California and its local governments are facing tough choices this fiscal year—basically cut services to balance the budget or raise taxes dramatically to pay for it. But why?
It turns out that revenue declines are only a small part of the problem. The real answer lies in the fact that the cost of government rises each year without any change in services—it comes in the form of salary increases and benefit increases.
These amounts are largely negotiated in secret and buried in public employee agreements that rarely if ever see the light of day. Does this mean that public employees do not deserve raises? Absolutely not—they should and do receive annual increases.
Most public employees automatically receive a three to five percent “step” increase each year. The raises we hear discussed in the limited public releases about these negotiations are increases on top of these basic increases — the so–called COLA or cost of living adjustment.
For example, in Vallejo, a city which recently filed for bankruptcy protection, some unions were scheduled for 21 percent COLA increases over three years—on top of their regular step increases of 3-5 percent.
These kinds of increases are unheard of in the private sector (try asking your boss for a 12 percent guaranteed raise for each of the next three years), but have become ubiquitous in California’s state and local governments.
And this is just the salary portion of the conversation. Add on top of it full medical benefits for the rest of their lives, extensive overtime and an amazingly generous retirement system and you have a public finance system that is destined for bankruptcy — a destination rapidly approaching for the state and many local communities.
While the result is shocking, the real failure is the secretive process that lead to it. The total lack of public information about these negotiation processes prevents the public from holding their elected officials accountable. Add in the fact that many of these very officials are elected due to major investments by these very employee unions (a topic for a later day), and you have a recipe for fiscal disaster. And taxpayers across the state are about to taste the fruits of that recipe.