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The Radical Reform That California Needs « Back to Story
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I own a Ca S Corp. My marginal tax rate on retained earnings for growth is over 50%. I compete directly against GE. They pay zero tax. What do you suppose I am planning to do?
I don't believe you are correct that CA doesn't use AGI(adjusted gross income) as the basis for state income tax.
Great advice but much too late, left wing open borders/la raza demographic growth (illegal and otherwise) control and have doomed California to its current Third World Dystopia status in continued decline, balkanized with a smaller and smaller percentage of haves behind high walls and gates and the rest have-nots on the Government dole waiting for their "Obama money"!
Another part of the problem is the demographics. The state is losing the most mobile of its citizens and gaining transplants from south of the border. Thus, the income generators are disappearing while the revenue consumers are multiplying. Lose-lose.
If California (or any other State) were to eliminate its pension system and go to defined-contribution, wouldn't they then be required to pay the employer contribution of Social Security payroll tax, i.e. 6%? I doubt much money would be saved with that solution since the current State contribution to pensions varies from nothing to 8%.
Algy: You are decrying Colorado's efforts to get out from under public union contracts.
Implicit in your stance is this assumption: politicians and unions will not loot future generations' opportunities to feather their own nests. You think the contracts are fair, and in any case, sacred law. What if CO pensions were 5x what they are? Would those contracts still be holy writ? Is their sacredness measured by the speed by which they will bankrupt the state?
Here's the truth: The poor 80 year old widow is the exception to the rule. The average pensioner is a LOOTER, who knows he or she was paid more than their work was worth, with little threat of ever losing their job, cushy benefits, and an oversized retirement. Looting, under the guise of politics as usual. Did the awarding of these generous pensions benefit the population as a whole? If so, how? Offering everyone a potential turn at the hog trough?
You union people will find little pity in the hearts of people struggling to pay their own bills, even as they pay ALL of yours. Even if we are able to breach your criminal contracts, you'll still end up getting (on average) vastly more than you earned. The age of looting is over - your excesses were the final signposts on that road. Kudos to Colorado - let's have more, please, faster.
The author offers some good suggestions, but they are either completely unpalatable to the population (Laffer's flat tax) or do nothing to address existing pensions.
California's existing political class and public unions have combined to wreck the state's finances, even before crippling 'climate change' regulations are adopted. The state voted in the last election to go ahead with them, rather than waiting until unemployment is around 5%. The population is such a lot of misfits and know-nothings, that in the midst of the greatest financial crisis in two generations, they are telling businesses to get lost so they can make the most marginal of differences in 'global warming'.
It's as if the state is run by children, and things won't change until they are sent to their rooms and some adults have a chance to re-write the looting rules imposed on the population by the political class and unions.
Good Lord, where to start on the inaccuracies in here:
Orange County is not a municipality, and 2 of the 5 congress districts in OC are held by Democrats. The "local fish species" is a bellweather for the salmon run that feeds thousands of families.
People are not fleeing California. The tend oscillated a little in the great GOP-caused depression, but more people move here than leave. Business taxes are solidly in the middle of the pack, as states go.
Arthur Laffer. Arhtur Laffer. That's the best you can do?
Then we have this darn AB32 to self-impose pointless carbon emission restraints on California. Not only will it drive out business, it will cost an additional fortune to implement the regulations.
Just this year, the budget for the California Energy Commission went from $411 million to over $600 million. Now this is an agency that produces NO energy whatsoever.
Other state agencies have pieces too so the total taxpayer-funded cost of AB32 has to be over $1 billion a year.
Why are we spending that kind of money on a phoney issue?
Answer - dumb and/or rotten politicians.
Let Ca. stop !And lets hope the rest of the country learns from this states failures.Mr.Brown won't address the illegal issues,nor will he stop C.A.R.B.,and businesses ? Forget it.This state spends way too much on regulations and the bodies that enforce them.I hate to say it,but my home state has committed suicide .
It's broke. Don't bother trying to fix it, push it into the trash heap and start over. 3, 4, 5 new states would be best. No way would all of them be as screwed up as CA is right now, at least not at the same time, and so most of us would be better off most of the time. And if it can be done while also defaulting on the State Employee Pensions, great, but don't let perfect be the enemy of good enough.
As long as California allows foreigners to reside there, using and abusing its Medical, Educational and Social Services, there is no hope for their economy to grow .
You can only take out and not put in for so long .
Until California gets some Americans running the state, and not La Raza puppets, I feel sorry for California .
Perhaps if California "stops", America will not have to.
