The Minimum Wage Gambit: Deja Vu

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

When Governor Arnold Schwarzenegger announced that he would sign an order to pay state employees at federal minimum wage until the budget is resolved, I got that Yogi Berra feeling: It’s déjà vu all over again.

You see, the court ruling that the governor is relying on came out of a lawsuit I filed a decade ago during another budget crisis in 1998. The case of the Howard Jarvis Taxpayers Association vs. State Controller Kathleen Connell was intended to pressure legislators into coming to terms with the budget. We contended that the state constitution prohibited any spending in the new fiscal year without the authorized budget in place.

A Los Angeles judge agreed, ordering Controller Connell not to pay employees or contractors. The next day, the Legislature passed an emergency spending plan that allowed the employees to be paid.

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Workers Comp Reform Saves State and Local Government Billions

Consulting Senior Fellow, the Rose Institute of State and Local Government, Claremont-McKenna College

With all the current angst in California over taxes and government spending priorities, one might reasonably ask if there is any good news at all about government finances in the Golden State. Indeed there is. Governments throughout California have realized substantial benefits from the reforms of the Workers Compensation system.

These reforms, which were a key platform of Governor Schwarzenegger’s first term, were broadly recognized as improving the states business climate. Of course, an improved business climate stimulates economic growth and job creation, which in turn leads to a host of positive financial outcomes for governments in California, not the least of which is increased government revenue from taxes coupled with lower demand for government provided social services and unemployment payments.

But local governments in California benefited even more directly from the Workers Comp reforms. The reforms have resulted in significant savings as governments throughout the state have had to allocate less to provide Workers Comp coverage for their employees. In just the first two years since the reforms were in place (FY 2004-2005 and FY 2005-2006) state and local governments (excluding school districts) saved over $1.41 billion.

To put the magnitude of these savings in perspective, the savings realized in FY2005-2006 alone ($964 million) would have been enough to pay the starting salaries of well over 18,300 new police officers (at an average annual starting salary of $52,638). In 2006 there were approximately 67,000 sworn police officers in the entire state.

Governments in California have realized substantial financial benefits from Workers Comp reform. Absent this reform, governments would have had fewer resources to finance police protection and other public services.

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California Adopts New Green Building Standards

Robert Rivinius
Executive Director, Family Business Association

The California Building Industry Association supported the adoption of
new mandatory green building standards which will help ensure that
California remains at the cutting edge of the green building movement
while keeping new homes as affordable as possible.

The California Building Standards Commission on July 17 made California
the first state in the nation to incorporate green building standards
into its building codes. The codes, developed by the state Department of
Housing and Community Development, will be phased in over the next three
years. The new statewide standards will help homebuilders move green
building into the mainstream.

California homebuilders are already building homes that are far more
energy-efficient than homes built to national standards, and that also
conserve water and other important natural resources. In fact, the
carbon footprint of a new home built today is already 25 percent less
than that of a home built in 1990.

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Where Should The Money Go?

Michael Shires
Associate Professor of Public Policy, Pepperdine University

Last week service employees at UC Davis defied a court order and went on strike demanding wage increases, service workers are demanding guaranteed overtime pay, a guaranteed step system for salaries, and uniform statewide wages. Basically more money for the work they are doing and promises of more raises in the future on a fixed timetable (the “guaranteed step system”).

There were no allegations of dangerous workplace conditions, no argument about decreased workplace safety, just a demand for higher salaries. To quote Gail Price, the Union Treasurer, in the article, "They won’t give them across-the-board raises like they will the patient care unit. We’re not letting them get away with it anymore."

And if the budget were not so thin this year, it is very likely the negotiations would have ever gotten to the point of a strike. More likely, the University would have simply granted the requests under the umbrella of its other many collective bargaining agreements with public employee unions. But this union’s timing is bad and thus the strike has unfolded.

But the question of public employee salaries is one that undergirds every public policy debate in the state budget. Costs of employees are escalating, in fact escalating so fast that the accounting system does not fully fund the expenditures and commitments made today. Accounting rules imposed this year show the huge cost of unfunded retirement benefits (mostly medical benefits) that have been incurred as part of employee compensation.

The bottom line is that public employees are getting more and more expensive. So expensive in fact that it is often cheaper to pay an employee more than their base salary in overtime rather than hire a new employee. Public safety agencies often face this seeming inconsistency and many police and firefighters receive annual wages totaling more than $100,000 and sometimes $200,000.

