It’s election season, so every California Democrat politician is out there on the campaign trail, precinct walking with their “friends” in labor, and speaking to labor organizations and anyone else who will listen.  They are speaking with one voice–that ” we are proud to stand up for working families.”

This may sound like a great tag line, and is surely based on recommendations by campaign consultants, polling and focus groups, and perhaps most importantly resonates strongly with their organized-labor base, who is primarily responsible for funding all California Democrat campaigns.

But the truth is that California Democrat politicians and the California Democratic Party is the “party of organized labor” not of “working families.”  This distinction may not be all together clear, or even relevant, at first glance to someone not familiar with the inner workings of California politics and campaigns.

Senate Pro Tem Kevin De Leon (D) and Governor Jerry Brown (D) are two of the state’s top Democratic leaders who push “pro-labor” agenda items including raising the state’s minimum wage and expanded paid family leave.

There is a big difference between a “pro-labor agenda,” and a “truly progressive” agenda that seeks to bolster the middle-class and truly lift up “working families,” not just those on welfare.  If you look at everything California Democrats politicians are advocating for, and what they consider to be major policy successes, it becomes painfully clear that California Democrat politicians are primarily out to benefit “organized labor,” which comes at the expense of almost everyone else.  Of course there are some exceptions with the moderate and pro-business Democrats, but here we are primarily talking about the California Democratic leadership and solidly “pro-labor” state Democrat politicians.

By and large, California Democrat state politicians are preoccupied with pursuing a narrow, pro-labor agenda that is focused on providing the greatest amount of public subsidies, wage and benefit enhancements, and welfare benefits to a very narrow class of people–the poor, organized labor, and public employees–which represents their “core constituencies.”  Everyone else suffers as a result, including “working families” who are not on welfare, lower and middle-class families above the poverty line, small business, and big business.  California’s biggest policy problems such as pensions, housing costs, taxes, and lack of infrastructure spending do not even appear to be on Sacramento’s radar.

In other words, the California Democrat “pro-labor agenda” is neglecting the state’s middle-class and the state’s business climate, and making it much harder for the “true working families” who do not collect state welfare checks to prosper.  Moreover, this “pro-labor agenda” conflicts with a “truly progressive agenda,” but most Democrats and progressives have no idea exactly how.  Robert Reich, the state’s most prominent left-leaning economist is right–the system and its policies are “rigged” in California–but not in the way that most people think.

 

CA Democrat Agenda Primarily Involves Spending as Much Taxpayer Dollars as Possible, Not Spending Reform

If you look at the priorities of the California Democratic leadership they talk about being proud to stand up for “working families” and a desire to “alleviate poverty,” and improve education.  Many of their stated goals are noble, but their means of achieving them and the policies they utilize to advance these goals only serve to benefit their “core constituencies” listed above, not the rest of us and California as a whole.

Their primary policy instrument is spending as much taxpayer dollars as possible on government programs, primarily welfare, health care, and education.  But the problem is that they do so almost indiscriminately and do not try to spending taxpayer dollars wiser or more effectively.  California Democrat politicians have all but given up on asking California state agencies to spend tax dollars more effectively, and rarely consider any program changes that would upset the state’s hugely inefficient and unwieldy bureaucracy.

Spending taxpayer dollars on welfare programs helps the poor but not anyone else, and does little to actually lift the poor out of poverty over the long-term–welfare spending begets more welfare spending.  Spending more money on education in itself, does not improve education.  As a Dan Walters Sacramento Bee column reported earlier this year, the state is spending billions of dollars more on education now compared to a few years ago, with little or no noticeable improvement in the actual quality of education.

In short, most California Democrat policy priorities boil down to one simple end–indiscriminately increasing the size, cost and scope of California government as much as possible–to the primary benefit of the poor and state’s public sector unions. Their policy toward government spending and public employee compensation is essentially giving them as much money as is available in the government budget, no questions asked.

What is most telling about the “pro-labor agenda” and perhaps its greatest departure from the public interest and a “truly progressive agenda” is what California Democrat politicians are not doing.  California Democrats and the Democratic leadership have all but given up on trying to solve the biggest problems that ail California, particularly working families, the middle-class and California businesses.  But before we get to that, let’s take a quick look at the recent “crowning achievements” of California Democrat politicians.

