Harold Meyerson has a piece in the LA Times today in which he blames the housing bust, not unions and employee costs, for the recent California bankruptcies in Stockton and San Bernardino, and accuses the press of poor reporting on the issue. But Meyerson's logic is completely backward. It wasn't the housing bust that brought the cities down, but the housing bubble which provided those cities with a spike in revenues that temporarily masked the cities' unsustainable compensation practices. Meyerson simply ignores a host of uncomfortable facts about Stockton, for instance:
- City leaders and unions made a series of deals mostly in the 1990s for health-care-for-life for city workers and there were never the funds to pay for that benefit. As a result, Stockton built up a $400 million unfunded health care retirement liability.
- For every dollar that Stockton spent on employee pay, it spent slightly more than another dollar on employee benefits. Nationally the average is about 53 cents in benefits for every dollar of pay in the public sector, and 40 cents for every dollar of pay in the private sector, so Stockton was an extreme outlier even by public sector standards.
- A special audit commissioned by the new Stockton city manager pointed out that city officials and union leaders had negotiated past employment deals that sought to purposely built "hidden costs" into labor agreements for "obligations that are often difficult for citizens to identify or understand," including various categories of so-called bonus pay which were actually just additional regular compensation.
- Stockton's new city manager, hired in 2010 to sort out the mess, called some of the city's past compensation practices similar to "a Ponzi scheme" because they were created without any plan to ever pay for them.
There's much more, if you want to read the bloody details. They are here, in the staff reports and audits commissioned by the new regime, and they go into great detail not only about the city's volatile revenues, but about the unsustainable employee compensation practices that Meyerson ignores. One could say as much about San Bernardino, too. The cities are just extreme examples of how the current fiscal downturn has exposed unsustainable compensation practices that, as any number of commentators, including most recently Paul Volcker and Dick Ravitch, have observed, are going to have to change.
Both can be true - and I think are. Deeply flawed government financial management at the systems, personnel, accountability and cultural levels pushed hundreds of CA local (and state) governments into horrible financial circumstances - it was a huge violation of public duty.
And - there has been massive manipulation of major financial markets that's transferred huge amounts of capital into the hands of an ever-more-powerful financial elite.
Perhaps they are part of the same problem. Does anyone have a sense of common duty anymore? Is it all just what I can get for me that matters and to hell with that quaint old-fashioned idea the baby boomers' grandparents had about the "common good"?
John D
A reader who is unfamiliar with the nature of unfunded liablilites in the public sector would erroniously believe that the $400 million health care liability Malanga cites is due and payable now. The fact is that this liability, just like public pension liabilities - and like a mortgage - is a debt that is payable over time. It usually is a combination of current retiree costs over time, plus unretired current employees over time. The time horizon of these liabilities is 30, 40 or more years.
So why in the world would Mr. Malanga want to mislead taxpayers into thinking this is a currently payable debt? Could he be that he has an ulterior motive. A motive driven by ideology?
The half-truths, disinformation and outright lies that are spewed by the right wing when it comes to retirement costs is stunning and dangerous.
The $400 million liability mentioned above was cited by the city itself when it declared a fiscal emergency. Though the money is not all due now, because the city had set nothing aside it was having to pay for retiree health care premiums out of its operating budget, and with every worker who retired that bill grew greater. As the city itself said in its budget documents, it was already spending more on retiree health premiums than on worker health premiums, and that situation was only going to grow worse over time.
It is Mr Klein who obviously is either trying to mislead, or who simply hasn't taken the time to read what the city's own auditors and documents say about its fiscal condition.