As California Goes, So Goes New York
… Aaaand probably the federal government.
Over at the Atlantic, Megan McArdle takes on the question “Is California too big to fail?” Short answer? Nope.
If Uncle Sugar bails out California, California will not fix its problems … All Obama can do is shovel money into the bottomless pit of California’s political system.
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California will go bankrupt, muni and state debt will spike, the federal government will backstop humanitarian programs and very possibly all state and local debt, and eventually, California will figure out whether it wants higher taxes or lower spending. But we will not actually make the world a better place by enabling the lunatics in Sacramento to pretend they can have both.
This op-ed in the Orange County Register takes a critical look at one of the biggest budget busters in California that needs serious reform: public employee benefits.
The basic rule of thumb is if the state’s ravenous public-sector unions aren’t howling in agony, then the proposed reform has little if any chance of actually fixing the current problems. California runs an enormous deficit because legislators can’t stop expanding government, and the main beneficiaries are government employees and retirees.
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For instance, in Orange County public safety officials can retire at age 50 with 90 percent or more of their final year’s pay guaranteed by taxpayers. Other employees can retire with 81 percent of their final year’s pay at age 55 after 30 years of work. By contrast, private-sector employees are given a particular contribution by their employer, and the pay-out depends on the performance of each employee’s investments. With defined-benefit plans, union-dominated retirement systems have every reason to maximize risk. If the investments do well, then the employees benefit. If they don’t, it’s the taxpayers’ problem.
Looking back East to New York – it’s only more of the same, public sector unions hold states and the taxpayers hostage. This is from someone who escaped:
Medicaid spending alone works out to $2,283 for every man, woman and child in the state. That’s the highest in the nation and twice the national average. In the last decade, the Medicaid budget grew 50 percent (from $30 billion in 1999 to $45 billion in 2009). In almost every sector (hospitals, nursing homes, medicine, clinics and home and community care), spending per recipient regularly exceeds the national average.
Faced with escalating costs and diminishing returns, Albany and its allies — that is, the health-care unions (SEIU Local 1199 has more than 300,000 members, many of whom are politically active) — have only one answer: increase taxes.
* New York spends the most, per pupil, in the nation on education. Our education spending is 63 percent above the national average. Costs went up about 70 percent in the last decade (from $12.7 billion in 1999 to $21.8 billion in 2009).
Like health care, education is something worth spending on and worth investing in, but we’re spending more and getting less. New York City schools graduated only 54 percent of high-school students in 2007; Buffalo, just 47 percent, and Rochester 39 percent. Why do we keep spending more? Perhaps it’s because New York teachers unions spend millions convincing Albany to spend more. And when faced with potential cuts, the union and its allies had one response: increase taxes.
The path New York is headed down surely leads to the same economic hell California finds itself. And the reforms needed to begin tackling the education and health-care costs that are strangling states are so simple – injecting a little choice into both systems would break the stranglehold of the unions and market forces would breathe in the fresh air of competition, lower prices, and improved quality. The only downside? The big-shots at the top wouldn’t get their cut anymore. How sad for them.
