The Beginning Of The End For Oakland

Today, Chip Johnson became the first journalist to put the reality of Oakland's financial situation in print. Chip says the city might need to file for bankruptcy, and I agree.

Bankruptcy is an unpopular option, and several other bloggers including V Smoothe have pointed out that it wouldn't accomplish much because the city is not locked into long-term contracts with public employees. So, the argument goes, they can simply negotiate contracts which dig the city out of its fiscal morass.

To give you a little more information on the roots of the problem, police and fire services comprise something like 75 percent of the city's budget.

Oakland cops and firefighters receive pay and benefits that put them among the highest paid public employees in the country, if not the world. Kind of a funny state of affairs, when you think about it. I mean, Oakland isn't Bel Air or La Jolla.

Much of East Oakland is a burnt out shell -- a fact which makes it hard to justify high pay and benefits on the basis of cost of living.

Oakland's budget shortfall is not a passing phenomenon. It's a consequence of lower property tax revenues, and that's not going to change anytime soon, as the housing crash is probably only halfway through, and no reasonable observer is even beginning to talk about rising house prices.

Oakland has also studiously avoided adding to its high-value housing stock in recent years, opting instead to build condos -- a terrible choice in a housing bubble, since they historically experience terrible boom and bust cycles. Add to this the city's obsession with so-called "affordable" housing and the property tax picture looks pretty grim.

Sales tax doesn't look much better. Oakland's unemployment rate is through the roof, and the wealthier citizens head to Contra Costa and Emeryville to do any real shopping. As with housing, city government has ensured we have no high-quality retail anywhere in the city.

But the real problem isn't on the revenue side. It's the spending side, and Oakland's police and fire unions are the villains. The city's leaders are all either on the union payrolls or have drunk so much Leftist Kool-Aid that they support anything the unions want without even receiving any kickbacks.

Overtime is out of control. Pensions are preposterous. Police and fire employees make enough money to place them in the top tiers of Oakland household income. All this for a job that requires no college degree.So, why not just follow V Smoothe's advice and take a hard line in upcoming negotiations with the union?

The basic answer is reminiscent of what happened with the city's school district. Our leaders simply can't/won't do that.

Frankly, I doubt that they even understand the financial impacts of the contracts they approve. They certainly don't understand the impacts of the pension agreements. They look at those the same way the federal government thinks about Social Security -- it's someone else's problem.

Put another way, rational contracting requires that both parties understand the details of what they are agreeing to. In this case, you can think of the Oakland city government as similar to AIG, which agreed to absolutely insane contracts in insuring mortgage-backed securities.

Sure, AIG had the ability to negotiate each contract up front, but the organization was so incompetent and fraud-ridden that it was unable to do so without causing crippling harm to its shareholders.

Oakland is exactly the same.

We need a bankruptcy judge to come in not because we can't numerically make ends meet but because our leaders will not accomplish that without some kind of adult supervision. And, we're at the point now where if they sign another police and fire contract without making things reasonable, our city budget really will completely crumble.

Without bankruptcy, I can tell you exactly what will happen. Police and fire will get exactly what they want, including some sort of bogus band-aid deal to fake out the federal government into giving us a grant to plug the gap for a couple years. Never mind that that grant won't cover the pension obligations which the city doesn't even understand.

Then, the city will cut other services -- things like parks and roads -- because the unions supporting those things haven't greased the politicians sufficiently.

Finally, as the police and fire expenditures approach 100 percent of revenue, the city will be forced into bankruptcy under far more onerous terms.

My advice is to bite the bullet now and enter bankruptcy to reorganize the city's finances. Use the bankruptcy judge as a resource to instill rationality into the city's budget situation. Also, use bankruptcy as a hammer to push through police and fire pay and benefits more in line with those seen nationwide.

Doing so will probably require something like a 35 percent across-the-board pay cut and a return to a pension formula based on 2-and-60 instead of 3-and-90. For those keeping score, that would mean they receive 60 percent of their highest salary in retirement instead of 90 percent. Which is completely, totally, reasonable and fair.

Alternately, police and fire could have their pensions moved into private accounts like 401(k)s, just like employees in the private sector. And, they could be required to contribute to their own retirement costs.

All across California, police and fire (and the infamous prison guard union) are going to have to face these kind of cuts. It's just a matter of time, because the deals they've extorted by paying off politicians are completely untenable.

Here, Oakland has an opportunity to be one of the first cities to push for this. The first step is bankruptcy.

The Officer James Williams Memorial Overpass... and its connection to the death penalty

By Mark Ross, Contributing Writer

Driving along the communication trench we call Highway 580... west of High Street and East of Fruitvale... you'll see, on either right-hand embankment, a CalTrans sign naming the bridge that 38th Avenue takes over the freeway.  The story behind this obscure memorial brings to light several issues currently in play in today's Oakland.

