Monday December 17, 2012

In a superb article in the Weekly Standard (11/19/12), Charlotte Allen explains in painstaking detail the "Decline and Fall" of the great, golden state of California. And in that explanation is a sobering message for Vermont.

Allen's news peg is last month's 54-46 approval by California voters of Democratic Gov. Jerry Brown's Proposition 30. This constitutional measure raised the sales tax from 7.25 to 7.5 percent and increased the marginal income tax rate on persons making more than $250,000 a year to as much as 13.3 percent. The measure was sold as "save our schools and colleges," but 60 percent of the new revenues will be available for non-educational spending.

Writes Allen, "[The new tax] represents the culmination of a two-decade-long process in which the nation's most populous state, once a prosperous industrial and high-tech powerhouse and magnet for immigrants from elsewhere in the country, has transformed itself into something else: a high-tax, high-spending, highly regulated and chronically broke welfare state that is fast losing to out-migration both its middle class and the business and industries that create jobs."

She continues, California "now has the worst state credit rating in America, thanks to chronic overspending, massive state debt, and the clout of the pension-reform resisting unions. California is the American Greece."

Brown enjoys supermajority Democratic control in both legislative chambers: Assembly (House) 54-26, Senate 27-13.

California's Democratic Party is a collection of rich liberals, rent seeking capitalists, people with ethnic grievances, poor immigrants, greens, Hollywood, and, most importantly, aggressive public sector labor unions. The California Teachers Association has 325,000 members, each paying about $1,000 annually in dues, from average salaries of $68,000. A major function of the CTA, in addition to collective bargaining and electing compliant Democratic members of the legislature, is promoting or defeating statewide ballot initiatives.

CTA has battled against charter schools, making pupil performance a factor in teacher compensation, and allowing low-income kids to escape failing public schools for better independent schools. This year CTA spent $75 million to defeat an initiative to end automatic payroll deductions to finance union political campaigns. Probably not coincidentally, California today ranks 46th of 52 jurisdictions on NEAP reading and math performance tests.

Trade unions, and thus all unions, are solid supporters of Brown's bizarre plan to spend $5.8 billion to build a high speed rail line from Bakersfield to Fresno. No one knows where the money to pay off the initial bonds, let alone to complete this project, will come from.

California's public pension funds are grossly underfunded, leading to citizen rebellions even in San Diego and San Jose. Brown promised to attack the unfunded liability crisis, but so far all he has done is raise early retirement age from 50 (!) to 62 for new employees, and ban final-year pay inflation to increase pension checks.

Not mentioned by Allen, surprisingly, is California's AB 32, a law almost identical to Vermont's Act 168 of 2006. This act requires reducing California's greenhouse gas emission levels to pre-1990 levels by 2020. Brown, then attorney general, took that as a license to threaten legal action whenever his green backers spotted a suitable target - manufacturing, road construction, shopping centers, bottled water, rural housing, (but apparently not high speed rail). This makes any business venture involving energy a hostage to state-financed lawsuits.

Here in Vermont, we can see, though perhaps not so clearly, all the ingredients of California's decline and fall. Ever expanding government. Ever increasing centralization of government in the state capitol. Liberal supermajorities. High income tax rates (Vermont ranks 13th in tax burden). An astounding $3 billion in unfunded pension and retiree health benefit liabilities.

Then there's our governor's obsession with making Vermont the world leader in the battle against the Menace of Global Warming, by powering the state 90 percent with renewable energy, at any cost, by 2050. Act 168 is only one of numerous regulatory impediments to doing anything energy- or land-related that might become profitable. Sen. Shumlin was the lead sponsor of a cap-and-trade energy tax system, analogous to the one just implemented in California.

Vermont's governor commands liberal supermajorities in both houses of the legislature: House 105-45, Senate 24-6. In addition, the state has equally powerful public sector unions (VT-NEA, VSEA) and is teeming with like-minded organizations advocating for just about every imaginable liberal cause, from shutting down Vermont Yankee to the fantastic "People's Budget" to the forced unionization of day care workers.

To top it off, the governor and legislature have declared that Vermont will unveil a taxpayer-financed, state-controlled single payer health care system in 2017. This will require as much as $3 billion in taxes from somewhere, that the Shumlin administration will not disclose.

California, here we come ?

John McClaughry is vice president of the Ethan Allen Institute (www.ethanallen.org).