The article calls illegal immigration (II) a 'hot button social issue.' True, but it is also a huge financial issue. How huge? So huge, there is no accurate figure. Some arguments in favor of II: cheap labor; a labor force willing to do the jobs others won't; enrichment of our culture (diversity). I would like to see an objective study done on cheap labor vs. the cost to government/taxpayers. I bet the cheap labor aspect is far outweighed by medical and education costs. I also bet the cost of incarcerating illegals tips the spending scales so far out of balance, cheap labor could never begin to be an overall benefit. Legal citizens from the lower economic levels will not take the 'undesirable' jobs as long as we provide them with benefits which act as a disincentive to work. And if you would like to enrich our culture, no problem, just come here legally.
And for the Democrat sweep of 2010... who will they blame when the financial train finally goes over the cliff? My guess is Republicans.
As many have commented, the states that are the most bankrupt are run by democrats. Not surprising, since they don't seem capable of saying no to their biggest supporters (primarily unions).
I think the next big battle will be when Obama tries to get the Federal government to bail out the "bankrupt" states run by the Dems (Calif., Ill., New York, Michigan, etc.)
Of course the "federal government" bailing out these states really means "we the taxpayers" in other more fiscally responsible states. Hopefully the Republican congress can stop this!
I KNEW the Rubicon was crossed after the last election. I admit Meg and Carly were not perfect but just who is? What they brought to the table was real world experience and business savvy. They were rejected in favor of UberLiberal Boxer and MoonBeam the Retread. I racked my brain for what they have accomplished and drew a blank. This during the worst recession since the depression and record unemployment. My advice to Sacramento is to tread very carefully or you shall spark an Exodus.
When California defaults, so will go the Nation.
Hey Algy M. where were you when Obama and the rest of his czars destroyed the automobile bond holders and the creditors. You liberals cannot have it both ways. Here in Michigan, I guarantee you that your poor lady who worked for the state for 30 yrs. only earned about 1/3 of her acctual benefits. Overpaid and Overcompensated, by our tax dollars. Join the rest of us, who actually invest for our retirement and are not guaranted employment or retirement. We are tired of hearing your whinning and complaining about life. Have you noticed that all the states that are in deep financial trouble are all run by DEMOCRATS.
Not a word about illegal aliens or the massive prison system in California, both of which are....well, you know. . .
"Where Californians go today, the rest of the nation gains tomorrow” is not so far off. I own a high-tech small business. Since 2006, I have reduced my California workforce by 40 and hired about as many in other states. On November 3rd, I decided I was moving. My wife and I are now actively searching for a neighborhood in Texas. State income tax will drop from 10.55% to zero. Property taxes will drop in half. Sales taxes will drop and will become federally deductible. No need for earthquake insurance. Gasoline prices will drop by 40c/gal. An affordable neighborhood and my child's attendance at a public school will no longer be mutually exclusive.
California just lost another millionaire to Texas. Tax revenue and job creation will follow.
California is in a Democratic-inflicted financial death spiral. I'm out of here.
The Golden State has lost its luster and is mired in the ditch! Can this state be saved? Short answer: NO, and the end results will not be pretty.
It is always fascinating to watch California's government twisting in the wind, as it year by year patches together yet another budget that gets it through but is chock full of one time gimmicks, that means it has to go through the same thing the following year. At some point, maybe this year, they just won't be able to do it. Will Californians learn to pick better leaders? Doubt it - as long as the traditional media remains firmly pro-Democrat - and there is no chance of THAT changing - nothing will change. Californians will retain their masochistic ways - like here in New Jersey. But, at least we have Chris Christie.
Great piece. I've lived in California and seen its steady decline. I don't believe that those in power have the will to make the changes needed to bring reform to the state. The Unions have come close to ruining this once great state and our lax immigration stance is a mixed bag but nobody can argue that it's also a drain on resources and services. The coming decade is going to be painful where we'll see both services cut and taxes raised even further (a real double whammy).
Stern stuff Troy. A serious list of solutions that needs to be heeded. However this is a state whose voters approved a $3 billion stem-cell research program just to show that evil old W. This article is like the sermon an alcoholic receives that makes him so depressed he heads for the liquor store. Nothing will be done about any of this. The Dems will raise tax rates and revenues will decline...just like what happened in Michigan two years ago. Remember that we still have yet to implement the demented Carbon Laws, that will further destroy any industries foolish enough to have remained in the state. Meanwhile the equally clueless DC Demos are printing an ocean of phony dollars so hyper-inflation will soon push the guy behind the counter at 7/11 into the millionaire tax bracket. Liberalism, the journey to bankruptcy begun by St. Roosevelt The Compassionate in the 1930's, has reached its goal 80 years later. There is no rational solution. The fate of the USSR is upon us and the voters in this state are too clueless to do anything about it. If you vote for ANY Democrat for ANY office you are asking for a meltdown of the system.
