Not a Good Time to Work for the State of California

Governor Arnold Schwarzenegger has turned his budget reform crusade to California's 300,000 public employees.  

He's making two claims: First, that the pension system is too generous and therefore too costly to Californians. Second, the Governor maintains that the state can't afford to pay current salaries of state workers and they must be reduced either in terms of continued furloughs or actual pay cuts.

The first idea is worth discussing as a long-term priority. The fact is that we live much longer today than even 25 years ago. Just as the retirement age for Social Security has been moved back two years (and will in all likelihood soon be pushed back even more in the near future), it's reasonable for the state to reconsider its retirement pact with its workforce. That said, any savings from such changes are years away and wouldn't help reduce the current $19 billion deficit one cent.

The idea of continued furloughs or outright pay reductions for state workers potentially has immediate savings, and is thus more palatable to the governor and his fellow budget cutters. But will the proposal produce meaningful results?

The furloughs imposed last year were a disaster on two fronts. To begin with, the Courts overturned furloughs for thousands of state workers in categories where their salaries were not tied directly to state resources or had federal requirements. (Oops.) In addition, among the furloughs that were not overturned, studies showed that they cost the state half the projected savings in lost income tax revenues. In other cases, new temporary hires were brought in, or the delays in carrying out responsibilities brought about other costs. (Oops again.) All this took place in a working environment that, according to Governing Magazine, is the 49th leanest of the 50 states on a per capita basis. In other words, we couldn't spare any workers; there is no fat. (Dare I say oops a third time?)

Reducing state worker pay by 5 percent or 10 percent would barely be a drop in the state's budget bucket. In fact, you could fire every single state worker -- prison guards, park rangers, DMV employees, Department of Transportation road crews, California Highway Patrol and all the others -- and the savings from their salaries would amount to $13.2 billion. That's still well short of the $19 billion deficit.

Lost in the discussion is the governor's budget framework -- mainly, that he'll only consider reductions and no increased revenues.  So why he comes up with ways to "trim" costs through reduced pay, he won't even consider an oil severance tax, even though California is the only one of 14 oil-producing states without one. Nor will Schwarzenegger accept raising the tobacco tax, even though California ranks 32nd. Nor will he consider fully rescinding his elimination of the motor vehicle tax, which is costing the state $5 billion in revenue annually.  

So, while the governor and some legislators spending their time considering reductions in employee costs, they conveniently ignore the real problem of inadequate revenues. Until they face that music, they'll be playing the wrong song.    


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