Placentia’s Independent Fire Dept Saves Millions and Improves Service

On July 1, 2020, the City of Placentia formally terminated its contract with the Orange County Fire Authority, where the average operations employee in 2018 collected pay and benefits in excess of $241,000. Seeking to create a new model that reduced these unaffordable levels of pay and benefits, as well as made more efficient use of personnel, and despite bitter opposition from the firefighters union, the City Council spent the year prior to July 2020 designing and building an independent fire department.

With over three months of operations now behind them, it is possible to review early results of Placentia’s experiment. According to the city’s “final quarterly update” on Placentia’s Fire and EMS Services, released on October 20th, in their first three months of operation, the new independent fire department serviced 40 percent more daily calls than the prior year with OCFA, reduced local response times by over 3 minutes when compared to OCFA, and reduced the need for mutual aid from neighboring cities by 85 percent.

One of the ways Placentia accomplished this was by using ambulances and paramedic squad units to respond to medical emergencies instead of 55,000 pound fire trucks. To further reduce response times, the city also invested in emergency vehicle traffic signal preemption devices through major intersections. To reduce costs, in addition to relying on ambulances for strictly medical calls, the city contracted with part-time firefighters and fully trained reserve volunteers instead of paying overtime to fill absences and vacancies. The city also […] Read More

How Much do California’s State Workers Make?

Californians pay the highest overall taxes in the United States, with more to come. The Democratic supermajority in the state legislature is considering AB 1253 that would raise the top income tax rate to 16.8 percent, and AB 2088 that would impose an annual 0.4 percent tax on any California resident’s net worth in excess of $30 million.

On the ballot, voters are being asked to approve Prop. 15, which will reassess commercial properties at current market values to calculate their property taxes, and Prop. 19, which will trigger reassessments of inherited homes unless the heirs intend to live in them.

Also on the ballot in cities and counties throughout the state, are nearly 300 proposals for new taxes and bonds which, if approved, will add billions in new local taxes and tens of billions in new local borrowing.

The reasons that California’s politicians have an insatiable need to raise taxes are many and complex. But principal among them is the fact that California’s state and local government employees enjoy rates of pay and benefits significantly greater than that of the citizens they serve. With the long-term economic impact of the pandemic lockdown likely to put additional strain on public sector budgets, cutting pay and benefits must be an option along with cutting services and raising taxes.

How Much Do California’s State Workers Make?

In two earlier reports, using data provided by the California State Controller, the average annual pay and benefits for full-time […] Read More

BART Faces Financial Reckoning

Of all the public agencies facing financial challenges as a result of the COVID-19 pandemic, public transit has taken the biggest initial hit. The reasons for this are obvious: when there’s a lockdown and businesses are closed, commuters stay home. And of those still fortunate enough to have places to go, few want to board busses and trains where they risk heightened exposure to contagions.

Northern California’s biggest transit system is the Bay Area Rapid Transit District, commonly referred to as BART, with operating expenses of nearly $1.0 billion per year. In good years, operating revenues – primarily fares and parking fees – never covered more than around 75 percent of operating costs. But that was back in 2016, when ridership peaked, at around 435,000 per weekday, whereas pre-COVID ridership in early 2020 was running around 405,000 per day. Weekend ridership had been dropping at a higher pace than weekday commuting because of board policies that tolerate homelessness, open use of hard drugs, panhandling and petty theft on the trains.

In addition, over the past four years, the BART board of directors has been giving away an increasing array of discounts at the same time as operating costs have steadily increased. There has also been increasing tolerance on the part of the board for fare evasion which lowers revenues by, depending on which expert you ask, between $25 and $50 million per year.

In April 2020, at the height of the pandemic shutdown, BART ridership fell to 6 percent of […] Read More

“Public Information” to Promote New Taxes, Paid for by Taxpayers

Did you know your taxes are being used to advocate for more taxes? Well, not exactly. It’s against the law for public agencies to engage in “advocacy.” The people running these agencies who want to raise your taxes may only spend public funds in order to “communicate” with you about their proposals. And so they “communicate” good and hard. And then you vote.

An example of this, and there are many, is the City of Fullerton.

