Major Issue Behind Prop 15 Ignored During Campaign

Joel Fox
Editor and Co-Publisher of Fox and Hounds Daily

An expensive, high profile proposition campaign was played out over many months leading to the November election and nary a word was spoken by either side on one of the chief underlying reasons that the measure existed. In large part, Proposition 15, the business property tax increase, was about public employee pensions.

Pension costs are staggering and growing at a time when government revenues are diminished because of the pandemic. Cited in an extensive report on the local government pension issue in the Orange County Register was a summary of how deep the pension hole in the state is, depending how it is measured. Stated the Register article:

Stanford University’s Pension Tracker looks at the hole through two different lenses.

The rosier one, used by California officials, assumes that investments will earn returns of about 7%. That puts unfunded liabilities at $352.5 billion statewide, or the equivalent of $27,187 per household.

The darker one, used by Stanford’s Joe Nation, a former Democratic state assemblyman and professor of public policy, assumes the much lower return rate of 3.25%. That pegs unfunded liabilities at nearly $1.1 trillion, or $81,634 per household.

If that hole isn’t filled up with meatier earnings and heftier contributions from public agencies and their workers, taxpayers will be called upon to fill it directly.

Taxpayers have already been called upon to raise taxes to cover pensions, although they may not be aware that was the purpose when local taxes are put before them to supposedly maintain certain services. In a sense, that argument is correct, because of the pension obligations taking money off the top of the budget, funding for other services provided by local governments is cut. But the pension crisis is hidden from the taxpayers behind the good government messages resulting in little awareness of the pension situation by the general public. If the pension situation was handled in a fiscally responsible manner, additional help from the taxpayers would not be needed.

The pension crisis is not new. In fact, in 2005 the late Assemblyman Keith Richman filed an initiative to reform the pension system and put future government hires on a 401k retirement plan. The effort was sidetracked before it reached the voters. 

The pension problems evolved from an ill-advised decision by the California legislature in 1999 in the midst of the dot com bubble to allow pensions to grow when it was assumed pension fund investments would cover new obligations. That did not pan out as the bubble burst and subsequent economic downturns came about. Yet, the obligations grew.

Proposition 15 was initially backed by the California Teachers Association and the Service Employees International Union (SEIU). The larger share of new revenues captured under the initiative were earmarked for local governments. The public employee unions are looking at the pension issue with concern knowing that without new revenue to pay pensions, changes must come or services and employment cut.

Yet, little was said about public pensions and their guiding influence on the Proposition 15 outcome. Proponents don’t want to say they need money to cover pension costs because that does not drive voters to support a measure as money for schools and local government services does.

The No on 15 campaign steered clear of the issue because retirement funds is a touchy subject with voters. Understandably, no one wants to see retirement funds undermined. On the other hand, their will be less money for taxpayers’ own retirement portfolios if they have to pay more in taxes to cover growing public pension costs.

Despite pensions being a major underlying reason that Proposition 15 existed, there was an eerie silence about it during the campaign.

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