Last week the California Public Policy Center published a study assessing the impact of new regulations issued by the Government Accounting Standards Board. The new ruling will require public entities to recognize unfunded pension liabilities on their balance sheets. This is a major reform. But it points to a larger issue. California’s state and local government entities and their closest financial collaborators – public sector unions, bond underwriters and pension funds – have an incentive to overstate their financial health, and understate the significance of many of the root causes of their financial distress. Here are a few examples, with links to reports that provide more detail:

(1) They mislead voters into believing government workers are underpaid, when in fact they now earn total pay and benefits that are well over twice the average for private sector workers.
“Work in Progress” Government Employee Pay Tracker Still Grossly Inaccurate
December 3, 2013, UnionWatch

(2) They claim personnel costs are only a small fraction of state and local government budgets, when in fact they usually comprise 65% to 80% of total government spending.
What Percent of California’s State and Local Budgets are Employee Compensation?
February 11, 2011, UnionWatch

(3) They campaign for tax increases to “save our schools,” then instead give the money to their pension funds.
Editorial: Prop. 30′s pension boost
November 28, 2012, Orange County Register

(4) They fail to recognize unfunded pension and retirement health care liabilities on their balance sheets.
Accounting Standards, Not Elections or Litigation, Will Finally Enable Reform
February 19, 2013, UnionWatch

(5) They mislead voters into thinking the average government pension is only $25,000 per year, when in fact, a government worker who puts in a 30 year career and retires today can expect a pension that averages over $60,000 per year.
CSEA Understates Average State Pension
May 31, 2011, UnionWatch

(6) They issue “pension obligation bonds,” borrowing money in order to make their annual pension fund contributions.
Pension Obligation Bonds: Borrowing Our Way to Prosperity?
February 9, 2010, Mackinac Center

(7) They issue “capital appreciation bonds,” deferred payment, “negative amortization” scams that should be illegal.
School bond terms more like payday loans
February 1, 2013, Orange County Register

(8) They fail to disclose total outstanding state and local government debt.
State Treasurer Doesn’t Know How Much California Owes in Bond Debt
December 4, 2012, UnionWatch
How Big is California’s “Wall of Debt”?
January 15, 2012, UnionWatch

The primary impact of all of these examples is the same; more deficit spending, and more outstanding debt. In each of them, by misleading the public and by failing to disclose clear summaries of financial realities, the beneficiaries are public sector unions and financial firms. The irony is staggering. At the same time as public sector unions relentlessly accuse “Wall Street” of enriching themselves through financial chicanery, they collude with financial interests to drag America’s public institutions deeper into a mire of debt. And they get away with it because cities, counties, government agencies, government employee pension funds, and public sector unions – are not held to the same disclosure rules or accounting standards as the private sector, nor subject to the same financial reforms.

The irony runs even deeper. Because it is debt formation itself that enables stratification of wealth and privatization. The only sector of the economy that reaps perennial benefit from government debt issuances and outstanding government debt are the Wall Street brokerages who collect the fees and their wealthy clients who collect the interest. The more encumbered local government entities are with debt, the more they are compelled to pass new regulations and attendant fees, as well as raise taxes, in order to pay the bankers. This undermines the prospects of the upwardly mobile, the emerging companies, the middle class private sector taxpayers, at the same time as it empowers established wealthy elites and corporate monopolies.

The connection between government insolvency and the destruction of public institutions cannot be overstated. When governments can’t afford to maintain basic services because too much of their revenues are used to service bond debt and feed pension funds – i.e., wealthy financial interests – the only solution left is privatization. Isn’t that anathema to the agenda of public sector unions?

California’s total state and local government debt is approaching a trillion dollars. But nobody, not the State Controller, the State Treasurer, the California Dept. of Finance, or the Office of Legislative Analyst, knows exactly how much is owed. Yet as long as borrowing can cover deficits, spending cuts can be deferred. This is a powerful incentive indeed to anyone who works for the government or contracts with the government to remain optimistic, and back up their optimism with misleading, incomplete financial disclosures.

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UnionWatch.org is edited by Ed Ring, who can be reached at editor@unionwatch.org

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