Monday, June 21, 2010

Smoke And Mirrors

I have always been puzzled by the fact that contracts are considered sanctified, but only some of the time. Consumers can't wriggle out of credit card debt or insurance contract exclusions. However, when the contract is between an employer (private or governmental) and a union, that contract can be modified if the employer wants to improve its bottom line.

After years of building cars the American public suddenly decided it couldn't afford anymore, the automakers, with federal government assistance, looked to the workers to give up its benefits. In California, state workers took a 14% pay cut via the three-days-a-month unpaid furlough imposed by Governor Schwarzenegger. Now he wants to cut their pay another 5% and he expects the unions to agree to a reduction in pension benefits for new hires (several unions have already acquiesced).

Yes, California still has a severe budget deficit and the new budget (due June 30) is nowhere near in place. So the governor has been busy looking for ways to close the gap and his target is unsurprisingly the union worker and the poor and vulnerable. Steve Skelton, a columnist for the Los Angeles Times, has a sound analysis of just how dishonest the governor's dog-and-pony show is.

In truth, California's budget nightmare stems from a devil's brew of sins: lack of discipline on both spending and tax-cutting in the past; an outdated and unreliable tax system too susceptible to economic booms and busts; the unhealthy dependence of local governments on Sacramento; and a dysfunctional state budgeting process that requires a gridlock-generating two-thirds majority vote. ...

The unions represent about 10% of the governor's workforce, including firefighters, Highway Patrol officers, health and welfare personnel and psychiatric technicians.

The pacts return pensions for future employees to roughly the levels that existed before then-Gov. Gray Davis and the Democratic Legislature boosted benefits substantially in 1999. And that rollback is long overdue.

But the grand savings? All of $72 million a year. And only $43 million of that helps the general fund.

So the contracts negotiated in the past are simply being rolled back by the governor, one way or the other. The people who provide the government services are being asked to feel the pain and the blame the governor and state legislators are deflecting their way.

Union workers, however, aren't the only ones who will be suffering. Social services to the poor and vulnerable are also being cut, in some cases (welfare) cut out completely under the governor's plan.

So lawmakers need to whack away at spending. But some cuts result in no savings or actually increase costs — if not for the state, for local governments.

If Schwarzenegger, for example, succeeds in his effort to close down the state's main welfare program — a $1.2-billion savings — that "clearly would have a significant impact on the counties," [H.D.] Palmer concedes.

That's because counties legally must provide the safety net of last resort for the poor with their general assistance programs. Dan Carson, deputy legislative analyst, estimates there'd be a cost shift to the counties of "at least $1 billion" if the Legislature accepted Schwarzenegger's proposal. Which it won't.

So who escapes the governor's budget chainsaw?

Businesses. Monied interests. The wealthy.

As I noted on Saturday, Michael Hiltzig nailed it with respect to the state's treatment of business:

Meanwhile, corporate welfare programs such as tax breaks for some of our largest companies and "incentives" for our largest industries are to survive. To his credit, Schwarzenegger has proposed delaying some new corporate tax breaks.

Apparently there's welfare, and then there's "welfare."

Guess which one wins. Again.

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