters will not have a vote in determining whether existing pension obligations will be met or not. Instead lucrative union pension deals will be buried in increased water and power rates.

This may explain why expensive Green Power is being rolled out so aggressively and so fast over the voices of prominent scientists exposing global warming and C02 pollution as a fraud. Green Power may be a means to bail out broke municipalities before 2015 or 2020 rolls around whichever is the case. Green power could result in 40 percent to 60 percent higher electricity rates coupled with a 15 percent to 30 percent increase in water rates, not including the $44 billion water bond proposed for the 2012 ballot (including bond interest and matching funds).

Despite AB32 being nothing more than a mechanism to transfer wealth from lower and middle class private sector workers into the pockets of public sector workers and “green entrepreneurs” (they are neither), Prop. 23 which would have suspended its implementation was soundly defeated. The reason it was defeated was because its proponents were outspent 3 to 1. And who was it who opposed those evil oil companies? It was wealthy hedge fund oligarchs and “green tech” moguls, abetted by environmentalist “nonprofits” whose boards of directors are almost exclusively populated by trial lawyers, and, imagine this – other oil companies who have sold out. These special interests all know that implementing AB32 will pour more money into their own pockets. Take a look at how many of the super rich threw millions into defeating Prop. 23 in order to protect their financial turf: Ballotpedia Prop. 23

The failure of Prop. 23 is instructive, because it illustrates quite well the accusation by conservatives that the Democratic Party is actually the party of the “ruling class.” Because the incredibly wealthy individuals who stepped up to annihilate Prop. 23 – and they could have spent far more than the $20M+ that they donated without blinking – are nearly all Democrats. They are so wealthy that buying off the public sector workers, who in California make nearly twice as much on average as private sector workers, is more important to them than fostering an equitable society where hard work and merit can still allow people who aren’t spectacularly lucky or supremely intelligent to get ahead financially. As long as society’s administrators and enforcers – unionized public employees – can afford to pay 60% more for electricity and 30% more for water, who cares about all the other little people?

The failure of Prop. 23 is also instructive because it shows, yet again, nauseatingly, where the money really is in the debate regarding what causes climate change. Everything associated with climate change “mitigation” is regressive. It creates new – absolutely absurd, nonsensical “CO2 credits” – classes of assets for Wall Street brokerages to collect trading fees on, it creates new legal frontiers for attorneys, new carve-outs for insurance companies, new accounting rules for CPAs, heavily subsidized new “green” industries to attract entrepreneurs and investors who used to believe in competition, and it pours money into the public sector, alleviating the need for public sector union reform. Everyone wins except the ordinary Californian.

For more on AB32 and the real reason for public sector deficits, read “Implementing California’s Global Warming Act,” and “Public Employee Compensation.”

Bullet Train Boondoggles

On November 4th California’s “High-Speed Rail Authority” released a press release entitled “Federal Funding for High-Speed Rail Dedicated to the Central Valley.” Apparently an additional $715 million in infrastructure investment is going to be directed to the development of California’s bullet train, bringing the total to $4.3 billion. All of these funds are to be spent on what will be the first segment of the high-speed rail system, running between Merced and Bakersfield.

A few years ago, when I worked as CFO for a short line railroad, I learned of a term familiar to railroad professionals, “foamer,” which is used to describe rail enthusiasts whose interest in everything having to do with locomotives, rolling stock and track, matched that of rock star groupies. But pleasing the foamers – and the foreign corporations who will gobble up most of the borrowed government loot that gets sunk into high-speed rail – is not reason enough to direct money at this project.

A commenter on a previous post here said something very insightful – “if we’re going to spend money we don’t have, let’s at least spend it on things we can see.” He was referring to the folly of using deficit stimulus money simply to continue to pay over-market compensation to government employees. But I would take that a step further. If you are going to spend money you don’t have, at least spend it on things you can see that will yield a return on investment. The bullet train boondoggle will never yield a return on investment – it will be a financial drain on our economy forever. It will never make money.

The reason high-speed rail makes sense in other parts of the world are because they are more densely populated, and because they are smaller geographically. There are nearly 100 million people living along the 250 mile corridor between Tokyo and Osaka. This is the industrial and urban heartland of Japan, a megapolis where the population density per square mile is often 50,000 people or more. In places like this, high speed rail makes sense. If you are traveling within this region, you can board a train and travel 200 miles in less time than you would require to board an airplane and travel 200 miles. And because there are nearly 100 million people living along the rail corridor, there is a large population of potential passengers.

California, by comparison, is contemplating an 800 mile system, with 24 stations, in a state with not quite 40 million people. How would high-speed rail transport compare with airplane transportation in California? Here is the “high-speed” route being contemplated to get someone from San Francisco to Los Angeles:
San Francisco to San Jose – 50 miles
San Jose to Fresno – approximately 150 miles, the Rail Authority doesn’t provide information for this leg
Fresno to Bakersfield – 130 miles
Bakersfield to Palmdale – 85 miles
Palmdale to Los Angeles – 58 miles

If you fly from San Francisco to Los Angeles, your experience isn’t that different from if you take a bullet train from San Francisco to Los Angeles, except for the actual transit time. You will still have to get to the airport or the station using a car or mass transit. You will still have to go through security. You will still have to wait to board the next available flight, or train. But the travel time from San Francisco to Los Angeles on a plane is about one hour. On a bullet train, this same journey would traverse at least 450 miles of track, and a non-stop trip at an average speed of 180 MPH would take 2.5 hours. The round trip would take five hours instead of two hours. And how many non-stop trips are they ever going to have on a bullet train per day from San Francisco to Los Angeles? There are literally dozens of non-stop flights each day from San Francisco to Los Angeles. It is not practical.

To estimate what this bullet train is really going to cost to build, consider the costs currently projected for the test track just funded. Apparently this first segment will comprise the “core of the system,” which is “either Merced-to-Fresno or Fresno-to-Bakersfield.” Since it’s 60 miles from Merced to Fresno, and 113 miles from Fresno to Bakersfield, if one divides the $4.3 billion in required funding by the average of those distances, which is 86 miles, you will get a cost of $50 million per mile! If you multiply this amount by the planned 800 miles of track, you get a cost of $40 billion. Is this accurate?

When the bullet train proposal was originally sold to voters, it was marketed as costing $9.5 billion. Simply by extrapolating the costs for the first stretch of track – in the most remote, sparsely populated area of the entire system, where the land is both far cheaper and also flat as a pancake, we get to a cost of $40 billion. And does this $50 million per mile cost include all the rolling stock, all the stations, all the corridor security fences? What about the costs for land where the high-speed rail right-of-way will be traversing the land between San Francisco and San Jose, or everywhere from just north of Los Angeles all the way to San Diego – arguably the most expensive acreage on earth? What about the cost to cut routes through the mountainous Pacheco Pass in Northern California, or the Grapevine in Southern California? It is difficult to imagine that the real cost, in today’s dollars, of the entire California high-speed rail system, as it is currently envisioned, costing less than $100 billion. If this gargantuan boondoggle is ever realized, it is probably going to cost a lot more than that.