This last election was the best thing that could have happened to California. Now that the Libtards (I love that word) have the majority WAIT they've always had the majority!!! and the ability to pass whatever they want with the most Libtard Governor and LT. Governor in, literally keeping the Repubs out of the debate they have NO ONE TO BLAME BUT THEMSELVES FOR HOW SCREWED UP THIS STATE WILL BECOME. Remember SwarzenKennedy was a RINO. Look for a RECALL in about 1.5 years and Californians will finally put in some spending limits and KICK OUT the SPEND AND TAXERS. It's the beginning of the end for the STATISTS in California it is sad though that the big government taxers will have to screw up this state and run businesses out first.
Just like that guy says in the GEICO commercial, "goodnight everybody."
ADOPT COLORADO'S SIMPLE PENSION SOLUTION: BREACH CONTRACTS!!!!
WORSE THAN BERNIE MADOFF - COLORADO’S 2010 PENSION THEFT.
What do the Colorado Legislature and Bernie Madoff have in common? Both stole retirement benefits that were earned over many decades.
We have 80-year old widows in Colorado, who worked hard for the State for thirty years, who trusted the State and made their pension contributions like clockwork for decades, only to see their contracted retirement incomes stolen by the State. This money was taken out of their pockets because the State failed to make pension contributions as recommended by their own actuaries, to the tune of $2.7 billion in the last seven years. If the state had responsibly followed the recommendations of its actuaries, the PERA trust funds would now be more than 90 percent funded. The Colorado pension shortfall is primarily a result of legislative action over the last decade, Governor Bill Owens, et al, in 2000 cut contributions and allowed the purchase of cheap service credit, and now the Legislature wants retirees to bear the cost of legislative ineptitude. In testimony to the Legislature even the proponents of the pension reform bill (Senate Bill 10-001) acknowledged this historic under-funding of the pension. PERA claims that the pension fund was unsustainable without their actions, because the funded ratio of the pension stands at 68 percent. However, the funded ratio of the pension was in the low 50 percent range in the 1970s, and the pension still exists. If a funded ratio of 68 percent this year is unsustainable, how has the pension been sustained since the 1970s when the funded ratio was in the 50s? Not much of a rationale for breaking retiree contracts.
If you find yourself short on funds, you rearrange your spending priorities, or raise additional revenue, YOU DON’T BREAK CONTRACTS! Why would the Colorado Legislature choose to break pension contracts before breaking other contracts, such as construction contracts? How can a state that is in default, that breaks contracts, maintain its credit rating? I can understand how an uninformed layman might see SB1 as an easy solution to pension under-funding; however, there is no excuse for the professional administrators at Colorado PERA to recommend a prima facie unconstitutional bill. It is stunning ineptitude.
The fact that what Colorado did to public sector employees in this year’s pension reform bill (SB1) cannot be done to private sector employee pensions under I.R.C. Section 411(d)(6), says quite a lot about the moral underpinnings of SB1. This federal “anti-cutback rule” for private sector DB plans permits changes to the plans only if the changes operate on a prospective basis.
Colorado PERA’s actions make it clear that the time has come for the inclusion of public defined benefit plans under all Internal Revenue Code Qualified Plan requirements. It is now obvious that allowing the states to regulate public defined benefit plans does not afford equal protection to state and local government employees.
PERA has put it in writing in pension plan materials over the years, that the COLA “is guaranteed”. Members purchasing service credit gave PERA thousands of dollars based on these materials. Money that they could have left in their 401Ks. Expect a new lawsuit from these SB1 victims in the near future. PERA officials now claim that the members cannot rely on their pension plan documents regarding their defined benefits. That is outrageous. You print plan documents for your pension, and later state that the pensioners should not believe the documents you distributed? (This comment was made by PERA officials at a hearing before the JBC.) Note that Goldman Sachs recently paid a half billion dollar settlement to the SEC based on promises made in plan documents. Apparently, some judges believe that plan documents can set forth contractual terms. In any event, the contractual pension language is set forth clearly in Colorado law.
