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Governor Brown and Democratic Leaders Reach a New Majority-Vote Budget Deal

The details might have been sparse, but the message was clear as Democratic leaders put on a united front with the press Monday afternoon to announce they were moving on from budget wrangling with Republicans by coming to an agreement of their own. The governor was joined by Assembly leader John Perez and Senate leader Darrell Steinberg, and Brown stated that their deal was a “good budget” and that “we have come to important conclusions after tough talks.” The governor refused to talk specifics, instead stating that he would go into details after the plan was debated and passed, as Perez and Steinberg promised to deliver the necessary votes. A key component of this new majority-vote budget is an additional $4 billion in revenues, with the governor stating the funds are “over and above what we thought.” The deal also involves significant cuts to education and the judiciary. In addition, the leaders noted that the imperative for revenue is as great as it was before so they will rely on the 2012 initiative process as a way to get the job done.

Steinberg emphasized that the budget was balanced and involved $12 billion in harsh and real cuts. Further cuts ($2.6 billion) will take place in the future, so-called “trigger cuts,” if revenues fail to materialize. It is not clear when a vote on the plan will take place, but reports have circulated that it could take place as early as Tuesday. If the governor signs a budget, then legislators will no longer have their pay docked.

Brown readily acknowledged that the new majority-vote deal with his fellow Democratic leaders was not his Plan A, the proposal that he started with in January, but he dumped much of the blame on Republicans by commenting that they had a “religious reluctance” to dealing with the budget by raising revenues through taxes.  Brown stated that even though he thought he was close, “At the end of the day, there was just not a willingness to go along with tax extensions.” Similarly, Steinberg voiced strong sentiments about the contributions of Republicans, stating that “I’m tired of talking about the gang who refuses to govern.” Steinberg said that the GOP had every opportunity to govern in a fair and balanced way.

Steinberg went on to say that Democrats left their comfort zone by agreeing to billions in cuts but that they were forced to deliver alone, calling the Democrats’ plan the “most austere fiscal blueprint Californians have seen in a generation.” The proposal is slated to eliminate the structural deficit over the course of 18 months. Perez commented that the plan will not cause massive job losses that threaten economic recovery and he reiterated that Democrats have not wavered in their belief that new revenues are crucial for addressing the state’s structural deficit, which they will tackle in 2012 through the ballot.

As for realignment, the governor made it a point to say it would be fully funded. The Bee reports: “The new budget includes a tax swap that redirects 1 percentage point of the statewide sales tax to counties for Brown's public safety ‘realignment,’ sources said. Under that plan, the state would redirect lower-level inmates to county jails and shift parole responsibilities. The tax swap has the added effect of reducing the state's Proposition 98 requirement for schools.”

When it comes to redevelopment, the expectation has been all along that budget battling over agencies’ fates would likely head to the courts, and agencies have renewed their vows to fight elimination through litigation if the governor signs a deal that involves nixed agencies. The League of California Cities and the CRA have been in the process of preparing a lawsuit. The deal announced on Monday follows the same terms in the budget package that the governor vetoed on June 16th, as $1.7 billion is slated to be taken from redevelopment.

Senate Republican leader Bob Dutton released the following statement about the deal: “This latest budget is based on the hope that $4 billion in new revenues will miraculously materialize, but does absolutely nothing to change government as usual.”

The Pension Squeeze: National Coverage of Soaring Costs in CA and Beyond

Local government pensions are making headlines in national papers, with the Wall Street Journal being the latest to report on the swelling benefit costs of municipalities, who on average are spending 15% to 20% of their finances on pension costs. Wages and benefits account for 30% of state general fund expenditures. Providence, Rhode Island is pointed to as an extreme example of soaring costs, as annual retiree costs now take up 50% of the city’s tax collections. Furthermore, Providence was forced to borrow $48 million and its general reserve shrank from $17 million to $3 million in the course of one year.  The National League of Cities has estimated that overall cities have cut about 9 percent of their workforces. For the Journal, Steve Malanga, author of "Shakedown: The Continuing Conspiracy Against the American Taxpayer,” writes: “Local governments have contributed to their budget nightmares by expanding hiring and wages well beyond the growth in population and private wage gains during recent boom years. […] And although the main source of revenue for many municipalities—property taxes—kept rising during much of 2008 and 2009 because of multiyear property assessments that stretched back to good economic times, collections are now starting to plummet.” Read the full op-ed here.

