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Saturday, January 08, 2011 11:24 AM


Kern County CA to Impose Contract on Unions; Time for a CA Reality Check; Half Moon Bay, Bell Face Bankruptcy; Brown Seeks Voter Approval for Tax Hike


News has been flying in California the past few weeks over more budget concerns. Those budget problems will not go away until structural problems are fixed. That mean serious concessions across the board by public unions. Instead, Governor Brown may seek a referendum to raise taxes.

Rounding out the news, a couple of California cities face immediate bankruptcy, University of California executives have made outrageous pension demands, and Kern County California is playing hardball with public unions.

Kern County to Impose Contract on Public Unions

Please consider County-union mediation fails

Kern County government and its largest union have failed to reach an agreement during contract mediation, setting up a final decision by county supervisors about how to handle negotiations with thousands of their employees.

Negotiators with the Service Employees International Union, Local 521 notified union members Thursday that the mediation process had broken down and they should expect supervisors to impose the contract they want.

That contract does two things -- makes all employees in the union pay 20 percent of their health-care premiums and require thousands of workers who currently do not pay into to their pensions to begin making contributions from each paycheck.

Regina Kane, president of the Kern County chapter of SEIU 521, said supervisors have followed a firm course toward this date, failing to budge an inch when the unions proposed other ways to cut costs and save money that supervisors argued was critical to balance county budgets.

Kane said her members -- especially the most modest workers who handle the county's front-line public services -- will be devastated by the pay reductions.

"Many of our employees will be losing cars and losing homes," she said.

She said many of the county employees who are eligible for retirement will seize the opportunity and leave. Even if, Kane said, some of those jobs are filled, it will take months to bring new workers on board and train them.

"The public service system will be overloaded," she said.
A "Start"

I commend Kern County. Standing up to the unions is a start. However, 50% to their health-care costs would be a better start, and I do not see anything being done about pension benefits.

Nonetheless, not bargaining with unions is the correct approach. I suggest a 1 year imposition then next year attacking pension benefits.

Regina Kane whines "many of the county employees who are eligible for retirement will seize the opportunity and leave".

To that I say hooray! Let's hope 100% of them leave. New employees should be put into defined contribution plans. Better yet, the county should simply outsource every job and be done with it.

The correct way to deal with the SEIU is to not deal with them at all.

Kern County Map



Now, if only Los Angeles or Orange County would do the same thing. It is time for serious hardball. Complete elimination of every union should be the goal.

Bell California on Brink of Insolvency

The Los Angeles Times reports Bell nearly broke, faces drastic cuts, audit finds
Scandal-plagued Bell is hovering on the brink of insolvency and drastic cuts in city services — including disbanding the Police Department — probably will be necessary to fix its finances, according to a review of the city's books that Los Angeles County officials plan to release next month.

The report by the Los Angeles County auditor-controller paints the most dire financial picture yet of the southeast Los Angeles County city, where eight current and former city officials have been charged in a sweeping public corruption case. The findings were discussed with The Times by officials familiar with its contents who spoke on condition of anonymity because the document remains under wraps.

The review found that Bell has been running a deficit totaling several million dollars over at least the last three years under former Chief Administrative Officer Robert Rizzo. The red ink is the result of hefty salaries and pensions for top Bell officials and extensive city-run programs, the review found. To cover part of the deficit, city officials took money raised by the sale of bonds for specific projects and diverted it to the general fund, a likely violation of the law, according to experts on municipal finance.
Easy Decision in Bell

There is nothing for Bell to even think about here. The city is bankrupt. The correct solution is to declare bankruptcy, disband the police union, and outsource 100% of city services eliminating 100% of public union contracts.

Half Moon Bay Faces Financial Brink

The Wall Street Journal reports Half Moon Bay Faces Financial Brink
This coastal city next month will begin an aggressive campaign to warn residents of severe budget cuts that lie ahead, as the cash-strapped town tries to avert insolvency.

Laura Snideman, appointed earlier this month as Half Moon Bay's city manager, says she and the five-member city council and top managers will meet in the next few weeks with residents to alert them about impending changes, such as potentially outsourcing the town's 15-person police department to an outside agency.

"The choices are no longer hard, they're painful," says Ms. Snideman, formerly an economic development manager in the city of San Mateo. She adds that she hopes by making the case for cuts, some residents will offer ideas or even volunteer to save some services and programs.

