While the economy across the nation and even in California to a lesser extent seems to be very slowly turning the corner, one has to wonder if it’s too late. The news on the local level is devastating. We have focused much of our attention on the follies of the Davis City Council. The news there is not great, plans are underway to cut spending should the sales tax measure not pass in June.
The city as we have reported repeatedly to little effect has failed to deal with the two 800-pound gorillas staring it in the face–the unfunded medical liability soaring at between 42 and 65 million dollars and the pension crisis.
Ed Mendel from Calpensions.org reports this week that that Vallejo has cut retirement health care payments but has not touched pensions.
Writes Mr. Mendel:
“Retirement costs are by far Vallejo’s biggest debt. The top two creditors listed by the city in its bankruptcy filing were retiree health, $135 million, and the California Public Employees Retirement Association, $84 million.
Although Vallejo has been hit by declining property values and the loss of some businesses, the bankruptcy filing seemed to acknowledge that the city council had let labor costs get out of control.
The bankruptcy filing said the city expected to begin the fiscal year in July of 2008 with an estimate of $77.9 million in general fund revenue, less than its $79.4 million cost for labor.”
Is Davis moving in that direction? Understand that Davis financed much of the increases to salary for employees based on the housing bubble and the half-cent sales tax measure that brought in three million. With the collapse of the housing market, the city faces a deficit. What has saved Davis is the landing of the housing market has not been nearly as hard as its neighbors. But the crash could come down the line.
That is not the case for the county or schools.
As we reported, the district is currently planning to issue layoff notices to 102 employees to close a $5.6 million shortfall which is by the way, the largest in the district’s history. The picture is far worse when you consider that the district cut its budget in both 2008 and 2009.
Sobering is the statement that Sheila Allen made on Tuesday night, that without the two parcel tax measures, the district would be facing an $11.6 million deficit. Soak up that number for awhile.
As it is, the district is facing 102 layoffs.
The good news, if there is such a thing, is that the teachers and classified staff appear ready to take concessions that would save $1 million or about 16 positions.
And they may be able to save a few more. The school board approved a retirement incentive plan that can also reduce the number of layoffs.
The plan would offer incentives beginning at 60% for the certificated employee’s highest salary if 25 teachers participate and up to 80% if 40 participants retire effective at the end of June. The retirements must be submitted to the District prior to April 16, 2010.
Eligible are those who are age 55 or higher who have been with the district at least five years and those age 50 or higher who have been with the district for 20 or more years. The estimated savings would be $30,000 annually for each participant.
But let us not kid ourselves here, it is much appreciated that the teachers and other employees have agreed to these concessions and but these are pain reducers, not solutions. The Davis Schools Foundation is going to launch another drive at the end of the month as well, but this is a disaster.
The county gets the least coverage here, but the news there is probably the worst. Last year, they had to cut $20 million from their general fund. And the horrific thing is they have to do that again. The county provides social services to the most needy and most vulnerable in our society. In recent years it has been asked to pick up the slack for state and federal government cuts to social services.
The Woodland Daily Democrat yesterday had an article about the cuts to the county mental health department.
“The Department of Alcohol, Drug and Mental Health can now only serve the obligatory severely mentally ill, after 15 employees were laid off and will work their last shift today [Friday]. Residents seeking services will continue to be screened at ADMH but those not determined to be seriously mentally ill or disturbed will be referred back to a primary care physician.”
Explains the article, the department acts as the specialist in the field of mental health. The county was able to operate for years off general fund money since Medi-cal only pays 61 cents on the dollar. But now the county no longer has the funds to continue to subsidize the program which means it will cut back to the core.
What will be the impact of these cuts? Hard to know.
Overall 44 county employees were laid off in late January and those cuts come with a reduction of public services. In addition to the Alcohol Drug and Mental Health Department, the Department of Employment and Social Services lost 15 employees while the Health Department lost 14.
This would not be quite as bad without the cuts that occurred last year.
The people most affected by these cuts will not be the affluent members of society but rather the poor and the mentally ill. Again, it is tough to assess the impact of these cuts. But last year we discussed the cuts of health coverage in the county to illegal immigrants.
Many people will argue we need to cover our own first. And at some level that makes sense. The problem is that when people become ill, we are forced to deal with them in emergency rooms which costs more in the long run.
There is another aspect to it, the more people without health coverage, the more people with health coverage are exposed to illness and disease. When you are talking about epidemics like swine flu or perhaps HIV, there is an impact to everyone when these services are cut.
The board approved cuts to department programs like tobacco cessation, syringe exchange, nurse home visitation, free vaccine clinics, and counseling for HIV/AIDS patients.
How much of an impact will that make on the population?
We know where the state is headed–toward more cuts. Again, at some point the economy will turn around, the question is how much it will. And one has to wonder if all of these cuts might not force us down into another recession or worse. What we have done is cut the safety and stopped investing in the future in the case of cuts to schools from K-12 to Higher Education.
People will argue that we have to live within our means, but if we cut out our ability to extricate ourselves from the mess, we have cut off our noses to spite our faces. There are people in this community who are living very well right now, and those people have not had to sacrifice nearly as much in all of this as the average person. At some point that will take its toll.
How much worse can things get? That’s the question we face now, but right now, if you look at state, county, schools, and even local, things are as bad as they have ever been at least since the Great Depression and at least in California, there may be no end in sight.
—David M. Greenwald reporting
This is sad. Vallejo may very well be the test case. I am sure this will be litigated but when cities go bankrupt something has to go.
I happened to see Nouriel Roubini yesterday on Bloomberg (one of economists who was prescient about the housing bubble/crisis). He was talking about the Euro PIGS (Portugal, Ireland, Greece, Spain) and Greek bonds in particular, which is the topic du jour.
Roubini actually thought a CA default (with Federal bailout) was more likely than a Greek default.
Long story short–that is scary! CA is in trouble!
He also said that Americans want European services at Reagan tax rates, which is nor sustainable.
CA’s general obligation debt at the state level is actually quite managable (unfunded liabilities like PERS and health benefits are another stody–estimated at $200 billion and rising) so I was floored by that statement, but Roubini is a very smart guy and must have thought this through.
The time to act is now–get rid of the Gang of three.
Just as one small example of the devastation the economic crisis has wrought, the county no longer has its Older Adult Program in Mental Health Services. The Older Adult Program roving assessment team was funded through Prop 63 monies – specifically set aside BY LAW to fund ONLY new mental health programs for previously underserved populations. I worked on the original subcommittee that developed the Older Adult Program roving assessment team. It was a tiny project, that sent out specialized social workers to residences of the elderly who were homebound, to garner the appropriate resources to keep them living independently.
Contrary to law, all Prop 63 funds have now been usurped to pay for basic mental health services. Thus those special programs created by Prop 63 funds are crumbling into dust. It takes a good deal of thought, time and effort to build such programs, many years in fact, but only an instant to destroy them. These carefully thought out programs cannot be reconstituted instantaneously upon the economy’s recovery. They may never return, as gov’t agencies become frustrated at having their mammoth efforts so cavalierly dismissed by politicians every time the economy goes south – politicians who have no clue the devastation that is wrought by their unthinking actions that serves no good fiscal purpose.
The irony is, because these frail seniors were kept living independently, rather than being placed in a skilled nursing facility or mental institution, IT SAVED THE STATE MONEY! It also brought in federal matching dollars. Adult Day Health – respite care for families who have someone living with them with severe health problems and a need for someone to be with that affected person 24/7, such as a frail elder with dementia or Alzheimer’s disease – is a program on the Governor’s hit list for elimination. Yet if these same frail elderly are placed in skilled nursing facilities, it will be far more costly to the state.
The same is true of the attempt of the Governor to eliminate the In Home Supportive Services Program (IHSS). It allows the low income frail elderly to remain living independently at home, by having an IHSS worker come in a few times a week, to help the frail senior with activities of daily living – such as bathing, cooking, shopping, picking up prescription drugs. Without IHSS workers, these frail elderly will have to be placed in skilled nursing facilities, a far more costly option.
Worse yet, there are only so many skilled nursing facility beds, and they will not accommodate all the frail elderly who are going to have these basic services eliminated. To add insult to injury, such cuts are contrary to law. The Olmstead decision requires that the frail elderly be placed in the least restrictive environment possible, so that they may live independently in their homes for as long as possible. To single out the disabled for cuts to such basic programs to keep them alive is discriminatory – a court injunction is currently in place preventing the elimination of Adult Day Health and IHSS under the Americans With Disabilities Act, until the matter is more fully taken under consideration by the courts.
There were grim meetings of the county’s Multi-Disciplinary Team and Commission on Aging & Adult Services this past week, forecasting that as these basic services for the frail elderly become unavailable, we are going to see an increase in suicide rates, and a lot of dead bodies left neglected in homes, with no one to check in on our frail seniors. One wonders if this thoughtless and callous elimination of basic safety net programs is an attempt by our state legislature to “ration health care” – the more dead senior citizens, the less the gov’t has to pay in services to care for them?
Contrary to law, all Prop 63 funds have now been usurped to pay for basic mental health services. Thus those special programs created by Prop 63 funds are crumbling into dust. It takes a good deal of thought, time and effort to build such programs, many years in fact, but only an instant to destroy them.
Would a lawsuit be appropriate to enforce Prop 63?
It takes a good deal of thought, time and effort to build such programs, many years in fact, but only an instant to destroy them.
Your observations resonate with my feelings that we in the U.S. have obsessed too much over military expenditures and solutions, and perhaps extremes of law enforcement (three strikes, and mandatory sentencing for instance). In the heat of anxiety we’re willing to spend too much to eliminate physical threats when in fact the bigger threats are within.
As an analogy, it’s like obsessing over threats of personal harm, when in fact the bigger threats are the diabetes, cancers, and obesity within.
He also said that Americans want European services at Reagan tax rates, which is nor sustainable.
That would be a valid argument if it was a valid point. Unfortunately it is a myth that Americans pay significantly lower taxes than Europe. When we add up all individual taxes – including the trickle-down employee impact of business employment and corporate taxes paid – middle class workers are very highly taxed. What is usually left out of the all the “total tax burden per country” data are the hidden taxes and the impact of higher taxation on US business.
American fed and state government taxes the crap out of business, and maintains a lower base tax rate on individuals. Even so, the individual tax rate in the US ranks higher than often reported in comparison because of high state and local tax rates and a myriad of other creative taxes and fees that Americans directly and indirectly pay.
Forbes 2009 Tax Misery ranking puts the US as the 20th most miserable. (see: http://www.photius.com/rankings/tax_burden_country_ranks_2009.html ). Note how many European countries are ranked as less miserable (hint, not many).
Also, when comparing European versus American income tax rates on top earners (Democrat’s only target for higher taxation); there is an interesting related difference in tax revenue collection that is rarely reported: tax compliance. The US reports 84% tax payment compliance… the highest in the world. We all grumble about taxes, but we pay them.
Here are some sobering stats related to California taxation ( http://www.taxfoundation.org/ ):
•2008 State/local tax burden 6th in the nation
•Top individual income tax rate is 4th in the nation
•Corporate income tax rate 6th highest in the nation and highest in the West (note, US corporate tax rates are highest 2nd highest in the world… just a fraction below Japan’s)
•CA business climate ranks 48th in the nation
•CA sales tax is highest in the nation
•CA property tax collections per capital slightly below national average
Tax increases are a bad idea and a non starter for suggested solutions to fix CA’s budget problems. I have a better idea. We need to start thinking of high wage individuals and business as our valuable civic customers. California needs to attract more of them. So, instead of increasing taxes, I suggest a two-pronged approach:
One – Decrease tax rates on business and high-wealth individuals, and invest in government services to pamper and encourage them to locate and stay here.
Two – Encourage union-benefiting taxing and spending campaigns in other states to do the opposite for them. For example, Oregonians may have recently done more to help CA’s economy than anything we could do within the state. When other states – especially western states – raise their tax rates we win.
“That would be a valid argument if it was a valid point. Unfortunately it is a myth that Americans pay significantly lower taxes than Europe. When we add up all individual taxes – including the trickle-down employee impact of business employment and corporate taxes paid – middle class workers are very highly taxed. What is usually left out of the all the “total tax burden per country” data are the hidden taxes and the impact of higher taxation on US business. “
There are several aspects of this that don’t make a lot of sense.
First, your argument seems to be that we are taxed as much as Europe, so don’t their businesses have the same issue? So wouldn’t that point be a wash?