If you read the website of the California High-Speed Rail Authority, you can get additional clues as to just how expensive this system is going to be. For example, the page showing projections for the San Francisco to San Jose corridor projects passenger counts of 31,600 per day. You have to assume this is not a low-ball estimate, since the purpose of this website is to present a supportive perspective on the project. This means that 31,600 people are going to make 100 mile round trips approximately 250 times per year. Since this is the Bay Area, and not Fresno County, it is safe to assume the cost per mile will be well in excess of $50 million, but even at $50 million per mile this is a $2.5 billion expenditure to move 31,600 people to work and back. This will not make a dent in Bay Area traffic. There are nearly 7.0 million people living in the San Francisco Bay Area, and probably at least 3.0 million of them have to transport themselves to work every day. The bullet train will move 31,600 people out of 3,000,000 commuters, alleviating traffic congestion by about 1.0%. And that’s the best case, in the most likely segment of the rail system to be maximally used. Nobody who can board an airplane is going to use the bullet train to go to Southern California from Northern California. Relatively few riders will use the train to travel between the smaller urban centers, such as from Bakersfield to Fresno.

So how much will this system cost per year to pay off the bonds, if the system costs $100 billion and 30 year bonds are issued at 5.0% interest? Using an online mortgage calculator, you will see that a 5.0%, 30 year fully amortized loan will require total payments per year equivalent to 6.4%. That is $6.4 billion per year that taxpayers will pay in principal plus interest to service the debt for California’s high-speed rail system. Readers who disagree with these assessments are invited to convincingly prove that this system is going to cost less than $100 billion. Don’t count on ridership revenue to pay for this – it is highly unlikely ridership will even cover operating costs.

The question is not whether or not we need high-speed rail – if you want a 200 MPH theme park ride scarring California’s beautiful landscape for 800 miles from north to south – that is a matter of taste. The real question is what could we do instead with all that money. And the answers are plentiful. We could spend $20 billion (that will probably inflate, too) and reenact the water bond, which would invest in upgrades to our aqueducts and dams, introduce new sources of water storage, construct a peripheral canal around California’s delta, and hopefully even fund upgrades to our wastewater treatment facilities. We could invest in public/private ventures to build 2-3 nuclear power stations; for $10 billion of public money we could probably leverage construction of another 10.0 gigawatts of electrical output, plenty to guarantee California cheap electricity. And we could upgrade and widen our roads, getting them ready for tantalizing new designs for surface transport – busses and cars that operate on auto-pilot in high-speed lanes – there is no transportation medium as versatile as a simple road. We might even upgrade intercity trains in the densely populated Bay Area and Los Angeles, using existing rail corridors.

There are 12 million households in California. If this boondoggle is actually realized, it is going to cost each of them over $500 per year. Since half of the households in California don’t pay any taxes, or pay minimal taxes, however, those Californian households who do pay taxes will each be more likely to pay $1,000 per year to pay for high-speed rail. Is that worth it? Particularly when that financial sacrifice could be used instead to invest in nuclear power, water storage, conveyances and treatment, and more roads – which would deliver cheap energy, cheap water, and cheap and convenient transportation.

A legitimate role for government spending is to make strategic investments that reduce the costs for basic necessities. That is what makes a nation prosperous. That is a proper use of public funds. Artificially inflating the costs for energy, water and transportation – which is the current policy of California’s government – is a crime against the people of California, and the “environmental” justification for all of this is a smokescreen and a fraud. California’s bullet train boondoggle is just one example of this travesty.

Widespread Voter Fraud?

During the 2004 Presidential election there were allegations of voter fraud; the 2000 Presidential election was alleged to have been “stolen” by the Republicans. If you go further back in history, you can point to evidence the Democratic machine in Chicago manipulated election results to throw the 1960 Presidential election victory to Kennedy. A close reading of American history would reveal election fraud as a challenge to our democracy from the very beginning, and in every decade since then. So it shouldn’t be any surprise that we’re seeing it now.

What is a surprise is the opportunities for voter fraud, in this age of biometric identification technology and total information awareness, are actually greater than ever. Using California as an example, here are some of the reasons why:

Voters are not required to present a verifiable photo identification when they vote, nor when they register to vote. I personally experienced this when I went to my polling place on November 2nd, and once they had asked me my name and had me sign next to my name on the rolls of registered voters in that precinct, I asked them “aren’t you going to ask me for an identification?” They said no, that it was not required and they don’t do it.

Voters are able to vote by mail. This causes a variety of problems – first, it precludes anyone showing an identification, and second, it prolongs vote counts after the election as workers tabulate the ballots. And the greater the number of ballots requiring post-election, manual counting, the more opportunities there are for political operatives who have infiltrated our election workforce to manipulate results. And because voting by mail is done outside of the controlled environment of the voting booth at the polling place, there is no guarantee that these ballots are not filled out by someone other than the person supposedly voting.

There are horrendous reports coming in this week from all over the country documenting voter fraud. An article posted on RedState.com, entitled “How Unions or Their Allies Could be Stealing November’s Election Right Now,” alleges that massive, systemic, union-orchestrated fraud has been implemented across the U.S. this election and could have decided several close races in favor of Democrats. Whether or not this is true, or true at the scale being alleged, should not deter any concerned citizen from considering these charges, because they expose serious weaknesses that challenge the integrity of our voting process. Here are some of the allegations:

The SEIU and others funded the “Secretary of State Project” in 2005, pouring money into races to elect “reform minded” Secretaries of State in battleground states. In nine states since then they have successfully elected their candidates. Since the Secretary of State oversees elections, who sits in that position can potentially have a corrupting influence on election outcomes when there are recounts – or when there is a high percentage of mailed absentee ballots. In California, the employees who count and verify ballots are members of the SEIU. Is this appropriate? Are these people disinterested parties to election outcomes?

The report goes on to claim the SEIU has been attempting to manipulate the electoral system across the United States, engaging in actions ranging from submitting forged initiative signatures, to invalid voter registrations, to hacking into voter machines, to destroying evidence of hacked machines. The report discusses how fake IDs are being used to exploit lax voter registration procedures, that illegal immigrants are being signed up as “permanent absentee voters,” and that early voter “rallies” are being held where voters are instructed, as a group, how to mark their mail-in ballots.

