Tuesday, January 25, 2011

Honest appraisals in our times of need - by Judge Jim Gray

Recently I heard KFI AM's Bill Handel say that Southern California Edison is attempting to increase its rates by 7% so that, among other things, it can cover the economic losses sustained by the pension plans of its retirees. Now wait a minute! Almost everybody's retirement plans took big economic hits during this recession, so why would we be required to reach into our pockets to pay for the losses sustained by the SCE workers? Simply stated, this is wrong, and things like this need to be addressed.

Gov. Jerry Brown's proposed state budget is addressing some of these things. Of course it also includes prolonging $9 billion in expiring annual income, sales and vehicle taxes, which is a problem, but it also seriously would reduce spending for some of his political party's favored projects. He deserves credit for that. And it also responsibly proposes a shift of the $1.7 billion annual funding of municipal redevelopment agencies from the state to local governments, which would be great for the state, but tough on the locals. (I say "responsibly," because the more local funding and control of these programs, if we must have them, the better.) Of course, now the city governments are disposing of these monies as fast as they can, so that the state can't get them back.

Further to his credit, the new governor is also urging basic structural changes to the state's prison system, which include having non-violent, non-serious, non-sex offenders, who do not have any previous convictions for such offenses, stay under the guidance of the county courts instead of being sent to state prison. Without question some people belong in prison, but we also must understand that when that happens we will be putting them into a callous and hardened world from which many of them will not return. So it is frequently better to deal with drug addictions and other non-violent anti-social behavior with treatment and responsibility programs while on strict county probation than sending people to the state "correctional" facilities. This will not only save lots of money for the taxpayers, it will also help to address the defendants' underlying problems.

So for his efforts, I award Brown a C-plus, which is much better than the Ds and Fs his predecessors in the statehouse and Legislature have earned. But why is the governor's rating still so mediocre? Because Brown's approaches do not address the real and basic reasons for our budget shortfalls, which are the benefits going to politically powerful labor groups like the prison guard's union, and, even more importantly, public employee retirement benefits.

For example, as recently as 2002, taxpayers in Los Angeles contributed less than $100 million to the Los Angeles City Employees' Retirement System — and that was enough for it to be completely funded. But last year, even though the contributions by taxpayers reached above $400 million, the system was more than $2.3 billion in the hole.

How has this happened? First, almost all of the elected officials on city councils and county boards of supervisors statewide have an innate conflict of interest. The groups that care most about who is elected to these positions, and those who most diligently exercise their influence in the elections, are the public employees' unions. Why? Because these elected officials mostly control what benefits will be afforded to the unions' members.

So once the elections are over, if the newly elected officials do not provide the desired financial results to the unions, they know that the unions will support someone else in the next election. Thus the public officials try to keep their jobs by voting for huge benefits for the unions' employees. Of course this means that no one is minding the store for the taxpayers. So often the final salary used to compute the pension plans of the retiring public workers is inflated by inappropriately, but legally, including such things as overtime payments, car allowances, costs of uniforms and unused sick leave and vacation time.

Second, when employees are forced to contribute to their pension benefits, they tend to choose programs that make more business sense. For example, if the choice were solely theirs to make, many people would continue working longer so they could have Medicare benefits when they retire. That in itself would delay the onset of retirement for five years for the average worker, which would, in turn, cut pension costs by about half. But the employees' unions' intervention with their sweetheart deals change the equation.

The bottom line is that public employees should be required to fund their own retirements through economic tools like 401 (k) programs, just like in the private sector. Then workers would logically fund the programs that make economic and social sense to them.

New York City Mayor Michael Bloomberg says that pensions like this will be his No. 1 priority, and Brown and the Legislature should follow suit. But until this comes to pass, public pension retirement boards should be controlled by financial experts who are hired by financially independent foundations, so those making decisions about pensions can be free from conflicts of interest.

Brown deserves credit for moving the discussion in the right direction. But now you and I must do our part to bring all of our governments back to solid financial footing, and change the pension plan programs for public employees. If not, this will inevitably be done, after a great deal more financial grief, by a federal bankruptcy court.

JAMES P. GRAY is a retired judge of the Orange County Superior Court, the author of "Wearing the Robe: the Art and Responsibility of Judging in Today's Courts" (Square One Publishers, 2010), Why Our Drug Laws Have Failed and What We Can Do About It, A Voter's Handbook, Effective Solutions To America's Problems and can be reached at jimpgray@sbcglobal.net or http://www.judgejimgray.com. Judge Jim Gray is also currently offering his 25 years of experience on the bench to ADR Services in Orange County for Arbitration and Mediation services.

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