MyGovCost News & Blog

Long before his latest State of the State address, governor Jerry Brown has been proclaiming that California is back, and as City Journal California associate editor Ben Boychuk notes, there is some ground for optimism. The Golden State has enjoyed impressive job growth over the past three years and this year might overtake Brazil with the seventh largest economy in the world. Boychuk, however, has a pressing question for Brown: “Can you really celebrate a projected $11.5 billion ‘surplus’ with a mountain of unfunded public-employee retirement benefits looming large?” As Boychuk notes, the state’s unfunded pension and health care liabilities stand at $220 billion and “that would seem to suggest a surplus in name only, would it not?”

Sacramento Bee columnist Dan Walters also took up this theme, after news that the pension reform measure advanced by Chuck Reed and Carl DeMaio would not be on the 2016 ballot. No one truly knows the extent of the unfunded liabilities, Walters wrote, because of unrealistic estimates of what pension trust funds will earn. And consider the dynamics in play. “However large they may be, fast-growing pension and health care liabilities don’t discomfit any major interest groups, since their greatest impacts are on local governments, especially cities, rather than on state government.” And reform measures draw “high-dollar opposition” from government employee unions, well stocked with cash they can confiscate even from non-members. So as the veteran columnist sees it, unfunded pension liabilities will continue to grow, and the day of reckoning again kicked down the road. Worse, “the pension reforms that DeMaio and Reed achieved at the local level are being dismantled in their absence.” That rollback is evidence that meaningful pension reform is practically impossible in California. That is the “state of the state” taxpayers should find troubling.

A major statewide pension reform measure will not, as expected, be on the 2016 ballot. That is bad news for California’s working taxpayers. As Lawrence McQuillan notes, California accounts for $550 billion to $750 billion of the nation’s total unfunded pension liabilities. In his research for California Dreaming: Lessons on How to Resolve America’s Public Pension Crisis, McQuillan discovered that from 2008 through 2012, California’s local governments pension spending increased 17 percent while tax revenue grew only 4 percent. As a result, a larger share of budgets goes to pensions, crowding out spending on core services such as police. In San Jose, the police department budget increased nearly 50 percent from 2002 through 2012, yet staffing fell 20 percent. More money has been consumed by police pensions, leaving less money to hire and retain officers.

Faced with these realities, former San Jose mayor Chuck Reed, a Democrat, backed a pension form measure in 2014. Last year he teamed with former San Diego Councilman Carl DeMaio, a Republican, to place a measure on the 2016 ballot. They had to contend with misleading official descriptions issued by the state Attorney General. Government employee unions attacked the measure as “extremist,” though it was anything but. The reform effort would have put those who join a government pension system after 2019 into 401 (k) pensions, with fixed contributions, instead of more expensive defined benefit pensions from government agencies. Reed and DeMaio will now aim for 2018 but the problems will not go away.

“Swelling pension costs are like tapeworms, starving the public of municipal services,” wrote McQuillan. In Oakland, police refuse to respond to 44 different crimes because of staffing cutbacks. So public safety is at issue. State and local governments need the option of adjusting future pensions for all employees, including a switch to 401(k)-type plans, “which are more affordable and always fully funded.”

If you paid attention to the news from Washington, DC today, you might think that the cause of deficit reduction took a big hit today because of a number of tax cuts that were made permanent. Here’s how NPR reported the story:

Once Upon A Time, Congress Cut Deficits; Now CBO Says That’s Over

For six straight years, Americans watched their government’s borrowing shrink.

Then last month, that trend towards less and less borrowing suddenly came to an end. Congress overwhelmingly passed a federal budget that included a $680 billion tax-cut package, which President Obama signed.

Now the nonpartisan Congressional Budget Office says the federal deficit is set to jump 24 percent, to $544 billion, in this fiscal year. That’s up from last year’s $439 billion deficit.

The CBO’s latest estimate, released Tuesday, also said economic growth will be somewhat slower than originally forecast, reducing tax revenues for this year.

“This report makes it abundantly clear that the era of declining deficits is over,” Maya MacGuineas, head of the bipartisan Campaign to Fix the Debt, said in a statement. “Thanks to a series of huge and irresponsible unpaid-for tax cuts and spending increases last year, deficits and the national debt are rising much higher and much faster than expected.”

Nowhere in NPR’s story however is that the portion by which the nation’s projected deficits will increase because of what Maya MacGuineas describes as “huge and irresponsible unpaid-for tax cuts” is completely fictional.