Is all of this true? Are unions engaging in electoral manipulation that eclipses any potential manipulation by the other side? One thing is certain, they certainly have the financial power to do this. Unions, who compel employees to join their ranks and pay them mandatory dues, exercise financial clout that can overwhelm most other special interests, particularly when most other special interests are either terrified of unions or working with them. It is naive to dismiss the idea that big labor, big business, and big government would not have a common interest in colluding to squelch competition by emerging entrepreneurs and disruptive technologies.

If the primary practitioners of voter fraud in 2010 are indeed labor unions, it is an amazing feat to see their interests defeated nearly everywhere in the nation. Because if it is true, that they have gone into legal gray areas – if not engaged in blatant criminal activity – using their millions of well-paid, highly organized foot soldiers to penetrate every race, local, state and national, exploiting every weakness in the system, AND spent literally hundreds of millions of dollars in political campaigning to promote their agenda, why did they lose so badly?

The reason, of course, is because America doesn’t want unions to run their country – their President, their Congress, their State Legislatures, their school boards, their public utilities, their local city councils. American workers don’t want to be forced to pay dues to a union boss. They don’t want to see their upward mobility in the workforce governed by seniority and diversity quotas instead of merit and hard work. They don’t want to see competition erased from our economy. They don’t want to see unions and environmentalists provide cover for each other, as they dismantle our economy. They don’t want to see their taxes turned over to public sector pension funds and gambled on Wall Street, distorting the market and destroying small investors. They don’t want to listen to a bunch of well-heeled leftist politicians, funded through coercive dues instead of voluntary contributions, tell us capitalism is evil, that wealth is inevitably ill-gotten, and that equality of outcome is superior to equality of opportunity – legislating accordingly.

Whether or not unions manipulate our elections, they certainly buy them. Any reforms to improve the integrity of our elections or impose yet another restriction on campaign finance must first address this fact – unions compel millions of American workers to become members, impose upon them mandatory dues, and use this illegitimately acquired wealth to exercise far too much influence on our democracy. This must be stopped, via initiative, via legislation, and via court action.

California’s Initiative Ecosystem

Only one initiative in the history of California passed without requiring professional signature gatherers to qualify it; that was the legendary Proposition 13 enacted in 1978 to lower property tax rates. But the lack of funds to take an initiative from concept to ballot to voter-approved law doesn’t discourage initiative proponents from filing them. In California, for a few hundred dollars, anyone can file a state initiative with the Secretary of State, wherein they will have 150 days to gather the required signatures – allowing for an inevitable percentage of disallowed signatures, an initiative that will amend California’s constitution will require (allowing for the inevitable percentage of unverifiable submissions) about 1,000,000 signatures. You can view California’s latest and greatest initiative filings here: Initiatives and Referenda Cleared for Circulation. For more on how to file an initiative, read “Laws governing the initiative process in California,” and “California signature requirements.”

California’s initiative laws have created a political ecosystem, where simply reviewing the dozens, or even hundreds of initiatives that have been filed provides an insightful glimpse into what sentiments roil the body politic. Some of them are the product of fringe groups and fanatics, others are clearly the product of serious and measured analysis, still others are spawned by powerful special interests, often filed as warning shots.

There are currently only six initiatives cleared for circulation that haven’t expired, plus ten more that have recently expired but haven’t been removed yet. Here’s the one most recently filed:  “1475. (10-0022), Creates Special Constitutional Rule for Speech Based on the Bible. Initiative Constitutional Amendment. Summary Date: 10/25/10 | Circulation Deadline: 03/24/11 | Signatures Required: 694,354: Exempts speech based on biblical authority from existing constitutional and statutory restrictions applicable to all other speech, including restrictions against discrimination and hate crimes. Repeals constitutional provision denying protection to acts of religious expression inconsistent with the peace or safety of the State.”

Moving from the social issues to fiscal issues, here’s the next one in line:  “1474. (10-0021), Requires Lender or Other Mortgage Holders, Upon Borrower’s Request, to Convert Adjustable-Rate Loan to Thirty-Year Fixed Rate Loan and Reduce Loan Principal to Property’s Current Fair Market Value. Initiative Statute. Summary Date: 10/14/10 | Circulation Deadline: 03/14/11 | Signatures Required: 433,971: Limits new loan’s value to sum of the property’s current market value, plus amount of certain cash distributions under the first mortgage. Extinguishes borrower’s obligations on prior loans secured by the property. Prohibits reporting loan conversion to consumer credit agencies.”

As a clearing house where the dreams of social conservatives and fiscal liberals – or social liberals and fiscal conservatives – are put on public display, it’s hard to beat California’s “Initiatives and Referenda Cleared for Circulation.” Also still actively filed is number 1472 (10-0019), that “Eliminates the Law Allowing Married Couples to Divorce,” and number 1471 (10-0018) that “Requires Parental Notification Before Terminating Pregnancy of Female Under 18.”

Since there are only six unexpired initiative proposals out there, here are the final two of them, number 1473 (10-0020), that “Prohibits State Retirement Funds from Investing in Companies Engaged in Certain Business Activities in Israel,” and, expiring today, the inflammatory number 1470 (10-0017), that “Imposes New Annual Surcharge and New Annual Tax on All Pension Income Over $40,000. Initiative Statute.” Watch out, pensioners, that one could get legs.

How crazy or fringe these initiatives seem may often depend on whether or not you agree with them. Few of us are likely to scoff at a futile or even extreme initiative proposal if it fulfills some cause in which we fervently believe. Imagine if all of them passed – we could engage in hate speech if we claimed the bible justified it, we could buy overpriced homes and then have our mortgage reduced to the “market value” if the price came down to earth, we would be prohibited from getting divorced, etc. At least there would no longer be a pension crisis… On the other hand, even if enacted, how many of these initiatives could withstand a challenge in court?

Some proposed initiatives sound good, some of them seem absurd or unfair. Here’s one that recently expired that is extremely interesting, number 1469 (10-0016), that “Repeals Environmental Protection Laws and Establishes New Inalienable Rights. Initiative Constitutional Amendment and Statute. Summary Date: 05/14/10 | Circulation Deadline: 10/12/10 | Signatures Required: 694,354. Repeals the California Environmental Quality Act, the California Coastal Act, the California Endangered Species Act, and the California Global Warming Solutions Act. Establishes new inalienable rights to produce, use, and consume air, carbon dioxide, water, habitat for humanity and energy generating natural resources. Grants the people of California the right to nullify all federal powers not delegated to the United States by the federal constitution.”