And the New York Times recently reported in a rather expansive article about unions in California, as well as Costa Mesa’s actions to outsource its workforce. An excerpt reads:

“But now, with the expenses of past promises coming due, the cost of deferred decision-making is mounting. California alone needs to begin devoting an additional $28 billion a year to state and local public pensions to remedy an existing shortfall, according to one nonpartisan study — and nationwide, estimates of such deficits reach into the trillions over the next few decades.
“We had no idea what we were doing,” said Tony Oliveira, who as a supervisor in Kings County, in central California, voted to increase employees’ benefits, and now is on the board of the state’s enormous pension fund. “This was probably the worst public policy decision in the state’s history. But everyone kept saying there was plenty of money. And no one wants to be responsible if all the cops quit to get paid more in the next town.”
Public employee unions, in their defense, say politicians have unfairly made them into simplistic bogeymen, responsible for problems that have myriad causes.”

Read the full article here.

Isleton’s Pot Farm Deal Scolded by Sac Grand Jury Report; Says City Blinded by Revenues

A grand jury report from Sacramento County concludes Isleton officials allowed procedures and laws to be compromised because they had their sights set on receiving $25,000 in monthly revenue from a pot farm that jurors conclude was approved without delay due to the financial prize. Back in May, we relayed that under the deal, Delta Allied Growers would be allowed to construct a massive spread of greenhouses on the eastern edge of Isleton for the purposes of growing medical marijuana, which landed city officials in hot water when every manager and elected official in the town was subpoenaed by Sacramento County District Attorney Jan Scully.

The critical jury report also reveals that even though Sacramento’s District Attorney and federal authorities warned the city and the growers that that the planned operation was being investigated, growers cultivated more than 1,000 plants in three garages and then buried them deep in the ground. The Bee notes that the jurors single out “City Attorney Dave Larsen, who was paid by the marijuana growers $100 an hour over his city-paid rate to ‘help expedite the procedural aspects of the application’ for the farm. That arrangement ‘suggests an improper financial interest in the project,’ the report states.”

An excerpt from the report reads as follows:

“The grand jury concludes that the City of Isleton was highly vulnerable to a seemingly lucrative proposal, and that DAG exploited that vulnerability. However, city officials compounded the problem, by failing to exercise due caution, by failing to keep city council members fully informed, and by failing to ask obvious questions. The grand jury also concludes that this situation might never have arisen if state law and guidelines regarding medical marijuana were more definitive and had been more carefully observed.”

The report also noted that Delta Allied Growers claimed to be a not-for-profit entity incorporated under California law, but when the outfit made its proposal to the city, that was not the case since DAG was not technically incorporated. One of the recommendations the jury makes in its conclusion is that the City Council should establish policies defining when expedited project approval is allowed. The city attorney is arguing that he visited the site several times and there was no evidence that marijuana was being grown. Read the full jury report here.