Here’s how we know. We’ve been paying attention to the CBO’s annual Budget and Economic Outlook ever since we launched the MyGovCost calculator. And in each and every single year that they’ve put out their 10-year forecast, they’ve provided both a “baseline” scenario and an “alternative fiscal” scenario.

The difference between the two scenarios comes down to this basic truth: the “baseline” scenario pretends that elected officials will never respond to political pressure from the special interests that fund their political campaigns and will allow all the tax cuts and special spending programs they demanded and got in return for their campaign “investments” to expire according to the law as it is currently written.

Those various expiration dates, by the way, are deliberately placed in the “temporary” tax cut laws by politicians elected to office so that their true cost over time is never honestly accounted for in the CBO’s baseline scenario. It’s a way for the politicians to make the fictional claim that their spending is under any kind of control and have it be believed by reporters who never think to consider otherwise.

The CBO’s nonpartisan analysts are smarter than that however. They developed the alternative fiscal scenario to account for how such tricksy politicians really behave. And in that scenario, the fiction of “temporary” tax cuts is assumed to be what it really is: false.

As a result, only the CBO’s alternative fiscal scenario has a much more real and honest relationship with the world in which we really live. That’s why we have only ever used the CBO’s alternative fiscal scenario to project the future cost of the U.S. federal government’s spending and various special interest giveaways in the MyGovCost calculator.

The real news is that for almost the first time since we first launched the MyGovCost calculator back in 2009, the separation between fiction and reality has narrowed!

But if it makes Ms. MacGuineas and NPR feel better, the huge and irresponible spending increases and worse economic growth that the CBO indicates will directly increase the size of the government’s deficits by more than the margin of shoddy fiction are indeed all too real.

As we have noted, governor Jerry Brown wants to drill two massive tunnels under the Sacramento-San Joaquin River Delta. The total cost of his Delta conservation plan is $25 billion, but based on projects such as Boston’s “Big Dig,” and a highway tunnel project in Seattle, the cost would be much higher. A coalition of farmers, environmentalists and recreational anglers oppose the Delta project, but as David Siders and Dale Kasler note in the Sacramento Bee, the governor is now calling the tunnels a “fundamental necessity.”

“If we don’t have the project, the Delta will fail, the water will not be available and California will suffer devastating economic consequences,” Brown told reporters, calling the tunnels “a fundamental necessity of California’s current and future prosperity.” Brown said “we’ll get it done” but, as the reporters note, agencies in the southern part of the state might not be eager to pay up. Taxpayers might note that Brown’s other pet project, the vaunted bullet train, also has a case of tunnel vision.

The bullet train will require 36 miles of tunnels through mountains north of Los Angeles, an area that includes the boundary between tectonic plates and unmapped earthquake faults. This would be the most ambitious tunneling project in the nation’s history, and according to expert Bent Flyvbjerg of Oxford University, the probability of a major cost overrun is 80-90 percent. At $68 billion the budget is already more than double the original estimate of $33 billion.

The California high-speed rail project is not a fundamental necessity and neither are the governor’s beloved tunnels. Taxpayers might recall that the new span of the Bay Bridge racked up cost overruns of $5 billion, came in 10 years late, and remains troubled by safety issues. As California congressman Mark DeSaulnier lamented, “it’s frustrating that there’s never been anyone in the management of the bridge who has been held accountable.”

Imagine if you were a senior administrator at the troubled U.S. Department of Veterans Affairs. You’re well aware that your institution has developed an extremely large backlog of patients seeking medical treatment, where many former military service members wait for weeks and months before receiving any care, if they’re lucky enough to get any care in the first place.

Now imagine what you could do with that problem if you had an extra million or two to spend. You could do things like hire extra staff or pay overtime to current medical staff members to start working through that backlog of patients at VA facilites. You could even give the veterans seeking medical attention vouchers they could spend at less burdened medical facilities so they could get care in a much more reasonable amount of time.

Or, you could do what the bureaucrats at a number of VA facilities did, and buy a bunch of artwork to brighten up your work environment. The 2015 Wastebook describes some of the artwork that VA officials at just one facility chose to buy and install with the money they had available to them.

The VA Palo Alto Health Care System in California spent “at least $6.3 million on art and consulting services,” according to Congressman Jeff Miller, the Chairman of the House Veterans’ Affairs Committee.

