The MGH Report

Michael G. Haran, Proprietor

Managing the Public Sector

Posted by on Oct 26, 2014

Healdsburg Tribune

10/23/2014

With this year’s elections fast approaching both candidates for the 4th Supervisorial District, James Gore and Deb Fudge, have represented that they possess the knowledge and skills necessary to manage Sonoma County’s public sector and its problems, one of which is the gorilla in the room – unfunded pension liabilities.

With annual pension costs having increased from $25 million in 2002 to $117 million and are expected to grow to $200 million by 2020 with the county’s unfunded liability at about $300 million (PD 10/11/14) even considering water related issues, this is the most pressing issue facing the county’s elected officials.

Now I have no squawk about how much public employees are paid. Even the issues I have about too many county managers isn’t about pay. It is critical that public employees get paid a middle class wage as all the support we can give the middle class is important to stave off the ravages of the growing aristocracy in this country. Without a strong middle class we could go the way of the Middle East – yikes!

It’s the retirement system that’s broke and needs to be fixed. This problem got rooted when public pension became guaranteed and tied to a wage and benefit plan that was intended to compete with the private sector. Back then everyone had a pension and it was felt that in order for the public sector to attract talented professionals they had to offer benefits that were as good, or better, then what was being paid in the private sector. The problem is the public sector pensions are guaranteed while the private sector pensions were/are not and those that didn’t get eliminated have gotten decimated as many corporations switched their employee pensions to 401ks.

Now the situation has reversed with the public sector jobs paying more than most private sector jobs and with benefits including retirement at age 50 to 55 with up to 90% salary and the immoral practice of perk “spiking” (Jerry Brown and the legislature has tried to put a stop to this but several unions have sued to restore the practice).

So what can be done to bring the system back into balance? The only way that retirement benefits can be “unguaranteed” so that they will fluctuate with the market like everyone else’s 401k, is for legislators to amend the state’s retirement system. This, however, is problematic since most elected state officials are “in the pockets” of the powerful public employee unions. Even if a ballot initiative were to pass it would be ruled unconstitutional by California’s Supreme Court and then it would have to go to the U.S. Supreme Court – which may very well happen. This is why Mike McGuire was against the initiative and saw that in order to get any reform the unions would have to agree to change. Many have but it hasn’t been enough to impact the long-term liabilities and more concessions have to be made.  As stated in a contemporary economic theory:

“This means that the political, legal, religious and educational systems must be understood dynamically in terms of whether they serve to enhance or to hinder human development. Thus, a system that, at one point in time, may have served a progressive role in society may, because of changes in the possibilities created by new modes of production, come to serve a negative function. Accordingly, it might be quite appropriate and functional for a certain perspective or ideology to dominate the thinking at a given historical moment, while at a later time those same ideas may become unproductive expressions of false consciousness and hegemony.”

The situation is not hopeless if all stakeholders work together and in good faith. This is the problem with politicians signing pledges. They work against good faith and erode the ability to compromise. I do not see how any candidate for elected public office who has pledged allegiance to one party or another could possible take an oath of office without perjuring themselves even before they’ve taken their seat at the dais.

 

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