A (Red) Rose By Any Other Name

OK San Diego taxpayers, if you’re like me you’ve got your tuxes pressed and shoes shined, ready to attend THE social event of the San Diego  season. Set your watches for tonight at 7PM.

That , of course, is when I’ll be entertaining one and all by watching this Tuesday’s Lost on DVR !  I’ve got the widescreen and Bose sound system.  You bring the popcorn.  A good time will be had by all.

Unless, of course, you’re otherwise engaged.  Like in attending the San Diego County Taxpayers Association’s  15TH ANNUAL GOLDEN WATCHDOG & GOLDEN FLEECE AWARDS DINNER TONIGHT: Highlighting the Good, Bad and Ugly of Local Government soiree tonight at the Town and Country.

Me?  I’ve got too many bluebooks to grade and too many other things to do with the $200 or $250 ticket price (I forget the actual tab as I seem to have disposed of my invitation. )  And I really , really want to see how they resolve all those plot twists with Jack, Kate, Sawyer and the crew. (Twenty dollar bet it all ends with Jack waking up and saying, “Whoa dude, what a dream.”)

Look, I think the SDCTA is a fine group dedicated to its cause and doing no small public good in stimulating a community dialog on government accountability and oversight.   They are a civic minded crew, no bones.  My continual beef, petty though it is, remains that the SDCTA persists in claiming to be something it is not: a  nonpartisan group that represents San Diego County taxpayers. .

I’ve already bellyached about the representing county taxpayers bit.  There are plenty of county taxpayers (and, if you’ve bought a soda in the last year you, my friend, are a taxpayer) who do not see eye to eye (or adjoining universe to adjoining universe) with the SDCTA.

But I can forgive them that minor transgression.  A number of brands tend to overstate themselves.  Like the League of Women Voters which tend to come across of the League of Progressive Women’s Voters.  And the SDCTA’s name is accurate to an extent: it  is in San Diego County and does represent taxpayers.  At least some of them.

My bigger beef is that the SDCTA claims to be a nonpartisan organization.  It says so right in their Mission Statement, right between the claims to be a non-profit organization (true dat) and to be dedicated to promoting accountable government (true dat, too.) But then the mission statement goes on to say the SDCTA is dedicated to also  promoting “cost-effective and efficient government and opposing unnecessary taxes and fees.”

And therein lies my problem.

Ain’t no way, in this partisan age of ours that you can put the words “non-partisan” and “promoting cost-effective and effective government and opposing unnecessary taxes and fees”  into the same sentence without running into a massive contradiction.   It is precisely determining what exactly constitutes effective and efficient  government and unnecessary taxes and fees that forms the fundamental fault line between the two political major parties.

And the SDCTA consistently comes down on one side of that division.

The current June propositions are a case in point.  The SDCTA website lists its June ballot recommendations (here) . So do the websites for the  San Diego County Republicans (here) and the San Diego County Democrats (here).  I’ve summarized their positions  in the table below:

Of the six local propositions the County Republicans, Democrats and the SDCTA all took positions on  the “non-partisan” SDCTA lines up 100% with the GOP.   (In fairness, the SDCTA breaks 50/50 with the two parties on the statewide propositions.  This time around.)  I haven’t taken the time to track, election by election, SDCTA ballot recommendations and compare them to the two parties.  Maybe this summer.  My hunch, though, is that, over the long haul,  such research will  find a strong correlation between the SDCTA and the GOP.  I don’t think an organization that predominantly and consistently endorses the positions of one of the two parties has a lock on the claim to be “non-partisan.”

Indeed, the SDCTA’s claim to be non-partisan strikes me as something of a cop out.  If the organization truly has faith in its convictions shouldn’t it acknowledge  whom it aligns with and supports?  Claiming to be non-partisan is an attempt by the SDCTA to give itself an imprimatur of superiority over all those other crassly partisan groups wrestling down in the political mud and muck while the SDCTA stands proudly on its noble non-partisan pedestal above the fray.  It’s a brilliant marketing ploy, to be sure.  But most group today that  like to claim to be nonpartisan are like products that  claim to be “new and improved” or “low fat.”  The question is: Compared to what?