Second, why is Europe able to provide more services to their public at the same rate of taxation>
Two meetings ago, I was trying to explain that the council failed to reform the cafeteria “cash-out” in the face of unfunded employee retiree health liabilities which were in the worst 17th percentile of those of localities studied by our auditor. (David Greenwald chose to skip substance of what I was trying to say, while focusing all attention for two days on my lapse of professionalism).
The unusual and costly “cafeteria cash-out”, which isn’t even fair among employees, allows an employee whose spouse has health insurance to take home $17,800 in cash. Cutting this by 75%, I argued that night, would save the city about $3 million. This savings could be put in a fund to pay off our huge unfunded retiree health liability.
I explained last week that this reform, which I had put my heart and soul into trying to achieve, would have been in the long-term best interest of the employees as well as the city, since retiree health does not have the same strong legal protections as do pensions.
A few days ago, the bankruptcy court allowed Vallejo to slash the health insurance of its retirees.
Correction: It is not clear from the article whether the court allowed this. The situation seems to be in flux, but the city is in process of cutting retiree health benefits.
Second, why is Europe able to provide more services to their public at the same rate of taxation
David: Good question. Other than the fact that most European countries cannot sustain their deficit spending for all the services they provide, I think there are several reasons why they have been able to provide the services they do. Primarily, is the fact that Europe is, and has been since the end of WWII, provided their national defense from the US. We Americans pay a huge debt for keeping the French safe so they can munch croissants and drink wine when not working 30-hour weeks.
Another consideration is that the US covers a much larger geographic area (3rd largest in the world) and has a larger population (3rd largest in the world) that almost equals the total size of Western Europe. That population is diverse and growing more diverse every day. There is a real cost for servicing a large population of diverse people spread over a large territory.
Lifestyle expectations: Americans buy a lot of stuff and expect high-end service quality. We work harder and longer hours than almost any other industrialized country… our productivity is the highest. We have grow accustom to a certain return. Working Americans do not easily accept giving away more of their hard-earned dollars and comforts so that the government can inefficiently redistribute these to others. Forced altruism is not intrinsically positive for people not directly associated with the redistribution business of government.
Having said/written all this, I am not sure I completely agree that Europe provides more services as much as they provide different services and different service levels. For example, I don’t think most American’s would be satisfied with European-style healthcare. The poor would, but much of the middle class would be giving up access and quality.
I support making healthcare more affordable, and improving education, but we cannot do it by raising taxes because we are already highly taxed and because there will be destructive economic consequences (think Laffer Curve). Instead we need to leverage efficiencies and cut non-essential services like the Department of Energy. Why are we always only talking about the need to raise taxes, yet we cannot support the abolishment of wasteful and dubious agencies and programs to help fund things we believe are necessary?
A few days ago, the bankruptcy court allowed Vallejo to slash the health insurance of its retirees.
Sue: This is a good thing, right? Except for the fact that David is maybe not giving you enough credit for your positions, it seems positive that Vallejo is paving the way out of this mess. No need to keep beating your head against the wall since the unions will bankrupt us too and then we can finally make the necessary cuts.
First, your argument seems to be that we are taxed as much as Europe, so don’t their businesses have the same issue? So wouldn’t that point be a wash?
No, David, Europe generally has lower business taxes, and higher individual taxes.
Addressing cafeteria cashout: Sue, & perhaps other members wanted to reduce the benefit. Philosophically, I agree. Problem is the reduction sought was apparently was $13,350/year or over $1,000 per month. Quite a hit, whether your base salary is $40k or $100k (assuming you could take full advantage of the cashout). And you expect folks to vote for this? Did the CC look at a “weaning” instead of going directly to the guillotine?
If the baseline “benefit” was capped, with a 5-10 percent reduction per year until the 25% level was achieved, I suspect that it would have been much more likely that the employees would have approved this, particularly if the ‘savings’ would go to ensure retiree medical coverage ‘sustainability’.
The “cashout” came about (primarily) by the push of single employees saying it was inequitable that the COST to the city was greater for their co-workers who had dependents, than for them. The error in logic used at the time was, in my not so humble opinion, that the “benefit” was viewed as the maximum cost of the insurance, as opposed to the coverage that was needed for a given employee’s situation.
I just want to put out this article from December where I spent over an hour and a half transcribing Sue’s comments on cafeteria cash out: link ([url]http://davisvanguard.org/index.php?option=com_content&view=article&id=3142:mayor-and-council-cut-off-debate-on-fire-contract&catid=58:budgetfiscal&Itemid=79[/url])
Jeff, you’ll forgive me, I’m not going to belabor the point on the taxes in Europe because it doesn’t interest me that greatly. But I do want to take part of an issue here with what you are saying:
“No need to keep beating your head against the wall since the unions will bankrupt us too and then we can finally make the necessary cuts.”
You speak of unions as though they were some monolith, and I think you need to draw a distinction between the firefighters who are getting $150,000 total comp plus 3% at 50 and PASEA who took a rare step of even speaking on Tuesday night and make a fraction of that with much smaller pensions. PASEA and unions like them, which are the majority, are not going to bankrupt anyone. The worst pension culprits in this state are either public safety who get the enhancement or are pension spikers who are not union members but rather non-unionized management. The vast majority of state employees who are union members are getting $27,000 average for a pension, that’s not the issue here. So I think you actually do a disservice to the problem when you lump in PASEA with the firefighters union or the non-unionized management group.
No, David, Europe generally has lower business taxes, and higher individual taxes.
Do businesses in Europe have to worry about underwriting health coverage or retirement pensions the way they’re expected to in the U.S.?
Do businesses in Europe have to worry about underwriting health coverage or retirement pensions the way they’re expected to in the U.S.?
It is highly variable:
http://en.wikipedia.org/wiki/Universal_health_care#Europe
People will argue that we have to live within our means, but if we cut out our ability to extricate ourselves from the mess, we have cut off our noses to spite our faces. There are people in this community who are living very well right now, and those people have not had to sacrifice nearly as much in all of this as the average person.
You seem to be advocating higher taxes on the wealthy as a way out of the current fiscal problems. But that is not an option at the local level, and probably a non-starter at the state level.
Good point, Don, we can’t raise taxes on the rich. How about this solution instead: When we hire people, [b]they[/b] have to live within [b]our[/b] means. That way we can solve fiscal problems without cutting off our noses to spite our faces.
[quote]Addressing cafeteria cashout: Sue, & perhaps other members wanted to reduce the benefit. Philosophically, I agree. Problem is the reduction sought was apparently was $13,350/year or over $1,000 per month. Quite a hit, whether your base salary is $40k or $100k (assuming you could take full advantage of the cashout).[/quote]The problem is not only that we can’t afford it, but it is inherently unjust, because we have in essence people getting different pay for the same work.
We just don’t have time to phase in this change. We start having to increase our payments for retiree health to cover the unfunded liability in only about 8 years — just beyond our budget forecast.
At the last meeting, I pointed out that the University is structuring their cuts in a progressive manner, while the city’s cuts are actually regressive. I pointed out that our new management contract, which covers fewer people, will result in a city expenditure 2% higher in eighteen months, while the lower-paid PASEA workers’ contract will cost the city .8% more in eighteen months, while covering more employees.
To soften the effect of the cash-out on lower-paid workers, and to make it more fair, I suggested that we should calculate the aggregate cost of the cash-out given the employees who make under $45,000 (or whatever), to divide that amount equally among the employees who make under $45,000, and to raise their base pay by this amount.
OOOPS! I hit publish when I was trying to proof my comment. Here it is:
[quote]Addressing cafeteria cashout: Sue, & perhaps other members wanted to reduce the benefit. Philosophically, I agree. Problem is the reduction sought was apparently was $13,350/year or over $1,000 per month. Quite a hit, whether your base salary is $40k or $100k (assuming you could take full advantage of the cashout).[/quote]
The problem is not only that we can’t afford to phase out this benefit, but also that the benefit is inherently unjust, because we have, in essence, people getting different pay for the same work.
Again, we just don’t have time to phase out this benefit. We start having to increase our payments for retiree health to cover the unfunded liability in only about 8 years — just beyond our budget forecast.
At the last meeting, I pointed out that the University is structuring their cuts in a progressive manner, while the city’s cuts are actually regressive. I pointed out that our new management contract, which covers fewer people, will result in a city expenditure 2% higher in eighteen months, while the lower-paid PASEA workers’ contract will cost the city .8% more in eighteen months, while covering more employees.
To soften the effect of phasing out the cashout, and to make it more fair, I suggested that we should calculate the aggregate cost of the cash-out given the employees who make under $45,000 (or whatever), to divide that amount equally among the employees who make under $45,000, and to raise their base pay by this amount.
I meant “by softening the effect of reducing the cash-out by 75%…”
Sorry for getting sloppy. My 86 year old blind mother who is as stubborn as I am and insists on living alone in our old family home in Bethesda, Maryland, is stranded in her house with no electricity or heat. The neighbors have strung an extension cord into her bedroom room with a space heater! The temperatures are going down to 10 degrees tonight, and I have to figure out how to find someone to shut off her water so the pipes don’t burst, so I’ll be signing off for awhile.
[i]”Unfortunately it is a myth that Americans pay significantly lower taxes than Europe. When we add up all individual taxes – including the trickle-down employee impact of business employment and corporate taxes paid – middle class workers are very highly taxed.”[/i]
According to the OECD Tax Database ([url]http://www.oecd.org/document/60/0,3343,en_2649_34533_1942460_1_1_1_1,00.html[/url]), European tax rates are higher. (See below.) However, it’s worth noting that our government pays for most of the world’s defense burden. That is one reason why they get more for their tax dollars than we do.
The other thing to consider is that if we consider the 50% of our health care budget which is privately funded and add that to our tax rates, then, yes, our taxes are higher than those in Europe.
Here are the figures for each country’s “Total tax revenue as percentage of GDP” in 2007:
Canada33.3
United States 28.0
Austria41.9
Belgium44.4
Denmark 48.9
Finland43.0
France 43.6
Germany 36.2
Iceland41.4
Italy25.433.637.840.142.340.942.143.3
Netherlands 38.0
Norway43.4
Portugal 36.6
Spain 37.2
Sweden48.2
Switzerland 29.7
United Kingdom36.6
What’s going on with Italy’s figure, above?
If the U.S. military were scaled back to the equivalent of, say, what the U.K. spends, then what do you suppose the potential tax burden would be on the U.S. if you included privately funded healthcare?
[i]However, it’s worth noting that our government pays for most of the world’s defense burden. That is one reason why they get more for their tax dollars than we do.[/i]
Rich, I totally agree that American tax dollars don’t feel as rewarding as those of some countries, partly because we spend more of our taxes on weapons, soldiers, and wars. I do not agree that world carries a “defense burden” of some fixed size that we step up to the plate to pay for. Instead, the US has appointed itself as the world’s policeman. Since most other countries in the world aren’t nearly as enthusiastic about our activity as we are, we’re just reaping what we sow if we resent how much it costs.
The situation made a certain amount of sense during the Cold War. But now that that’s over, it’s really not clear why the US should hold itself responsible for 40% of all military spending ([url]http://en.wikipedia.org/wiki/List_of_countries_by_military_expenditures[/url]) in the world.
[i]If the U.S. military were scaled back to the equivalent of, say, what the U.K. spends, then what do you suppose the potential tax burden would be on the U.S. if you included privately funded healthcare?[/i]
If you traded defense spending for privately funded healthcare in the US and in Europe, then the US would probably trade places with Canada, and it might be close to equal to some of the European countries.
Total health care spending ([url]http://en.wikipedia.org/wiki/Health_care_in_the_United_States[/url]) is 15% of GDP in the United States, and maybe 9% of that is private spending. Total health care spending in Canada is 10% of GDP, and the private share is much smaller. Meanwhile defense spending in these two countries is 4% vs 1% of GDP.
But hey, if Canada only spends 2/3 as much of its GDP on health care as we do, it could be dangerous. It could mean that death panels have an iron grip on the Great White North.
[i]What’s going on with Italy’s figure, above?[/i]
Italy is a really screwed up country, wdf. Their welfare state is so out of control, taxes have reached 25 sextillion percent of GDP. (A sextillion is a billion times a trillion — but remember to divide by 100 since it’s a percentage.) The next time you feel annoyed by taxes in the US, just think of Italy.
You speak of unions as though they were some monolith…
David: I’m sorry, but I do not have much use for any size union except maybe for low-skilled laborers. I certainly have more ire for the firefighters and prison guards, but today, I don’t think most unions serve enough of a useful purpose to offset the damage they do.