Colorado’s retiree COLA (and those of 36 other states) are “automatic COLAs” as opposed to “ad hoc COLAs” (which exist in about a dozen states and can be periodically altered.) Colorado’s COLA of 3.5 percent is guaranteed in Colorado law in an identical fashion to the base retirement benefit itself. So, the PERA retiree’s claims are based on both statutory language and plan documents. This 3.5 percent COLA won’t look so hot in the coming years if inflation spikes. My guess is that just a handful of members of the Colorado Legislature could tell you the difference between an automatic COLA and an ad hoc COLA.
The Colorado pension reform bill’s (SB1) proponents should accept that states cannot legislate away a debt for work that was completed in the past. What the state is attempting is a claw back of deferred pay. The bill’s sponsors should accept that states cannot avoid their contractual obligations simply because they prefer to spend resources on alternative public services or obligations. I have a contract with my mortgage company. They don’t care if I want to spend my mortgage payment money on a new TV.
Some pension reform advocates argue that public sector pensions should be held to the same standards as private sector pensions. My response to that is “I agree wholeheartedly!” Under the federal Internal Revenue Code reducing accrued pension benefits for private pensions is illegal. If the public sector PERA pension were covered under this I.R.C. law and held to the same standards as private pensions, then last February’s theft of accrued benefits by the Colorado Legislature would not have been attempted. Essentially, federal law provides higher protection to private pensions than it does to public sector pensions. Public pension members are forced to appeal to the courts to prevent the theft of their benefits. (Happening, see saveperacola.com.)
Members of the Legislature pointed out many times, to no avail, that the so called “pension reform bill” was a violation of contracts to which the State was a party. Here are some examples (on tape from the floor debate):
Rep. Lambert: “I have heard from my constituents, as many of you have, that this proposal will breach retiree’s contracts.”
Rep. Swalm: “We’re breaking new territory in this state by trying to reduce the COLA. We’re probably going to get a lawsuit out of that. If we cut the 3.5 percent COLA there will be a lawsuit.
Rep. Gerou said that it is a disservice to the state to rush a bill through when her committee knew that it will go to litigation, and said what we are doing to the retirees is wrong.
Rep. Delgroso said that it is tough for him to tell people that he is going to break their contract.
Senator Harvey said “We have made a commitment. We have a contract with current retirees. That is already in place. Reforms should be made for new hires. We do not have that commitment to new hires.
Senator Spence said “The bill places an unfair burden on retirees.”
Senator Scheffel said “We are breaching our promises to existing retirees.”
Senator Lundberg said “This bill is a deal that was cut before this body met.”
The cavalier abandonment of contractual obligations brings shame to the state of Colorado, aligns Colorado with Third World countries like Bolivia. No person, Republican or Democrat should countenance the breach of contracts. Conservatives support contract law as the foundation of capitalism.
So, why is the SB1 theft more egregious than the Madoff theft? The Colorado Legislature stole money from retirees who are less well off than Madoff’s pre-qualified hedge fund clients.
The Madoff victims were taking risks to seek a higher return on their investments, the Colorado PERA victims simply trusted that their contracts would be honored.
Colorado PERA and the Legislature justified their theft on false premises, citing 2008 market numbers when they knew the markets had recovered approximately 20 percent in 2009. PERA’s General Counsel stated on tape before the 2010 legislative session began that he expected a pension return “north of 15 percent”) for 2009.
It appears that Colorado PERA used the very resources of PERA members to hire a team of lobbyists (up to a dozen) to take earned benefits from those same members. That is truly insane.
Many members of the Legislature acted in ignorance. Spoonfed by the lobbyists, they ignored the legal rights of PERA retirees, and swallowed whole without question the assertions of PERA’s CEO and its chief legal counsel. If the members had read any case law, (for example, the state defined benefit pension case law summary by Prof. Amy Monahan at the University of Minnesota School of Law, Google it!), or even the 2004 Colorado AG opinion on pension benefits (retiree benefits are inviolate) they would not have supported the bill.
PERA’s own General Counsel was quoted in a 2008 Denver Post article as follows: “The attorney general's opinion seems clear that fully vested employees — those retired or with enough years of service to retire — cannot see any benefits reduced, including cost-of-living adjustments, Smith said.” Why would Smith state that an action is illegal, and then decide to champion that action in the following year? Sounds quite fickle.
Although members of the Colorado PERA Board of Trustees are fiduciaries, charged to act only in the interests of the members and the retirees, they recommended SB1, acting primarily in the interests of PERA employers who were concerned with keeping their contribution rates low. This is the clearest case of groupthink I have seen in my life. Don’t they get it? It doesn’t matter if five or ten percent of your retired members endorse your plan. It doesn’t matter that you drove all over the state to visit with your pension members. That is not the standard for constitutionality in the US.
