Should California pensions be more in line with private sector?

California is facing a pension crisis. The state's unfunded liabilities, while not at the dire levels of some other states, have been increasing significantly, year over year. This is leading to increasing budgetary shortfalls and bailouts from the state itself. Many of the state's school districts are feeling the pinch too, as they are forced to pay 25 or even 30 percent of their operations budgets to cover pension liabilities. The only thing about which there is no debate is that the current system cannot go on as it is.

State employee rent seeking

The truth is that the state of California's public employees are increasingly taking on the characteristics of classic rent seeking. State employees are often paid dramatically more than their private sector counterparts, for any given level of skills and education. And their pension liabilities are quickly growing, consuming resources that are now being taken away from the state's most vulnerable and underprivileged school children.

The idea that state employees enjoy a level of unearned income that their private sector counterparts don't is true throughout the entire United States. For example, the most money that anyone over the age of 66 can draw from Social Security is $32,000 per year. However, state pensioners, on average, make $68,000 per year, throughout the nation as a whole. However, in California, these numbers are even more exaggerated. Many state employees are receiving or are eligible for pensions well into the six-figure range. And in a state with skyrocketing housing costs and other living expenses, that will only be changed with a brutal fight.

But these huge pension liabilities are now directly leading to extreme fiscal strain. The state of California is currently spending over a quarter of its total revenues on directly funding pension shortfalls. What's worse, many school districts throughout the state are being forced to cut staff, increasing class sizes and lowering the quality of education. They are also being forced to diminish or eliminate programs that are mostly used by the state's most disadvantaged children, such as free lunch and breakfast programs and after-school actives.

All of this could be resolved if the state employee unions would be willing to compromise. But so far, they haven't shown even the slightest interest in working for any interest but their own.

What's certain is that, should nothing be done, California is heading the way of the City of Detroit.


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