So what should be done? Should we simply privatize government services? The private sector certainly realizes lower cost structures. Studies have shown that, while average salaries for service professionals have equalized, the public sector has MUCH better and this higher-cost benefits. Certainly some public activities should be privatized and or contracted out to private vendors. This may work for some activities, but will it work for all? Definitely not! Few of us would want a private police department—the dangers for the abuse of their significant police powers are way to significant to place in the hands of private enterprise.

Then what else should be done? The most important step is that the full tradeoffs of public budgets should be seen and made explicit. At UC Davis, for example, the cost of the additional salaries should be part of a public dialogue. Say for example that the union’s requested concessions totaled $10 million in new costs. The dialogue, instead of being about whether the union has the striking power to extract these concessions and prevent the university from “getting away with it,” should be about what the best investment of the next $10 million of the university’s resources should be. The potential attrition of not spending the $10 million should be set against the benefits of new counselors for the students, expanded health services, increased computer resources, expanded public safety investments, etc. It should be about making UC Davis the best institution it can be instead of about making sure that every group gets their share of the pie.

And this extends to collective bargaining processes across the public sector. These conversations need to be public, explicit about the tradeoffs, and frequent. Often the complexity of the public enterprise allows issues to be hidden in the miasma of minutiae and detail.

It is time that these tradeoffs were public and open. Public employee negotiations and agreements need to be documented and available to the public. Clearly there are legal limitations during the actual negotiating process, but elected officials should be called to accountability before approving any agreement by detailing exactly what is being offered as part of the final proposed agreement and at what costs? They should explain why this is the best use of the resources committed and not just “the best deal we can get.”

Great latitude was historically afforded these negotiations in the past in an era when public servants were paid significantly less than their private sector counterparts and it became more of a ministry than a profession. Those days are behind us as the marketplace has equalized these discrepancies. Now, in times of immense social and economic pressure, these processes need to be more open and held to higher accountability. Only then can taxpayers feel comfortable with the investments they make in the public sector.

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Could they all go down together?

Joe Mathews
Connecting California Columnist and Editor, Zócalo Public Square, Fellow at the Center for Social Cohesion at Arizona State University and co-author of California Crackup: How Reform Broke the Golden State and How We Can Fix It (UC Press, 2010)

The Field Poll has recently conducted surveys on 5 of the 11 initiatives — plus one bond measure — scheduled to appear on California’s November ballot. The numbers are all over the place, but there’s reason to believe that all six measures polled could be headed to defeat in November.

How’s that?

Well, the lack of initial support for a ballot initiative is almost always an indication that it won’t pass. Such measures are hard to sell even when they, at first blush, have appeal. To start out with less than 50 percent support and win requires a Herculean effort (and usually, very weak or non-existent opposition). On that basis alone, we can count out Prop 11, the redistricting measure, which shows only 42 percent in the poll, and Prop 4, parental notification, which has 48 percent.

The same is also probably true of Prop 8, the ban on same-sex marriage, which also has only 42 percent in a recent Field Poll. One caution: the politics of gay marriage, which are really the politics of marriage, are complicated and relatively new, and other polling has shown this to be a tighter race than that. This is likely to be a 51-49 kind of campaign.

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Jump into the Pool – the Small Business Insurance Pool

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

This morning’s column by the Sacramento Bee’s Dan Weintraub tells the impressive story of small businesses creating the heart and soul of the new California economy. The spirit of entrepreneurship and the desire to be your own boss is leading many workers to set up their own shops.

As Weintraub points out in the article, “firms of five employees or fewer now represent nearly 90 percent of all businesses in California” and these firms are growing at a rapid pace. Indeed even the smallest of firms, sole proprietorships increased by 24 percent from 2000 to 2005 to more than 2.5 million.

But along with this success story comes the question of how so many workers in small businesses deal with exploding health care costs? According to the National Conference of State Legislatures, only 47% of firms with three to nine employees offer health care insurance. Sole proprietors often skip health care as an expense they cannot handle.

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Dewey defeats Truman!

Writer and Political Commentator

Any time a family member was pregnant, my mother-in-law would pick
two large family events and make two separate and competing
announcements: one, the baby will be a girl and two, the baby will be
a boy. On the day of the birth she would proudly remind us all of
how she had accurately predicted the baby’s gender and even remind us
of the event where she made the proclamation. My mother-in-law
missed her calling and while she could not have cared less about
politics, she should have been a political expert.