Crowds Flock as City of Murrieta Celebrates its 20th Year with Annual Birthday Bash

On July 1st, 1991, Murrieta officially became a city and for the past 10 years the city’s Birthday Bash has become Murrieta’s biggest event of the year. Live bands, numerous kid’s rides, local vendors and fireworks held in one of the city’s many parks are all a part of the festivities. When the city had its first birthday bash in 2001, it went so well that the city council decided the event had to be an annual occasion. Over the weekend, the growing city celebrated its 20th year, and the event attracted a big crowd; in fact the attendance appeared to be bigger than any previous year. Murrieta Mayor Randon Lane greeted residents and commented, “The reality is: We’re not so small-town Murrieta anymore.” In the southwest part of Riverside County, Murrieta is now the biggest city. The North County Times reports:

“The city accomplished all those [initial] tasks and Murrieta is a much different town today, with nearly 50 parks, nearly 80 intersections controlled by traffic signals, more than 103,000 residents and a $37 million general fund operating budget. And 20 years later, as Murrieta leaders look ahead, they're dealing with vastly different issues that focus less on building civic buildings and more on maximizing the use of the last pieces of undeveloped land that remain.”

The city currently has just over a 100,000 residents and its population is projected to grow to at least 135,000 in the next 20 years. The Press Enterprise points out that “Where pioneer Juan Murrieta once tended a flock of 100,000 sheep, today more than 100,000 people reside.”

Hundreds of San Jose City Workers Spend Their Last Day on the Job after Layoffs

Due to concerns that San Jose Mayor Chuck Reed may weaken collective bargaining in order to reduce the city's budget deficit, protestors dressed as zombies recently to portray themselves as the "working dead." Those who participated marched from City Hall to Plaza de Cesar Chavez. While the mayor has said he would delay declaring a fiscal emergency, at a special meeting on Friday, many workers showed up to voice their opposition to the plan, which they believe will hamper collective bargaining rights. In an agreement with five unions, Oct. 31 has been set as the deadline for negotiations to conclude so that a consensus can be reached on reforms and savings. KTVU notes that on Friday, “City staff gave a presentation on cost analysis on the various retirement reform proposals and the potential savings of each plan.”

And speaking of Friday, it was also the day that hundreds of city workers spent their last day on the job due to layoffs. Since the city has been grappling with a $115 million deficit, around 264 city workers were laid off Friday or are expected to be laid off very soon. Mayor Chuck Reed commented “I hate doing layoffs. Today is the last day of employment for hundreds of really good people. This is all driven by skyrocketing retirement costs, and it's not over. It's a real problem." About 100 of the positions that were cut fall under public safety, so July 1st will be the last day that many officers are on patrol. Mercury notes:

“The city cut a total of 528 filled positions, all but 52 of them full time. But due to seniority rules governing layoffs, many of those employees transferred into other similar or lower positions, "bumping" less senior colleagues out of that job and perhaps into others. City officials said 87 employees were demoted to lower-paid jobs.”

The council also recently voted 6-5 to explore reducing benefits for current workers through negotiations with several unions. The reductions would be optional. More about the proposal can be seen here.

New Hercules Council Falls Back into Political Turmoil over Calls for Councilman to Resign

Earlier this month, voters in the city of Hercules filed another chapter in the local government’s series of political turmoil by recalling Council Members Joanne Ward and Donald Kuehne. Former Mayor Ed Balico was also named in the recall, but he resigned his seat several months ago. Local residents were overwhelmingly in favor of the recall, with more than 80 percent of voters offering their support for a fresh start with a new crop of candidates. To start, the city officially has a new mayor now: Filipino American Myrna Lardizabal de Vera has been appointed to the seat. She previously served as Vice Mayor. Commenting on her new role, de Vera stated, “During these challenging economic times, Hercules needs a leader with business experience to promote fiscal responsibility and economic development so the city will raise sufficient funds to strengthen public safety, educational, youth and senior programs.” John Delgado was selected as the new vice mayor.