There are so many laws on the books protecting workers today, and all but low-skilled laborers have leverage to demand market pay and benefits. Business and government require employees with certain knowledge and skills. An experienced human resource manager can establish all the employment rules and policy required. Management can set performance expectations compensation and benefits based on need, budget and market. There are attorneys hanging from the trees waiting to pounce on labor-law mistakes by management.
Unions just distort rational management decision-making and are not necessary. Just look at what Nugget does without union labor. You tell me, why do we need unions?
… it’s really not clear why the US should hold itself responsible for 40% of all military spending in the world.
When Obama and the Democrats took over Washington, I expected liberals progressives and center & left-center libertarians to get together and start changing this. Damn Al Qaeda, Taliban, North Korea, Iran and all the violent Muslim extremists! If it wasn’t for these guys I’m sure we could have shrunk our military budget by now to help fund more domestic programs. Oh yeah, did anyone read about Russia testing their first stealth fighter a few days ago? Maybe France should take this one…
I do not have much use for any size union except maybe for low-skilled laborers.
I forgot to mention that I believe that I am advocating for the best interest of both management and employees here. Again, Nugget is a prime example of how good it can be for both without a union.
[i]”What’s going on with Italy’s figure, above?”[/i]
My bad. On each country in the database, they listed the effective tax burden for previous years and I cut them out for all countries but missed Italy’s. Here is (hopefully) a clearer representation:
Canada 33.3
United States 28.0
Austria 41.9
Belgium 44.4
Denmark 48.9
Finland 43.0
France 43.6
Germany 36.2
Iceland 41.4
[b]Italy 43.3 [/b]
Netherlands 38.0
Norway 43.4
Portugal 36.6
Spain 37.2
Sweden 48.2
Switzerland 29.7
United Kingdom 36.6
Jeff:
“I’m sorry, but I do not have much use for any size union except maybe for low-skilled laborers. “
The issue is not actually whether you have any use for a union, the issue was whether your description was accurate and you have said nothing to refute my contention that your description of one-size-fits all is inaccurate. The problem as I laid out to you and you failed to address is not whether or not there is a union. I would argue (again without refutation) that management, which is largely non-unionized is every bit as much of a problem as some of the public safety unions. Your attempt to focus this strictly on unions not only misses the point, but is in fact part of the problem. The problem is not unions, the problem is pensions.
GK: [i]”I do not agree that world carries a “defense burden” of some fixed size that we step up to the plate to pay for. Instead, the US has appointed itself as the world’s policeman.”[/i]
In my opinion, there are two major reasons why we spend as much on defense as we do: 1) Domestic political needs; and 2) Inertia from the Cold War.
Our domestic political needs are mostly from the political power of defense contractors. They pay for congressional campaigns for Democrats and Republicans far and wide; and their elected representatives reward them with rich defense contracts to build weapons systems and to purchase all sorts of products they sell which have very little to do with defense.
There is, however, a second domestic political consideration and that has to do with providing millions of government jobs for a lot of people who either need the training for better work later or cannot do much else. In this respect, a massive Army is a sort of welfare program. It also offers lucrative scholarships, signing bonuses for the enlisted and generous death benefits ($250k each).
The politician who fights for fewer expensive weapons systems or other goodies the DoD buys is going to run up against powerful colleagues who need that money spent; and the one who calls for fewer soldiers will have to face colleagues who are fighting for those jobs and those welfare benefits for their constituents. In both respects, that’s a tall order. It’s even tougher because the others will play the patriot card.
Inertia, too, is a big consideration. In the days of the Cold War there may have been a logic to having a massive military to stand down the Russians. Even though that reason went away, parts of our country which depend on military jobs and spending got used to it and they want things to go on as they always have.
GK: [i]”Since most other countries in the world aren’t nearly as enthusiastic about our activity as we are, we’re just reaping what we sow if we resent how much it costs.”[/i]
All of the countries of the world benefit by having peaceful oceans for shipping cargo, open skies for civilian aviation and the expectation that a neighboring country won’t invade and any turmoil in the neighboring land won’t spill over into your country. As such, when the U.S. Navy keeps the seas and skies safe and free from pirates and rogues and has a large Army ready to defend borders or repel an invasion, other countries do benefit from our military hegemony. Arguably, they collectively benefit a lot more from it than we do.
In a few specific parts of the world the U.S. as superpower plays a pacifying role. The best example of that is in East Asia. Every country for many decades around Japan hates and fears Japan. It’s not just China. The Koreans still hate the Japanese; the Taiwanese; the Fillipinos; the Vietnamese; etc. Yet none of those countries (other than China, which has long been against us, too) has responded by building up a navy, air force and army to keep out Japan. Why not? Because of us. We essentially defend all of those countries and we defend Japan. Everyone there (including Japan), save China, trusts us.
My own view, though, is that those countries need to grow up. Japan has not been an aggressive country for 75 years. The East Asians can take care of their own needs.
The Cold War is over and we need to greatly trim back our military and own ambitions (including getting the hell out of Afghanistan). But it is the logic of our politics and inertia which keeps up our bloated defense budget.
“… to greatly trim back our military and [u]our[/u] ambitions …”
[i]In this respect, a massive Army is a sort of welfare program[/i]
No kidding, Rich. Whether the policy is affirmative action, socialized medicine, or aid to the poor, there is one simple method to persuade Congress to pursue a liberal agenda: Militarize it. If it’s liberal and military at the same time, it will be entrenched on both sides of the aisle.
[i]The scary thing is that the problems that led to the collapse of Vallejo are in place for Davis.[/i]
Now that I have been pulled into this thread today, I will address this key point. There is at least one problem that contributed mightily to Vallejo’s budget problems that is [b]not[/b] in place for Davis, at least not yet. After confrontational labor negotiations, Vallejo was brought to its knees by a city worker strike in 1968. The strike led to binding arbitration that has been costly for Vallejo ever since.
It hasn’t yet happened in Davis — but I get the feeling that certain people are spoiling for a fight.
Davis does not have binding arbitration.
…that management, which is largely non-unionized is every bit as much of a problem as some of the public safety unions
David: I know you are addressing the failure of the Davis City Council to deal with firefighters pensions that provide up to 90% pay after retirement at age 50, and the huge unfunded medical liability. There was an opportunity to land a better fix, but they failed. I agree with you on this. However, I still see the root cause of our City budget problems as being primarily related to the existence of professional unions. Cities throughout California are experiencing the exact same problem, so if our City managers and City Council are culpable, they must be in good company. These problems must be endemic.
Davis Professional Firefighters Association, Local #3494, is one of 170 affiliate member groups of the California Professional Firefighters Association. By their own website, they have about 21 full time employees, and 9 members of their executive board, serving 30,000 paid professional firefighters throughout California. They are one well-oiled, well-funded, statewide, politically-connected organization with a single purpose… to get more for their members and then protect it. Just look here to see how they are responding to Vallejo’s financial crisis http://www.cpf.org/go/cpf/news-and-events/news/vallejo-bankruptcy-threatens-all-ff-collective-bargaining1/ .
Really, how easy is it to negotiate with such adversarial employees? Soft managers end up giving up the store. Hard-ass managers end up in a fight and then a strike. How do you win a better deal in good times or in bad times when there is no trust and employees are stacked up against management by design?
I admit that I have zero direct management experience dealing with unionized employees or collective bargaining. Maybe I am biased against it because of my own lack of union labor management experience. By the way, I was in a steelworker’s union once upon a time… I worked at Court Galvanizing in the early 1980s. I didn’t like it too much, although the money was good. I didn’t get a pension though.
Davis does not have binding arbitration.
Sue, can’t a judge force binding arbitration even though there is no clause?
What would happen in the event of a strike? Do we get to use mediation first?
Vallejo was brought to its knees by a city worker strike in 1968
Another example for why unions should be considered the root cause for city budget woes.
Take $135,000 compensation for a 50 year old firefighter that retires after 30 years service. Assuming a life expectancy of 92, a lifetime annuity to pay the the $10k per month of his 90% pension would cost about $2.5 million today. That is not including the present value of his health benefits.
I made one little comment in passing (quoting Roubini) up top which has led to a rather vigorous (but polite mostly) debate.
A couple of points:
1. Thanks Rich for providing actual data from OECD which confirms what most people think–that the US tax burden is smaller than Europe.
2. Many business folks I talk to realize that health care is a huge business cost. GM spends more on health care than steel and its pensions/health care costs (along with making lousy cars) contributed to its bankruptcy. Our system of employer based health care, aside from the fact that it leaves out tens of millions of people, is a huge implicit tax on business, When US and other companies build cars in Canada they do not have this burden. What do we get for our money? Not much. We spend more on health care per capita than any other nation yet our health outcomes are closer to middle income countries–this is a disgrace. Our government alone spends more per capita than Britain and yet Britain also has comprehensive care with better health outcomes (longer life span, lower infant mortality, etc.) So having a rational national health care policy could be a huge boon to American business. I am not optimistic that we will get there.
3. National defemse has been a huge burden. The cost of the Iraq war has been estimated at 1 or 2 trillion dollars–thank you George W. for bankrupting the country. When I hear Republicans talking about fiscal responsibility I think of W. and Reagan who increased the size of the federal govt (as % of GDP) while Clinton lowered it.
All of this is a bit off track but not much. My main point was that California is in trouble. I think Roubini’s broader point was also valid. I know lots of people who want to cut government, but not THEIR program or pension. We will face a reckoning and it will be imposed by a bankruptcy judge or a bond market.
[i]What would happen in the event of a strike? Do we get to use mediation first?[/i]
It usually goes in this order. First, the union and management try to negotiate a contract. If negotiation fails, they declare an “impasse” and turn to mediation. If mediation fails, then the union can either vote to strike or accept management’s “last, best offer”.
Sue’s op-ed in the Davis Enterprise put forward “last, best offer” as the magic solution to the city government’s compensation costs. She did not discuss the right to strike that usually comes with that.
[i]How do you win a better deal in good times or in bad times when there is no trust and employees are stacked up against management by design?[/i]
That’s a good question. I’m not an expert in labor negotiations either, but it’s not hard to think of some common-sense principles:
1) Calm the waters. No union is a 100% hostile band of pirates. It can cost a lot of money to make wild accusations. Autoworkers do actually build cars, firefighters do actually put out fires, and PASEA does actually do paperwork. Unions generally make decisions based on internal democracy, and they tend to offer more concessions if they trust management. How much work they do also depends on their morale.
2) Play keep-away. Unless the union doesn’t do anything all that important, you don’t want a strike. Instead of issuing ultimatums that open up options such as strikes and lawsuits, give the unions a choice between concessions and layoffs.
3) Horse trade; don’t play a zero-sum game. Instead of telling the union “you owe us X, make do without Y”, look for ideas that make both sides happier. The union may have its own reasons to prefer an option that is happens to be cheaper for management. The point of negotiations in general is to identify mutual interests.
A case study is UC’s management. UC has had to deal with some particularly hostile unions in the past few years, especially this year when the budget fell apart. Some of these unions refused to even sit down to negotiations, but not one of them went on strike. That’s because they had no legal option to strike.
Some of the unions also went out of their way to bait and attack management. At first, Yudof got frustrated and responded with some of his own trash talk, especially when some radicals in the state legislature joined the attack. But eventually they settled on a smarter strategy. They shrugged off the unions’ antics, and they tried to co-opt the student protests into a march against the state legislature. Katehi was wiser on this point from the beginning. AFSCME unaccountably declared that Katehi was “unfit to serve”, in response to which Katehi said absolutely nothing about AFSCME or its radical local leadership.
Greg: good post. Those ideas make sense to me. You are basically describing the dance. The best managers know how to lead the dance. One consideration though: when times are tough and drastic measures must be taken by management, there is little time to dance.
Andy Grove, the ex-CEO of Intel, wrote “Only the Paranoid Survive” explaining that successful business requires constant management vigilance for the bottom line. Markets, efficiencies, expenses… all constantly being measured, analyzed and decided on… not matter how well the business is doing. I never liked the word “paranoid” in this context, but I agree with the premise that good management requires a constant healthy dose of skepticism and pessimism to balance natural enthusiasm and optimism.
Jon Li wrote an interesting piece in the Enterprise today on the Viable Systems Model. I am happy to hear someone in Davis is thinking about something like this. On one hand the problem is simple: we are spending too much on some city employees benefits. One the other hand, the related decision processes are made quite complex by the number of stakeholders and all the competing criteria. Maybe a well-thought out decision and performance measurement model well help for future negotiations. One way to get diverse groups to cooperate is to develop shared goals that are primary decision drivers. It seems that the ongoing financial viability of the City is a good one to start with.
