CLARKONOMICS: There’s a lot of talk about what yesterday’s Wisconsin vote means politically, but what does it mean economically for your wallet?
While the media has had an intense focus on Wisconsin, there’s another vote that took place in California that’s been largely overlooked. At issue in both states is what is going on with government workers.
Here’s the deal: In Wisconsin and California, and practically everywhere else in our country, we hit a wall as the economy declined following the financial crisis. People suffered layoffs, tax revenues from properties were down, people had hours cut, wages cut, furloughs, you name it.
At the same time, the perception in the public was that government employees were not making equal sacrifices in some jurisdictions, coupled with big issues over the growing tax burden to foot pension obligations for government workers.
So in California, you had two votes yesterday, one in San Jose and San Diego. Nearly 70% of voters in both cities decided to retroactively change pensions for retirees. That’s a harsh move for those government workers who are already retired.
Part of the problem is that over the years, government employee unions have been so powerful and pivotal in who wins and who loses in municipal elections, and the payoff has often been very generous benefits for government employees in return for a win in a municipality. With a wink and a nod, local governments agreed to pay employees lower levels during their working lifetime, but their retirement benefits were absolutely phenomenal.
Now, this does have real life consequences for working families who are working their way through the system as government employees. For taxpayers, it means that the obligations will start to be reduced.
The reality is we will continue to have this perplexing choice to make because the obligations of government at all levels have become unsustainable. It’s not a matter of who you like or don’t like, or how you feel about teachers, firefighters, police officers and other public workers. It is the reality that we face a shortage of funds beyond what we’ve seen in the past. That’s why economics is called the dismal science.
The level of taxation that would be required to balance budgets and provide the benefits that have been promised, in many states and cities, people will say, “We can’t do that.” And that’s why you have the results of yesterday.