Tuesday, May 11, 2010

Unions Bankrupting Government: L.A.

George Will has a column on the problems Los Angeles is facing financing its government. And he has uncovered a recommended solution, however politically-unrealistic it may be.

Will writes that Richard Riordan, L.A. mayor from 1993 to 2001, calls the city's current fiscal crisis "terminal." We should "face the fact" that "between now and 2014 the city will likely declare bankruptcy." L.A. got to this bad place because it gives too much money to bureaucrats, a California-wide problem we discussed earlier. Especially for pensions, where L.A. has “conveniently but unrealistically” assumed 8% annual growth of the city's pension funds assets when their actual growth over the last decade has been between 3.5% and 2.8%.

Will notes that nationwide, government employees are what remains of "defined benefit" America: over 80% of government workers have defined benefits--as opposed to defined-contribution--pension plans. Only about 20% of private-sector workers have defined-benefit plans. California is broke because of health-care and pension promises negotiated with public employees' unions. Riordan (and Will) want defined-benefit pensions replaced with 401(k) accounts for new public employees.

Riordan also recommends the public employees retirement age should rise from 55 to 65, employees should pay more than the maximum of 9% of their salaries for pensions, and the city should end $1,200-a-month health insurance subsidies for those who retire before becoming eligible for Medicare. These are really good, practical, if politically-unpalatable suggestions. Will correctly says government is organized as an interest group to extract through taxes ever-larger portions of wealth from the private sector (kleptocracy), with government workers making up the party of government’s (the Democrats’) electoral base.

L.A. faces another gigantic, union-based problem, one recognized by current Mayor Antonio Villaraigosa [picture] himself:
The city's long-term success depends on its schools, in many of which most of the children come from homes without fathers, and in some of which, Villaraigosa says, 40% of the children are in foster homes. He has little control over the school system and, anyway . . . holding his fingers three inches apart to suggest the thickness of the standard contract with the teachers' union, Villaraigosa calls the union "the most powerful defender of the status quo."

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