 

A Brief Look at the “Crowning Achievements” of CA Democrats

The centerpiece of the “pro-labor” agenda is environmental regulation, and the “crown jewel” is AB 32.  California Democrats love to tout their desire to enact never ending layers of increased “environmental protections” and “environmental regulations.”  Environmental policy is extremely important to California voters and does represent a “truly progressive” policy stance–perhaps the last remaining shred of integrity the California Democratic Party and its candidates have left in support of a “truly progressive” policy agenda.  But even here they are taking environmental regulation too far, to the primary detriment of “working families” and the middle classes, who will bear the brunt of the excessive regulatory burden in increased costs of goods and services that are regulated, particularly energy costs.

AB 32 was a legitimate policy victory for the state and should be celebrated as such.  But how much further should the state take environmental regulation before the rest of the state and the world show at least some willingness to follow.  California is responsible for emitting less than 0.5% of the world’s total carbon emissions, yes less than half of a single a percentage point. So even if California totally eliminated its consumption and production of CO2 emissions, that would represent but a blip in the grand scheme of things worldwide.

We do get benefits from improved air quality and health considerations, particularly around stationary pollution sources.  But California alone cannot save the world from “climate change” even if we totally eliminated CO2 emissions within our borders.  So why are California Democrats in a race to enact the strongest and most costly environmental regulations when there is little indication that the rest of the world and nation will follow anytime soon?  My view is that it is because this represents action on their strongest policy position, however, beyond a certain point, further regulation will only serve to undercut our global competitiveness, while providing marginal benefits to California residents.  “Working families” will be hit the hardest because they pay the greatest portion of their discretionary income in energy costs.

The biggest recent success that California Democratic leaders are pointing to this campaign season is their “victory” in increasing the statewide minimum wage in California from $10 to $15 dollars per hour–a 50% increase.  Economists say that increases in the minimum wage do modestly raise the take home pay of low-wage workers, but in return lead to about a 10% reduction in employment, according recent discussions with economists.  So is this really the great policy victory that it is being billed as by Democratic politicians?  Effectively, trading a very modest increase in wages for those who keep their jobs, while putting other workers out of work.  Touting this increase as genuine social progress may work on the campaign trail, where few people question the results, but the reality is that this was not the great policy victory that it is being billed as.  After all, shouldn’t the end goal be to lift workers out of poverty entirely, not have them making more in their existing minimum wage jobs.

Another recent “success” touted by California Democrats as a victory for “working families” is the expansion of the state’s paid family leave program.  Prior to the expansion, California law already allowed workers to take up to six weeks off from work to bond with anew child or care for sick family members and receive 55% of their wages.  The new measure increases the pay to 60% of wages, starting in 2018, and creates a new classification for low-income workers who make about $20,000 or less annually to receive 70% of their regular pay, according to a Wall Street Journal Report.

The program is funded by worker contributions and estimated to cost about $350 million in 2018, and $587 million annually by 2021, according to a legislative analysis obtained by the Wall Street Journal.  This policy does represent an improvement for primarily low-wage workers but its paid for by higher wage workers.  It is a marginal improvement at best, and will surely be followed up with future legislation to increase length of time allowed and percentages claimed by workers.

As one can see, the recent list of true policy victories for “working families” is pretty short.  And as will be seen is clearly outweighed by all the negative aspects of the “pro-labor agenda,” which is perhaps better defined by the policy solutions that it does not include–namely the state’s most pressing policy problems.  Or put another way, the “pro-labor agenda” comes with a great cost to California, and that cost is a long list of policy problems that are off limits and not subject to negotiation, or even substantive discussion.

 

“Pro-Labor” Politicians Silent on Mounting Pension Problem

CalPERS Board President Rob Feckner has been “under fire” from critics whom believe he does not have the experience nor expertise neccessary to manage the country’s largest public pension fund.pension fund. Feckner is known to have close ties with the state’s labor unions, having held top positions with the California School Employees Association and California Federation of Labor.

The best example of one such issue is the refusal of the California Democratic Party and California Democrat politicians to even acknowledge the magnitude and implications of the state’s pension crisis.  The public position of almost every California Democrat lawmaker is to first not even discuss the “problem,” let alone any solutions.  Yet every financial expert I have talked to, including a consensus of top economists and government professors at Stanford University, say this is the biggest public policy problem in the state.