The $1.3 million price tag for the renovation of the courtyard of the Mental Health Center includes $482,960 spent on a giant rock and $807,310 for “site preparation.” The rock, “cut into cubes with a laser and pieced together,” is meant to evoke “a sense of transformation, rebuilding, and self-investigation,” according to the designers.

The VA also spent $365,000 for a stainless steel and aluminum sculpture in the aquatic center entrance and $305,000 for another sculpture in an exterior lobby. A sculpture in the shape of a half arc located inside the mental health center cost $330,000, while an art installation on the side of a parking garage displaying quotes by Abraham Lincoln and Eleanor Roosevelt that lights up in Morse code cost $285,000.

Those wishing to decode the colorful Morse code messages visualized on the southern and western sides of the VA’s Palo Alto parking garage may reference the art project’s fact sheet, which might be particularly useful for all the Army soldiers who enlisted after 2012 that might visit the facility, since that was when the U.S. Army stopped training soldiers in Morse code.

In a Detroit studio, way back in the day, Barrett Strong sang, “Money, that’s what I want.” Many artists have since covered the tune and government bureaucrats croon it every day. As David Siders shows in the Sacramento Bee, they jack up the volume around budget time.

The California Department of Conservation, for example, needs more money to train its regulators. At present they lack certain “field standards of health and safety and regulatory functions.” The regulators need this training “to prevent costly errors, injuries, and the highest cost of all, death.” Yes, without more money, oil and gas regulators could take heavy casualties, just like special forces.

The State Board of Equalization, a high-maintenance state agency, collects a fire prevention fee levied on rural landowners but ran into “negative public sentiment against the fee.” So the $1.4 million the BOE requested is not enough. Why, these malcontents are keeping noble government employees on the phone for 10-20 minutes at a time.

The Department of Forestry and Fire wants $1.7 million to hire more information officers so the media gets “appropriate and timely information.” In Napa County, one information officer fielded 78 calls in one day and, as Siders notes, “In that single month, the employee accrued more than 300 hours of overtime.” Why this government information officer is a veritable Stakhanov.

The California Correctional Health Care Services says medical equipment bears dust and debris. According to a report, rodent feces, cockroaches and black widow spiders are such a problem one facility could have lost its license. The bosses want money for more janitors but it seems the current squad isn’t doing the job very well.

The California Military Department, meanwhile, believes state computer systems are at risk, with nearly 34 possible means of intrusion per computer system. So the Military Department jacked up its funding request for the Cyber Network Defense Team from $774,000 to $1.4 million. Yes, that should keep us all safe.

When asked how much money was enough, John D. Rockefeller replied, “just a little bit more.” With government bosses it’s always a lot more.

The ongoing saga of Puerto Rico’s debt problems blew up a lot bigger last week, as the U.S. territory defaulted on an additional $174 million of debt payments to its creditors on January 4, 2016, exactly five months after Puerto Rico’s government defaulted on its debt for the first time ever since the territory become part of the U.S. in 1898. The New York Times reports:

Puerto Rico defaulted on about $174 million of debt payments on Monday, as planned, stripping cash away from its lower-ranked creditors so that higher-ranked creditors could be paid in full.

Alejandro García Padilla, Puerto Rico’s governor, defended the default as best he could on Monday in an appearance on CNBC, saying, “It’s very simple. We don’t have money to pay.”

The default came just a little over two weeks after Puerto Rico’s government paid $120 million in bonuses to the employees of the territorial government.

(more…)

California governor Jerry Brown is in a mood for spending. As Jon Ortiz and Dale Kasler note in the Sacramento Bee, his 2016-17 budget includes “a $1.5 billion infrastructure plan that would also remodel a portion of the Capitol.” The governor has “proposed transferring $1.5 billion from the state’s general fund to a new State Office Infrastructure Fund. First up would be a new $530 million, 650,000-square-foot office building for the Natural Resources Agency.” The plan also includes $226 million to replace a vacant state building in Sacramento. Brown’s largesse, however, fails to include any money for repairs to the state Board of Equalization (BOE) headquarters in downtown Sacramento, and therein lies a story.

As we noted, the BOE headquarters has been dubbed a “Terror Tower,” with good reason. The 24-story building has been plagued with mold, leaking windows, bursting pipes, falling glass and even traces of toxic substances. Unfortunately, the statute of limitation on defective construction ran out in 2002. In its first 21 years the tower consumed some $60 million, and the cost to fix current problems is $30 million. One assemblyman wanted a new facility costing $500 million, plus debt on the ramshackle BOE building, now in the range of $70 million and not due to be paid off until 2021. So in typical government style the money pit gets deeper, all for a bloated bureaucracy of dubious utility.