Here’s another recently expired initiative that attempts to rein in the environmentalist lawsuit industry, number 1464 (10-0008), that “Precludes Anyone Other than State Attorney General from Bringing a Lawsuit Challenging Sufficiency of Environmental Impact Report. Initiative Statute. Summary Date: 03/26/10 | Circulation Deadline: 08/23/10 | Signatures Required: 433,971. Changes California law to preclude any person, city, county, or other entity, other than the state Attorney General, from bringing a lawsuit that alleges that an environmental impact report does not comply with the California Environmental Quality Act because it fails to identify ways to minimize significant environmental effects, fails to offer alternatives to the proposed project, or fails to satisfy other legal requirements. Summary of estimate by Legislative Analyst and Director of Finance of fiscal impact on state and local government: Potential additional net costs for DOJ from increased CEQA litigation workload, likely not more than the low millions of dollars annually. Potentially significant savings or costs for state and local government litigation defense in CEQA cases. Unknown, but likely positive, net impact on state and local government revenues from increased economic activity.”

You have to love the legislative analyst’s take on the fiscal impact of that one, “Unknown, but likely positive, net impact on state and local government revenues from increased economic activity.”

It’s interesting to wonder what motivates filing some of these initiatives. There isn’t another regularly scheduled statewide election until 2012. Some of these recently expired initiatives were, presumably, attempts to make it onto last week’s ballot. But most of the ones filed in late October, for example, are pretty much guaranteed to never make it onto any ballot. They are just political statements, surfacing for 150 days, and nearly always receding into oblivion, on one of the most intriguing soapboxes ever conceived.

There is perennial talk of banning citizen’s initiatives, with claims they have made California “ungovernable.” This would be a tragic mistake. What has made California ungovernable is the fact that California’s government employees have been allowed to unionize. This has created a special interest, public employee unions, of unprecedented power and uniquely corrupt. They have pursued an agenda of more laws and regulations and unsustainable compensation for an ever-expanding unionized government workforce. They have either co-opted or intimidated most of California’s business community, they work closely with the environmentalist extremists, and they have used their massive and ill-gotten financial wealth to turn our elections into travesties (ref. Public Sector Unions and Political Spending). Yet someday, perhaps someday soon, the enslaved citizens of California will rise up against their public sector union overlords and eviscerate their power before we have an economic collapse, and the citizens initiative is the last, best, and only mechanism left to accomplish this.

Pension Reform Options

Not present on the ballot this year in California is an initiative to reformulate pension benefits for state and local government employees. The subject of dozens of posts, public employee pensions are financially unsustainable and grossly inequitable. The reasons for those assertions have been fully explored in previous posts, so the purpose of this post is not to reiterate those reasons, but to enumerate some of the key reforms that would, if they were all enacted, bring pension benefits for public sector employees down to a level that would be financially sustainable while still preserving the defined benefit option. In some cases, these reforms would have to be implemented not via an initiative amendment, but via municipal bankruptcy court – but if they were included in an initiative, it would provide a roadmap for bankruptcy courts to follow. Here goes:

(1) Lower annual pension accrual to 1999 levels for new hires:
The public sector pension formula for all new hires would be based, as before, on accruing a percentage of final salary for each year worked. For public safety employees this percent would be reduced from 3.0% per year to 2.0% per year. For all other employees, this percent would be reduced from 2.0% per year to 1.25% per year.

(2) Lower annual pension accrual to 1999 levels going forward for existing hires:
Current employees would, for all years remaining in their public sector career, accrue their retirement benefit at the new reduced percentage rate. Current employees would retain the higher percentage rate they have earned in prior years, subject to the conditions in (3).

(3) Reverse any retroactive pension accrual enhancement ever granted existing hires:
Current employees whose annual pension benefit accrual was increased retroactively from 2.0% to 3.0%, or from 1.25% to 2.0%, will retain this increase for the years subsequent to that change (subject to the conditions in item (2), but will revert to their original rate of pension benefit accrual for the years prior to that change.

(4) Retired public employees will see no change to their pension benefit.
Create a “pension review commission” to audit and adjust any existing pensions where evidence of “spiking” or other inappropriate enhancements are uncovered.

(5) Spread “final year” salary calculation over five years and eliminate “spiking”:
The final salary base for which the accrued percentage based on years worked shall be applied will be calculated as follows: The average of the final five years of each retiree’s annual compensation, adjusted for inflation, but not subject to any other adjustments. Annual compensation shall not include overtime, cashed in sick time or vacation time, bonuses, or any other form of compensation not considered base salary.

(6) Establish ceiling on maximum pension benefit:
A ceiling on eligible pension compensation shall be set at no more than 75% of the average final five years salary as calculated in item (5). Additionally, a ceiling on eligible pension compensation shall be set at no more than triple the maximum benefit awarded under social security. A floor on eligible pension compensation shall be set at no less than the benefit as calculated by social security.

(7) Raise eligible retirement age:
Public safety employees shall become eligible for pension benefits no earlier than age 55, and other employees shall become eligible for pension benefits no earlier than age 62.

(8) Reduce pension benefit by amount retiree earns in new job:
Public employees shall not be eligible to receive their full pension if they engage in work subsequent to their retirement. To the extent a public sector retiree works in any job, public or private, the gross amount they earn shall be deducted from the gross amount of their eligible pension payment.

(9) Eliminate tax-free or reduced tax pensions:
No portion of public employee pensions shall be awarded tax-free status, or subject to a reduced rate of taxation, for any reason.

(10) Aggregate multiple pensions under same ceiling:
Public employees who have earned two or more pensions by virtue of working in two or more public sector jobs for a period sufficient to vest these pensions shall have the sum of these pension benefits subject to the ceiling limitations as set forth in items (6) and (7), and these reductions to benefits shall be apportioned on a pro-rata basis to the applicable benefit plans.

(11) Require conservative pension fund investment strategy:
Public employee pension funds will be required to invest 80% of their assets in low-risk annuities.

(12) Require public employees to contribute a fair share to their pension fund:
All public employees shall contribute 50% of the amount necessary to fund their pension each year in the form of withholding from their gross earnings, with the employer contributing the other 50%.

While many of these items may violate existing collective bargaining agreements, they are worth considering either as an initiative amendment, legislation, or as the product of bankruptcy negotiation. Because these twelve items represent an equitable way to move forward with pension benefits for public employees that remain considerably better than social security, retain the security of being defined benefits, and would – if all of them were enacted today – almost certainly preserve the solvency of the public employee pension system.

California 2010 Ballot Propositions

Having received at least two dozen “voter guides” from “associations” representing public sector employees, and perhaps 2 or 3 from taxpayer groups – on much cheaper paper, much smaller formats, much lower weight – it seems like it would be useful to make a quick run-through of some of the critical voter initiatives on California’s ballot.

