In 2012 the California Legislature and Governor Jerry Brown asked voters to approve a big sales and income tax increase to better fund schools. Voters approved the measure and per-pupil spending has risen 60 percent since then to $17,160 per student. One would expect schools to be faring well.
They aren’t. Despite the spending increase, school teachers in the Los Angeles Unified School District (LAUSD) went on strike in January. You can’t blame them. Over the same period that revenues rose sharply, LAUSD’s aggregate spending on active teacher salaries was flat. That’s largely because LAUSD’s spending on retired teachers rose twice as fast as LAUSD’s revenues, leaving less for current teachers. LAUSD isn’t alone. Statewide, more than 100 percentof schools’ share of the 2012 tax increase went to increased school spending on retirement costs.
Rather than attack the retirement spending at the root of its fiscal problems, now LAUSD is asking Los Angeles voters to pass a parcel tax to provide LAUSD with an extra $500 million per year in revenue. But an extra $500 million per year won’t solve LAUSD’s problems. That’s because growth in its retirement spending will consume and then surpass that amount.
Meanwhile, LAUSD isn’t getting any help from Sacramento — unless you count giving heroin to a heroin addict as help. LAUSD can’t cut its retirement spending without legislation from state legislators, but no such legislation has been proposed. Instead, to make it easier for school districts to raise revenues from local populations, a state senator has introduced legislation lowering the threshold required for voter approval of school district parcel tax measures. As currently drafted, the measure doesn’t help LAUSD or any other school district to reform retirement spending even though growth in retirement spending would swallow new revenues approved by voters. One simple reform alone could produce a $10,000 per year raise for current LAUSD teachers and lower their health insurance costs to boot. But proposing such a reform would require state legislators to take on public employee unions, the special interest they fear most.
You can see another example of that fear in the form of a big state expenditure that crowds out spending on programs for vulnerable citizens. The state subsidizes the health care costs of retired state employees and their dependents — even those on Medicare or earning healthy state pensions. The cost of those subsidies will be $2.6 billion in the next budget year. Because of the structure of California’s General Fund, spending on those subsidies disproportionately burdens programs such as courts and California State University. That burden is most evident during recessions. Eg, when General Fund revenues fell 15 percent between 2007–8 and 2011–12, funding for CSU dropped more than twice as much. Still, legislators haven’t proposed reform of retiree health subsidies. Apparently in their view, Medicare is not good enough for retired state employees and their dependents.
Another example is illustrated by $5.7 billion of state spending on salaries for just 57,000 Corrections employees. That’s after four salary increases since 2010.
Those most harmed by such legislative pusillanimity are vulnerable citizens — eg, schoolchildren, working teachers, college students, and court users. But rather than attack root issues, all too often legislators find it easier to raise taxes even if new revenues won’t solve real problems. That’s because taxpayers are easier targets than public employee unions and most citizens don’t know the root causes of fiscal problems. Yet no conceivable revenue increase could come close to covering the growth of public employee retirement costs in California. That’s because unfunded retirement liabilities across the state, local governments, special districts and school districts in California are so big and growing so fast that — absent reform — trillions of dollars will flow out of government and district budgets to retiree subsidies and pensions. As a result, and just as with the 2012 tax increase, revenue increases would be swallowed up by increases in retirement spending unless state legislators (i) means-test the healthcare subsidies provided to retired employees, especially those on Medicare or with sizable pensions, (ii) encourage/require local governments and school/special districts to do the same, and (iii) allow governments and districts to suspend automatic pension benefit increases and to modify pension benefits for years not yet worked. Absent such reforms, California will continue to raise taxes only not to solve problems.
It isn’t as if there aren’t good models out there. Glendale successfully means-tested retiree health subsidies to protect funding for public services, Ontario Teachers’ sets a powerful example for how honest public pension funds work, and Rhode Island suspended automatic benefit increases and trimmed benefits for years not yet worked to protect funding for its public services. All three had two things in common: A desire to protect public services and the courage to take on the special interests that legislators fear most.
Pusillanimity isn’t endemic in the state legislature. This session some legislators are taking on tough special interests to liberate nurse practitioners and physician assistants and improve access to health care. But K-12 education is California’s largest in-state enterprise, with annual spending of $100 billion and nearly six million customers (schoolchildren). It is state run, with local school boards governed by an Education Code written by the state legislature and governor. Results are mediocre — and those results are not likely to improve with less and less of every dollar going to classrooms because more and more of every dollar is going to retirement and other legacy costs. Those problems are fixable by California’s legislature and governor. Retirement spending is also constraining the ability of local governments to field full public safety departments and provide other services, and that constraint will only worsen during a recession. They too need the help of the state legislature.
A bit of courage by the California Legislature 14 years ago could have prevented the retirement cost crisis with little difficulty and cost. Because they didn’t act then, much more difficult and costly actions are required now. Failure to take action now will require even more difficult and costly action down the road. All that’s missing is a bit of courage.