Early on the morning of January 10, 1999, Officer Williams was fatally wounded while searching in the landscaping along Highway 580 for a discarded shotgun.  The assailant stood on the 38th Ave. overpass... from where he fired his illegal AK-47 communist bloc full automatic military rifle.  Officer Williams was killed and another policeman was injured after his hand cuff case deflected the round.

Later that day a wannabe 19-year-old gang-banger named Chad Rhodes was arrested without reported incident.  Mr. Rhodes has never and will never see the streets of Oakland again.  He pled guilty to avoid the death penalty.

Early that same morning, at about 12:45 am, I awoke from a sound sleep to hear the gunshots that killed Officer Williams.  At the time I had no idea if anybody had actually been shot... but I did know that the weapon was firing in full automatic mode... unusual, even for Oakland.  During Chinese New Year and July Fourth I like to tweak out of town visitors by telling them:  "Here, in Oakland, we like to say 'I sure hope that's firecrackers.'"

Western civilization is supposed to place a high value on human life.  In this case Mr. Rhodes, obviously without serious consideration, took the life of another and turned himself into a potted plant.  There's stupid and then there's DANGEROUS stupid.  In this modern world, and 1999 wasn't that long ago, how can such stupid people emerge from our collective bosom?  The Black Avenger, Ken Hamblin, called these folks "feral humans."  He emphasized the difference between breeding and giving birth.  We're supposed to grow up... and this with the assistance of parents... not street thugs.

We recently saw a parole violator, when the walls started to close in, kill four cops before others killed him.  That was, at least (and in the words of Boris Karloff in "The Tower of London") in hot blood... panic and frenzy.  Mr. Rhodes was in no danger... no panic.  It is said that he was part of the crew that tossed the shotgun.  It's hard to link a shotgun to a crime after the fact.  But he killed Officer Williams and intended to kill several other police if he could have... just to keep them away from the gun?  Maybe just because, in his defective mind, he thought he could get away with it.

Those who argue that the death penalty is not a real deterrent should take note that in this case and in several other higher profile cases in other states (viz. The Green River Killings and the ABC Killings) prosecutors have extracted guilty pleas in exchange for taking the death penalty off the table.

What is wrong with the death penalty is that it is too often used as a political device in lieu of actual law enforcement.  Rape, even without other injury, used to be a capital crime in some states.  Guess what?  Juries had a really hard time convicting even with absolutely convincing evidence.  When we were having serious urban drug wars (like, we're not now) dimwit politicians were advocating the execution of drug "king pins" should they have the temerity to sell a joint to an underage school child.

The other fault with the death penalty in California is that there's really no such thing.  I'm guessing here... but it's a safe guess... that the average life span of someone sentenced to death is longer than that of the average citizen on the street.  They (the condemned) live in a really protected environment.

Were I to be gubernator I would review the cases of all death row inmates.  I'd throw out some convictions, order new trials for others and commute some sentences to life with or without the possibility of parole.  The remaining, say, third would have their sentences carried out at the rate of four a week.  Two on Tuesday and two on Friday... until no one was left on death row.  Without a backlog and without the possibility of eternal appeal the deterrence would be felt on the street.  After all, Mr. Felon, should you pull that trigger and, likely as not, wind up in court and be convicted... YOU'RE NEXT.  Now, that's deterrence.

$500,000 A Year Civil Servant Pensions - Only In California

Today's Matier and Ross column does an excellent job of exposing what lies at the heart of the budget messes at the city, county and state levels in California.

Key points from the article -- 246 former San Francisco employees receive pensions in excess of $100,000 a year. Fifteen are above $150,000.

I don't have the equivalent numbers for Oakland, Alameda County, Bart and all the other agencies which are sticking it to us. I welcome a reader to contribute the numbers.

But, I feel confident they look the same, and from the sound of it, the numbers will just continue to get worse, courtesy of longer lifespans and the ridiculous union contracts put into place over the last 10 years.

I don't know of there's any way to shed these payouts, short of a bankruptcy. But these civil-servant salaries like at the heart of the budget mess. Closing every park in the state and euthanizing stray kittens more quickly -- both of which have been proposed at the state level -- would do far less than reforming these pensions to improve our budget picture.

There is one element of the problem which Matier and Ross did not discuss. That is the rate of return expectation used in computing the amount of money we need in the retirement system now to pay projected future benefits.

Setting the rate of return number higher has the effect of lowering how much must be contributed to the plan, since more is expected to come in through investment income. Apparently, for the past decade this expectation has been set at something like 8 percent a year.

Sadly, investment returns for the past decade have been more like zero percent. And, there's every indication that they will continue to be anemic in coming years.

So, not only are we faced with a tidal wave on the "demand" side of the equation, with retirees now routinely commanding six-figure salaries in retirement. We also are looking at a "supply" side disaster, with insufficient investment returns to pay for what has been promised.

