by Chriss Street
"Only Nixon could go to
China" is a political metaphor referring to the ability of a politician
with an unassailable reputation among his supporters for staunchly representing
and defending their values, to take actions that would draw vicious criticism
and fierce opposition if taken by someone without those credentials. With
California’s financial condition in free fall, ultra union friendly Governor
Jerry Brown demanded public-employee unions cut compensation by 10%. If the
People’s Republic of California is adopting fiscal responsibility, perhaps
America can too.
For unions, Jerry Brown has
been the governor who always kept on giving. In 1976 he approved collective
bargaining for California government workers. Last November he signed SB 922,
protecting “project labor agreements” that force non-union workers to apply for
union membership, and pay dues, in order to work on public projects. While
predicting a $9.2 billion budget deficit in January, Brown sought to protect
public service union jobs by cajoling private sector retailers to support a
voter initiative to raise sales taxes. As state tax revenue had fallen by $4.9
billion in February, Brown focused on raising $630,000 in contributions for his
tax increase initiative from unions, Indian tribes, and crony capitalists. As
revenue continuing to fall last month, Brown extended union contracts
representing tens of thousands of workers that increased the state's health
benefits by 9.5%.
Looking closer into the
numbers, California missed the national economic recovery. As U.S. Gross
Domestic Product grew by 2.2%, California employment grew by only 1.3%. Given
that the workforce expands by 1.5% annually as more young people begin looking
for jobs; this explains why California unemployment rose to 11% last month as
U.S. employment fell to 8%. Chiang ominously stated: "Without a timely,
financeable budget plan, the State will be unable to access the working capital
needed to pay its bills later this year." This is bureaucratic speak
for: We are insolvent, our credit rating should be junk and we will default
when we can’t borrow any more money!
Standard & Poor’s in a new
credit report last week warned that California lawmakers resistance to steep
cuts in welfare and healthcare programs is to blame for failure to balance the
state budget: “As the most important month of the year for [income tax]
collections, April receipts are
not only failing to solve part of the state's projected problem, they
are deepening the estimated budget gap.” With the state needing to borrow $20 billion in July to finance
operations until collecting property payments in mid-December, this is S&P
speak for: We will cut your rating.
California rolled over an $8.2
billion deficit from last year’s budget disaster and this year’s growing
deficit has forced the state to increase borrow another $7.7 billion. Although
the state did cut $1.8 billion or 8% from operations and school funding was
flat this year; spending on health and human services jumped by a stunning $3.7
billion or 6.2%.
President Richard Nixon had a
reputation as the leader of hardcore Republican anti-Communists when he
announced he was going to recognize China by personally visiting the country in
1972. No Democrat at the time could have absorbed the political blow-back of
such a spectacular change in America’s foreign policy. Over the next 40 years,
America and China have become each other’s most important trading partner.
Just as Richard Nixon was the
strongest ally of anti-communists, Jerry Brown has been the strongest ally of
public sector unions. Chief Executive Magazine’s survey of best and worst
states for business ranks California dead last. According to one CEO: “The
leadership of California has done everything in its power to kill manufacturing
jobs in this state. As I stated at our annual meeting, if we could grow our
crops in Reno, we'd move our plants tomorrow.” Given that high taxes and
onerous regulatory enforcement was championed by Brown in California and then
spread out across the nation; Brown is best positioned to unwind these job
killers. When Jerry Brown told state employee union leaders his next budget
would include a 10% cuts in state worker compensation, there has been little
opposition. Perhaps California’s financial distress may require Jerry Brown to
be America’s pro-business governor.
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www.chrissstreetandcompany.com If you Chriss Street to speak to your
organization, contact chriss@chrissstreetandcomapny.com
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