To cope with a projected $7.9 million deficit, the Fullerton City Council has approved a 1.25 cent sales tax increase, which voters will either approve or reject this November. The city expects to raise $25 million per year through this tax. At first glance that appears to be overkill, but first glances can be deceptive.

For starters, nobody knows how far revenue will drop. The pandemic shutdown is entering its eighth month with no end in sight. And while tax revenue falls across the state, pension costs continue to rise. For Fullerton, this is documented in the CalPERS actuarial reports for the city’s miscellaneous and safety employees. These reports, the most recent available, were released in July 2019, well before COVID-19 burst the global investment bubble.

The reports show that Fullerton was already pouring $25 million into CalPERS in the current fiscal year, an amount projected to rise to over $33 million by 2025. And with 70 percent of that going into public safety pensions that were only 64 […] Read More

A Recommendation for the California Teachers Association

This week a fascinating article on the website of the Education Intelligence Agency revealed that the California Teachers Association, one of the most powerful labor unions in the world, is itself having labor problems. Moreover, the labor problems they’re encountering are because they’re trying to be fiscally responsible.

Setting aside for a moment all the grievances that education reformers and concerned parents may have towards the CTA, what they are experiencing right now is an opportunity for a broader consensus to form on one specific and very big issue; pension reform.

It shouldn’t be necessary to explain that California’s public employee pension systems are in trouble. Back in 2019, despite still being in a bull market lasting over a decade, most of California’s public employee pensions systems were already challenged; CalPERS reported their system to be 71 percent funded as of 6/30/2019, and CalSTRS reported an even more dismal 66 percent funding.

And then came COVID. Despite the COVID shutdown affecting at most half their fiscal year, CalPERS reported earnings for the twelve months ended 6/30/2020 of only 4.7 percent, and for the same period CalSTRS reported earnings of only 3.9 percent. To say the bull market is over is inadequate. We are at the end of an era.

The CTA can lower their pension formulas to CalSTRS levels

Someone unfamiliar with the CTA’s employees might assume that these union professionals representing teachers receive the same pension benefits as the teachers they represent. Not […] Read More

California Supreme Court Finally Rules on Case Affecting Pensions

On Thursday the California Supreme Court issued its ruling in the case Alameda County Deputy Sheriff’s Association vs Alameda County Employees’ Retirement Association. In plain English, this was a case where attorneys representing government unions were challenging pension reforms enacted by California’s state legislature in 2013. The ruling, which had the potential to empower dramatic changes to pension benefit formulas, was measured. But it is generally considered a victory for the plaintiffs.

Pete Constant, CEO of the Retirement Security Initiative, which advocates “fair and sustainable public sector retirement plans,” found the ruling encouraging, stating “the court has confirmed that the public interest is of utmost concern when determining whether public pensions need reform.”

What advocates for financially sustainable pensions are up against is the so-called “California Rule,” an interpretation of California contract law that dramatically limits the ways in which elected officials, or voters in a ballot measure, can modify pension benefits for public employees. The prevailing interpretation of the California Rule is that it prohibits changes to pension benefit formulas for active public employees, even for work they have not yet been performed.

In practical terms, obeying the California Rule means that whatever pension benefit package was in place on the date a public employee was hired must be maintained throughout their career. If it is changed, the employee must be given a compensatory new benefit of equal value.

Pension benefit formulas for California’s state and local public employees are typically calculated based on three variables – […] Read More

How Much Do California’s County Workers Make?

In April, with the pandemic shutdown sending California’s economy into free fall, Gavin Newsom convened a Zoom meeting with the four living California ex governors. He asked them to describe the biggest crisis they faced while in office. As reported by the New York Times, according to Pete Wilson, it was the 1994 Northridge earthquake. For Gray Davis, it was the electricity brownouts that cost him his job. Arnold Schwarzenegger and Jerry Brown both cited the Great Recession as their biggest challenge. None of them considered what they faced to be comparable to what Newsom is up against.

In June, as the lockdown eased, California’s economy started to come back to life. Maybe the damage would be contained, and maybe recovery would be swift. But when the COVID case count ticked upward in late June and early July, Newsom tightened the screws. He called his new approach using a “dimmer switch,” which would turn up or down depending on rates of positive cases and hospitalizations.