Adding insult to injury the Legislature stole more money than it needed. The pension theft bill sought to increase PERA’s funded level to 100 percent, although an 80 percent funded level is considered well-funded among pension experts and actuaries. You don’t have to pay off your mortgage tomorrow, and PERA doesn’t have to pay off all of its pension obligations tomorrow. They have 30 years.
There were many other options available to address the pension shortfall, options that have been adopted, or are under consideration in dozens of states. See the legal, prospective pension reform that was accomplished in Utah this year. Look Legislature . . . when the real pension reform happens in Colorado in a few years, please take the time to examine these prospective, legal reform options. You are members of the National Conference of State Legislatures, listen to their people, they will let you know what legal reforms are being made by states.
The Legislature had the ability to investigate the legality of its actions up front, but chose to act with no legal advice. Throughout the floor and committee debates on SB1 the members displayed an ignorance of, or an intentional disregard for the relevant case law. They failed to conduct the due diligence expected of an elected body. State legislatures across the nation are examining the legal limitations on their actions regarding pension reform, exploring all legal options prior to acting. (PERA claimed to have a legal opinion to justify their actions, but never released it.) Where is this secret legal opinion?
Members of the Legislature have taken an oath to uphold the constitution and yet voted to violate the Contract Clause and the Takings Clause. Proponents of Senate Bill 1 refused to see that the retiree COLA (annual benefit increase) is set forth in Colorado law with the same force, status and weight as is the base retirement benefit. Only tortured legal reasoning, and wishful thinking, lead them to believe otherwise.
PERA has been disingenuous by claiming that the reform bill represents “shared sacrifice” among employees, employers, and retirees, by not making it clear that retirees bear most of the burden of their proposed reforms, for many retirees the confiscation of benefits will reach one-quarter of their total retirement benefits received over the rest of their lives. In debate, the bill’s sponsors said that retirees would bear 90 percent of the cost of the reform. In any event, I am not relieved of my contractual obligations just because someone else has better terms in their contract. The entire premise is ludicrous.
While ignoring its own contractual pension obligations (underfunding of $2.7 billion in the last seven years according to PERA’s own actuaries) the State of Colorado has pumped half a billion dollars into pension obligations that are not its responsibility, those of local governments (Old Fire Police Pension obligations). (This half billion is documented in a brief by the JBC staff.)
The Legislature made a pact with unions to support the “pension reform bill” (SB1) to protect union jobs. Incredibly, these union members tossed their former members, their retired “brothers” under the bus. From the beginning the plan was “let’s steal the money we need from retirees.” During the debate on SB1, the Chairman of the House Finance Committee essentially stated that the retiree COLA had to be seized “because that’s where the money is.” Listen to the end of the tape of the House Finance hearing on the bill.
Finally, Madoff eventually admitted to his crime, but the Colorado General Assembly is still pretending that their theft of pension benefits is something to be celebrated. They tout it as a “bi-partisan accomplishment.” This will be a long-standing embarrassment to and black mark on our state.
the article talks about government regulation affecting business. Currently Ca regulators are attempting to impose requirements on my company that none of my competitors in Texas have. If they succeed it will put us out of business costing dozens of jobs. this even when working side by side with federal counterparts who have no issues. If we could afford to move our employees, we would.
I'm guessing Danram doesn't live in California.
Unfortunately, California has become a textbook example of how a once-vibrant economy can be laid waste by decades of boneheaded "feel good" liberal policies.
The author of this column is 100% correct when he says that California presages the fate that awaits the entire nation if we don't start exercising some common sense again and take the painful steps that have to be taken.
VOTE REPUBLICAN IN 2012!!!
Since the impetus behind the song California Here I Come has been altered to reflect a reversal of course, no changes out of Sacramento mean more of the same balance toward departures. Those who can't escape will stay and live on welfare. The Golden State is a thin tissue of fool's gold foil. It was once reported in Reader's Digest that a car was seen heading East with a sign in the rear window: "Goodbye, California, and your damned geraniums".That might have been enough of a reason then, but there are dozens of much better ones now. Temporarily in Lodi, Ca.
I wonder if California will ever come back economically ?
It's such a beautiful place with perfect weather. I would have liked to move there, but not in the state it's in.
Nothing will happen till its too late. It will be uglier than the the national credit crises of 2007
Will the Fed come to the rescue? The people in Indiana and Texas might have something to say about that.
What's wrong with a simply majority to pass any measure, a 2/3 majority seems counterproductive to basic democratic principles.
No mention of proposition 13 and it's effect either.