Gerard Boulanger, Dan Romero and William Wilkins were welcomed to the Hercules City Council recently as the city’s newest officials, but the so-called fresh start didn’t proceed without controversy. Many residents are calling for the immediate resignation of Boulanger because he inflated his resume with false claims about his past experience. For instance, his resume included nonexistent university degrees and membership on a city council in his native France. Mercury reports on the backlash:

“Days after the election, Boulanger sent out a public plea for forgiveness, arguing that he embellished his record not for personal gain but to overcome possible public perceptions that he lacked the gravitas and background to be a Hercules city councilman. Any notion that Boulanger's faux pas would fade into oblivion by inauguration day was shattered by the very first public comment on Tuesday, by resident Glenn Abraham. In a letter read into the record by City Clerk Doreen Mathews, Abraham called Boulanger "an inveterate liar and schemer," for the resume-padding and for a June 6 e-mail to a group of supporters and erstwhile supporters, including Abraham, in which Boulanger maintained that de Vera was plotting to promote Sherry McCoy, the Planning Commission chairwoman, to replace him on the council.”

Boulanger has not indicated that he will resign at this point. The vice mayor has called for his censure. So much for a fresh start free of controversy.....

Public Pension Promises Projected to Cost $1,398 Annually Per Household in New Study

A new study on retirement benefits examines the revenue demands of the pension promises to public employees by calculating the average contribution that American households will have to contribute to fulfill such costs. According to the Kellogg School of Management at Northwestern University and the Simon School of Business, each American household on average will have to pony up $1,398 per year to fulfill public pension promises. The authors posit that if newly-hired public workers were switched to defined-contribution plans, then the per-household annual contribution would only be reduced by about $175. The study also looks at calculations of the increases in contributions that would be required to achieve fully funded pension systems. Here are some highlights from the report:

• Government contributions to state and local pension systems must rise to 14.2% of own revenue to achieve fully funded systems in 30 years. Average contributions would have to rise to 40.7% of payroll to achieve these goals, corresponding to an increase of 24.3% of payroll.
• In thirteen states, the necessary immediate increase is more than $1,500 per household per year, and in five states they are more than $2,000 per household per year.
• Assigning new hires to DC plans is known as a “soft freeze” of the DB plan. Our analysis shows that soft freezes have moderate revenue-saving effects. The required increases decline from $1,398 to $1,223 per household
• Taxpayers may leave the states that are the most burdened by the legacy liabilities and look for places with lower taxes and better public services.This sorting is likely to further increase the burden on states with the largest unfunded liabilities. Third, in states where the burden is large relative to revenue, there is likely an increased danger of a municipal debt crisis if the holders of public debt lose confidence in the ability or willingness of taxpayers in the state to foot the bill for legacy liabilities.

For California, the authors found that between 2008 and 2009, employee contributions grew by 7.2% for the funds covered in that study (CalPERS, CalSTRS, and the University of California Retirement Plan), while government contributions shrank by 3.4%, so that total contributions shrank by 0.1%. Based on these figures, it was calculated that in 2009, there were $6.47 billion of employee contributions to state-sponsored plans, $10.95 billion of government contributions to state-sponsored plans, $1.87 billion of employee contributions to locally-sponsored plans, and $4.28 billion of government contributions to locally-sponsored plans. Read the full study here.

No Couch Potatoes: San Fran and Oakland Rank as Some of the Most Active Cities in America

California regions may rank poorly on lists for unemployment and economic strength, but according to Men’s Health Magazine, at least our cities don’t make the top 10 list for the most sedentary and least active in the country. The cities of San Francisco and Oakland give the state of California representation in the top 10 list for most active metro areas in the nation. The rankings were based on exercise, hours of TV watches, video game use, and deaths from deep-vein thrombosis, a condition linked to a lot of sitting (CDC). Lexington, Kentucky was rated the most sedentary city in all of America. Matt Marion, deputy editor of Men's Health, commented that “What hurt Lexington most was the actual amount of activity, or exercise, people reported engaging in - any physical activity at all, which was relatively low. And they did have higher rates of deaths from deep vein thrombosis (DVT) as well.”

