When examining policy options that might help restore a financially sustainable public sector, reformers tend to focus on what may be politely referred to as austerity programs. And no effective package of reforms can ignore austerity measures; cutting government programs, cutting government staff, and cutting government employee compensation. At the same time, an essential element in such an austerity program would be new rules to change the political landscape – in particular, legislation to curb the power of public sector unions whose agenda intrinsically favors bigger government.
Focusing on austerity alone, however, not only condemns many useful government programs and virtually all government workers to an unpalatable fate, but it is insufficient to revitalize overall economic growth. Accompanying any package of austerity measures must be a package of prosperity oriented measures. These include, predictably, creating a more business-friendly regulatory environment. But they also should include public/private infrastructure projects, strict new laws designed to break up monopolies and promote competition among very large corporations, and a relaxed permitting process for land, energy and resource development. All of these prosperity measures must share a common priority – to lower the cost of living. This not only makes austerity measures affordable, but it frees up public capital to reduce debt and make smart infrastructure investments, and it frees up private capital to innovate and invest in entirely new industries.
Here, in more detail, are solutions for California that combine both austerity and prosperity:
(1) Balance State and Local Government Budgets:
(a) Lower the wages of all state and local government workers by 20% of whatever amount they make in excess of $50,000 per year. Lower the wages of all state and local government workers by 50% of whatever amount they make in excess of $100,000 per year. Include in “wages” ALL forms of compensation.
(b) Solve the financial crisis facing pensions by imposing special tax assessments on state and local government pensions in the amount of 50% of all pension payments in excess of $60,000 per year and 75% of all pension payments in excess of $100,000 per year. Adopt the same reformed financial rules governing pension liability estimates that already apply to private sector pension plans.
(c) Require 75% of all K-12 and Community College employees to be teachers in a classroom.
(d) Faithfully implement the federal welfare reforms already adopted by most other states in 1996 during the Clinton administration.
(2) Change the Rules in Sacramento:
(a) Implement fundamental curbs on the rights of public sector unions, including: Grant all public sector workers the right to opt-out of union membership and payment of any union dues including agency fees. Prohibit government payroll departments from collecting union dues. Allow all public sector employees to negotiate their own wages and benefits and not be bound by collective bargaining terms if they wish. Prohibit public sector unions from negotiating over long term benefits, and require all current wage and benefit agreements to expire at the end of the term for the elected officials who approved the agreements. Prohibit public sector unions from engaging in political activity of any kind.
(b) Discontinue California’s “CO2 auctions,” which are nothing more than a way to redistribute money from middle class ratepayers to bankers, crony green entrepreneurs, and public sector payroll departments. Repeal AB32. Crucially, lift the crippling burden of land use regulations that keep the prices of homes and commercial property artificially high in California.
(c) Revisit all business-friendly recommendations made by business associations such as the bipartisan California Chamber of Commerce. This would not include compromise positions in support of public sector unions and crony capitalist environmental regulations. This would include banning mandatory project labor agreements or requiring union only contractors on government funded projects.
(3) Use government surpluses to engage in public works, and streamline permitting for private infrastructure investments, that LOWER the cost of living for everyone:
(a) Rebuild California’s aqueducts and develop additional aquifer and surface storage for runoff harvesting. Build desalination plants on the southern California coast. Upgrade existing dams and pumping stations. Permit farmers to contract with California’s urban water districts to sell their water allocations. Create water abundance and make water cheap.
(b) Build new power stations. Whether this is a joint project with Nevada to establish nuclear power stations in the vicinity of Yucca Mountain, or building new natural gas fired power plants, the immediate establishment of an additional 20%+ of generating capacity in California would result in significant lowering of utility rates and make California a net exporter of electricity.
(c) Permit development of offshore oil and gas using slant drilling from land. It is no longer necessary to develop offshore drilling rigs to extract energy reserves. There are cost-effective ways to bring this energy onshore without the risk of an oil spill from an offshore platform.
(d) Permit development of natural gas and shale oil reserves in California.
(e) Permit development of new mines and quarries in California.
(f) Build additional pipeline capacity into California to import and export natural gas to and from elsewhere in North America.
(g) Permit development of a liquid natural gas terminal off the California coast. Get California onto the global LNG grid to import and export natural gas and further diversify sources of energy and income. Create energy abundance and make energy cheap.
(h) Upgrade existing roads, bridges, and freeways. Begin working on “smart lanes” that will facilitate cars and mass transit vehicles driving on autopilot.
(i) Instead of developing a bullet train – something that might be worth experimenting with once everything else on this list is done and Californians have surplus money – upgrade California’s existing freight and passenger rail infrastructure. When practical, integrate passenger and freight service on common rail corridors in large cities where high population densities make passenger rail economically viable. Increase the speed of intercity passenger rail to 100+ MPH, which can be done on upgraded but already existing track. Improve the interstate rail links emanating from the ports of Los Angeles and Long Beach, to help them remain competitive.
Implementing policies designed to lower the cost of living is a perilous undertaking. Because it involves increasing the supply of all basic commodities and services including housing, energy, water and transportation, it can lower asset values and profits in those sectors and can contribute to a deflationary economy. But by lowering the cost of living, despite how pay and benefit cuts may affect public sector workers, and despite existing downward pressure on compensation that affects private sector workers employed by corporations competing in the global economy, the overall standard of living may actually improve.
During the 21st century there are two competing models of economic growth. The path California is on involves artificially inflating the prices of all basic commodities. Staying on this path will reduce global competition, empower entrenched global elites, and consolidate the power of public sector unions, monopolistic corporations, and global bankers. Economic growth will be slower, and in terms of genuine productivity, it will be an anti-competitive age of control by the few over the many, and a sad utilization of the great technological advances we have seen in recent decades.
The alternative economic model for California is to adopt policies that dismantle monopolies, nurture competition, and encourage new development of land and resources. If costs for basic commodities are lowered instead of raised, capital is released to finance completely new industries, from robotics and space commercialization to life-extension and other fundamental advances in medicine. This will cause rapid and sustainable economic growth, unprecedented per-capita prosperity, and even faster technological advancement. Because California enjoys so many gifts – natural resources of almost unparalleled abundance and diversity, and an economy that is the technological leader in the world – the solutions described here, though painful, may ensure California survives and thrives during what are sure to be challenging years ahead.