The pension problem is eating state, and particularly local balance sheets alive, and leaving no additional money to pay for other pressing spending priorities such as infrastructure, roads and education.  Total statewide pension and retiree health care debt is estimated to top $1.3 trillion, according to the Stanford Institute for Economic Policy Research (SIEPR).  Would a “truly progressive” politician allow all government revenues to go to pensions, as opposed to policy programs and priorities that truly benefit California and its citizens?

To further illustrate, the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS) lost a combined $25 billion in 2015, the deficit between what they said they will earn and what they actually earned.  Both funds are on pace to lose another $25 billion in 2016, potentially more according to early return estimates analyzed by the Bond Buyer.  That’s roughly $50 billion of taxpayer dollars lost in just two years, or almost half of total annual California General Fund spending.  To be clear, this is $50 billion debt that will grow at 7.5% annually and need to be funded by future tax revenues.  This represents a growing expenditure of public dollars that is not available to be spent on truly progressive priorities at both the state and local levels of government.  Perhaps worse, California state and local taxpayers, including “working families,” are on the hook for all loses incurred by both funds.  Why even bother running a 6-month budget process at the Capitol if nobody will so much as lift a finger to stop the state’s pension funds from driving state and local governments off a fiscal cliff?

Of course, these same politicians have likely already come up with some internal justification for not doing anything about this issue, such as “o’well” that is what the unions want, their members apparently know more about what is good for the State of California than every other independent expert who has examined the issue.

 

Treasurer John Chiang has been remarkably silent on the state’s pension issues for the state’s top fiscal statewide elected official. In 2010, while serving as State Controller, Chiang’s CEO sent a letter to the Government Accounting Standards Board (GASB) opposing the recognition of net pension liabilities on public agency balance sheets. Despite Chiang’s opposition, the GASB accounting changes took effect in 2015, and continue to be applauded for providing much needed transparency of pension debt. Chiang has recently unveiled a “debt watch” database of local debt obligations that excludes pension related debt, despite it being the fastest growing local government debt category.

 

California Democrats Refuse to Address the True Causes of CA Housing Crisis

Another major departure from a “truly progressive” agenda, is the unwillingness of California Democrat politicians to address the California housing crisis.  This was clearly demonstrated last week when California Assembly leaders, including Assembly Speaker Anthony Rendon, touted a package of $1.3 billion in new government spending that was intended to address the housing crisis–but it all involved new government subsidies and spending on existing programs for California Democrat “core constituencies” that have clearly failed to address the problem to begin with.

Assembly Speaker Anthony Rendon has stated that his top priority as speaker is alleviating poverty in California. As one of his first acts as Speaker, Rendon proposed $1.3 billion in new state spending on low-income housing subsidies and government run housing programs that are intended to address the state's housing crisis.

Assembly Speaker Anthony Rendon has stated that his top priority as speaker is alleviating poverty in California. As one of his first acts as Speaker, Rendon proposed $1.3 billion in new state spending on low-income housing subsidies and government run housing programs that are intended to address the state’s housing crisis.

 

California’s housing crisis holds the greatest potential to further reduce the standard of living of the poor and middle-classes in California–perhaps more than any other policy area except the pension issue.  As has been discussed in a previous column, the state’s housing crisis is market-driven.  It was created over a number of years, decades even, where the state’s heavily regulated and fee-burdened housing market has failed to build new housing units to meet surging demand, particularly in coastal areas, the Bay Area and Los Angeles.

California Democrats are silent on the causes of what is driving the crisis, appear to have no intention of investigating the true causes of the state’s housing problem, and have given no indication that they are willing to consider any policy changes that would actually address the root causes of state’s housing crisis–beyond providing more taxpayer dollars to the poor to pay for “unsustainable” increases in market-based rents.

Government has essentially created the problem, and the private sector is the only force that can generate the 100,000 units that need to be built on an annual basis to build our way out of the problem.  But no California Democrat, or very few, are talking about the need to address onerous government regulation, crushing development fees, and generally about what the building industry needs to “jump start” the California housing market.

 

CA Democrats Don’t Support Enough Infrastructure Spending

Perhaps the only kind of spending a California Democrat politician does not like is infrastructure spending.  This is largely because the state’s public employee unions shun infrastructure spending because the vast majority of these dollars do not end up in their pockets.