So I’ll spend tonight in watching the alternative realities that unfold on Lost.  Meanwhile the SDCTA can continue living in its own alternative reality where it is truly non-partisan.

Road to Nowhere

The filing for bankruptcy by the South Bay Expressway underscores a fundamental flaw in the “government as business” crowd’s political philosophy.  Simply stated, the “private property” model, in many if not most cases, has serious difficulties providing “public goods.” Which is why, for the last, oh, I don’t know—just how old is civilization?  Six thousand or so years?—the private sector has continuously failed to displace the public sector from key areas of human life.

Human beings form civilizations to collectively provide the things which humans need to survive and prosper but can not efficiently provide on their own.  Things like collective security (cops and troops).  Things like public works (roads, bridges, dams).  Things that cost any individual too much to produce.  Ever try to pay for your own private army or bridge?  A few wealthy—really wealthy, like Kingly  of Gatesian wealthy—people might be able to do so on a small scale but most can not do so at all and no-one can do so on a scale that supports a modern industrial economy.  By collectivizing labor, either through the direct contribution of labor “in kind” or indirectly through taxation–which is simple a monetarization and reallocation of labor—the community can produce the things we all need but can not or will not produce for ourselves.

Road and other infrastructure construction has been  a function of the state since ancient times.  When the great Western civilization of antiquity collapsed, so did such construction.  The result was the dark ages.  Not a lot of new road building then by private or public entities.  A handful of toll roads replaced the great Roman road network. The rest was Medieval history.

Over the last 500 years resurgent civilization (Some call it “big government– I call it what it is: Civilization.) began harnessing collective energies to produce public works again. The result was the Renaissance and the Industrial Revolution.  Recent efforts to privatize essentially  public goods in the names of an exaggerated conceptualization of the free market have typically gone the fate of the South Bay toll road.  The private entity that takes over providing the public good for private profit either becomes heavily subsidized by the state to meet its bottom line (private prisons come to mind) charge an incredibly inflated price to provide formerly  publically provided services (vocational training by community colleges being replaced by  for-profit technical institutes and colleges like the University of Phoenix and its nursing program)  or simply fail and go bankrupt (like the Toll Road crew.)

Except they can’t just fail and go away like any other business.  Mervyn’s can close its doors forever.  A toll road that is now a major artery along which homes and businesses have sprung can not be plowed under and forgotten. Government will have to step in and take over the operation and funding though at potentially higher costs than if government had simply controlled the project from the onset.

Candidates for public office, from local city council to statewide positions who proclaim how government should operate like a business and that  the private sector can pretty much do anything the public sector does cheaper and more efficiently should keep the fate of the South Bay Toll Road firmly in mind.    There are simply some things government does better.  That’s why government and civilization have evolved together for millennia.  Of course, I don’t expect ideologues driven by their visions of Utopian free markets to be swayed by such simple appeals to history and logic.  I would wish they would at least remember what is becoming my favorite phrase these days:

The Government that  governs least is Somalia.

Fried

Late word that Darling Donna has decided to sit out the race to out Righty Ron Roberts is disappointing though, from what I’ve read and heard, not unexpected.  The Board of Supervisors is not exactly the most exciting of civic electoral posts though its significance to the local quality of life is far in excess of its public profile–or notoriety. A Frye-Roberts free for all would have been interesting and useful to focusing attention on the body–as only a Frye candidacy would do.  One can only hope that Donna is saving herself for one last fling at the Mayor’s office.  Otherwise it just might well be Carl Demonic DeMaio as the new strong mayor in chief.   Oh, where have all the a good Democrats gone?

Castles in the Sky

I’ve followed with some interests efforts of the San Diego City Council, spearheaded by council newbie Todd Gloria, to balance homeowner property rights with community interests. Preservationists and residents of “Historic” neighborhoods like Gloria’s own Hillcrest worry that redevelopment unchecked by regulations to provide for continuity in architectural design can mar the rhythm and harmony of neighborhoods long established. I can understand their concern. A glass and stucco modern apartment building replacing a Craftsman bungalow can certainly alter the unique character of a street. Increasing densities changes the dynamics of a neighborhood, from impacting the use of public spaces to impacting socio-demography; a neighborhood of single family homes becomes a mixed-use hodgepodge of single-resident apartment dwellings. And the essence of community and tradition that brought many to homestead and rejuvenate older neighborhoods disappears.