CIV FI’s California 2010 Ballot Proposition Voter Guide

Prop. 19 to legalize marijuana – who cares? The big money behind this proposition is based on the premise that people who smoke marijuana will support it, and that people who smoke marijuana will vote if this measure is on the ballot, and that people who smoke marijuana are young voters who (currently) tend to vote Democratic. Proponents of Prop. 19 who are backing it for this reason – and all the recent big money coming in to support this initiative are only concerned about this, not anyone’s rights to get stoned or any supposed tax revenue to be collected – need to be careful what they wish for. If this measure passes the Obama administration will be forced to crack down on California’s medical marijuana industry, which will alienate not only the marijuana smoking crowd, but pretty much every young person or libertarian leaning older person in America. 2012, anyone? CIV FI takes no position on this initiative.

Prop. 20 to form an independent commission to redraw California’s federal congressional districts – YES. A few years ago, a similar measure passed to redraw state legislative districts (ref. Prop. 27 that will reverse that – a terrible idea). A legislative district not only should all have the same number of people living in it, but should also be shaped logically, recognizing when possible city boundaries and geologic features, incorporating whoever happens to live within the resulting borders. Our current legislative districts, currently drawn by whatever political party controls the state legislature, carves each electoral district into whatever shape they can devise, however irregular and contrived it may be, in order to maximize the number of “safe seats” where most of the voters in that district are members of their party. Prop. 20 will accomplish in this election for California’s federal congressional districts what a similar proposition a few years ago accomplished for our state legislative districts (ref. Prop. 27 on this year’s ballot, which is trying to reverse that previous reform and must be voted down). VOTE YES.

Prop. 21 to raise taxes to fund state parks – NO. The reason this is on the ballot is because our unionized government employees, who take our tax money and use it to buy our elections and control our politicians, would rather raise taxes by any means necessary instead of taking cuts to their pay and benefits. Public employees in California are paid, on average, over $100K per year in total compensation, while taxpaying private sector workers, on average, earn less than $60K in total compensation (ref. “Public Employee Compensation,” “The Price of Public Safety,” “California Firefighter Compensation,” and “The Real Reason for Tuition Increases“).  VOTE NO.

Prop. 22 to “stop the state from borrowing or taking funds used for transportation, redevelopment, or local government projects and services.” You decide. The forces behind this measure are Peter fighting with Paul. Since the public employee unions are supporting this measure, one would be reasonably inclined to vote no. On the other hand, when you read the fine print there are some nuances to the measure that may inappropriately increase the power of local governments to enforce eminent domain, which suggests a no vote could make sense. CIV FI takes no position on this initiative.

Prop. 23 to suspend California’s global warming act, AB32, that will take full effect in 2012 – YES. This measure had a chance to pass, until the billionaires in Silicon Valley, who stand to make additional billions by manufacturing high-tech remote surveillance equipment to make sure all us little people don’t do our laundry during peak energy demand, etc., indicated to a few courageous out-of-state energy companies (who were supporting the measure) that they would spend them into the ground to defeat it. Now Prop. 23 will probably lose on Nov. 2nd, but it will be back, when Californians finally wake up and realize that global warming alarm is based on fraudulent science, that CO2 is not “pollution,” and the idea that “green jobs” will make up for the economic harm caused by crippling increases to the costs for energy, water, transportation and housing is a despicable lie. For much more on the global warming fraud in general, and AB32 in particular, ref. “California’s Proposition 23,” “Who Are The Carbon Criminals?,”  “The Climate Money Trail,” and, especially, “Implementing California’s Global Warming Act.” VOTE YES.

Prop. 24 to “close corporate loopholes.” NO. This measure is being promoted via one of the most deceptive propaganda campaigns by public sector unions in the history of California, and that’s saying a lot. Prop. 24 will repeal some new corporate tax reforms that were adopted by the state legislature in 2009 as part of the budget deal that year. These were reforms, not loopholes. They eliminated double taxation and other rules in California that differed from other states, and had effectively penalized California’s corporations for locating here, especially if they exported most of the products they manufacture here out of the state or the country. But the fact this was a reform, not a loophole, and the fact that these reforms were negotiated in 2009 as part of the budget deal didn’t faze the California Teacher’s Association (by the way, “Association” means “Union.”) They want more tax revenue, heedless of the fact this measure will drive more corporations out of California, and they stabbed California’s business community in the back, putting this measure on the ballot and trying to sell it by hiring child actors to cry about “libraries being closed.” Why don’t they just fire half the administrators who haven’t seen a classroom in years? Why don’t they take pay cuts like the rest of us who pay the taxes to support them? For more on the origin of this deplorable, illegitimate abuse of power by public sector unions, ref. “California’s Union Ballot Initiatives.” VOTE NO.

Prop. 25 to get us “on-time” budgets – NO. This is also being promoted via another very misleading campaign, suggesting that all it will do is confiscate the pay of politicians for as long as they are overdue on passing a budget. But if you read the fine print, you will see this bill does make it easier to raise taxes. VOTE NO.

Prop. 26 to make a 2/3rd vote necessary for governments to enact fees as well as taxes – YES. It’s about time. Ever wonder why your property tax bill is more than 1.0% (and even just 1.0% is a LOT in California’s real estate market where property values are still grossly inflated)? It’s because of the additional “fee” for schools, the fee for roads, the fee for the disadvantaged, the fee for the endangered species, pretty much the fee for anything a tax might otherwise fund. These fees appear everywhere, not just on your property tax bill, but also on your bills for electricity, gas, water, sewer, garbage, telephone, internet, cable – all utilities – they appear on building permits or business licenses – they are everywhere. It is time to plug this genuine loophole, the ability to assess a fee whenever a new tax would be voted down. VOTE YES.

Prop. 27 to give power to redraw state legislative districts back to the politicians – NO. Are you kidding? Here is another one where the public sector unions are all lining up to say vote no. Why would they want competitive elections? When the Democrats (who in California are a wholly owned subsidiary of public sector unions) have manipulated the boundaries of the state legislative districts so they control nearly 2/3rds of the state assembly seats in a state that has less than 40% registered democrats, don’t you think this bill might scare them? Who is supposed to run California – public sector unions who control politicians who manipulate legislative district boundaries to stay in power, or the people? VOTE NO.

It is nearly impossible to get any political message out to conscientious voters for any election in California, because the public sector unions spend far more money, year after year, than any other special interest group (ref. “Public Sector Unions & Political Spending“). For those voters who are, in increasing numbers, realizing that public sector unions buy our elections through overwhelming campaign spending, there is a solution. For any political contest, local or statewide, no matter how obfuscated the language of the measures, no matter how elusive the candidate’s positions, simply vote against whatever the public sector unions support. Their agenda is unwavering – more government and more taxes, for the sole purpose of hiring more government employees and paying them over-market compensation. This is financially unsustainable. It is a recipe for the destruction of our nation. Public sector unions should be illegal, because they compel public employees to join them and pay dues, funded by taxpayers, in order to pursue an agenda that is anathema to efficient government. They must be opposed at every turn. It is that simple.