Yet infrastructure spending is critical to building and sustaining a thriving economy and business climate.  All business leaders will tell you that infrastructure spending is needed to improve the state’s business climate.  This is why Silicon Valley leaders are backing transportation sales taxes to pay for roads, which business needs to transport goods.  But infrastructure does not stop there, we need state highways, water storage, state parks, schools, universities, waste water plants, and maintenance of existing facilities that state and local governments all but neglect every year.

What most people don’t realize, and even fewer will admit, is that the state’s infrastructure problem is closely related to the state’s pension problem and public employee compensation issues.  Public employee compensation costs  are consuming all new tax dollars and preventing state and local governments from funding infrastructure projects.  And local sales tax measures to increase infrastructure funding hurt “working families,” assuming they can pass with the “albatross” of the pension issue hanging over them.

Governor Jerry Brown’s January budget proposal only allocated $500 million for the most critical infrastructure maintenance costs (less than 0.5% of General Fund spending), noting that the state needs to start funding massive mounting public employee compensation debts.  Sonoma, Marin, and Mendocino counties have some of the worst road conditions in the state, but are all hamstrung by unsustainable increases in public employee compensation costs and mounting debt from these same issues.

Infrastructure benefits all Californians.  It truly is a public good.  Apart from support for some school bonds, why doesn’t increased infrastructure spending fit into the “pro-labor” agenda?  Simple, it does not benefit the state’s public employee unions, as much as salary and benefits which consume 80% of state and local government spending.  And these same governments can’t afford to pay for it, given unsustainable spending in these same budget categories.

 

CA Democrats Fail to Address Tax Reform

Tax reform is perhaps the toughest issue of all, but holds the greatest potential to lift up the California working families and the middle-classes.  California Forward released a series of reports on the issue and Controller Betty Yee’s Council is scheduled to release a report on tax reform soon.  But you don’t see many California Democrats, or the Democratic leadership out there discussing the need to tackle tax reform.  One exception is Sen. Hertzberg, who has introduced a major tax reform bill to expand the state’s sales tax to services, but again this expands the state’s most regressive tax and would be passed onto consumers.

California Democrats are just as guilty as Republicans in proposing a series of new tax expenditures and exemptions every year that help a select special interest (i.e. the movie industry), but are paid for by everyone else.

The state’s tax system holds the greatest potential to transfer wealth from the rich to the lower classes–which is perhaps the single greatest defining policy of what I thought it meant to be a “progressive.”  But nearly all Democrats shy away from this issue because it upsets business, and is not seen as fitting into their long-term career path of climbing up the ladder in state and/or local politics.  It’s too tough of an issue to attract the Democratic mainstream, and holds little potential for a short-term political payoff, beyond very narrow proposals that benefit special interests.

What needs to be done on tax reform?  Simple, you broaden the base and lower the rates, as any expert on tax policy will tell you. California has the highest tax rates in the county on the sales tax and the income tax, up to 9.5% for the sales tax and 13.3% for the income tax.  The sales tax is regressive and hits the poor the hardest, particularly working families who don’t collect any state welfare payments.  The income tax also hits the lower and middle-classes the hardest, as well as small business, in terms of proportion of income and they don’t have the same exemptions and deductions afforded to the rich.

By failing to address the state’s unsustainable spending issues, California Democrats are essentially advocating for future tax increases, that will hit working families and the middle-classes the hardest.  They should be working to ease the tax burden on “working families,” not increase it–that would be “truly progressive.”  Local governments are constantly enacting a series of local fees, mitigations and exactions that negatively impact “working families” and the business community.

To be fair, most California Democrats are hoping for the Prop. 30 extensions to pass which raise $7.5 billion annually, primarily from the wealthy and small business (about $5.5 bil.), but this also includes a 1/4 sales tax increase that will hit the poor and working families (about $1.7 bil.).

This is not tax reform, it’s a general tax increase that lets big business off the hook and hits the average taxpayer and small business the hardest (Note: data from The Economist shows that U.S. corporations are generating the lion’s share of business profits, record profits in fact, higher than any other nation, but not necessarily passing them through to workers).  The reason is that many small businesses (S Corps and sole proprietors) pay taxes through the state’s income tax, while corporations pay through the state’s corporation tax which is so littered with special loopholes and exemptions that some experts say it is “voluntary.”

In short, California’s current tax system contains some progressive elements, namely the income tax, but as a whole the state’s tax system is is not “truly progressive.”  It is loophole-ridden and serves to primarily benefit the rich and big corporations who can take advantage of all its loopholes to the detriment of everyone else (i.e. working families, small business) who pays full boat.  It is largely in conformity with the federal tax code which is even worse as is being discussed at length on the national campaign trail.