Yet my ultimate sympathies lie with the property owner and the right of every man and woman to be lord of their own little real estate castle. Too often new regulations are placed on residential real estate to achieve a perceived public good while placing too onerous a cost on individual property owners. If a community wants to be rezoned from an R-3 or such down to R-1 to prevent increased density, or the community wants to change FARs to limit the size of new or remodel construction to keep a “quaint” “village” feel, more power to them. But if these changes means a property owner can no longer build out the property as they were originally entitled to do under the old rules and this results in a reduction of the property’s value, than some consideration to fair-market compensation needs be given to the original owners. Otherwise these regulatory actions constitute, in my mind, an unfair “taking” of personal property by the community.

Let me share yet another tale from the Luna family archives. Some years ago, my wife and I found ourselves living in a two-bedroom (read: one regular bedroom, one broom-closet bedroom), one-bath house with three kids and a fourth on the way. We wanted to remodel the 1911 stucco bungalow to add a second story with additional beds and baths. By the time we calculated costs, it was half again as much money to add on to the old structure, which had sagging walls, a crumbling foundation, zero in the way of insulation or modern windows (you’d walk out of the house, which was maybe 50 degrees inside, wearing sweaters at 9 a.m. to discover it was 85 outside; reverse that at night). The architects said we’d basically have to completely rebuild the foundation and exterior walls to take the stress of a new second floor. Ultimately, we decided to start new, from the ground up. When we took the plans for the new house to the local planning committee, several of the members expressed concern that we were demolishing a house with classic style and historical significance. One of the panel members waxed on about the beveled-glass-diamond-pane windows in the front of the house and other classical adornments—until I informed her the glass was plain pane, the front door basically painted plywood and the other “ornamentation” near balsa-wood add-ons. The house was one of dozens built slap-dash out of stucco, spit and old board in the area for summer rentals in the beach community; only later did they become permanent dwellings. The only thing Craftsman about it was that it took a craftsman to keep it habitable. We eventually got our plan through the board and today live in a larger home that, with better windows, insulation, new pipes and heating system, has a better environmental footprint than did the old clunker.

That’s my beef with many attempts to turn people’s private property into a public good. Just because a house is old doesn’t mean it is a classic worthy of preservation. It is often cheaper and more environmentally sustaining to go new with green products and technologies than trying to turn an early-20th-century pig’s ear into a 21st-century silk home. Moreover, the cost of preservation must be weighed against other social benefits of redevelopment, such as increasing “inner-burban” densities to reverse suburban sprawl, making homes more affordable to middle and working-class homeowners and the like.

Moreover, it’s been my observation that idea of community “preservation” has often been used as a code word for community exclusion: keeping the right sort of people in and the wrong sort out of neighborhoods. It’s also been my observation that, in an interesting irony, it is often wealthier and politically more conservative neighborhoods that are most actively willing to use the heavy hammer of the state in their own backyards to force compliance with their own views of community on fellow property owners while decrying the power of the state in other aspects of life.

But, then, what is life without its little ironies?

Meanwhile, my empathies lie with Todd Gloria and the council in trying to thread the needle between public good and private rights. Balancing the two is one of the greatest challenges in a democracy, where the many can have a propensity to achieve gains at the expense of the few. A person’s home is her castle. If the community wants to demand that castle come with cedar shingles and box windows, the community should provide something in the way of fair compensation to castle dwellers in return.

Doing the Half-Latella

emily

I was delighted that no less a figure than Lani “Tax This!” Lutar herself took the time to respond to my humble (and, as in this case, bumbled) blog. The Dean of San Diego Tax Dissers (that’s right, Dick Ryder’s only a deputy dean) wrote a comment on my blog about the SDCTA municipal pension plan report–401k(illed)–in her usual elegant, intelligent and reasoned prose. (And I am very sincere in this. The LL C(ool)EO of San Diego fiscal frugality is always elegant, intelligent and reasoned. Which really just annoys the heck out of me! I mean, who wants to argue with someone who is always so darn elegant, intelligent and reasoned! Now kitschy Bob Kittle—arguing with him was absolutely guilt-free enjoyment! Miss you, big guy. Arguing with LL is just uncool—especially when she’s right and I’m plain wrong. Or, at least, partially wrong.) I copy her response in its entirety below to save you time, dear reader:

Dear Professor Luna:

Thank you for highlighting our report in your blog. We welcome dialogue and debate on public pensions at any time, especially with those that disagree with our viewpoint.