Last summer there were two certainties in presidential politics.
One, Hillary Clinton would be the Democratic nominee for president.
She could not be beat. She had the name, the husband, the money, the
connections, the organization, the staff and the support of the
party. The other summer of ’07 certainty was that John McCain’s
candidacy was dead in the water. He was too old, too moderate, too
independent (or not independent enough), his staff was in disarray,
and he didn’t have enough money to run an effective campaign. As a
matter of fact, if you missed those McCain news stories last year,
not a problem. The exact same stories are being run today.

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Don’t Let the Water Crisis Get Bad Enough

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

Yesterday on this site, Senator Dave Cogdill argued that it is “absolutely essential … that we pass a comprehensive water bond now.” In response, Jon Fleischman on his popular FlashReport website argued that the cost of the bond will be too high if it comes out of the legislature with an environmental agenda from a “Sierra Club wish list.” Instead of acting on a legislative measure now, Jon proposes we wait until the situation gets “bad enough” and then put forth by initiative a cheaper, more directed bond measure dealing exclusively with water storage and conveyance.

It is hard to argue with Jon’s analysis of how money has been ill spent in Sacramento. Government officials have been irresponsible in not adequately funding infrastructure to serve the water needs of the people. But I have problems with his conclusion that we allow the situation to get “bad enough” in hopes that the people will pass a leaner bond measure sometime in the indeterminate future.

While some would argue it is a principled stand to vote against a water bond that doesn’t exclusively provide for more water storage, watching principle crash into reality will not solve the pending water crisis.

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Penny Foolish, Pound Foolish

Douglas Jeffe
Communications and Public Affairs Strategist

Republican legislators in Sacramento seem willing to do anything to avoid voting for a tax increase—even if it means picking taxpayers’ pockets. The GOP push to siphon off more than a billion dollars in Proposition 42 funding—the sales tax on gasoline that is supposed to go for transportation—would do just that.

Traffic congestion is like a ball and chain on our economy. Most commuters spend hundreds of dollars each year paying for wasted fuel they burn up while stuck in traffic. It is estimated that the average California motorist is out of pocket more than $600 a year for excess repairs, wear and tear and poor vehicle performance as a result of our substandard roads and streets. And any time we delay a construction project, the cost skyrockets. The bottom line is that every dollar we don’t invest in fixing our roads and transportation infrastructure costs the taxpaying public a whole lot more.

Republican angst about taxes is understandable. They make good points about the need for long term reform, but the scheme to borrow money from Proposition 42 and local government is just more blue smoke and mirrors. It is ironic that when Proposition 42 was conceived, there was an assumption that the two-thirds vote requirement to suspend payment of the funds into transportation accounts would be a steep hill to climb, because Republicans would resist having transportation funds diverted to other spending programs. Now, the word is that Republican negotiators are the ones insisting that Proposition 42 be on the table, even though the Governor and Senate President pro Tem Don Perata oppose suspension.

As much as the public dislikes the idea of more taxes, it has been demonstrated that they will open up their wallets to pay for real transportation improvements. Local sales tax measures for transportation have passed by a two-thirds margin in counties up and down the state—from San Diego, Riverside, San Bernardino and Orange to Santa Clara, Contra Costa and Sacramento. If Orange County voters are willing to overwhelmingly support a half cent sales tax for transportation, it says something.

One of the major accomplishments in Sacramento over the past decade was passage of the 2006 infrastructure bond package that included Proposition 1B to provide $20 billion in transportation bonds. It is a justifiable source of pride for Governor Schwarzenegger and legislators of both parties. Cutting off transportation funds in the midst of a terrible economy would undo the progress made in 2006 and set us back even further.

Even the $1.43 billion in Proposition 42 funding for 2008–09 wouldn’t help to stem the State’s red ink, since a constitutional amendment, approved by four out of five California voters in 2008, requires that any money borrowed must be paid back within three years with interest.

If enough Republicans can’t hold their noses and vote for a Budget that includes some revenue enhancements, they need to come up with a better alternative than raiding transportation money. The way to the hearts and minds of California voters isn’t through transportation cutbacks.

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Why is Government So Expensive?

Michael Shires
Associate Professor of Public Policy, Pepperdine University

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.

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