[i]Sue’s op-ed in the Davis Enterprise … did not discuss the right to strike that usually comes with that. [/i]
It is my understanding that emergency services workers — that is, police and fire — cannot legally strike in California.
I looked on-line to find if that is really the case and could not find anything definitive. However, I found this ([url]http://www.signonsandiego.com/news/2009/may/26/1m26sonoma23934-labor-ruling-could-sink-police-uni/[/url]) unsourced, but I presume true allegation in a 2009 article in the San Diegoe Union-Tribune: [quote] The 1st District Court of Appeal in San Francisco ruled that Senate Bill 440, a state law that passed in 2003, was unconstitutional.
The law gave police and firefighter unions, which [u]by law are not allowed to go on strike[/u], the right to demand binding arbitration of contracts that they didn’t like. [/quote] JB: [i]”Davis Professional Firefighters Association, Local #3494, is one of 170 affiliate member groups of the California Professional Firefighters Association. … Really, how easy is it to negotiate with such adversarial employees? Soft managers end up giving up the store. Hard-ass managers end up in a fight and then a strike.”[/i]
Again, they cannot strike. They have no choice but to accept our last, best offer. The problem, as Sue has eloquently pointed out many times, is that the “last, best offers” given to them by her colleagues on the Davis City Council who have taken thousands and thousands of dollars in campaign cash from the members of Local 3494 are hurting us right now and will cripple us down the road.
Thanks Rich for providing actual data from OECD which confirms what most people think–that the US tax burden is smaller than Europe.
Here is a good article that uses OECD data to discuss European taxation levels and prosperity levels. Note the assention of Ireland. What’s different about Ireland? The Irish government significantly lowered the tax rate in 1986.
Sorry… the link didn’t stick for some reason:
http://www.brusselsjournal.com/node/510
[i]It is my understanding that emergency services workers — that is, police and fire — cannot legally strike in California.[/i]
You may be right about that narrow point, Rich, but I do not see that the radicals who want a confrontation with the unions have ever given a complete story.
First, the big meltdown two weeks ago was NOT over emergency services workers, it was over the PASEA contract. That was the real context of Sue’s op-ed in the Enterprise. As far as I know, they can go on strike if the city gives them an ultimatum.
There has been a habitual bait and switch in all of the discussions here over city contracts. It’s always been, the firefighters this, the firefighters that, the firefighters are bleeding us dry. But firefighters’ compensation is only 1/5 of the general budget. They are only 52 people out of a total city staff of well over 400. Even if they are overpaid, the real budget fight will be elsewhere. As for the police, the picture that David painted was that the firefighters’ union is strong, while the police officers’ union is weak. It is inappropriate to treat PASEA members or police officers like they are firefighters.
Second, when you first described last, best offer as the magic solution, I knew that it was too good to be true, I just didn’t know how. It didn’t make any sense that city councils across the state are filled with morons and scoundrels who give away the store to a few unions. Of course, the right to strike was missing from the story. So yes, it may be true that California outlawed emergency services strikes (which in fact was what happened in Vallejo — it was legal then). But there must be some other unalterable reason that we can’t just dictate terms to firefighter unions in California, and at some point I might find out what it is.
Interesting discussion. This may seem a bit off track, but it really isn’t. Some have suggested drastically cutting military spending as a cure for what ails the state/nation economically. Think long and hard about this.
1) So much of our economy and tax dollars are generated by defense spending. For instance, what goes into make a fighter jet – steel, nuts, bolts, paint, engineering, etc., etc., etc. Gov’t hires defense contractors, who hire many people, creating many, many jobs. The businesses that surround the area of the defense contractors benefit as well, e.g. restaurants, dry cleaners, grocery stores. My sister may be laid off because of the cutbacks in defense spending. Where does she go to get another job?
2) I remember one young female who had enlisted in the military say she was glad for the opportunity, bc had she not enlisted, she would be pregnant and on the streets. For some kids the military offers the structure they never had at home.
3) After 9/11, can we really afford to be isolationists, gut our military, and allow ourselves to go unprotected?
Just food for thought…
[i]”It’s always been, the firefighters this, the firefighters that, the firefighters are bleeding us dry. But firefighters’ compensation is only 1/5 of the general budget.”[/i]
You are just wrong. It is the firefighters. They have done all the dirty work. They are the ones who have financed campaigns. They have pushed for all the higher wages and benefits and pension programs in Davis and won them and the others have acted as free riders. The blow-up you spoke of was over later contracts. However, the later contracts followed the one contract which set the tone for all of the others: the fire contract.
There was no way that once the firefighters won a contract which had no substantial reforms in it that the other bargaining groups would have to reform. Had the firefighters accepted (or had forced on them) a reformed contract, then the others would have followed suit.
Jeff Boone ,
…
I do not have much use for any size union except maybe for low-skilled laborers.
I forgot to mention that I believe that I am advocating for the best interest of both management and employees here. Again, Nugget is a prime example of how good it can be for both without a union.””””
Jeff , thats because Nugget Markets pay and benefits are always slightly better than a union store, so no reason to have a union shop .But if unions packed up and left , guess what , Nugget would be the first store to lower there pay and benefits
Jeff Boone
02/07/10 – 01:44 AM
…
Take $135,000 compensation for a 50 year old firefighter that retires after 30 years service. Assuming a life expectancy of 92, a lifetime annuity to pay the the $10k per month of his 90% pension would cost about $2.5 million today. That is not including the present value of his health benefits.
Jeff , stated on this blog in a salary table , firefighters make $ 93,000.00 per year that is persable , also I find it hard to believe that all firefighters are twenty years old when hired , I believe you need to recalculate .
Rich Rifkin
02/07/10 – 03:18 PM
…
“It’s always been, the firefighters this, the firefighters that, the firefighters are bleeding us dry. But firefighters’ compensation is only 1/5 of the general budget.”
“”””You are just wrong. It is the firefighters. They have done all the dirty work. They are the ones who have financed campaigns. They have pushed for all the higher wages and benefits and pension programs in Davis and won them and the others have acted as free riders. The blow-up you spoke of was over later contracts. However, the later contracts followed the one contract which set the tone for all of the others: the fire contract. “”””
Rich , are you the one responsible for my subscription rate being so high for the Davis Enterprise , because your salary is so high ?
Avatar: I don’t think Nugget pays more than union grocery stores. I think you need to check your facts.
Rich, I’m not about to believe your incredibly contrived thread of blame that equates the 10% of city council campaign contributions that comes from firefighters with Bill Emlen’s negotiations with PASEA. But even if I did believe that, I still wouldn’t believe you that Davis can dictate the firefighters contract. Even if I did believe both of those things, PASEA would still (as far as I know) have the option to strike if the city tried to grab their benefits with a “last, best offer”.
[i]I don’t think Nugget pays more than union grocery stores.[/i]
Actually they do, which brings up a good point. From Wikipedia:
[quote]Customers and competitors alike noted their progressive, employee-friendly approach, providing associates (employees) with some of the [b]top wage and benefit packages in the industry[/b].
…
Nugget has also continued its stance on provided quality employee benefits, with wages and benefits meeting or exceeding those of its competition. Strong benefits coupled with a positive work environment and responsive leadership have allowed Nugget to [b]remain a union-free workplace[/b].[/quote]
From Glassdoor.com:
[quote]Good company! [b]Very hard to get hired into.[/b]
…
The [b]benefits and compensation package is spectacular[/b], far beyond what would be expected for a retail job.
[/quote]
Nugget Markets is a great example of the complete opposite management strategy to the resentment politics coming from so many people in this discussion. Instead of trying to chip away at worker compensation, offer high benefits and wages and make the best use of them to hire good people. You can hire more productive workers, so you can save money by hiring fewer of them. Instead of declaring crises and lecturing people about shared sacrifice, you can also boost morale by celebrating good pay.
[i]”Rich , are you the one responsible for my subscription rate being so high for the Davis Enterprise , because your salary is so high?”[/i]
Yes. I get one billion dollars per word.
[i]”I still wouldn’t believe you that Davis can dictate the firefighters contract.”[/i]
Greg, you have as much evidence to suggest I am wrong as the 50% of our population which believes in Biblical creation.
Your argument was based on the idea that if we (meaning the City Council) held firm and offered a reformed contract, the firefighters would strike. You have subsequently conceded that argument was false. Now you resort to saying you would not believe me seemingly because that would go against your preconceived articles of faith.
Until you offer a logical argument not based on fallacies, there is no point in debating you. I don’t debate Creationists, either.
[quote](the PASEA contract)was the real context of Sue’s op-ed in the Enterprise.[/quote]Not true, Greg. I specifically wrote about the management contract in my op-ed.
[quote]as much evidence to suggest I am wrong as the 50% of our population which believes in Biblical creation.[/quote] If anyone is interested in polls on Creationism, there is a table here ([url]http://www.religioustolerance.org/ev_publi.htm[/url]) which shows a steady 45% (give or take a point) believes “God created man pretty much in his present form at one time within the last 10,000 years.”
The percentage which understands “Man has developed over millions of years from less advanced forms of life. God had no part in this process” has risen from 9% to 13% over the last few decades.
There is a hybrid belief held by 38% (which I think is the position of the Roman Catholic Church) that thinks “Man has developed over millions of years from less advanced forms of life, but God guided this process, including man’s creation.”
There is also skepticism (mostly based on pure scientific illiteracy) about man-caused global warming. This piece ([url]http://www.huffingtonpost.com/2009/10/22/steep-decline-in-american_n_330315.html[/url]) notes that 57% of Americans “think there is solid evidence the world is getting warmer.” And a smaller percentage, just 36%, “feel that human activities – such as pollution from power plants, factories and automobiles – are behind a temperature increase.”
My guess there is a strong correlation between the 45% who are Biblical Creationists, the 64% who don’t understand Global Warming’s scientific concensus and those “who wouldn’t believe … that Davis can dictate the firefighters contract.”
Greg K.
Your common sense and examples that you use to explain stuff are outstanding , keep up the good work .
[i]”Nugget has also continued its stance on provided quality employee benefits, with wages and benefits meeting or exceeding those of its competition.”[/i]
Nugget is a very well-run, small, local company.
Its strategy appears to be: “We can’t beat them on price most of the time. However, we can ALWAYS beat them on service, quality, cleanliness and ambience.”
I’m not an expert on retail marketing. However, it seems obvious to me that lower-volume retailers which face competition from stores which have scale and cost-of-merchandise advantages over them should always try to win on service, quality, selection and speed of delivery.
A good friend of mine who owns a successful printing business told me more than 20 years ago that in his industry (and I think it is universally true) that customers want three things: price, quality and speed. He said, “they can have two.”
In other words, if a company gives you a great price and delivers it very fast, the quality will not be that good. If you want great quality and pay a low price, you will have to wait. And if you want quality product right away, you have to pay a high price for it.
From that lecture I conceived my notion of retail marketing: If you cannot win on price you better as hell win on everything else. I think the Stille family and a lot of other small, locally owned companies in Davis which have succeeded for years have understood that. The ones which haven’t tend to disappear.
Yet despite what a nice, local company The Nugget is, it did not open that store on Covell Blvd without a great amount of opposition. Julie Partansky and Ken Wagstaff and a group called Save Our Stores very nearly blocked it. Only when Stan Forbes shocked them and voted with Susie Boyd and Sheryl Freeman was Nugget approved. SOS had collected 4,000 signatures to try to block the development, but the then-Clerk denied their petition.
My guess there is a strong correlation between the 45% who are Biblical Creationists, the 64% who don’t understand Global Warming’s scientific concensus and those “who wouldn’t believe … that Davis can dictate the firefighters contract.”
I disagree with Greg on some aspects of the budget issue, but I think that this is a canard.
[i]Not true, Greg. I specifically wrote about the management contract in my op-ed.[/i]
Sue, I concede that a stated focus of parts of your article was management. But that’s not the same thing as the [b]proper context[/b]. I stand by my statement that the proper context is city worker compensation in general and PASEA in particular.
For that matter, “management” could mean one or both of “Individual Management Employees” and “Department Heads and Assistant City Manager”. Since they are listed as bargaining units, I’d have to check whether they have the right to strike.
Even if they didn’t, the example set by Nugget Markets does make it look less wise to press any city employees for maximum benefit concessions. There are 9 Nugget stores, and according to the article in Forbes, their average store manager compensation was $113k in 2004. I have also heard that UC Davis got a colossal bargain in the person of John Meyer; he could be saving the university 50 times what he gets paid.