Please allow me to clarify a few inaccurate statements in your post.

“The only thing the report lacks is empirical proof of its basic thesis: that pension costs are driving tax increases in specific instances.”

If you read my quote in Calpensions (www.calpensions.com) I clearly communicate that pensions are not the only factor contributing to sales tax increase proposals. In both our press release and the pension report, we “link” pension costs and efforts to increase taxes. This is an observation—and nowhere in either document does it state that pension costs alone cause tax increases.

I will concede that we were comfortable highlighting the link between pension costs and tax increases because of fact-based knowledge from time series analysis we conducted in recent years for the cities with the highest pensions costs including El Cajon, La Mesa, National City and Chula Vista (all available on our website). We should’ve communicated this historical background more clearly within our report.

You also note our report is long on recommendations.

Actually, we have only two simple recommendations:
1. Cities should stop picking up the employees’ share of pension contributions.
2. Retirement benefit formulas should be reduced for new hires.

We never state anywhere in the report that defined benefit plans should be replaced with defined contribution plans (401k). And please stop putting words in our mouth: We do not claim that vested retirement benefits should be taken away from municipal workers.

You can argue that asking employees to contribute to their defined benefit plan is a backdoor way of asking for a pay cut. That is true. However, let me point you to page 26 and 28 of our report which debunks your notion that the only way public employees can contribute to their pension plans is via a 401k.

The purpose of our report is to shed light on the generous benefits and significant costs of public pensions provided to municipal employees. When pension costs alone consume 10% or more of a city’s general fund, everyone – city workers included – should be concerned about sustainability and solvency. An insolvent city or city on the brink of bankruptcy hurts communities and public workers.

Another important point you miss is that the majority of public workers contribute little to nothing toward their pensions and their retirement pay is boosted as a result of this practice. Rather than earning a $67,500 annual pension from a 3% @ age 60 formula in the example of a city administrator with 30 years of service, the employee would get an 8% increase in annual pension payments – or $72,900 – because they’re contributing nothing toward their retirement. Yes, you’re reading this correctly. In a bizarre twist, the less an employee pays into their CalPERS plan, the greater the benefit they receive upon retirement. Now that is lunacy.

Sincerely,

Lani Lutar
, President & CEO
, San Diego County Taxpayers Association

Good points, all. As to the point about empirical evidence in the report (or my allegation of lack thereof) I concede a split opinion. Lani concedes the report was not as explicit as it might have been in providing more detailed empirical support of the linkage between pension funds and taxes. I, in return, concede I should have written that the SDCTA was asserting that “pension costs are a causal factor” rather than “pension costs are the causal factor.” But demonstrating how causal a factor pension costs are in increasing taxes is not a minor matter. The SDCTA report calls on municipal employees to pay a price in increased pension costs. Not delineating how big an impact current pension plans have on municipal fiscal policy makes it more difficult to assess whether the pain thereby inflicted on the households of these employees is offset by likely gains to taxpayers, said gains being, I took and take it, the purpose of the SDCTA recommendations.

Lani also calls me to task for saying the report was “long on recommendations” when, if fact, it only had two. True dat. Mine is the guilt of fumbled rhetorical flourish. What I meant was that he report’s recommendations have significant—some might say profound—implications for municipal employees and the hiring of future, talented municipal workers. There might only be two of them but they have potential major significance.

More importantly, though, the LL points out I blew a big one in stating the goal of the report was to move municipal employees away from defined-benefit to defined-contribution plans. I confess I misread the report. I went back to it and read and reread it and cannot find the paragraph I was so certain the report contained stating that future municipal employees should be moved from their current defined benefits plan into 401k style plans. I got that wrong, plain and simple. The report calls for changing benefit calculation formulas and requiring employee contributions, but not for an abolition of the current defined benefit system. Lani is right. (As were getreal and CJ) . I was wrong. Mea and Culpa.