Public Employee Compensation

A recently released study sponsored by U.C. Berkeley’s “Institute for Research on Labor and Employment,” authored by Sylvia Allegretto and Jeffrey Keefe, entitled “The Truth about Public Employees in California: They are Neither Overpaid nor Overcompensated,” contains its conclusion in its title, but whether or not this study is presenting the “truth” or not is worthy of further discussion.

According to this study, “the wages received by California public employees are about 7% lower, on average, than wages received by comparable private sector workers; however, public employees do receive more generous benefits. An apples to apples comparison, or one that controls for education, experience, and other factors that may influence pay, reveals no significant difference in the level of employee compensation costs…”

While the study goes on to explain the variables they evaluate in order to arrive at an “apples to apples” comparison, it never actually estimates the actual amount of wage disparity between the average compensation packages for California’s public employees compared to California’s private sector employees, so here goes:

Using California’s Employment Development Department’s recent report “Labor Market Trends,” (ref. figure 1) it is evident there are 2.4 million Federal, State and Local employees in California, 12.2 million full-time private sector employees who work for an employer, and another 1.4 million “self-employed” private sector workers. Worker compensation as reported by the Bureau of Labor Statistics don’t include estimates for California’s 1.4 million self-employed workers, nor does the U.C. Berkeley study. If these estimates were included, they would almost certainly skew average private sector compensation downwards, since according to California’s Employment Development Dept., self-employment does not include anyone working for a Corporation or LLC, even their own, meaning that more highly-compensated professionals fall within the BLS statistics for California’s 12.2 million private sector employees, whereas the remaining self-employed include part-time workers, independent contractors; in aggregate, a marginally compensated multitude who have to cover 100% of their benefits  – a 2x payment for social security, and zero paid time off, or free insurance of any kind, or automatic pay for sick time and retirement.

Returning to the 14.6 million people in California who either work for the government or are employed by private sector firms, according to the Bureau of Labor Statistics report “May 2009 State Occupational Employment and Wage Estimates California,” their average annual compensation (not including employer funded benefits) in 2009 was $49,550. In order to extract from that average the compensation for the 2.4 million government workers in California, one may refer to Census Bureau data for 2009 as follows – for 394,000 state workers ref. State Government Employment Data, and for 1,451,619 local government workers ref. Local Government Employment Data. If you combine and average the compensation data for these two groups, you will arrive at an annual average pay – before any employer funded benefits – of $65,000 per year.

Making just one assumption, that California’s 500,000 federal workers not included in these statistics are earning the same average salary as the state and local workers, it is possible to subtract the figures for government workers from the pool of 14.6 million workers, who, according to the BLS earn an average of $49,500 per year, in order to calculate an average private sector (not including self-employed) compensation of $46,528 per year. This means that the Berkeley study has “normalized” for education, experience, and “other factors” to turn a 40% disparity between public and private sector compensation into a 7% disparity.

Before accepting the conclusion of this study, there are several assumptions it makes, both factual and subjective, that should be questioned; starting with this: “The average age of a typical worker in state and local government is 44 compared to 40 in the private sector.” The benefit of coming up with a “fact” like this, of course, is because by combining this fact with the assumption that compensation increases with seniority, the researchers are able to normalize downwards the average compensation of public employees significantly. For example, if one assumes an average career of 30 years, and that a worker’s inflation-adjusted salary will double between when their career begins and when they retire, than one might reasonably conclude a “normalized” compensation average for the public sector worker must be adjusted downwards by 13.3% in order to represent an “apples-to-apples” comparison with the younger private sector workers. Here again, it is serendipitous for the Berkeley study to exclude self-employed individuals, since according to California’s EDD, for workers over forty years of age, fully 50% of the civilian workforce is self-employed (ref. EDD’s California’s Self-Employed Workforce,” figure 6).

Another normalizing factor used by the researchers is gender, wherein they claim 55% of the state and local government workers are women, compared with 40% of the private sector. This is partially skewed, again, by the fact that 60% of self-employed people are men, but even adjusting for that, this fact, if accurate, represents another huge opportunity for the researchers to “normalize” compensation statistics in favor of reducing the disparity between private and public sector pay. Without having access to the work-papers used by the researchers, one can only speculate, but here’s the logic that could have been used: If women make 30% less than what men make for comparable work requiring comparable credentials, and if women represent 55% of the government workforce compared to 40% of the private sector workforce, this means an “apples-to-apples” comparison would require adjusting the public sector compensation upwards by  17% (55% x 30%) vs. an upwards adjustment of only 12% (40% x 30%) for the private sector workforce. Voila, another 5% of pay disparity is vaporized. The problem here is whether or not the “30%” pay differential rests on valid assumptions. When one normalizes for technical degrees vs. non-technical degrees, and the actual supply and demand parameters for jobs that might be deemed “comparable,” as well as for the significant percentage of women who opt out of full-time work in favor of being moms, much of this gender disparity may disappear. Whether or not there remains a gender bias in employee compensation is certainly open to debate, but the researchers should be transparent regarding how significant this factor was in their calculations.

The other major normalizing factor employed by the researchers is education, because the researchers have determined that 35% of the private sector workforce have earned at least a bachelors degree, compared with 55% of the public sector workforce. The researchers also claim the “return to education,” wherein people who have higher educational attainment should earn more, is skewed; that is, they claim private industry rewards education more than the public sector. What the study ignores here, however, is the fact that educational attainment yields qualitative dividends – what degrees are being compared? Is a sociology degree from Sonoma State the equivalent of a computer science degree from Stanford? Is it appropriate to pay more to employees with advanced degrees even if the job they do doesn’t require that level of education? The study doesn’t address this.

In any event, by excluding 1.4 million self-employed and part-time workers, and “normalizing” for seniority, gender and education, the Berkeley study has concluded that an average public sector salary in California is not 40% more than an average private sector salary – and without any normalizing adjustments, 40% higher wages for public sector vs. private sector workers appears to be a conservative estimate – but instead, that public sector wages are 7% less than private sector wages.