Here are the least active in the country, all of which received an F grade:
100 Lexington, KY F
99 Indianapolis, IN F
98 Jackson, MS F
97 Charleston, WV F
96 Oklahoma City, OK F
95 Tulsa, OK F
94 Little Rock, AR F
93 Nashville, TN F
92 Laredo, TX F
91 Birmingham, AL F

Most active:
10 Minneapolis, MN A-
9 Denver, CO A-
8 Atlanta, GA A-
7 Portland, ME A-
6 Reno, NV A-
5 Salt Lake City, UT A-
4 Washington, DC A
3 Oakland, CA A
2 San Francisco, CA A+
1 Seattle, WA A+

Union Workers Clash with Petition-Gatherers in San Diego over Pension Reform Measure

Last week we relayed that the city of Atlanta has been moving forward with a complete overhaul of its pension system. The retirement age would be raised and new workers would be placed into a hybrid composed of a reduced traditional pension and a 401K-type plan and eventually pensions would be phased out. Sweeping changes of a similar nature are making headlines in the city of San Diego, and a battle is already brewing over a 401(k) model for most city workers, despite the fact that such changes have not even qualified for the June 2012 ballot yet. Known as the “Comprehensive Pension Reform” initiative, labor groups are rallying the troops early, as there are fears that voters will strongly support such a measure; consequently, the collection of 94,000 signatures has proven to attract both sides to locations around the region to try and persuade voters one way or the other. With union workers standing besides signature-gatherers outside stores, the heated exchanges may turn off voters. The Union Tribune reports:

“Supporters of the proposed ballot measure — including Mayor Jerry Sanders and City Council members Carl DeMaio and Kevin Faulconer — say it will end the city’s pension woes for future generations by temporarily capping pay for current workers and switching all new hires except police officers to a 401(k)-style plan. A fiscal analysis is expected soon. Labor leaders call it a punitive measure that decimates retirement benefits for future city workers who are currently ineligible for Social Security and strips pensions from new firefighters. The city may also face recruiting and retention problems if it offers far less lucrative benefits than other cities, they say. The passion on both sides has led to the storefront confrontations.”

Opposing sides over the changes are claiming that each side is using false information. But if polling research is to be believed, voters in the city are already decisively in favor of the pension reforms outlined in the proposal. A spokesman for the labor-backed “Just Say No San Diego” campaign has said that union workers feel the need to position themselves next to signature-gatherers as a way to counter “lies” about the proposal’s impact. The signatures must be collected by October if the initiative is going to qualify for the ballot.

San Jose Mayor to Delay Fiscal Emergency Declaration and Pension Reform Ballot Measure

In light of continuing negotiations with police, firefighters and other unions, San Jose Mayor Chuck Reed has decided to delay seeking the council’s blessing for a ballot measure to reform pensions. The mayor also wanted to declare a fiscal emergency, but that will also be delayed until August. By holding off on both, an election to reform pensions would likely not happen until March 2012, if the council eventually gives its approval. The decision was partially motivated by the fact that San Jose’s police and firefighter unions agreed to a framework for negotiations and other unions agreed to similar conditions last week. Mercury News reports:

“Reed on Monday dismissed any notion that he was backing down under pressure from the unions, six more of which he hopes will make similar pledges to negotiate in good faith on those issues by the fall deadline. ‘I have a lot of concern about the timing of all of this,’ Reed said. ‘But it's important to get people to sign on to the ground rules on the timing so we can take action before the next budget cycle.’ Reed noted that he now has until early December to place a measure on the March ballot.”

Many labor leaders have continued to insist that changes should occur at the bargaining table and they expressed relief that more time was granted for negotiations. Robert Sapien, president of the San Jose firefighters' union, commented, "I'm hoping this is not a delay but in fact a faster way to come to a better solution." As we’ve relayed previously, San Jose is facing a $115 million shortfall and hundreds of jobs are slated to be cut.

In other San Jose-related news, the Attorney General’s office has written in an assessment that the mayor’s plans raise "serious" legal concerns and that “Financial problems faced by government must be resolved lawfully.” Mayor Reed has responded that the assessment misinterprets his reform proposals.