The Board of Equalization dates from 1879 and its mandate was to ensure that property tax assessments were uniform across all California counties. The BOE no longer “equalizes” anything but collects a variety of taxes and fees. As an elected body the BOE provides a comfy landing spot for termed-out politicians. They represent government to the public and create new ways to shake down taxpayers. Twenty years ago in 1996 the BOE attempted to tax editorial cartoons as though they were works of art purchased in an art gallery. The proposed “laugh tax” made California a national joke, so no surprise that even the board’s headquarters is a money pit. Government waste, fraud and abuse are always worse than politicians let on. And when taxpayers calculate the cost of government, don’t forget to include the maintenance.

“We never took up our lives again. We’re like at a railroad station waiting for a train that never comes in.”

Those words are spoken by the character Chris Keller in Act 1 of Arthur Miller‘s 1947 play All My Sons, where he is suggesting to his mother that rather than once again revisiting the grief of losing his brother Larry, they would be better off forgetting him and moving on, because clinging to memories of the past is carrying too high a cost for the family.

Those lines from Miller’s first commercially successful play come to mind because of one of the items in the 2015 Wastebook, where it would appear that the U.S. Department of Transportation would rather cling to the past instead of living in today’s world, spending $500,000 to relocate and refurbish a long-abandoned South Dakota train depot instead of addressing today’s transportation needs:

One out of every four of the 5,875 bridges in South Dakota is structurally deficient or functionally obsolete. Yet, the state spent $500,000 of federal transportation funds to refurbish a train depot decommissioned in 1958 to be a museum of sorts.

The Chicago and North Western railroad built the Fort Pierre depot in 1906, but for the past 50 years it has been serving as a farm building on a ranch 176 miles away. The structure had to be transported back on a moving truck.

Those involved with the project “have resisted saying” the depot is going to be a museum because the federal Transportation Enhancement grant paying for the project “wouldn’t pay for building or refurbishing a museum. But it would pay for refurbishing a transportation artifact.” While they may be trying to cover their tracks, this project clearly violates the program’s intent.

The money is paying to refurbish “an artifact that will hold other artifacts – virtually all, in one way or another, having to do with the railroad that brought everything to the middle of South Dakota once the depot opened in 1906,” explains Gary Grittner of Fort Pierre’s Bring It Home Committee.

It’s pretty amazing how real life is reflecting the dramatized conflicts driving Miller’s characters. The people who can’t let go of the past can’t be honest about why they’re doing what they’re doing, because if they were, it would be clearly recognized as the wasteful activity it is and they wouldn’t be allowed to do it with U.S. Transportation Department funds (it’s not like the federal government doesn’t dedicate other money for such purposes). Meanwhile, people who could be doing more to benefit their lives today are stuck with a deteriorating quality of life because they can’t redirect the federal resources being wastefully consumed by improperly memorializing the past.

Politicians talk about spreading the wealth but ruling-class redistribution works best in one direction. Government takes money from the workers and gives gobs of it to government bosses, often on their way out the door. As we noted, when Jim Estep parted company with the northern California city of Lincoln he bagged a separation settlement of $178,00, plus another $135,000 for unused vacation and sick time. This brought Mr. Estep’s annual his annual income to a whopping $470,000 for less than eight months of work. This windfall made him the highest paid local government official in the capital region, where lump-sum payments totaled $31 million. As Brad Branan notes in the Sacramento Bee, Mr. Estep has plenty of company.

In 2014, thirteen local government employees in the capital region received lump-sum payments of more than $100,000, according to data from the State Controller’s Office. Sheriff’s deputy Milo Fitch bagged a lump sum of $184,484; Deputy DA Marvin Stern, $164,443; attorney Douglas Hamilton, $159,818; Sheriff Captain James Cooper, $149,930. And so on. Lowest on the list, El Dorado County Counsel Edward Knapp, bagged $113,319. Are these people worth all that money? Taxpayers have good reason to doubt it. Should the state continue to shell out taxpayer dollars for unused sick or vacation time? No, but don’t look for legislators to take up the cause.

As the headline to Branan’s piece notes, the lump-sum payouts also “boost pensions,” which are already much higher in government than among workers in the private sector. Taxpayers should take that into account when they tabulate the cost of government. And remember, California has 58 counties.