Government Employee Unions Tee Up California’s Bankruptcy

Half a Billion Dollars. That’s how much the California Teachers Association and the powerful Service Employees International Union have spent on California politics since 2000. The unions’ return on that “investment”? A legislature totally beholden to them for political support and campaign contributions.

Here’s another mind-boggling number: Half a Trillion Dollars. That’s an estimate of the unfunded public pension liabilities racked up by California’s state and municipal governments due to overly generous pay and defined benefit pension plans lavished on unionized government employees.

If you thought the bankruptcies of Stockton, San Bernardino, and Vallejo were entertaining, break out the popcorn to watch the next fiasco California’s famously progressive citizens voted themselves into. That first wave of municipal bankruptcies demonstrated that the odds of the state’s public pensions paying out at full value are virtually zero. The donnybrook that breaks out when the rest go sour is going to be amonster movie scale spectacle.

Jim Lacy, former Chief Counsel for Technology at the U.S. Department of Commerce and General Counsel to the U.S. Consumer Products Safety Commission, has been sounding the alarm. His new book, Taxifornia, lays out the numbers and illustrates them in horrifying detail, with stories you just can’t make up—like rank-and-file firefighters making $348,000 a year who can retire at age 55 at 90 percent of salary. Meanwhile, California’s poverty rate has soared to become highest in the nation (almost one in four Californians now live in poverty, according to the Census Bureau).

As my guest on last week’s RealClear Radio Hour, Jim makes the case why the rest of us should care about California’s taxpayers becoming ATMs for retired school teachers, bus drivers, police, and firefighters. “Because it’s happening throughout the rest of the country,” Jim explains. “The Detroit bankruptcy is based on the same premises.” Coming soon to a theater near you!

“Why do we have the highest tax rates?” Jim asks. “Because public employee unions have completely swamped the political system. In California, all eight state constitutional officers are liberal Democrats. Liberal Democrats control two-thirds of the state senate and two-thirds of the state assembly.” So what will happen when Baby-Boomer government employees start retiring en masse and drawing on their promised pensions? “Economic chaos.”

The problem goes down to the municipal level. “San Jose, the third largest city in California and tenth largest in the nation, recently announced a city budget of $1 billion,” notes Jim. “Thirty percent of that budget—$300 million dollars—goes exclusively to pay for public employee pensions. The pension obligation is so high that San Jose can’t afford to maintain a burglary unit in its police department.”

Sounds grim. Yet far from throwing up his hands in despair, Jim continues his quest, urging Californians to rise up again like they did when Howard Jarvis led the passage of Proposition 13, kicking off a nationwide tax revolt. “I didn’t write Taxifornia to get people to leave California. I wrote Taxifornia to get people to reform California.” That’s a pretty tall order considering the way the Republican Party has marginalized itself with Hispanic voters and the many Californians who may be fiscally conservative but are socially moderate. But stranger things have happened.

Still, the more likely outcome is for the flight from places like California to continue, with low tax destinations like Texas reaping the benefits. If we really care about saving New York, Chicago, Philadelphia, Boston, and other liberal cities that have mortgaged their future to their government employee unions, the sooner a wave of municipal bankruptcies hits California, the better. When Wall Street finally loses its appetite for government bonds issued by profligate politicians who can’t stop borrowing, maybe the hole will finally stop getting deeper.

Don’t think that will work? Consider that 1 percent of California’s taxpayers pay 50 percent of the state’s income taxes. That’s fewer than 150,000 households. How much fun will it be for the 6 million Californians mired in poverty if the remaining “rich” decide they’ve had enough and leave?

Godzilla wrecking San Francisco might seem mild by comparison.