Government Bytes


Big Wins for California Taxpayers!

by Brent Mead / /

Yesterday, California’s voters went to the polls. While NTU is still analyzing the hundreds of local taxing and bond measures, taxpayers won numerous key victories, while suffering a minor defeat with the passage of Proposition 28.

The big wins were the narrow defeat of Proposition 29, and the landslide margins of victory for a pair of local pension reform measures.

Before going into detail on the good news, the bad news is that Proposition 28 did pass. Proposition used clever wording to skirt around the state’s term limits. Due to its passage, state house members will now be able to serve twice as long before being termed out. I do not think voters, or advocacy groups, had a clear idea of what the measure sought to accomplish as it does limit the absolute number of years a member can serve from 14 to 12, but removes the restrictions on how many years can be served in each chamber.

Onto the good news!

Proposition 29 – Failed 49-51

Taxpayers scored a major victory with the defeat of Proposition 29. NTU strongly opposed the $1 per pack cigarette tax increase as it simply propped up a new spending bureaucracy. Beyond our efforts, I would tack up the defeat of Prop 29 to a couple key reasons;

  • First and foremost, Proposition 29 was a poorly-timed and flawed measure. Prop 29 raised taxes by over three-quarters of a billion dollars and dedicated the new revenue to an entirely new spending regime. No revenue went to paying the state’s $16 billion deficit. For moderate and independent voters this had a real impact. In November, voters will be asked to raise their taxes by billions of dollars to close this gap, but here in June, Prop 29 would raise taxes and then turn around and spend it immediately.
  • Another crucial element to defeating Prop 29 was that opposition came from across the political spectrum. Taxpayer advocates such as NTU and Howard Jarvis joined with law enforcement groups, business leaders, and even the Los Angeles Times editorial staff.
  • Finally, the No on 29 coalition enjoyed a decided resource advantage. While not decisive in and of itself this advantage did allow the opposition to effectively get the message out to voters that Prop 29 was a deeply flawed and poorly constructed measure.

    This financial advantage is unusual and I would not expect it to become a trend (despite the punditry consensus over Citizens United and Wisconsin). Taxpayer groups tend to be heavily outspent on ballot measures (see: Ohio, Issue 2) and I would expect that to be true this fall when unions empty their coffers opposing the Stop Special Interests paycheck protection measure.

Once the opposition truly kicked into high gear the flaws of Proposition 29 became apparent to voters. In March, the measure had 67 percent support. By May, it was down to 53 percent. Yesterday, it lost 49-51.

It is difficult to divine what will occur in November based on yesterday’s vote. I do not expect the same coalition to gel around opposing Governor Brown’s tax hikes, in fact, I would expect many of the coalition partners on No on 29 to be opposing one another in a few months. Furthermore, I would expect taxpayer groups to be outspent. The trump card for taxpayers is that there seems to be a real resistance among California voters to continue the status quo of higher taxes and higher spending.

Public Pension Reform

The status quo is perhaps found best in the entrenchment of overly-generous public employee compensation. However, starting with San Francisco’s reform-lite last year, more cities in California are undertaking the difficult task of curbing pension abuses and reining in costs.

Yesterday, both San Jose and San Diego overwhelmingly passed pension reforms. While they differ slightly, both efforts were strongly opposed by public employee unions and San Jose’s is now subject to a legal challenge by those special interests.

San Jose – Passed 70 - 30

San Jose’s pension obligations have increased from $73 million in 2001 to $245 million last year, which is over one quarter of the city’s general operating budget. Furthermore, the city is short $2 billion in order to pay for anticipated future benefits. Meanwhile, over that same period, the city has been forced to cut its workforce by 27%. It does not take a math major to figure out that the cost of paying for retirees is leading to massive cutbacks in current services. In response to the near-term crisis, city officials proposed major pension reforms under Measure B, which was passed by a wide margin.

The major components of Measure B are;

  • Investment losses will now be made up by beneficiaries instead of taxpayers
  • Any future benefit increases must go to the people for a vote
  • Requires increased employee contributions for both new and current hires

Measure B also makes some changes regarding Cost-of-Living Adjustments and disability pay. What separates San Jose from many other localities is that they are changing benefits for current employees who are not yet retired. This is crucial as applying the changes to new hires only is unlikely to yield enough savings to offset the city’s anticipated $20+ million shortfall in 2014.

Local public sector unions promptly filed suit today to overturn the will of the voters. This follows an unsuccessful attempt to knock the measure off the ballot entirely this spring. It is abundantly clear that public employee unions will spare no expense to maintain their privileged position.

San Diego – Passed 66 - 34

San Diego faces a similar outlook to San Jose. Public pension costs have soared from $43 million in 1999 to $231 million this year, about 20% of the city’s budget. Mayor Sanders has cut the payroll by 17% since he took office, but without pension fixes, even more pink slips will be handed out.

By passing Measure B, all new non-police hires in San Diego will be enrolled in a 401(k) style pension plan. Employees will also be required to contribute more to their pensions and places controls on pension spiking abuses. All told the city will save millions of dollars.

The lesson from both San Jose and San Diego is that voters get it. They fundamentally get the fiscal issues facing local governments and they are voting to curtail the worst abuses of public sector unions. What makes the actions of California’s cities so remarkable is that Sacramento remains oblivious its dire financial straits. The state is experiencing this odd-looking, but completely rational situation where voters and local leaders are using the direct democracy process to circumvent the paralyzed nature of the state capitol.