Capitol Journal: As California’s new governor, Gavin Newsom needs to address what no one wants to talk about
There’ll be heaps of happy talk in Sacramento this month about bold new, expensive government programs. That’s normal from an eager new governor and Legislature.
Too bad there won’t also be some bitter truth spoken about the crucial need for state government to correct festering old mistakes that threaten or already are damaging California.
But like politics and religion at some family holiday dinners, certain subjects are taboo among most politicians — such as unfunded public pension liabilities, regulatory abuse that stymies economic development and a sick, decrepit state tax code.
Elected officials will be feeding dessert to the public and skipping the nourishing vegetables that don’t go down easily with many voters and powerful interests.
The happy talk is fine. Heaven knows, everyone can use some to mitigate the depressing blather spewing from Washington and talk shows.
Democrat Gavin Newsom is anxious to inaugurate his gubernatorial regime with a popular package of programs aimed at expanding early education and childcare. He envisions a $1.5-billion one-time expense, plus $300 million in annual costs. Vital details to come.
When legislators talk about passing such an ambitious program, however, they peg annual costs at $1 billion to $2 billion.
Pre-kindergarten and childcare programs are commendable if the state can afford them without jeopardizing the treasury or forcing yet another tax increase. And that’s debatable.
Newsom also repeatedly promised voters he’d create some sort of universal medical coverage, probably including care for immigrants living here illegally. He’ll be pressed by his nurses union allies to follow through. The cost, however, may be out of reach — at minimum into the multibillions.
Those proposed government luxuries fit nicely into happy talk.
The bitter truth about unfunded liabilities for public employee retirees just makes voters angry — on both sides.
There’s pension envy by private sector workers whose employers in recent years have frozen their traditional “defined benefit” retirement plans and turned to risky 401(k)-type savings programs. And there’s resentment by public employees who feel they’re being disrespected and picked on by pension reformers.
The problem is that two decades ago state and local politicians promised public employees a lot more than pension funds could afford. There’s an obvious conflict: Politicians get big hunks of campaign money from public employee unions.
Today, California’s public pension systems are badly underfunded. Under the best scenarios, they owe roughly $3 in promised benefits for every $2 in projected assets. The total unfunded liabilities for all state and local pension systems in California range from $330 billion to $1 trillion, depending on how they’re calculated.
“We’re still on this glide slope to a really bad place,” says Joe Nation, a former Democratic state assemblyman who’s a Stanford public policy professor and heads a pension research project. “In the end, someone has to pay this. It’ll probably be the public employees.”
The options are ugly: Trim pensions, raise taxes, increase employee and government contributions or cut other public programs such as education. Local governments could also go bankrupt and slash retiree benefits.
Gov. Jerry Brown and the Legislature took at stab at a partial fix in 2012. They enacted some modest reforms that made pensions less generous for future state employees.
But the biggest barrier to a real fix is the so-called California Rule, an old, illogical concept. It decrees that pension benefits existing when a public employee is hired can never be reduced, even if they haven’t yet been earned by service.
A state Supreme Court decision is expected soon on the California Rule. But even if the rule is junked, Newsom and the Legislature would need to conjure up the courage to buck labor and alter the pension system for current employees.
Another ugly truth is that California is considered notoriously unfriendly to business investment.
High taxes are one problem. Wealthy taxpayers are leaving the state. Newsom and the Democratic-dominated Legislature should declare a moratorium on tax hikes, even if they’re called fees. But they won’t.
Housing is often ridiculously unaffordable where most jobs are. So the state should make it easier to create jobs in regions — such as the Central Valley — where housing is affordable. Duh!
One big help would be to streamline the burdensome California Environmental Quality Act, or CEQA, which has been blatantly abused and has soured housing developers. Labor unions, business competitors and local NIMBYs have used CEQA to tie up projects in courts and run up development costs.
Union blackmailers — “greenmailers” — threaten suits unless developers cave to labor demands. And Sacramento Democrats won’t challenge unions.
Brown used to call CEQA reform “the Lord’s work.” But the Lord never showed up on his watch.
Another ugly truth is that California’s outdated state tax system is unreliable and unstable. It produces a torrent of unneeded tax revenue in good times and shrinks the flow when the economy busts, playing havoc with the state budget and government services.
Because of Brown’s soak-the-rich tax hike, the state leans too heavily on wealthy people, whose capital gains dry up in a recession. The top 1% pays nearly half the state income tax. That needs to be fixed by lowering income tax rates and extending the sales tax to services that are mainly used by businesses and the wealthy, such as legal.
State Senate Majority Leader Bob Hertzberg of Van Nuys says he’ll introduce tax reform legislation “for discussion purposes.”
Good luck getting any other Capitol politician to even discuss it.
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