The Political Unsustainability Of California’s Public Pensions

While California’s annual budget no longer makes the headlines that it used to make and Jerry Brown is crowing about the state being “back”, the bomb that is California’s public pensions has the state on a trajectory to fiscal ruin. This trajectory has the potential to completely remake the political landscape in California, to go along with the changing economic landscape.

Currently, the powerful public employee unions that have controlled the state government (and the California Democrat Party) have protected and expanded retirement benefits for public retirees far beyond the level of benefits available for the average California taxpayer. Over the last 40 years, the Democrats in California have controlled the state legislature for all but 2 years (when they only controlled one legislative house). What this means is that every law passed by the normal legislative process in an entire generation (California also passes laws through direct ballot initiative) was written by Democrats. Over the last 40 years, California’s Republicans have become largely irrelevant to the governing of California for a variety of reasons; an irrelevance that does not appear likely to be reversed anytime soon.

However, the coming pension crisis has the potential to at least, if not make the Republicans in California relevant, at least turn a large fraction of Democrats into fiscal conservatives in that they will have to support cuts to public pensions or see certain Republicans begin to gain a statewide hearing. Specifically, as the case of San Jose has shown in which 30% (or about $300 million dollars) is going to pay for public employee pensions, other public services that the tax paying public actually notices are going to get squeezed as pensions begin to eat up more tax dollars. In the case of San Jose, the city can’t even afford to maintain a burglary unit in its police department.

Simply put, California’s taxpayers are on a collision course with public employees, public employee unions, and the California Democrat Party as it is currently constituted. Not only will California taxpayers resent paying for lavish benefits that they themselves do not enjoy, but they will also resent paying taxes and receiving reduced public services as money is siphoned off to pay for those who are no longer working in the public sector. Even those who don’t pay taxes and consume public services will resent that there are fewer public services to consume. While the system as it is currently constructed can continue awhile longer, and while the government can attempt to stave off the inevitable by finding ways to squeeze more and more tax revenue from the population, eventually the government will become, in eyes of many people, little more than a private pension fund for lucky public employee retirees. When that point is reached, the government itself will lose legitimacy and public employee unions will not be entities that politicians will want to be associated with, as these entities will be vote-losers, rather than vote-winners. This will result in a political realignment. Whether that means a reshaping of the Democrat Party to put it more in line with political/economic realities or a resurgence of the Republican Party in California remains to be seen.

Currently, California’s business/regulatory environment can charitably be called ‘challenging’, and businesses and people (aka taxpayers) continue to leave the state. Piling more taxes on tax-paying Californians to fund existing public pension benefits while keeping public service levels constant will do nothing to alter this trend. At some point, there simply aren’t enough taxes, taxpayers, or public service cuts to maintain public pensions in their current form. The public pension ‘bomb’ is likely to ensure that the political alignment & political coalitions that exist in California 20 years from now will look much different than they do today.

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