Or, in the immortal words of Emily Latella,  “Never mind.”

I still, however, stick by my principal, philosophical objection to the SDCTA report. I agree with Lani that there may well be inequities within the current pension plan, such as some workers paying less into the system getting more.  (I’m still trying to untie that now and figure out just how it works). I would argue, though, that is an unfairness between current employees within the same system and not, expo facto, an unfairness in comparison with employees outside of the system. A fundamental assumption underlying the SDCTA report is that the current pension plans for municipal employees are unfair or inequitable compared to workers in the private sector because most municipal employees contribute less than most private-sector employees to their retirement and get more in return. I must differ.

The claim that municipal employees do not currently contribute to their pensions is wrong. They are contributing to their retirement plans, no matter how much is or isn’t taken out of their base or take-home pay to fund their retirement plans. They are contributing simply by the fact that they are working for the city. Their labor is their contribution. Their retirement plan is part of their compensation package for said labor, just like their take-home pay and health benefits.

As I wrote in the original post, it is true most private-sector workers don’t have the advantage of such a benefit package. To call the municipal employee’s pensions “generous,” however, is a subjective, not objective, comparison.  One might instead argue that most private-sector employees have ungenerous pensions compared wih the fair and reasonable pensions municipal workers have. The fact that far more private-sector employees used to have similar defined-benefit pensions and the fact that an increasing number of private-sector employees are finding their current defined-contribution plans wholly inadequate to provide for the retirement security they worked for and expected to receive argues, in my opinion, toward this latter observation.

So, I retract my statement that the SDCTA report called for the replacement of current defined-benefit municipal pension plans with 401k-style plans. I stand, however, by the basic point of my piece: the fundamental philosophy underlying the SDCTA report rests on the assumption that it is unfair to taxpayers for municipal workers to have pension plans better than most private workers. And this assumption is incorrect.

“You get what you pay for”—pay municipal workers less and you’ll attract less talented workers, as our local police and fire departments have reported. Saving taxpayers money by cutting back municipal workers pension compensation may save short-term monies but could also cost more in long-term performance and efficiency. Or is it only Wall Street CEOs making gazillions of dollars who respond to the incentive of better pay?

Moreover, I stand by my argument that calling the pensions of municipal workers unfair or too generous compared with private-sector workers is a reversal of the real problem. I contend it is unfair that private-sector workers have seen the value of their pensions (not to mention paychecks) decline for the past generation and that eventually giving everyone in America a retirement the likes of municipal workers would be a national good. Which would be better for San Diego taxpayers—reducing other people’s pensions or increasing their own, after all?

I remain, however, flattered that Lani took the time to comment on my blog at all. Hope to hear from you again, LL C(ool)EO.

401k(illed)

broken-nest-egg

The San Diego County Taxpayers Association has released a new report showing that the increased city pension costs across the county are resulting in increased taxes.

The report provides a good summary of the various pension plans and obligations distributed amongst the county’s 17 municipalities. The report is also thick with suggestions to cut pension costs. The only thing the report lacks is empirical proof of its basic thesis: that pension costs are driving tax increases in specific instances. In other words, the report is long on supposition but short on validation.

But man, is it long on recommendations.

The SDCTA’s argument is essentially reducible to the claim that, because pension costs impact cities’ finances and some cities have raised sales taxes, pension costs are the causal factor. Now, I do not doubt that the SDCTA is right in its basic conclusion that pension costs are a contributing factor in a number of cities increasing sales taxes in recent years. But pension costs are just that: a contributing factor. Declining property tax revenues, Sacramento revenue clawbacks, increased operational costs—like health-care benefits—and increased spending mandates are also contributing factors. The report does not state just how big an impact pension pressures have had on tax hike decisions. Indeed, the report provides no empirical statistical evidence in support of the initial hypothesis except a simple association: Since cities have high pension costs and cities have raised taxes, the tax increases are caused by the pension costs. This may be true (again, I think, to a degree, it is). But it may be a fallacy of false causes. There isn’t a Chi Square or a Pearson’s R—let alone a Yule’s Q—worth of real numbers in the report to validate what is left as ultimately a subjective analysis, let alone justify the sweeping changes to municipal pension plans the SDCTA offers as remedy.