One thing worth noting about the Save Our Stores group: Its argument that the permission granted by the City Council to Nugget to build a 40,000 sf store would result in the closure of Albertson’s on East 8th St. was proved correct.
Yet the difference between having Albertson’s open at Davis Manor and no store open at Oak Tree (the status quo ante) and having no Albertson’s but having a Nugget is a win for most residents of the eastern third of Davis north of I-80. Not only is Nugget a far better store in almost every respect, but it’s a much better location for a store serving neighborhoods from 8th & Pole Line to J Street and Covell to Mace Ranch and to Wildhorse.
Here is a taste of the feeling in Davis from an April, 1999 story in the Davis Enterprise: [quote] Councilmembers Stan Forbes, Susie Boyd and Sheryl Freeman supported the project, while Mayor Julie Partansky and Councilman Ken Wagstaff opposed it.
The action followed 2 1/2 hours of public testimony weighted against the larger store. More than 20 people spoke against the project. Roughly half a dozen spoke in favor of it.
While the council’s decision is final, the debate is far from over. A group of citizens had promised to wage a referendum campaign against the 40,000-square-foot store and in support of 25,000-square-foot stores dispersed throughout Davis if the council voted as it did Wednesday.
These citizens, who argue that small neighborhood shopping centers are the ”heart and soul” of the community, now have 30 days to collect the necessary 3,095 valid signatures of registered voters to place a referendum on the ballot.
Dorothy Shiely, a 13-year Davis resident, argued, however, that ”the horses are out of the barn.” The city upped its grocery store maximum size from 25,000 to 40,000 square feet in 1992. Since then, three of eight stores have expanded.
But, as another man put it, ”Don’t justify another mistake by mistakes of the past.”
Added Mark Spencer, one of two planning commissioners who voted against the Nugget project, ”I believe if you abandon the smaller centers, you abandon your larger vision.”
Several residents of the Davis Manor neighborhood — home to a 25,000-square-foot Albertsons — fear that store will be forced to close, what with a new large store such a short distance away and another 40,000-square-foot market, Safeway, less than a mile farther south on Pole Line.
The council majority — Boyd, Forbes and Freeman — all said they support the same concepts, concerns, policy objectives and values. They said they support neighborhood shopping centers with grocery stores, and preserving Davis Manor.
”I, too, agree that neighborhood shopping is a crucial planning component of this community,” Freeman said, adding that residents living near Oak Tree Plaza have gone without a grocery store for years.
The Oak Tree Plaza site has remained vacant for much of the last 5 1/2 years. Safeway closed there in August 1993.
After a motion and second by Boyd and Forbes to approve the ordinance, Partansky offered a substitute motion to put the whole matter to a vote of the people on the November ballot.
She said her motion was meant to ”reflect the deep concern by the members of our community and the fact that we are violating one of Davis’ premier planning principles by going forward with this ordinance. … It is so very important with regards to the livability of our city.”
Wagstaff seconded the motion.
”This is not a small matter of a single store and the square footage that goes into that store at a particular site,” he said. ”It is a larger planning issue. If the public had a chance to vote on it, it would clear the air once and for all on it.”
Wagstaff added that he believes a 40,000-square-foot store at Oak Tree Plaza puts the Davis Manor shopping center at substantial risk.
Forbes said he’s not convinced a 40,000-square-foot store at Oak Tree Plaza would result in the closure of Albertsons.
”I believe, as I look at the numbers, this is our opportunity to fulfill those planning principles,” by filling a hole in a neighborhood that’s gone without a grocery store for years, he said. [/quote]
[i]”I think that this is a canard.”[/i]
I hope it was obvious that I was joking with in that last paragraph.
[i]My guess there is a strong correlation between the 45% who are Biblical Creationists, the 64% who don’t understand Global Warming’s scientific consensus and those “who wouldn’t believe … that Davis can dictate the firefighters contract.”[/i]
Rich, the saying among scientists is that extraordinary claims require extraordinary evidence. You implied the positive claim that the city can dictate the firefighters’ contract simply by letting mediation fail. I don’t believe you, but I did say that I need to find out how you could be wrong.
Part of my thinking is that when you pointed to Palo Alto as a city that successfully imposed a contract on one of its public unions last year, you didn’t give the whole story. The union was SEIU and they seriously considered a strike ([url]http://www.paloaltoonline.com/news/show_story.php?id=13628[/url]).
Actually, I’m more disappointed when a tendentious explanation comes from a member of the city council than when it comes from someone just commenting on a blog. Here is the quote:
[quote]The rationale given by staff for using this method to calculate “savings” has been that if we don’t come to agreement with employees, our current unsustainable contracts will remain in force. But we do not have binding arbitration, and current contracts do not have to be extended. If negotiations fail, a mediation process would follow impasse. If the mediation fails, we may set compensation at our last, best offer. The mediation process takes a few weeks.[/quote]
I don’t know who in Davis needs to be reassured that meditation only takes a few weeks, but doesn’t deserve to be told about the right to strike. This particular paragraph is also not specific to management or firefighters, it’s about city worker contracts in general.
[i]Julie Partansky and Ken Wagstaff and a group called Save Our Stores very nearly blocked it.[/i]
Maybe No Store Left Behind would have been a better name. The store that they tried to save wasn’t very good, while the one that they tried to block is great.
[i]”Rich, the saying among scientists is that extraordinary claims require extraordinary evidence.”[/i]
I’m familiar with the expression Greg. However, it is tautological.
As to your bias argument, it now seems to be built on an irrational strike-o-phobia. If someone else does not share your paranoid view about the likelihood of AND the harm from a work stoppage, you call him “tendentious”.
But what is he really biased against?
My view is clear: the far greater likelihood of harm to city workers and to residents who need and pay for city services will result from a failure to reform our contracts. That is not anti-labor. (You were, in fact, the one on this blog who said he is anti-union.) I think nothing could be more pro-labor than to save the jobs of the marginal city workers, especially those who do jobs which permit services that they taxpayers really want done.
[i]As to your bias argument, it now seems to be built on an irrational strike-o-phobia.[/i]
I’m not terrified of a strike and I never said that I was. I saw an extended clerical strike at Yale. My impression there was that those workers were doing so little that they were hardly missed.
It would be different if those who want to fight the unions made an honest case that a strike isn’t likely or wouldn’t be so bad. It is not honest to ask for a confrontation with unions without saying anything at all about strikes. Maybe it’s because it would contradict another part of the message. Part of the argument is that we can’t have any layoffs, because services have been cut to the bone. But if that’s the case, would a strike be just a walk in the park?
Slogans like “reform” or “sustainability” are half of a different contradiction. On the one hand, those who want to fight the unions lay claim to the long-term view. On the other hand, they seem to demand immediate savings; it isn’t good enough to cut this or that benefit just for new employees.
Again, Rich, we may disagree, but I don’t mind incomplete explanations that much coming from you. You don’t carry the responsibilities of elected office. For that matter, I have nothing against realistic wage concessions, despite the example set by Nugget. But I am thinking more and more that there are too many loose cannons on the city council.
[b]”As to your bias argument, it now seems to be built on an irrational strike-o-phobia.”[/b]
[i]”I’m not terrified of a strike and I never said that I was. … After confrontational labor negotiations, Vallejo was brought to its knees by a city worker strike in 1968. The strike led to binding arbitration that has been costly for Vallejo ever since.”[/i]
Sounds like strike-o-phobia to me, Greg.
[i]”It would be different if those who want to fight the unions made an honest case that a strike isn’t likely or wouldn’t be so bad.”[/i]
I don’t want to fight the unions. I want the CC to stand up for the interests of all the residents of Davis they represent. A big part of that is striking sustainable labor deals.
As to the likelihood of a strike, it would have depended on how the negotiations played out. What would have reduced the chances of a work stoppage would have been for the imposition of a sustainable contract on Local 3494 by the council. The firefighters cannot legally strike (AFAIK). So I would agree with you that such an action would have had a very small probability of engendering a strike. You don’t want that to be the answer, but it is. That’s an inconvenient truth for you, Greg. And needless to add, a non-strike would not have been so bad.
Once the terms of that contract with Local 3494 became the paradigm for labor reform, it would have been feasible to impose reforms (such as a two-tiered pension formulary and the end of union bank hours and making age 65 become the date at which full retiree medical benefits would be paid for by the City) on the following bargaining groups. The others would not have been able to say, Why should we take the hit, when fire did not?
Now it is true that all of the other bargaining groups up for renewal in 2008 and 2009 could have struck. So what is the likelihood of them doing so?
Let me guess at them one at a time:
Management: Less than 0.50%.
Dept. Heads: Less than 0.25%
DCEA: Less than 40%
PASEA: Less than 10%.
The main reason I think the chances for a strike in most cases are very low is because I don’t think those groups have a lot to gain from a strike. If they get the same reforms which were in the fire deal, they would not be able to contend they were being singled out for ill-treatment. And in the context of a larger workforce in Davis which is dealing in many cases with far greater losses of income, they would not have much public sympathy.
So what would the cost to the City be of a strike? That depends on how long it lasted and how large a portion of the workforce went on strike. However, if instead of having city workers mow the lawns in some parks we used Coast and GP workers (who take care of half the City’s greenscape now) the cost would be less than zero.
Probably the worst long-term cost of a strike would be the personal animosities it would raise in Davis–a loss of our communal esprit d’corps.
[i]”It is not honest to ask for a confrontation with unions without saying anything at all about strikes.”[/i]
This is complete nonsense. Your laborious (and misinformed*) argument against Sue ignores the fact that she only had so much space to make her case. She could not possibly cover every contingency. Her effort was to factually inform the public of what she believes is right in as persuasive a way as possible. For her to not cover in that piece the chance of a strike and what that would mean for the city if we had a strike does not make her dishonest. Rather, for you to charge her with dishonesty because you have strike-o-phobia and she does not and she did not discuss that possible outcome, albeit one which would have been very unlikely, is foolish. It stretches the notion of dishonesty beyond all recognition.
—————-
*You ignorantly started out your diatribe worried about a strike of the fire department.
[i]”Slogans like “reform” or “sustainability” are half of a different contradiction.”[/i]
The first person in an official capacity to declare publicly that our retiree medical program was “not sustainable” was not Sue Greenwald. It was Finance Director Paul Navazio, who has since been elevated to Asst. City Manager and has since stopped talking about how unsustainable the program we have is. (Paul’s official declaration came on the heels of my column. He knew I was going to expose that liability, which back then was not yet on the books. The reason he knew about it was because I had interviewed him and we discussed it. After that interview, I got worried phone calls from other big wigs at City Hall who were concerned about what I was going to write.)
[i]”I am thinking more and more that there are too many loose cannons on the city council.”[/i]
Although you have herein called others tendentious, this charge of yours strikes me as your most biased, yet.
[i]Sounds like strike-o-phobia to me, Greg.[/i]
Not really, it was more of a warning. It is true that Vallejo’s 1968 strike made its police and firefighters very powerful. But I would bet that Vallejo could have afforded the increased expenses that came from that — if they had wanted to. Prop 13 didn’t help, because it decreed that anyone who opposes property taxes is twice as correct as anyone who favors them.
Anyway, all of that is Vallejo’s business. Traditionally, 2/3 of Davis residents or more are willing to pay for the city services that they demand.
[i]That’s an inconvenient truth for you, Greg.[/i]
Not really. I don’t have the right to strike either. I also have no personal relationship with anyone who works for the city in any capacity.
[i]She only had so much space to make her case.[/i]
In a 1000-word essay, she didn’t have the space to even mention the right to strike? Maybe next you’ll tell me that she also had no space to use inflation-adjusted dollars in her cost calculation.
[i]The first person in an official capacity to declare publicly that our retiree medical program was “not sustainable” was not Sue Greenwald. It was Finance Director Paul Navazio, who has since been elevated to Asst. City Manager and has since stopped talking about how unsustainable the program we have is.[/i]
I don’t know that Navazio was really “first”, but if one of my words were co-opted for a radical purpose, I might well lose enthusiasm for it too.
[i]Although you have herein called others tendentious, this charge of yours strikes me as your most biased, yet.[/i]
Well it certainly wasn’t a neutral thing to say. But neutrality is not at all the same thing as fairness. Spain was neutral in World War II; if it had been fair, it would have taken sides.
Jeff Boone wrote:
“Forbes 2009 Tax Misery ranking puts the US as the 20th most miserable. (see: http://www.photius.com/ranking…_2009.html ). Note how many European countries are ranked as less miserable (hint, not many). “
I don’t understand your point. There are like 11 European countries on that link that impose “harsher” tax regimes than the USA / New York. Wouldn’t that mean higher taxes –> better social services?