The campaign is the latest development in Half Moon Bay's long and winding financial descent, which has made it a poster child of the problems plaguing Bay Area municipalities. While many towns face budget gaps, Half Moon Bay is in especially tough straits. The city already has outsourced some public-works services, including trash, building inspection and health-code enforcement to independent contractors and private companies.

The city of 13,000 is essentially "turning into a functionally unincorporated locale," says Christopher Thornberg, a principal at consultancy Beacon Economics in San Rafael. "They're pretty much a city in name only, having turned over or outsourced most of their essential services."
Easy Decision in Half Moon Bay

There is nothing for Half Moon Bay to even think about here. The city is bankrupt. The correct solution is to declare bankruptcy, disband the police union, and outsource 100% of city services eliminating 100% of public union contracts.

Outrageous Benefits Demands by University of California Executives

More people sent me an email on regarding this article than any other news story ever. The San Francisco Chronicle reports Highest-paid UC execs demand millions in benefits
Three dozen of the University of California's highest-paid executives are threatening to sue unless UC agrees to spend tens of millions of dollars to dramatically increase retirement benefits for employees earning more than $245,000.

"We believe it is the University's legal, moral and ethical obligation" to increase the benefits, the executives wrote the Board of Regents in a Dec. 9 letter and position paper obtained by The Chronicle.

"Failure to do so will likely result in a costly and unsuccessful legal confrontation," they wrote, using capital letters to emphasize that they were writing "URGENTLY."

The 36 executives who signed the letter include Mark Laret, chief executive officer of UCSF Medical Center; Christopher Edley Jr., dean of the UC Berkeley law school; and Marie Berggren, chief investment officer for the UC system.

They want UC to calculate retirement benefits as a percentage of their entire salaries, instead of the federally instituted limit of $245,000. The difference would be significant for the more than 200 UC employees who currently earn more than $245,000.
Amazing Arrogance

Of all the stories regarding public workers that I have seen, this ranks among the most galling and disgusting of them.

How any public employees can think they deserve those demands just shows how outrageous the sense of entitlement of public workers is from top to bottom.

Tuition costs are obscene and it is because of contracts like these. Benefits need to be cut dramatically, not increased.

Fortunately, there is some good news to report: High-paid UC executives denied retirement benefits increase by UC Regents

The issue may be headed to court. By the way, I have had many people who work for the University of California writing to complain about how outrageous those demands were.

Time for a Reality Check - California is Broken

Assemblywoman Diane Harkey, Republican 73rd Assembly District, and Vice-Chair of the Appropriations Committee says it's Time for a Reality Check – California is Broken
Noted “straight talker,” State Treasurer Bill Lockyer, must be living in another California. In a recent Los Angeles Times editorial (“California Isn’t Broken”), he suggests that criticisms of California’s fiscal and economic problems are overblown.

While I agree that the state will repay its bond debt, I strongly disagree that we are helpless victims of the recession. Our 12.4 percent unemployment, unfriendly business climate and runaway state spending must be addressed if we are to pull out of our financial abyss.

It’s time for straight talk and a reality check. Blaming the recent economic downturn for California’s woes ignores many of the deeper underlying problems.

Treasurer Lockyer quickly passes over the fact that California’s unemployment rate is the second highest in the country. Our state lost 1.2 million private sector jobs from October 2007 to October 2010. More than 141,000 people left California during a twelve month period in 2008-09 because they could not find work. Jobs and opportunity continue to disappear because of high taxes, costly regulations and job-killer policies.

For the fifth year in a row, Chief Executive magazine rated California as the worst state in the country to do business. According to CNBC’s 2010 ranking of “America’s Top States for Business,” California ranked 48th amongst the 50 states for the cost of doing business. The nonpartisan Tax Foundation found that California has the nation’s second-worst business tax climate. California taxpayers pay the highest sales and gas taxes in the nation, and some of the highest top personal income taxes.

Straight talking, state government has been spending more than it receives in revenues for over 10 years. 70 percent of our General Fund spending is locked-in due to big-government program growth and auto-pilot appropriations. Our accumulating debt to fund operations consumes an increasingly larger portion of the revenue pie, as our state annually maxes out its credit cards and pays higher risk adjusted interest rates on its debt.

Despite Mr. Lockyer’s assertions that California isn’t broken, ignoring reality will only further jeopardize our state’s fiscal stability. California will remain broken until we get government out of the way of job growth and come together behind a long-term plan to streamline and restructure the way the state does business. Only then will we be able to balance our budget once-and-for all.
Solution Far More Difficult than Harkey Lays Out

Harkey wants the state to "stop borrowing and live within our means." One line soundbites make things seem far easier than they are.