 

Significant Policy Change is Difficult But Not Impossible

As one can see, the California Legislature has clearly been marginalized to proposing small, almost insignificant solutions, to address big problems.  And as for the biggest policy problem in California, the state’s unsustainable pension system, California politicians are remarkably silent because any discussion of this issue offends their “friends” in labor.  This is completely ridiculous, and unconscionable to any one who understands the facts of this policy issue, which almost certainly includes Gov. Jerry Brown.

A review of major policy changes enacted over the past 40 years beginning with Prop. 13, shows that significant policy change does happen but it requires bold leadership and a willingness to commit to taking on tough issues over the long-haul, according to a study published by the Kersten Institute.  Most major policy changes do not happen overnight, but the important thing is to at least try.

The critical ingredients of policy changes enacted in the California Legislature are strong leadership from both Legislative leaders and the Governor.  Unfortunately the California Democratic leadership is silent on many of the major policy issues facing California. Gov. Jerry Brown has perhaps the greatest capacity to take on the tough issues, but even he has recently shirked from his initial willingness to think and act big on the tough issues.  Gov. Brown has since decided to just follow the lead of the California Legislature on all but a few pet “legacy issues.”

Gov. Brown did make public employee compensation debt issues the major focus of his January State of the Union Address and is likely to drive a hard bargain in the budget process for increased state payments for retiree health care.  But that’s about it.  The Governor has tried to get CalPER’s to accept some reasonable reforms, but they have refused and he has not made a major issue out of it.

Gov. Brown has been mostly focused on his criminal justice initiative and his two “legacy infrastructure projects,” the delta tunnels and high-speed rail.  The sad reality is that the State of California cannot even pay for its most basic infrastructure needs, particularly in the absence of additional pension and retiree health care reform.  Who needs the delta tunnels and high-speed rail if the infrastructure we have is currently falling into disrepair?

The Governor made road spending a key issue last year, in response to requests by California business leaders and the counties, but has not chosen to connect this to the pension problem, which is the real cause of the “roads crisis.”  The Governor can, and should do more to address these major issues.

So what we really have in California politics is a leadership crisis.  A leadership crisis characterized by the unwillingness of California leaders to address the state’s most pressing policy problems in a substantive way.  Discussion of such issues, if even raised at all, is largely confined to a cursory review, and often followed by proposing a narrow or very piecemeal solution, which may not even represent a step in the right direction.  Other major problems such as pension reform, infrastructure, and tax reform are hardly discussed at all, it’s almost as if they are not even on the radar of Sacramento politicians, even though they loom large in almost every other venue in California, particularly with local governments, the business community and the average citizen.

Another problem is that California has become a “one party state” for all practical purposes which prevents many of their policy positions from being challenged in a competitive election.  The state would benefit by returning to a true two party state as reported by a recent Kersten Institute report.

 

It’s Fine to Be “Progressive,” But Please Be “Truly Progressive”

So the next time you hear a California Democrat politician say “I’m proud to stand with organized labor for working families.” Please question what that actually means, and clarify if that is for the “working families” that are paying California’s taxes, or just those who are partially or fully subsidized from state taxpayers because they are a “core Democrat constituency”?

California has a series of major public policy issues that are going unaddressed and undiscussed in the circles of power in California, all of which have huge implications for “working families” and California’s future as a state.

It is time for California Democrat politicians to start standing up for the “public’s interest,” which includes the lower and middle-classes and what is going to help the state as a whole, not just organized labor.  There is a big difference.  It’s fine to be “progressive,” but please be “truly progressive,” not just “pro-labor.”

And next time you hear a California Democrat politician say they are “fighting organized labor” in Sacramento, take my word for it, “organized labor” already has the keys to the kingdom–so there is really no need to fight for them in Sacramento–it’s really just an exercise of preaching to the choir.

About the Author: David Kersten is an expert in public policy research and analysis, particularly budget, tax, labor, and fiscal issues. He currently serves as the president of the Kersten Institute for Governance and Public Policy – a moderate non-partisan policy think tank and public policy consulting organization. The institute specializes in providing knowledge, evidence, and training to public agencies, elected officials, policy advocates, organization, and citizens who desire to enact public policy change

 

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