Public-Employee Pensions Are Not the Only Problem



The current frustration over public-employee pensions is understandable. During the past several decades, private companies have stopped providing pensions for their workers, replacing them with 401k-style retirement plans, or nothing at all. And so it’s no surprise that private-sector employees, who represent the majority of the electorate, are now unhappy that their public-employee brethren receive guaranteed pensions when they do not.

Voter resentment over public-employee retirement plans also appears to be growing. Last week, residents in two of California’s largest cities, San Jose and San Diego, voted overwhelmingly to slash public-sector pensions. In San Jose, where the anti-pension ballot measure received 70 percent of the vote, public employees will be forced to either pay a greater share of their retirement costs or select a pared-down retirement package. Some 67 percent of San Diego voters, meanwhile, approved a measure that freezes public-employee pension payouts and puts new public workers into a 401k plan.

Voters also appear to be increasingly blaming public-employee pay, benefits, and pensions for the severe cuts in government services during the past several years — from the closing of state parks to the skyrocketing costs of higher education. Voter anger also has been fueled by the mainstream press, which has focused heavily on public-employee compensation during the past decade, portraying it as government waste.

Page One reports on over-the-top compensation packages for public-sector officials have become commonplace. And while most of these stories are important ones to tell, and represent good watchdog journalism, they only represent part of the government-waste picture. What’s often underreported, or ignored completely, are stories about giveaways, loopholes, and tax policies that favor large corporations that don’t need government handouts but receive them anyway.

And yet in California, these corporate giveaways play an important role in why our state and local governments are broke. The handouts include unnecessarily low corporate property taxes, tax exemptions for oil and natural gas extraction, and a corporate tax rate that forces small companies to pay the same rates as Google and Apple.

Anti-tax forces often claim that California’s 8.84-percent corporate-tax rate is one of the highest in the nation. But they usually ignore the corporate giveaways. Indeed, a 2010 report by an anti-tax group acknowledged that the state’s true business tax rate is 4.7 percent, when accounting for many of the giveaways, placing California in the middle of the pack nationwide and lower than states such as Florida and Texas.

A series of measures earlier this year would have eliminated some of these corporate handouts, and saved the state about $6 billion annually. Yet these measures, and these issues, have received scant attention in the mainstream press, and have been overwhelmed by the intense scrutiny on public-employee compensation.

So much so that some unions have given up trying to overcome all of the negative press and convince voters of their cause. The San Jose police union, for example, chose not to mount an expensive political campaign against the pension measure, and instead saved its money for a court fight. The union sued to overturn the measure last week, contending that it’s illegal.

Public-employee unions are also going to need to lots of money on hand for what promises to be a nasty and costly war this fall. Anti-tax forces and Big Business are attempting to severely restrict the influence of unions with a proposed ballot measure that would force unions to get the okay from their members before spending money on political campaigns.

Corporations are expected to back the measure heavily — not because they’re worried about unions in the private sector but because they know that, under Citizens United, unions are the only things stopping them from completely controlling government. In the Citizens United decision, the Supreme Court ruled that corporations and unions are allowed to spend as much as they want on politics. But if corporations can convince voters to pass a measure curtailing union political spending, it will help them elect even more politicians who will protect their tax breaks and loopholes.

As such, Big Business has a strong incentive to stoke the anti-public-employee pension sentiment. The more that working-class voters resent public-sector unions and their benefits, the more likely that they will vote to restrict the ability of unions to spend money on political campaigns.

With this in mind, state public-employee unions would be smart to work with Governor Jerry Brown on his pension-reform proposals. Although it would mean some concessions and cutbacks to retirement benefits, Brown’s plan is more reasonable than the measures that just passed in San Jose and San Diego. Moreover, pension reform not only would ease public resentment, and thus hamper the prospects of an anti-union measure planned for the November ballot, but it would likely increase the chances for Brown’s Millionaire's Tax, which now has only 52 percent approval, according to the latest Field Poll.

However, in exchange for pension concessions, public-employee unions should also push the governor to finally address the billions of dollars that California government wastes each year on corporate giveaways and tax loopholes. After all, public-employee pensions aren’t the only reason for why we’re in this mess.