Whatever it’s called, the consequence of Newsom’s dimmer switch is less economic activity. In February 2020, California’s unemployment rate was at a historic low of 3.9 percent. Three months later, in May, it was at a historic high of 16.4 percent. As the lockdown eased, it ticked down a bit, tracking at 14.9 percent in June. With the new lockdown measures, it could go back up. One thing is certain: The pandemic shutdown is not going to end soon, as was hoped […] Read More

How Much Do California’s City Workers Make?

With the economic shutdown devastating private sector employment in California, with small family owned businesses the worst hit, how are California’s public employees doing? A recent report by NPR paints a grim picture, “Cities Have Never Seen A Downturn Like This, And Things Will Only Get Worse.” From the San Francisco Chronicle, “California cities warn of widespread layoffs and service cuts.” And from the Los Angeles Daily News, “LA County approves deep-cut budget plan, cutting thousands of positions.”

“Layoffs and service cuts.” “Cutting thousands of positions.” Is there an alternative?

In a word, yes. California’s public employers can make the same hard choices that private employers are forced to make when confronted with declining revenue. That is, they can not only layoff employees and eliminate positions, they can also cut the pay and benefits for the jobs that remain. To the extent they do this, they can keep more of their workforce employed, and they can keep more of their services intact.

In this context, it is useful to compare the average pay and benefits earned by California’s public servants to the average pay and benefits of the people living in the various cities where they work. With pay and benefit data for 2019 now available from the California State Controller for all of California’s cities, it is possible to accurately calculate compensation averages to provide current benchmarks.

How Much Do California’s City Workers Make in Pay and Benefits?

The first chart, below, shows the change […] Read More

How to Spend Six Trillion Dollars of Magically Materialized Money

If you’re going to spend money you don’t have, you’d better spend it to create things with genuine value. This is the choice facing Americans today. Estimates of how much the federal deficit will grow in response to the pandemic shutdown range as high as six trillion. So how should we spend such a stupendous sum of money?

The last time a huge sum of stimulus money was pumped into the U.S. economy, back in 2009, skeptics were told the money was going to fund “shovel ready” infrastructure projects. President Trump has repeatedly criticized the 2009 stimulus, stating it wasn’t used for infrastructure.

A “Fact Check” written in 2017 by NPR reporter Danielle Kurtzleben made a feeble attempt to debunk Trump’s claim, saying Trump was “mostly wrong” about this. Funny though, the facts cited in Kurtzleben’s own article demonstrate that Trump was “mostly right.” Of the $800 billion stimulus spending, only $81 billion, barely 10 percent, was used for infrastructure.

One may argue that any money going into the economy, for anything, has at least a short-term value, and is necessary in a crisis. That’s obviously true, and this time around, a lot of stimulus money is going to go to be used to provide short term but very necessary relief to households and businesses that would otherwise go under. But what about long-term value?

Usually lost in the debate over just how long the United States can continue to materialize dollars out of thin air is that […] Read More

Rates of Pay and Pension Debt in California’s Distressed Cities

Nobody needs reminding that California’s cities, like every other going concern in America, are heading for tough economic times. As recently as two months ago, robust collections of sales taxes, utility taxes, transient occupancy taxes, property taxes and other sources of taxes and fees were pouring money into municipal coffers. Now, with the economy abruptly ground to a near standstill, these revenues are all but dried up. But municipal expenses haven’t dropped proportionately, if at all.

What bears reminding is the fact that even before the sudden pandemic shutdown, California’s cities were in financial trouble. Just six months ago – and it seems like a century has passed – the California state auditor released a fiscal health analysis of California’s cities. Measuring factors including cash liquidity, debt burden, financial reserves, revenue trends, and retirement obligations, the report ranked the cities from the healthiest to the most afflicted.

During the economic downturns already endured by California cities in this century, public sector pay and benefits continued to increase even as the private sector workforce experienced layoffs and pay cuts. In the aftermath of the tech bubble bursting, pension benefit enhancements continued to gain approval by cities, one by one, justified by the reasoning that if a neighboring city had done so, then every city must follow suit. In the aftermath of the real estate bubble bursting, city workers took furloughs, where they worked one day less per week and received 20 percent lower pay – but their rate of pay […] Read More