Even if they didn’t, the example set by Nugget Markets does make it look less wise to press any city employees for maximum benefit concessions. There are 9 Nugget stores, and according to the article in Forbes, their average store manager compensation was $113k in 2004. I have also heard that UC Davis got a colossal bargain in the person of John Meyer; he could be saving the university 50 times what he gets paid.
Again, Greg, I have no idea at this point what you advocate regarding the contracts with city workers.
[i]”if one of my words were co-opted for a radical purpose”[/i]
Exactly what is so [b]radical[/b] about advocating keeping the city’s long-term expenses in line with its long-term revenues.
For the convenience of your rhetoric, you play the ignorant card endlessly. That is, you say, [i]I don’t KNOW if it is true we cannot afford these things years from now.[/i] (“I don’t know that Navazio was really ‘first.'”) [i]You have to prove it TO ME for me to believe you. Otherwise, I will go on pretending you are not being truthful. [/i]
But if you would pull your head out of your ### for a while, you would see that your position is the radical one. You are against changing the labor contracts.* We know we have a liability of around $50 million** for retiree medical care for which we don’t have the funds to pay them. Hence, your position is one which will result in massive cutbacks in services and the loss of jobs for many city workers in not too many years. There is no other way to pay that bill.
Additionally, we face the problem of paying higher rates for our PERS obligations. That means a dead weight loss of about $1.5 million a year from the general and enterprise funds***. Unless we raise taxes yet again and raise utility rates again, we will have to radically cut back on city services to cover those losses to PERS.
Moreover, we have a severe problem of covering our costs for street repair and maintenance. Before the economy went in the tank, our deficit in that regard was over $3 million a year. It was not a one-time deficit of $3 million. It’s an additive, growing problem. It means that we will have worse and worse streets and sidewalks, lest something changes. The reason we did not have and do not have the money for these repairs is because we are paying too much in total compensation to city workers.
Your ignoring these realities does not change them, Greg. The problem of not dealing with these issues will result in radical changes.
[i]”Traditionally, 2/3 of Davis residents or more are willing to pay for the city services that they demand.”[/i]
So you think voters will just decide to raise their taxes again and again so that firefighters whose total incomes (in Present Value) are higher than that of most faculty at the university can keep their 3% at 50?
[i]”she didn’t have the space to even mention the right to strike?”[/i]
She did not have to raise the spectre of a strike, because that probability is low and because (I presume) she believes the cost of a strike pales in comparison to the cost of not acting responsibly now.
By contrast, the probability that our ignoring the fact that our revenues cannot keep up with our labor obligations in the contracts is very high.
So you tell me which makes more sense, Greg: that she spend her time focusing on something which is highly likely or something which is remote?
*Don’t bother to say you are not against changing them, but you are only against using the only tactics which would work to change them. Those are the same damn thing.
**The city has on its books a “rough estimate” of $42-$65 million per GASB 45.
[i]Again, Greg, I have no idea at this point what you advocate regarding the contracts with city workers.[/i]
Don, there are times when who you trust is a more important question than what color of carpet you might advocate. Consider your own stance on the school district’s budget crisis. You said, as best I understood you, that they’ve been through good times and bad times and they’ll probably work it out somehow, but now is not the time to raise taxes. I’m not sure that I agree with you, but your position on that has a certain wisdom to it.
You have asked me a few times what sort of city worker contracts I advocate. My answer is sort-of the same. I don’t really know if the contracts that Emlen and Navazio put forward, and that the city council majority ratified, are good or bad. What I can say is I tend to trust their work, more so than the people who have declared a crisis and want to fight the unions.
[i]Exactly what is so radical about advocating keeping the city’s long-term expenses in line with its long-term revenues.[/i]
That’s not radical at all, Rich. What’s radical is to demand it without service cuts.
[i]Hence, your position is one which will result in massive cutbacks in services and the loss of jobs for many city workers in not too many years.[/i]
I don’t understand this alleged timeline. All city workers can retire at 50-55, and many don’t stay for the duration. If the city simply never hired anyone, it would lose almost all of its payroll in 20 years. How fast is this long-term crisis supposed to hit in order to cause layoffs?
[i]She did not have to raise the spectre of a strike, because that probability is low and because (I presume) she believes the cost of a strike pales in comparison to the cost of not acting responsibly now.[/i]
It would have been much more responsible to even say that much, if that is indeed part of the argument. Either that there wouldn’t be a strike, or that the city could bear one, or both. Again, I don’t know who in Davis needs to be educated that mediation only takes a few weeks, but doesn’t deserve to be reassured that a strike would be unlikely or livable.
Rich Rifkin ,
02/07/10 – 07:20 PM
…
“Rich , are you the one responsible for my subscription rate being so high for the Davis Enterprise , because your salary is so high?”
“””Yes. I get one billion dollars per word. “””
So I wonder , how does that make the staff who work 40 hours per week feel , when you probably work 2 hours a month to produce 2 articles a month ?
“… when you probably work 2 hours a month to produce 2 articles a month ?”
I don’t know about Rich, but I guarantee that it takes me more than two hours to produce an article for the Enterprise.
Most of my articles take a minimum of four hours of work in research, some of them a lot more, depends on the subject and how much background. The actual writing of an article is the quick part, the rest is research, talking to people, etc.
[i]Exactly what is so radical about advocating keeping the city’s long-term expenses in line with its long-term revenues.[/i]
I think my answer to this last night was a little weak. A better answer is: Keeping long-term expenses in line with long-term revenues is not nearly as radical as what the radical faction is actually trying to do. In the name of balancing budgets, they’re putting a thumb on the scale. They are pressing for as much blame as possible, and the largest conceivable cuts to compensation.
The tricks that have been pulled include these:
1) Refusing to adjust for inflation.
2) Bait and switch between firefighters or management, and the entire payroll.
3) Pointing to long-term problems to demand immediate concessions.
4) Counting CalPERS payments as raises.
5) Using uncertainty as an excuse to bend the middle-of-the-road prediction.
The other day, Don said that the city council needs flint-eyed accountants. I agree. But not flint-headed accountants.
Jeff: “I don’t think Nugget pays more than union grocery stores. “
Greg: “Actually they do, which brings up a good point. From Wikipedia”
Greg: My opinion that Nugget does not pay higher compensation is based on direct information from two acquaintances who currently work for Nugget, but who also worked for Albertsons and Safeway. Both have told me that Nugget does not pay higher compensation; the company is just significantly better managed. If Nugget pay is higher, the difference is de minimis … maybe just equal to the cost of the union dues Nugget employees do not pay.
[b]”Exactly what is so radical about advocating keeping the city’s long-term expenses in line with its long-term revenues?”[/b]
[i]”That’s not radical at all, Rich. What’s radical is to demand it without service cuts.”[/i]
That makes no sense at all. Have you lost all sense of reality?
The reason there will be a need for radical service cuts is because our city councils dramatically increased total compensation for city employees, far beyond the rate of income growth among the citizenry at large. If they had simply kept the long-term growth of labor costs in line with the long-term growth of revenues, there would be no need for a reduction in services, higher tax rates or cuts in salaries and benefits.
You used to argue that “we have to pay our employees these outsized salaries and benefits lest we lose them to all other cities.” That was a bogus argument then, and now that virtually every city in California which has followed our model of endlessly enriching public servants in a keeping up with the Joneses scam is as broke as we are, it makes even less sense. It’s been a while since you have tried to play that card, Greg. So I presume you concede it is bogus.
The radical thing to do would be to keep in place the exceedingly high costs of labor for the next decade and allow all city services to wither away. That is what you are advocating, here, Greg. That is radical.
Hence, the two perjoratives you have tried to pin on others, tendentiousness and radicalism, really only apply to you.
civil discourse: “I don’t understand your point. There are like 11 European countries on that link that impose “harsher” tax regimes than the USA / New York. Wouldn’t that mean higher taxes –> better social services?”
Here is a much better version of this chart http://www.forbes.com/global/2009/0413/034-tax-misery-reform-index.html . You are correct that many European countries levy higher taxes, but US/New York (which is a more accurate representation of California because of high state and local taxes), is more miserable than several other European countries.
My point was/is that we are already highly taxed in California. You could make the case that we are not taxed as high as the French as an argument to increase our tax burden to fund education increases and government-provided healthcare. However, you cannot make the same case for Germany and the UK. You also cannot make the same case for Canada and Australia.
The additional consideration is that we are so far in debt, that increased taxation will be necessary just to pay that down. So, how can we afford to increase taxes to fund increases to services too?
Let’s please skip the pejoratives, folks.
pejoratives = relatives of past King’s player Predrag “Peja” Stojaković
[i]”Keeping long-term expenses in line with long-term revenues is not nearly as radical as what the radical faction is actually trying to do.”[/i]
I love the bait and switch. You lose the argument, ultimately concede that, but then come up with a different charge each time.
[i]”In the name of balancing budgets, they’re putting a thumb on the scale.”[/i]
You are being dishonest or disingenuous, here. I am not sure which it is. No one is speaking “in the name of balancing budgets.” It is in the name of preserving* the jobs of city workers and the services those workers provide. I am not advocating we cut tax rates or in any way lower the total burden the residents of Davis pay for the city services we expect. I have not advocated we increase the levels of service. If I wanted that, I would expect we should pay more in taxes. My advocacy is limited to maintaining city services as they are and at the same expense they have historically been as a share of the income of city residents before the radical increases in total compensation came along a decade ago and through our long-term prospects into severe imbalance.
[i]”They are pressing for as much blame as possible, and the largest conceivable cuts to compensation.”[/i]
Of course that is true, Greg. That is true because it has been in labor compensation and nowhere else in which the expenses have risen dramatically. It makes no sense whatsover to focus anywhere else, when that thing you point to is the one thing which has changed so much over the last 10 years of radically more expensive compensation packages.
[i]”The tricks that have been pulled include these:
1) Refusing to adjust for inflation.”[/i]
That is more nonsense, Greg. In fact, it is just the opposite. The City’s labor costs have risen many times faster than the rate of inflation.
[i]”2) Bait and switch between firefighters or management, and the entire payroll.”[/i]
I don’t see any bait and switch, here. There is rightfully a lot of focus on the firefighters, because their increases in compensation over the last 10 years have been so much greater than the increases to all other labor groups. Additonally, the firefighters have a handful of incredibly abusive provisions (like union bank hours) that other groups don’t get. The firefighters are the only employees who are guaranteed to get overtime pay in every paycheck. However, the problem of increased compensation beyond what we can afford applies to other groups as well. Every city worker’s compensation costs from the late 1990s to the present (when you include the estimated cost of retiree medical in that) has grown at a far faster rate than we can afford to sustain.
[i]”3) Pointing to long-term problems to demand immediate concessions.”[/i]
We have both immediate problems and long-term problems. They both need fixing.
[i]”4) Counting CalPERS payments as raises.”[/i]
Now this is really a bait and switch by you, Greg. The radically higher formulas for CalPERS which were adopted in Davis in the late 1990s were sold to the city council by the labor radicals on the premise that they would not cost any more money than the old formulas. But the new formulas were and are worth a much more lucrative retirement to city workers. So the fact that we now know we have to pay a lot more for these added benefits should be understood correctly as a raise in compensation. They certainly are added labor costs.
[i]”5) Using uncertainty as an excuse to bend the middle-of-the-road prediction.”[/i]
Example? I have no idea what you are talking about.
My error: “the two [s]perjoratives[/s] [b]pejoratives[/b] you have tried to pin on others …”
I have no excuse for misspelling that word. Less than a year ago pejoration was my word of the day ([url]http://lexicondaily.blogspot.com/2009/03/pejoration.html[/url]) on my blog. (Jeff Boone will like the graphic which went with it.)
For the love of homonyms, I made another spelling mistake:
“… before the radical increases in total compensation came along a decade ago and [s]through[/s] [i]threw[/i] our long-term prospects into severe imbalance.”[/i]
[i]our city councils dramatically increased total compensation for city employees, far beyond the rate of income growth among the citizenry at large[/i]
Rich, this is a good question and I would really like to see a clear comparison. I don’t know what years you have in mind or who you mean by “the citizenry at large”, but I’m happy to see anything reasonable. I’d like to see the compensation ratio between city worker A and “Davis citizen at large” B at years X and Y. (As long as city worker A is the average city worker — I’m bored with the bait and switch between firefighters and all city workers.)
