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Unions Are Killing Us – California Pension Liability Edition

John on April 6, 2010 at 11:38 am

Yesterday, Stanford released an analysis of California’s pension liability which showed it may be as high as $500 billion, i.e. six times the state’s annual budget. Much of this liability has been hidden behind rosy assumptions of 7.5-8.0% returns on investment.

How did we get here? The Governor’s economic adviser David Crane put it this way:

State legislators are afraid even to utter the words “pension reform” for fear of alienating what has become — since passage of the Dills Act in 1978, which endowed state public employees with collective bargaining rights on top of their civil service protections — the single most politically influential constituency in our state: government employees.

Because legislators are unwilling to raise issues that might offend that constituency, they have effectively turned the peroration of Abraham Lincoln’s Gettysburg Address on its head: Instead of a government of the people, by the people and for the people, we have become a government of its employees, by its employees and for its employees.

In short, we got here because unions demanded levels of benefits which the state could not afford. That happened because liberal Governors (Jerry Brown) gave unions the power to put us all in this position.

This is, not incidentally, exactly how GM and Chrysler got in trouble. It was the cost of health plans and pensions that made the US auto-makers unable to compete. Making promises we can’t afford is good politics but eventually the bill comes due. We’re seeing that now with decisions made 30 years ago. I doubt it will take that long to see the disastrous results of the President’s health reform plan.

In any case, now that I’ve stated the problem, what are Californians going to do about it? We need to pass a pension reform bill like Illinois did a couple weeks ago. Getting there is going to require public pressure on lawmakers. It would also help to elect a governor who did not help cause the problem (Sorry, Jerry). I’ll have a follow up post on the pension reform agenda of Meg Whitman and Steve Poizner.

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Category: Energy & Economy |

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