To live within means will require huge structural changes including properly addressing public worker wages and benefits, not just public union wages and benefits. It will also require an overhaul of the prison system, public worker pensions, health services, immigration, the universities, and education in general.

It is by no means as simple as the phrase "stop borrowing and live within our means" makes it sound.

Governor Brown's Day of Reckoning

Bloomberg reports Brown May Cut Aid, Ask Voters to Extend Tax Increases

Jerry Brown returns as California governor today after an absence of almost three decades, facing a “day of reckoning” over a $28 billion budget gap that promises battles with lawmakers, unions and investors threatening to shun the bonds of the most-indebted state.

Brown, 72, a Democrat who served two terms as governor from 1975 to 1983, has pledged an austerity budget, due Jan. 10, that will be free from gimmicks and that will skirt the gridlock that forced the state to pay bills with IOUs two years ago. He’s told Californians they’ll face painful choices to restore fiscal health. Whether that will mean higher taxes, he hasn’t said.

“Please sit down if you’re reading the stories on the budget on Jan. 10,” Brown told educators in Los Angeles last month. “If you’re driving, fasten your seat belt, because it’s going to be a rough ride.”

Brown has said he wants a budget to erase the nation’s largest state deficit approved within 60 days. That task was eased by voters’ decision in November to allow lawmakers to authorize spending plans with a simple majority, doing away with a 77-year-old rule requiring a two-thirds vote.

“The day of reckoning is upon us and I’m determined to bite the bullet and get it done,” Brown said in Los Angeles last month.

Brown is likely to propose even more cuts and call for a special election to ask voters for money, said Jaime Regalado, executive director of the Edmund G. Brown Institute of Public Affairs -- named for Jerry Brown’s father, himself a former governor -- at California State University, Los Angeles. Options include extending temporary tax increases on income, retail sales and vehicle registrations put in place in 2009. They are set to expire this year.

The governor inherits the nation’s third-highest unemployment rate at 12.4 percent, what the treasurer’s office says is $88.3 billion of bond debt and as much as $500 billion of pension liabilities following the longest recession since World War II.

While Democrats control both Senate and Assembly, they lack a so-called supermajority of 60 percent. Starting a ballot measure that would extend temporary levies, or increase taxes and fees, would need the assent of two-thirds of lawmakers or a citizen initiative drive.

Curbing the cost of state workers’ salaries and their pensions may put Brown at odds with the labor unions that supported his campaign, such as the 120,000-member California Federation of Teachers. The state will spend $9.2 billion on payroll this year, according to the Finance Department. Payments to the two public-employee pensions, the largest in the U.S., will consume 5 percent of the general fund.

Brown signed legislation during his first term that gave teachers and state workers the right to bargain collectively, which Schwarzenegger and other Republicans repeatedly criticized.
Brown Helped Create This Mess

Governor Brown is largely responsible for this mess. The last paragraph above says much of what you need to know: "Brown signed legislation during his first term that gave teachers and state workers the right to bargain collectively"

It is time for Brown to put an end to collective bargaining.

California Republicans pressed to honor no-tax pledge

Reuters reports California Republicans pressed to honor no-tax pledge
A prominent Washington activist is calling on Republican lawmakers in California to stick to an anti-tax pledge, a risk to a special election for raising revenue that Governor Jerry Brown is widely expected to ask the legislature to support.

The pressure came in the form of a letter sent on Thursday by Grover Norquist, head of Americans for Tax Reform, a heavyweight conservative advocacy group. In it he told Republicans that "Voting to send tax increases to the ballot would violate the Taxpayer Protection Pledge, a written commitment that you made to your constituents to 'oppose any and all efforts to raise taxes'."

"I urge you to stand up for California taxpayers by opposing Governor Brown's efforts to refer higher taxes to the ballot, and in doing so, uphold your central campaign commitment to oppose any and all efforts to raise taxes in the already over-taxed Golden State," Norquist added.

Patrick Gleason, state affairs director at Americans for Tax Reform, said the letter marks the start of a broader campaign against efforts to raise taxes in California.

"This is the opening salvo," Gleason said.
With 12.4 percent unemployment, among the worst in the nation, coupled with a business environment that is the worst in the nation, the last thing California needs is a tax hike.

What California does needs is an end of public union collective bargaining, scrapping of prevailing wage laws, an end of defined benefit packages for public workers, and a complete overhaul of the prison system.

That is nowhere close to everything that needs to be done, but that would be a very good start.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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