I believe that you honestly think that there has been some huge shift in the ratio of worker compensation. I don’t mean to accuse you of lying or any kind of conscious dishonesty. But I also wonder how much you have checked what you firmly believe.
[i]That is more nonsense, Greg. In fact, it is just the opposite. The City’s labor costs have risen many times faster than the rate of inflation.[/i]
Rich, even if that were true, it’s not an “opposite”. Any clear-headed discussion of long-term costs should be expressed either in constant dollars, or in proportion to the economy. Using inflationary dollars is putting a thumb on the scale, because the Federal Reserve creates currency every year to keep the economy moving. If you use inflationary dollars, you might as well use Jamaican dollars.
Second, it’s not true. David put forward an alarmist figure that city salaries in the general budget had expanded by 33% in four years. The correct figure on his own terms was 28%, and there was 11% inflation over the same period and a 6% increase in the number of employees. The total compensation cost for one worker, in constant dollars, went up 8.5% in a period with 11% inflation. In other words, compensation rose less than twice as fast as inflation, not “many times faster”.
Although I’m tempted to move onto the other points, I’ll pause at currency inflation because it is a clear-cut principle. Flint-eyed accountants know to adjust for inflation; flint-headed accountants don’t.
“David put forward an alarmist figure that city salaries in the general budget had expanded by 33% in four years.”
I think what I said is nearly a third.
[i]I think what I said is nearly a third.[/i]
The exact quote is, “Vanguard analysis shows that the city’s expenditures increased nearly 33% over a five year period from 03-04 to 07-08.”
For the record: You used a budget request rather than an “actual” budget for 07-08, so the ratio that you meant to compute was 28%. Moreover, as measured in constant dollars per employee, the increase was 8.6%. You managed to describe an 8.6% cost increase as 33%.
(Jeff Boone will like the graphic which went with it.)
A picture of Rush Limbaugh selling OxyContin… I think dittoless heads need some new material. I’d rather see a picture of Sarah Palin hunting moose and riding a snow machine overlayed with a picture of John Kerry hunting geese and windsurfing.
[i]”Using inflationary dollars is putting a thumb on the scale, because the Federal Reserve creates currency every year to keep the economy moving. If you use inflationary dollars, you might as well use Jamaican dollars.”[/i]
Where did I use inflationary dollars? I have tried to stick with real dollar accounting.
[i]”The total compensation cost for one worker, in constant dollars … rose less than twice as fast as inflation …”[/i]
In other words, it rose faster than the city’s revenues rose. But, that cost (if I recall David’s numbers) did not account for the out-year costs associated with the increasingly expensive retirement plans. As such, in a world with a CPI inflating at around 3.1% per annum, surely the total compensation costs of labor increased (in the period he addressed) at least twice the CPI rate.
Moreover, as measured in constant dollars per employee, the increase was 8.6%
This why we should not talk about per-employee compensation as much as we should total budget or total operating expense. A 28% increase over four years is the valid metric. 28% increase over four years for what? We hired more employees for what? If we had not hired additional employees, maybe the existing employees would have enjoyed a 16% increase over this same four years, and we would also be left with a smaller operating budget.
[i]Where did I use inflationary dollars? I have tried to stick with real dollar accounting.[/i]
Mostly I’ve seen you make qualitative comments without enough numbers to hang together.
As I said, what I especially have in mind is not off-the-cuff blog comments from you, but more studied statements from a member of the city council. Sue Greenwald made this statement in the Davis Enterprise: “The bottom line is that a year and a half from now, our management labor costs are projected to be higher than they are in the baseline fiscal year 2008-09.” I don’t know for sure whether this assertion is cast in real dollars or inflationary dollars. Context suggests inflationary dollars, which of course would be ill-founded. If it’s inflationary dollars, then in real dollars [b]higher[/b] should be replaced by [b]lower[/b].
[i]In other words, it rose faster than the city’s revenues rose.[/i]
That’s true for that particular period, but what you said was [b]many times[/b] faster.
You have a way of talking about these issues that as long as you get the sign right, up or down, then what you’ve said is true enough. This is not the way that flint-eyed accountants think — and as Don said, we could certainly use more of them.
[i]As such, in a world with a CPI inflating at around 3.1% per annum, surely the total compensation costs of labor increased (in the period he addressed) at least twice the CPI rate.[/i]
Again, it isn’t flint-eyed accounting to second-guess a calculation that you haven’t done. Also “twice” is not the same as “many times”.
[i]This why we should not talk about per-employee compensation as much as we should total budget or total operating expense.[/i]
Jeff, what David was discussing was whether the sales tax in Davis was well-spent or wasted. You should read this sentence out loud and ponder what’s wrong with it: “After we got an increase in the cookie budget, we wasted it on more cookies as well as more expensive cookies.”
Sue: [i]”The bottom line is that a year and a half from now, our management labor costs are projected to be higher than they are in the baseline fiscal year 2008-09.”[/i]
Flint: [i]”I don’t know for sure whether this assertion is cast in real dollars or inflationary dollars. Context suggests inflationary dollars, which of course would be ill-founded.”[/i]
No, Flint, you are taking Sue’s words out of context and distorting them. She was (in context) responding to the assertions of city staff and her colleagues on the council. They had said that (paraphrasing) management labor costs in the new deal will “save” so many tens of thousands of dollars. They based that assertion on the notion that prior to the new deal they had expected to inflate the costs of those employees by some hundreds of thousands of dollars but with this deal it will cost less than that. They decided the difference between their made up estimate and the figure in the contract was “savings.”
That is a dishonest trick. It’s like a retailer who raises his price from $500 to $1,500 and then puts the item on sale for 60% off. Does the consumer who buys the item at the sale price save $900? Or did he just pay $100 more than he would have paid had the price stayed the same?
Sue’s point, quite correctly, was to call b.s. on those who called the new figures “savings.” She gave her readers the absolute dollar figure for the last fiscal year and for the end-of-contract fiscal year and demonstrated that the absolute figure will be higher.
Even if the new number is, in real inflation adjusted dollars the same or lower than the 2008-09 figure, that is beside the point when we are drowning in red ink, furloughing people, not filling needed positions and laying off some. The right question is, given the amount of money we expect to have in the out years of this contract, can we afford what we have promised. If not, we know we will have lower services (and likely will have to lay people off or lose positions through attrition).
You like to argue (and then deny so) that these personnel should not get a real-dollar paycut, but instead they should endlessly get increases in their wages, benefits and pensions so that (at the very least) they maintain their real wages (presumably at the peak of the bubble). You seem to prefer that even if it means a severe reduction in city services.
My preference is we get our expenses in line with our revenues so that we can go on providing all the city services we provided for decades (before we dramatically increased our labor costs). That will mean a real-dollar decline in compensation for employees compared with the peak of the bubble. That will also mean that employees won’t have to be fired and lose all of their income.
[i]you are taking Sue’s words out of context and distorting them.[/i]
No, Rich, in any context, “projected higher costs” ought to mean in real dollars. You assured me that you do your thinking in real dollars, but now you see it as just one side of a debate.
[i]You like to argue (and then deny so) that these personnel should not get a real-dollar paycut.[/i]
At the moment, I’m not arguing anything about whether management [b]should[/b] get a real-dollar paycut. As long as the city gets good people, I don’t care what they get paid. If Sue was talking in inflationary dollars, then the fact is that they did get a real-dollar paycut. If so, then the entire city council should stick to that truth.
[i]”If Sue was talking in inflationary dollars, then the fact is that they did get a real-dollar paycut.”[/i]
As it happens, we lately have had negative inflation* ([url]http://www.bls.gov/ro9/cpisanf.htm[/url]). So you might not only be wrong in absolute dollars but in real dollars, as well.
Those numbers come from the Bay Area index, which is what the City of Davis uses for its CPI proxy. However, the rise in unemployment and the decline in prices has been steeper in the Sacramento region since the economy went into the tank than in the Bay Area. I don’t know, however, if we have had a negative inflation rate in the small period of the study referenced above.
[i]”For the year ending December 2009, overall prices increased 2.6 percent.”[/i]
That is really the more important number than how the year ended. My expectation, I should add, is that we will see in the next 2-3 years a steep (40-50%) decline in the value of the U.S. dollar vis-a-vis our major trading partners and the result of that will be a dramatic increase in the cost of living. In other words, very serious inflation like we have not had since the late 1970s. I also expect nominal interest rates to skyrocket.
[i]That is really the more important number than how the year ended.[/i]
That’s right, the overall price increase over the past year was 2.5%, and you can expect roughly comparable inflation for the forseeable future. The reason is that the federal government has pretty good control over the money supply, better than you might expect from just reading the newspaper. This is about the amount of inflation that they want.
[i]My expectation, I should add, is that we will see in the next 2-3 years a steep (40-50%) decline in the value of the U.S. dollar vis-a-vis our major trading partners and the result of that will be a dramatic increase in the cost of living.[/i]
This discussion doesn’t benefit from disaster movie scenarios. Yes, there is a strong argument that the US dollar is overvalued. That does not mean that it will sink like the Titanic in the next 2-3 years. I just checked the currency markets, and you are free to buy the option to buy a euro in December for $1.50 in US dollars for 2 cents. This is just a 10% rise, and you don’t even lose anything if the euro doesn’t rise enough. If the euro even just rose 20%, you’d make an enormous profit. So not many people are putting their money where your mouth is.
Moreover, foreign exchange has less short-term connection to inflation than you might think. Imports are only about 10% of the economy, and again, policy-makers can adjust the money supply to keep inflation where they want it. Right now they are much more worried about deflation than inflation — they would utterly fail in their jobs if they allowed any extended deflation.
Instead of thinking that anything can happen, it’s much better to trust standard inflation forecasts to get a basic sense of the meaning of money. Sue Greenwald blasted the city council majority for granting management a pay raise. But from the sound of it, management is taking a real-dollar pay cut.
First of all, Greg, we have no way of knowing what the inflation rate will be over this period. It will certainly be very low. The cost of living figures are not an absolute anyway. There are a variety of ways to calculate cost of living and the methodology has historically been prone to political manipulation. Inflation rate in itself is an estimate.
My point is that we have a large deficit, huge unfunded liabilities and have claimed massive savings when, in fact, we will be spending more in 18 months on this contract than in the baseline year. I would have been perfectly happy to add the phrase “in absolute dollars during a period of low inflation”, but we have word limits and we have reader attention problems when we put in every qualifier.
I don’t understand why you would consider it more misleading to talk in absolute dollars during a short period of low inflation, then to claim huge savings by counting backwards from arbitrary projections.
I remember when you seemed to dismiss the recent statements of the CALPERS chief actuary when he stated that our pension program is unsustainable.
Sometimes it almost appears as if you are shooting the messengers of unpleasant news — by labeling the messengers as “radical”.
Before he left UC Davis, I asked Steven Sheffrin last summer, “How much is the dollar apt to fall?”
He replied: “It might be 50 percent. So we are talking about a huge adjustment in order to bring the current account down to a manageable level. It’ll play out over [u]the next 10 years[/u].”
Sheffrin does not think there is much reason for inflation worries in the next few years due to high unemployment (and hence no wage pressures) and what the futures markets (you point to) say. I feel the inflation risk due to the dollar is much greater, much sooner. (I am not confident at all in the efficiency of those futures markets.)
[i]”foreign exchange has less short-term connection to inflation than you might think. Imports are only about 10% of the economy …”[/i]
Imports are only one factor. Every commodity which we consume domestically and export or could export as well will be inflated by a depreciated dollar. A corn grower who is now selling his crop to a domestic buyer will export his produce if he can get a higher price abroad. Because of that, the price domestically has to rise.
Also, insofar as the dollar is weaker, a constant supply of a commodity, such as however many billions of barrels of oil we import, will rise as a percentage of our GDP. Of course, because we will be so much poorer, we will import less of everything once we adjust to the new higher prices for everything from clothes to cars to all of our food.
[i]”… and again, policy-makers can adjust the money supply to keep inflation where they want it.”[/i]
This is true, but less and less so all the time. The problem we face in controlling the money supply is that such a vast amount of U.S. currency is controlled by foreign banks, both directly in reserves ([url]http://www.federalreserve.gov/paymentsystems/files/coin_1096lead.pdf[/url]) and far more importantly by owning our debt ([url]http://www.ustreas.gov/tic/mfh.txt[/url]). The Fed can react by selling notes (to drain out cash from the economy), but that will come at the price of very high real interest rates and a potential smothering of the economy. If foreign banks don’t cooperate with us — no one really knows what the Chinese will do — we may lack the tools that Paul Volcker had a few decades back.
