No Time to be Reckless

 

By Richard Colman

California is reckless with money.

A day of reckoning is coming.

The State of California claims to have a budget surplus estimated to be $9 billion as of June 2018.  However, the state has unfunded public-employee pension liabilities estimated to be between $300 billion and $1 trillion.  No one knows the exact amount.

Gov. Jerry Brown, a Democrat, says that local governments should handle public-employee pension liabilities. 

Why is Brown such a coward?  The state caused these pension-related problems.  The state should solve these problems.

The next governor of California should demand drastic action by abolishing the current system of public-employee pensions.  Instead of public employees having defined-benefit pensions, which allocate money according to a worker’s years of service and his final salary, the state should do what most private employers do.

Most private employers use a defined-contribution plan in which a worker puts aside some part of his own money from wages into various investments.  Often, these plans are called 401(k) plans.

Defined-contribution plans give some tax relief while a worker is still on the job.  However, when the worker retires, the current thinking goes, he will have to pay some tax on the funds stashed away when used.  However, when retired, the worker will presumably have a lower income and his tax burden will be less than when he was working.

It’s time to stop the State of California from robbing residents who have to pay for overpriced public-employee pensions.

Also, some public employees get extra pay by demanding Project Labor Agreements.  These agreements call for paying certain public employees 20 to 30 percent more than market rates of pay.  Why get 70 miles of freeway when it might be possible to obtain 100 miles of freeway?

If public employees don’t like having a new pension system, fire them and hire private-sector workers to replace them.  To be helpful, the fired workers can be rehired at lower levels of compensation.

Some California cities have abandoned the use of public employees for doing municipal work.  The cities send the work to private companies — companies presumably free from extensive pension obligations.

For the average person, California is not affordable.  A decent home in the state’s coastal regions can cost anywhere from $1.5 million to $2 million.  A 20 percent down payment on a $2 million home would be $400,000.  Not too many Californians have $400,000 for a down payment.

California also has the nation’s highest sales tax, the nation’s top bracket for the state’s personal income tax (13.3 percent), and the nation highest or second highest gasoline tax.

The state government cannot manage money properly.  If the state goes on spending money it does not have, then the state’s ability to borrow money will be affected.  Borrowing costs rise when a state is financially mismanaged.  A borrower with too much debt will pay a higher interest rate than a borrower who is fiscally responsible.

Californians should demand that the state impose a limit on spending and a limit on taxation.  If the politicians cannot do these things, then outraged citizens should put a proposition on statewide ballot — a proposition that would mandate fiscal responsibility.

The time for fiscal recklessness is over.

 

Richard Colman is the founder and president of Biomed Inc., a biotechnology, publishing, and informatics company.  He is a biochemist and earned masters and doctoral degrees from the University of California at Berkeley.  He lives in Orinda, California.


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