The SDCTA  initially argues in the report that pension plans need be reformed because they are leading to higher taxes (again, a claim unsubstantiated). However, the bulk of the report’s recommendations focus not on a fiscal-efficacy argument but, instead, on a fairness argument which the purported analysis did not address. Stripped of its fiscal-impact component, SDCTA’s argument for pension reform  is reducible to this:

It’s unfair that municipal-worker pensions are better than those of most private-sector workers, therefore the defined-benefit plans most municipal workers have should be replaced with the defined-contribution plans (401k) that most private workers have.

Oh, really? One could just as easily reverse the argument saying it’s unfair that municipal-worker pensions are better than those of most private-sector workers, therefore the defined contribution plans (401k) that most private workers have should be replaced with the defined-benefit plans most municipal workers have.

Why punish municipal workers by taking away the pension plans they were promised—and worked faithfully in exchange for?  Why not improve the retirement plans most private employees have, instead?

Oh, right. We used to do that, back in the days when labor-union membership was stronger, government regulations were tighter and American workers of all stripes—blue collar or white, labor or management—fresh from ending a depression and winning a world war demanded of their employers and government that they be treated with a little (cue Aretha Franklin)  R*E*S*P*E*C*T.  The American post-war social compact was clear: If American workers work hard, they will, in cooperation with the companies they labor for  and the government they vote for, achieve the security of retirement. As a result, more and more workers were protected not only by the safety net of Social Security, but by the guarantee of defined-benefit private retirement plans.

Geez, they were such Mad Men back then.

Over the last generation, corporations (and I’m not bashing them—corporate owners and managers simply did what society and government allowed them to do, so we are all in this together, Mr. Moore), freed of government regulation and the post-war sense of public obligation, shed their defined-benefit plans even faster than they shed American workers. Now the only real vestige of the past golden age of guaranteed retirement is, for the most part, government workers.  No wonder business and capital groups across America would like to see such municipal plans go away: Once defined-benefit plans are banished everywhere in the realm even the concept of them will Orwellianly disappear from the public discourse.

And by the way, one of my beefs about the SDCTA is that it is, ultimately, much more of a business/capital group than a worker/labor group, even though workers—including labor union members—pay a fair hunk of taxes.  Of course, wealthy people pay far more in terms of most taxes than poorer workers do. Hmmm, now just what set of taxpayers does the SDCTA gravitate towards?  The proof of the pudding is in the analyzing, as my pop the chemist used to say. The SDCTA report states:

As one typical example, the report shows that a city administrator with 30 years of service earning $75,000 at the peak of her career would receive an annual pension of $72,900 plus yearly cost of living increases. An equivalent benefit for an employee in the private sector retiring at age 60 would require an individual to have an IRA, 401k or other pension account worth more than $1.8 million.

True dat. But what should really grab attention is not that the city employee with the defined-benefit plan will get 97 percent of their base pay in retirement.  The real shocker is that to get anything near that, an average worker would need squirrel away at least $15k-$30k or more a year for their entire working life to get a good pension—and then pray that they aren’t hit with a Dot.com or Wall Street Meltdown that reduces their 401k to financial road-kill just as they plan to check out.

Now, are some of the negotiated benefits city workers get too generous? Perhaps.  Retirement ages, most certainly, need be looked at. (And not just for municipal workers. If life expectancy is growing, the expectation that people need work longer before retiring needs be considered for all retirement systems, including social security.) But the SDCTA report is a less a real analysis of tax policy and pension plans than a wish-list for those dedicated to the proposition that the only good defined-benefit retirement plan is a dead defined-benefit retirement plan.

Crossed

San Diegans should pay attention to oral argument before the US Supreme Court today as it indirectly has bearing on a matter of considerable local controversy.  The case, Salazar v. Buono,  concerns a cross erected on public lands decades ago as a war memorial that has been challenged in recent years over the issue of  separation of church and state.  The ownership of the land was subsequently transferred by an act of government (Congress, in this case) to a private entity (a veterans group) with the proviso they maintain the cross.  Sound familiar?

The court has heard a number of freedom of religion cases recently.  In can be anticipated that the decision in the Salazar case will generate lots of public debate nationally—and may have significant impact locally.  Stay tuned.