When turning to comparing benefits for public employees vs. private sector workers, it is important to understand that salary is the base on which the most significant benefits are calculated. In particular, the largest benefit category in the public sector is retirement pensions, which are calculated based on final salary earned. This means that even if public employee pension benefits were calculated in the same parsimonious manner as social security, they would apply to an average compensation base that is 40% larger for public employees. Moreover, public sector pensions are linear, meaning the benefit increases exactly proportionally to the amount of base salary without limit, whereas social security benefits increase at progressively lower rates, meaning that the more one makes, the lower percentage of their final salary will actually be realized in a social security benefit. These sound like nuances, but have enormous financial consequences. For more on this ref. “Pensions: Giant 401K Plans,” “Sustainable Retirement Finance,” and additional links therein.

Before independently estimating the disparity between public employee and private sector employee benefits, here is the Berkeley study’s specific conclusion: “public employers contribute on average 35.7% of employee compensation expenses to benefits, whereas private employers devote 30% of compensation to benefits.

By far the biggest single cost for employee benefits in both the public and private sector is the cost of retirement security. The calculation in the private sector is relatively straightforward – the employer withholds 6.2% for social security and 1.45% for medicare from employee paychecks, and contributes an equivalent amount themselves as a benefit – 7.65%. Some private sector employers will match a 401K contribution up to 6.0%, but the percentage of private sector employers who do this, combined with the number of private sector employees who take full advantage of this, is probably under 25%, which means the average overall retirement benefit paid by private sector employers is probably 10% (or less) of total wages.

For the public sector in California, the cost of retirement security borne by the employer is something else entirely. The typical formula for non-safety employees (about 85% of the public sector workforce) is to multiply the number of years they work by 2.0%, and apply the resulting percentage to their earnings in their final year of active employment. For example, if a non-safety employee works for 30 years, then 60% of their final salary will be the amount of their retirement pension. For safety employees, the typical formula is the same, but based on a 3.0% per year accrual. In the public sector, unlike with social security, the money contributed each year to fund the future retirement benefit is invested by a pension fund, which means the value of this benefit – and the funding required each year to ensure the pension fund remains solvent – must be calculated based on the expected investment returns of the pension fund. This is a matter of great controversy.

In the post “Sustainable Pension Fund Returns,” a best-case and realistic-case set of scenarios are offered:

(1) At a real rate of return of 4.75% per year, a worker would need to set aside an additional 21% of their salary each year for 30 years, in order to enjoy a pension benefit during a 30 year retirement equivalent to 60% of their paycheck.

(2) At a real rate of return of 4.75% per year, a worker would need to set aside an additional 32% of their salary each year for 30 years, in order to enjoy a pension benefit during a 30 year retirement equivalent to 90% of their paycheck.

(3) At a real rate of return of 3.00% per year, a worker would need to set aside an additional 35% of their salary each year for 30 years, in order to enjoy a pension benefit during a 30 year retirement equivalent to 60% of their paycheck.

(4) At a real rate of return of 3.00% per year, a worker would need to set aside an additional 52% of their salary each year for 30 years, in order to enjoy a pension benefit during a 30 year retirement equivalent to 90% of their paycheck.

For this independent estimate of the value of public sector employee pension benefits, using an assumption that 15% of public employees receive the enhanced “safety” pension, and assuming that the real rate of pension fund returns going forward will be 3.0% per year (still quite optimistic), it is necessary to contribute an amount equivalent to 38% of the average public employee’s pay in order to keep their pension solvent. Since, on average, public employees contribute about 5% of this amount in the form of withholding, an additional 33% has to be contributed by the employer. Many public employees receive supplemental retirement health insurance, for which few of them contribute anything at all in the form of withholding. It is certainly accurate to value this additional benefit as at least twice the amount of medicare, which adds another 3.0% per year.

Adding this all up, using conservative assumptions, the employer contribution to retirement security in the private sector is at most 10% of average salary, whereas in the public sector the employer contribution is at least 36% of average salary.

When assessing the value of current benefits granted public employees, most reviews of public sector benefit schedules suggest the standard package is a comprehensive set of benefits – for example, if one refers to the State of California’s Dept. of Personnel Administration, some of the current benefits include health insurance, dental benefits, a vision program, long-term care insurance, and long-term disability insurance. While these benefits are partially funded through employee withholding, the amounts withheld almost never exceed 50% of the premium, even for dependent coverage. To suggest that current benefits for public employees are, on average, less generous than the average current benefit for private sector employees strains credulity. What about the millions of part-time workers and self-employed people, who have to pay 100% of whatever health insurance they can afford – at premium rates that aren’t discounted and guaranteed by the insurance companies the way they are for the huge state employee bargaining units? What about all the small companies out there, employing at least 50% of full-time private sector workers, who can barely afford to offer basic health insurance, much less dental, vision, long-term care and long-term disability? It would be conservative indeed to simply assume the cost of current health insurance and other current benefits paid for by the employer is the same for both public and private sector workers, at approximately 5.0% of payroll.

The other significant factor to assess when estimating the value of public sector benefits is the amount of paid time off enjoyed by public sector employees vs. private sector employees. On this matter the Berkeley study makes a claim that they simply must substantiate; they state: “public employees receive considerably less supplemental pay and vacation time.

Perhaps to rebut this preposterous claim one must revert to anecdotes, but here at least are some quantitative considerations: there are 723,000 teachers in California who work for the government either in primary and secondary school or in higher education. Every one of these instructors and administrators works about 180 days per year, which when one considers there are 260 weekdays in a year (52 weeks x five days per week), indicates that teachers in California get 16 weeks of paid days off each year. What about college professors who only teach one class per week, yet enjoy total compensation packages worth $138K per year (ref. The Real Reason for College Tuition Increases). If you review compensation studies for safety employees in the city of Costa Mesa (ref. The Price of Public Safety), or firefighters in Sacramento (ref. California Firefighter Compensation), you can see, for example, that before overtime, full-time service for a veteran firefighter in Sacramento requires them to work, on average, two 24 hour shifts per week. Does the Berkeley study normalize for any of this? Compare vacation time in any public entity in California against private sector norms – the average vacation days awarded in the public sector allocate employees after about 10-15 years of service 20 days of vacation per year, and by the end of their careers, up to 30 days of vacation per year (ref. CA Dept. of Personnel Administration, Leave Benefits). This amount of paid vacation is rarely offered to employees in the private sector – with many small companies offering virtually no vacation to their employees, a generous assumption might be 10 days, half as much as public sector vacation benefits. With respect to paid holidays, the typical public sector benefit is at least 12 days, while small private companies often only award six (Christmas, New Year, Memorial Day, July 4th, Labor Day and Thanksgiving), if that. In addition to vacation and holidays, many local governments and various state units also offer paid “personal days,” something nearly unheard of in the private sector. It is also common for sick time to be accrued without limit in the public sector, also something nearly unheard of in the private sector. And self-employed workers, of course, get nothing.