[i]This is true, but less and less so all the time.[/i]
Actually, Rich, it’s the opposite. Policy-makers have gotten better and better at controlling inflation over time. Yes, foreign banks hold a vast amount of US currency. But that’s because they trust us to control our currency supply, and it gives us greater incentive to do exactly that. We also know a lot about what the Chinese will do — we just don’t necessarily like it.
[img]http://upload.wikimedia.org/wikipedia/commons/thumb/8/8c/US_Historical_Inflation.svg/450px-US_Historical_Inflation.svg.png[/img]
[i]we have no way of knowing what the inflation rate will be over this period. It will certainly be very low.[/i]
Only a few months ago, you had no trouble accepting the prediction that home construction prices would rise 6% in three years. But now, when the question is the purchasing power of the city staff’s salaries, the whole thing is a big fog and the description that you prefer is a 0% change.
I expect that you’d be happy to express city finances in real dollars instead of inflationary dollars, if it fell on your side of the debate. But I insist that it isn’t just one side of a debate, it’s objective economics.
[i]I remember when you seemed to dismiss the recent statements of the CALPERS chief actuary when he stated that our pension program is unsustainable.[/i]
The word “unsustainable” is a rather cliched bit of alarmism these days. Things are unsustainable when people aren’t willing to sustain them. The state budget is unsustainable, because state voters won’t pay for the services that they demand. DACHA is unsustainable, because its residents refuse to pay its bills. If I got drunk at a bar and refused to pay for the drinks, that would be unsustainable.
Is CalPERS unsustainable? Only hypothetically, because they have a lot of latitude to demand payments. They have a good credit rating ([url]http://www.calpers.ca.gov/index.jsp?bc=/about/press/pr-2007/jan/sp-rating.xml[/url]), unlike the state.
Is the Davis city budget unsustainable? If Davis voters begin to resent staff compensation, then maybe it will be. For now, fortunately, the city still has a good credit rating.
Sheffrin does not think there is much reason for inflation worries in the next few years due to high unemployment
Some economist I read expect interest rates to rise significantly by the end of the year as the appetite for US government debt instruments falls. There is growing suspicion by some that we might be in a “dead cat” recovery and will be thrown back into another recession with high unemployment and high interest rates.
Of course economists are the only “scientists” where one hundred of them can have one hundred different incorrect theories without consequence.
{i]”Actually, Rich, it’s the opposite. Policy-makers have gotten better and better at controlling inflation over time.”[/i]
Policy-makers (and by that you really just mean Fed chairmen) are better mostly because we have changed Fed chairmen. Your conclusion confuses cause and effect.
What Paul Volcker did to tamp down inflation in the late-1970s and early 1980s was understood by the original monetary economists at the University of Chicago (led by Milton Friedman) in the late 1930s. Since Volcker succeeded, we have had modest inflation (or “price stability”) ever since.
In the early 1960s, Friedman and Anna Schwartz wrote a well-received popular book, [i]Monetary History of the United States, 1867–1960[/i], which was influential in changing the minds of some academics. However, the prescriptions for monetary policy they advocated then he had been advocating for more than 20 years.
Friedman believed that too much money chasing too few goods results in inflation. That is, inflation is a monetary phenomenon. And the solution to inflation is to reduce the money supply. That is principally done by selling notes, which in turn reduces the money supply.
It’s fair to note that Friedman’s policy prescription was not exactly the same as Alan Greenspan’s. Greenspan (and now Ben Bernanke) achieve essentially the same result as their mentor. But they go about it differently. Friedman believed in a direct approach: If you measure M-3 (or whatever is the appropriate measure of money in circulation) over time and it is growing too fast, you sell notes until you have M-3 to where you need it. That way, you could allow the expansion of M over time to grow at 3% per annum or so.
The Greenspan approach is to generally ignore the total money supply measures (though the Fed still takes them). Instead, Greenspan looks at core inflation (measured by a basket of goods), sees how much they are increasing or decreasing in price and adjusting interest rates (which affects M) to increase or decrease the rate of inflation.
Critics of Greenspan noted that a problem with his approach was that you could have a stable CPI (as in your chart), but have M growing too fast (that is, interest rates too low), but the money is flowing into assets like real estate and stocks and that inflation is missed by the Fed. I tend to think Greenspan’s critics overstated their case. But they got a lot of play due to the housing bubble and the bursting of the bubble, both of which they contended were the result of Greenspan’s (and now Bernanke’s) failure to follow M (as Friedman would have).
All that said, the Fed cannot control what foreign banks do. And foreign banks have a great say in what our money supply is. And what it will be. Up to now, our interests coincide. But as we run serious fiscal deficits, our interests start to diverge. And that is where the Fed’s tools may come up short. In fact, there is no doubt that if the foreign banks (mainly central banks) stopped buying our debt, the dollar would collapse and inflation would (for a time) skyrocket.
[quote]Only a few months ago, you had no trouble accepting the prediction that home construction prices would rise 6% in three years[/quote] These were staffs’ assumptions,not mine, and I was showing that, using staffs’ own assumptions, the project went negative one year beyond the long-range forecast because staff, in their own analysis, had plugged a one-time payment into their assumptions and divided it by the number of years of their long-range forecast.
You have again taken a phrase of mine out of context. What does “you had no trouble accepting the prediction” mean? Good grief. Yes, I used staffs’ “prediction” and showed they had treated a onetime payment as if it were an ongoing stream of revenue in their analysis.
[quote]DACHA is unsustainable, because its residents refuse to pay its bills[/quote]My current understanding of this complicated problem is that our independent accountant said that DACHA is unsustainable because the carrying costs had been higher than market rate rents. If this were in fact true, then DACHA members would have trouble selling their shares since it would be difficult to find someone who wanted to spend many thousands of dollars to purchase the right to occupy space at higher than market rents. This is how it was explained to me; this is my understanding at this point in time.
[quote]Is CalPERS unsustainable? Only hypothetically, because they have a lot of latitude to demand payments. They have a good credit rating, unlike the state.[/quote]See http://www.globalpensions.com/global-pensions/news/1565899/moody-s-downgrades-calpers-calstrs
Excerpt from this link:
[quote]Moody’s downgrades CalPERS, CalSTRS
Global Pensions | 11 Dec 2009 | 15:00
Raquel Pichardo-Allison
US – Moody’s Investors Services has downgraded the long-term credit ratings of the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS) citing severe losses in assets.
Moody’s downgraded the pension funds’ credit ratings yesterday to Aa3 from Aaa.
Moody’s senior credit officer Martin Duffy said: “Today’s rating action reflects our expectation that the cumulative back-to-back market value declines in the investment portfolios of both CalPERS and CalSTRS for the fiscal years ended June 2008 and 2009 will exacerbate long-term projected actuarial funding shortfalls, recent market gains notwithstanding.
[/quote]
Greg, It’s not that I want this to be true. Of course I don’t. It’s my pension too. And I am most afraid that the end result will be a nation inflating its way out of the pension obligations: Remember, our city CALPERS pensions are only inflation protected to the tune of 2% a year. Pensions can disappear very quickly at compounded rates of 7%, 8%, or 10% a year.
That is why I think we should all be paying more into our pension funds, which means an effective lowering of salaries. I know you hate the word sustainability, but most city workers will probably be retired for 30 or 40 years, and if we don’t put away more now in the form of taking home somewhat less because we are contributing somewhat more to our pensions, it could be a pretty uncomfortable 30 or 40 years.
Let’s try that link again:
http://www.globalpensions.com/global-pensions/news/1565899/moody-s-downgrades-calpers-calstrs
Okay, those credit ratings are more recent and they are pretty bad. Fine, CalPERS is also unsustainable. But still, it isn’t the city’s business until CalPERS makes it the city’s business. One way or another, CalPERS will either charge more or pay less. It isn’t appropriate to borrow their panic and slap it onto the city budget. That’s really the only thing that I don’t like about the word “unsustainable”: it’s been an excuse to fly off the handle at the wrong time.
The difference between that and DACHA is that DACHA is in the city’s hands, moreover it is far less sustainable than CalPERS. The reason that DACHA is a hole in the ground is not the point; the most important fact is that it is one.
As for the 6% in home construction costs, what I meant was that homes that were projected to cost $425K were described as costing $450K three years later. 2% annual inflation was accepted as fact in the campaign against Measure P. But now, it’s more convenient for certain political purposes to say that currency inflation is a big mystery and use a 0% baseline.
[i]”Okay, those credit ratings are more recent and they are pretty bad. Fine, CalPERS is also unsustainable.”[/i]
Bait … bait … bait …. Switch … call other people dishonest or biased or tendentious …. claim you are anti-union …. admit that your motivation is largely one of personal animus …. then bring up every bromide the unions bring up …. then switch …. then claim “I don’t care what they get paid.” ….
You don’t seem to have any integrity whatsoever in your arguments, Greg. I’m done with this discussion.
Rich, I was conceding that I was wrong about CalPERS. I thought that it had a good credit rating, but its credit rating fell in the drink the next year. I have no objection if you participate or don’t participate in the discussion. But if I actually learn something and change my mind, that’s a strange reason for you to quit in a huff.
I also didn’t say that I [b]am[/b] anti-union, I said that I [b]was[/b] when I was much younger, and that I don’t trust them. Nothing that I have to say came from any union. In fact, I’d have to think what was the last thing that I heard from a union that wasn’t baloney.
You also chopped the first half of what I said. I said, “[b]As long as the city gets good people[/b], I don’t care what they get paid.” That’s a crucial qualifying clause in that statement.
I also do not have a [b]personal[/b] animus against anyone here. When I have a real personal animus against people, I don’t talk to them. I have an [b]intellectual[/b] animus against certain things that people have done, but that’s not the same thing.
[quote]You don’t seem to have any integrity whatsoever in your arguments, Greg. I’m done with this discussion.[/quote]
Holy cow, Rich! This is actually an interesting discussion that doesn’t need to conclude this way. I was actually starting to learn something….a little bit from the article, a little bit from the discussion, a litte bit from the discussion diverting from the topic of the article, etc.
Okay, things actually got a little sideways with the removing a head from a rear end comment, so maybe a cool down period is warranted.
I would like to rephrase the DACHA situation as I understood it (of course this is a simplification of a very convoluted system that had been set up):
My understanding is that, at the time the city intervened, the price of the buy-in plus the level of the carrying costs did not make it an attractive option, and members had been accepted into the coop who did not have the incomes necessary, but were loaned buy-in share by Twin Pines, although it was beyond their means. My current understanding is that Twin Pines had imposed a pre-payment penalty on these under-qualified, low-income tenants, and would not allow them to refinance without a penalty.
I have not talked with staff or reviewed the staff report in some time, so this is a simplification based on my recollection.
Related to the debate over European and US taxation, an article in the WSJ today covering the probably EU financial bailout of Greece shows them having a 25.1% shadow economy (as a percentage of their GDP). The US by contrast has a 7.2% shadow economy. Italy is 22.3%; Spain 19.3%; Germany 14.6%; Canada 12.6%; France 11.8%.
Aside from the argument that much of Europe appears to be wilting under their massive debt, they are also pushing their citizens and businesses underground with high taxation… thereby failing to collect taxes on a larger percent of economic activity (double-hit… no tax collections, and competition with shadow businesses knocks out legitimate business).
Higher and growing national debt, lower national productivity, growing shadow economies, potential national insolvency… but better government services for the poor. This doesn’t sound like a good trade-off to me.
Related to the debate over European and US taxation, an article in the WSJ today covering the probably EU financial bailout of Greece shows them having a 25.1% shadow economy (as a percentage of their GDP). The US by contrast has a 7.2% shadow economy. Italy is 22.3%; Spain 19.3%; Germany 14.6%; Canada 12.6%; France 11.8%.
How do you reliably measure a shadow economy?
If I pay the boy next door $15 cash to mow my lawn, is that part of the shadow economy?
“If I pay the boy next door $15 cash to mow my lawn, is that part of the shadow economy?
This is a quote from the article:
[quote]“I work for a large Greek construction company … but of course, I have also done my own jobs on the side off the books,” says Alexandros Foukis, 27, a building contractor. “What the government needs to do is provide incentives to people to issue a receipt.” [/quote]
This from a 2000 article in the Economist:
[quote]The monetary method to measure the size of the shadow economy is based on econometric estimates of the demand for money. These estimates are used to get the currency held by economic agents in excess of the amount they need to finance registered transactions. The standard monetary approach uses the excess of currency multiplied by the velocity of circulation (assumed to be equal in the registered and the shadow economies) to measure hidden GDP.[/quote]