In order to continue to make conservative assumptions, however, one may estimate the average number of paid days off in the private sector to be 20 per year (probably high) and the average number of paid days off in the public sector to be 30 per year (probably low). How does this all add up?

The average public sector worker makes $65,000 per year, with the employer contributing an additional 21,450 for their retirement pension, $1,950 for their retirement health insurance, $3,250 for their current health insurance and other benefits, and they earn vacation worth an additional $10,575 – making their average total compensation $102,225 per year. It is interesting to note that the benefits as a percent of total compensation in this analysis agree with the Berkeley study – 36.4% vs. 35.7%, because the Berkeley study has almost certainly understated the value of the required pension fund contribution, which is another reason why the assumptions made here to estimate the value of all the other public employee non-pension benefits are probably conservative.

The average private sector worker makes $46,500 per year, with the employer contributing an additional $4,650 for their social security, medicare, and 401K, $2,325 for their current health insurance and other benefits, and they earn vacation worth an additional $4,113 – making their average total compensation $57,558 per year. The average private sector worker’s benefits as a percent of total compensation in this analysis is 19%, not 30% as claimed in the Berkeley study. And again, the Berkeley study failed to consider any of California’s 1.4 million self-employed and part-time workers in the pool they evaluated .

It is left to the reader to decide which numbers are more accurate, the numbers put forward here, or the numbers put forward by the Berkeley research team. Similarly, it is left to the reader – and the voter – to decide whether or not the services provided by California’s state and local governments, and the skills required to render them, entitle California’s public servants to earn, on average, $102K per year, compared to average annual earnings of $57K by those of us whose taxes sustain them.

Local Government Public Employment Data – revised Dec. 2009

California’s Proposition 23

Back in 2006 California’s Governor Schwarzenegger signed AB 32, the “Global Warming Act,” which set the goal of reducing California’s “greenhouse gas emissions” to 1990 levels by 2020. The bill was set to become implemented in 2012, and for the past few years, the bureaucrats at the California Air Resources Board have been working feverishly to come up with specific regulations. What they have produced is a monstrosity.

To start to come to grips with what AB 32 is going to do to California, read CARB’s own material, their “Climate Change Scoping Plan,” their “Updated Economic Analysis of California’s Climate Change Scoping Plan,” and their “ENERGY 2020 Model Inputs and Assumptions.” You can get an attempt at a summary if you read the post “Implementing California’s Global Warming Act.”

Since the most recent publicized polling results indicate that voters are split roughly 50/50 on Prop. 23 (ref. the Sept. 24th LA Times article “Proposition 23 poll shows a dead heat among California voters“), it is worthwhile to examine the arguments against Prop. 23 that are currently bombarding voters. A good place to review these arguments would be on the “fact sheet” put forward by the group “Californians to Stop the Dirty Energy Proposition.” Here are two principal arguments – with rebuttal:

1 – Prop. 23 would create more air pollution in California and threaten public health.

This argument is based on the proposition that CO2 is pollution, because the intent of AB32 is to regulate CO2 emissions, and little else. California’s regulatory agencies have done a reasonably good job at cleaning up genuine air pollution, and they need to finish the job there, instead of focusing on CO2 emissions. CO2 does not harm the respiratory system in the quantities it currently appears in the atmosphere, or in any conceivable quantities it ever may increase to in the atmosphere. On the other hand, plants cannot live without CO2. To suggest that suspending a measure that regulates CO2 emissions is going to increase pollution is grossly misleading.

2 – Prop. 23 would kill clean technology jobs, innovation and billions of dollars of investment in California.

This “fact” as well is almost completely false. California’s gubernatorial candidate Jerry Brown made a clever argument in favor of retaining AB32 last week in his final debate with candidate Meg Whitman, when he said we need AB32 to stay on the books to reduce “regulatory uncertainty.” This is a good argument applied to a bad law. AB32 – read the scoping report – doesn’t create regulatory certainty in any of the cleantech areas that matter. If you want to encourage development of low carbon fuel, then pass a law requiring a certain percentage of transportation fuel contain lower levels of carbon. This will stimulate innovation in 3rd generation biofuels, which is a good idea. If you want to encourage development of cost-competitive solar energy, the leave in place California’s renewable portfolio standard. If you want to encourage energy efficiency retrofits, then implement tax credits to stimulate activity in that area. You don’t need AB32 to stimulate green jobs.

Opponents of the Prop 23 actually claim that suspending California’s Global Warming Act will increase energy costs and harm California’s economy. This is precisely incorrect. Alternative energy still costs considerably more than conventional energy, and this disparity would be even greater if conventional energy technologies weren’t tied up in environmentalist lawsuits.

Instead of carpeting the landscape with wind generators – talk about pollution, what about the aesthetics of all these wind generators? – Californians should be developing a diverse assortment of conventional energy solutions – more hydroelectric power (which would also create more water supplies), nuclear power, a liquid natural gas terminal, and offshore drilling. Currently Californians pay, on average, about $0.15 per kilowatt-hour, while in states where conventional energy is not overregulated, consumers pay less than half that amount.

AB 32 will further reduce California’s ability to use conventional energy, and this will cause energy prices to go up, not down. And because AB 32 will regulate virtually everything we do, under the assumption that restricting road construction and land development – and adding new regulations to virtually all industries, from farming to manufacturing – will lower the “carbon footprint” of the state, everything will get more expensive. You don’t have to be an economist to grasp this simple economic truth – if you make all the basic resources more expensive, land, water, transportation and energy – then you will make it harder for businesses to compete. And if they can’t compete, they won’t grow. Many of them will leave.

The reason Prop. 23 has attracted so much opposition is because AB 32 appeals not only to the environmentalists – a lobby that has been entirely hijacked and discredited by the global warming alarmists – but the political left, who see another opportunity to expand government, the public sector unions, who never saw a government expansion they didn’t like, and, tragically, the Silicon Valley investors and entrepreneurs who have decided they don’t want to make money any more the old fashioned way, where they create superior innovations that people choose to purchase, but instead want government regulations to force people to buy their “smart meters” and other cleantech innovations.

It is easy to demonize “Big Oil” for standing up to this lobby, but nobody else has come forward, despite the fact that most members of the business community realize the harm AB 32 will wreak on California. A more relevant question is why California’s own big oil company, Chevron, is sitting on the sidelines. Chevron’s craven failure to stand up for its own interests as well as the interests of consumers is a bigger indictment of big oil than Valero and Tesoro’s courage in their decision to fight. There aren’t many companies left in California who will stand up for capitalism and for rational environmental management. This is the core problem, because with California’s voters deadlocked on Prop. 23 despite the avalanche of propaganda against it, Californians are clearly receptive to the truth, if someone will bother to provide it to them.