Personally, I think the state and numerous cities and counties all need to go bankrupt to get out from under these contracts. I see no other way to reduce promised pension benefits, since the unions obviously won't agree to concessions.

Bart's Union Negotiation Website

I usually pay relatively close attention to the ins and outs of local politics, but I complete missed the website that Bart has set up to inform riders and taxpayers about the excesses of its current union contracts.

Bart announced today that it will hike fares in the face of the recession, essentially increasing the fare to ride to SFO so high that I doubt many people will continue to use the service. The high cost of riding Bart is directly related to its union pay and benefits. And, it might surprise many readers of this blog to find out that the Bart station agents and train "drivers" frequently make more than $100k a year when counting pay, benefits and overtime.

I realize that union-bashing is out of vogue with the rise of the Obama administration, but Bart is a prime example of how unions hurt pretty much everyone in the society except their own membership.

Unions even nonunionized poor people, because they make it more difficult for companies and governments to hire new employees. Sure, that's great for those who are already in the door, but for the rest of us it's terrible.

I applaud Bart management's effort to push back against the unions, and I encourage readers to look at that website and provide encouragement to management wherever possible.

I for one would like to see Bart demand real reductions in pay and benefits in the next contract, and I would be more than willing to suffer service interruptions during a strike to get there.

And, needless to say I would be overjoyed to ride a train driven by "scabs." If Bart got rid of its unions, I'd throw a party with all the money I'd save on my tickets.

Tax Policy And The Poor

In the wake of the defeat of last week's propositions, the LA Times ran a column on the front page of its website essentially arguing that California's problem is that it doesn't tax the rich enough.

There are so many problems with this column that it's hard to know where to begin, but allow me to start with a bit of levity. In reading pieces like this, and those written about impending public-employee layoffs, it occurs to me that California may eventually wind up with just a single rich taxpayer paying for a single very well paid public employee.

This seems possible because the Leftists appear intent on shrinking both the number of people paying taxes in the state as well as constantly increasing public-employee pay and benefits, even if that means we can't afford as many of them.

The Times column makes a few points in this vein, each of which deserves a response.

The Times author points out that those in the top 1 percent of California earners paid 7.4 percent of their income in state taxes, while those earning under $20k per year paid 10.2 percent. The budget deal widens that gap to 7.8 and 11.1 percent.

I'm not going to argue with the author's facts, but I do not think that such a disparity is concerning or should be a cause for alarm. In fact, I view it as a pretty reasonable situation. And, if you net out the amount people pay into the system against the amount they get out of it, the situation would obviously look far more skewed in favor of the poor. I don't know the exact numbers, but it's a decent bet that people who make under $20k per year pay negative net taxes.

So why tax the poor at all? About 20 percent of Californians make under $20k per year. If, on average, they earn $15k and pay 10.2 percent in taxes, that's about $12B in annual taxes, which is enough to make a difference in state budgeting. Furthermore, taxing them provides some linkage between taxation and spending, meaning that they have some disincentive to vote for higher spending, as that spending will actually cost them something. Finally, the poor pay zero or negative federal taxes, so 10.2 percent is all they pay.

But why allow the rich to pay only 7 or 8 percent of their incomes in taxes? The answer is simply that states compete with one another to woo capital, and capital means wealthy people. California is doing a terrible job in this competition, regularly losing millionaire families to less tax-heavy states. And, lest we forget, when one includes federal taxes, the rich pay far, far more as a percentage of income than the poor.

The Times goes on to argue that the solutions to this "problem" include changing the percentage of legislators required to pass a budget to a majority, repealing term limits and changing Prop 13. In other words, we should do everything we can to make it easier to raise taxes.

And, by the way, if that were to happen, the increased taxes would hit the poor more than the rich.  This is because legislators know from prior experience with an 11 percent tax bracket that raising income taxes significantly will trigger capital flight. That's why the recent budget deal focuses mostly on sales taxes, which hit the poor more than the rich.

I'm not one of those conservatives who argues that California's tax system can't be rationalized. I just don't trust the current crop of legislators to get that done. And I surely don't trust the constitutional convention some have proposed. Both mechanisms are guaranteed to be overrun by those who have the most to gain, and lose: public employee unions and their backers.

My suggestion would be to keep revenue around current levels, but to move from the boom-and-bust of income taxes to more stable revenue sources. In particular, I agree with the Times author that there is no rational reason to allow Prop 13 to protect commercial property owners. I feel the same way about second homes and houses owned by corporations. And, I disagree with provisions such as the one that allows those who inherit property to keep their parents' Prop 13 cost basis. The point of Prop 13 is to enable families to budget rationally when they buy their primary home, not to produce a random windfall for people.

Even worse, there are families who cannot afford to buy a home because Prop 13 disadvantages families when they first purchase homes, by setting the millage rate so high. While Californians on average pay only around 0.5 percent of their homes' values in property taxes every year, a family buying a new home in Oakland must pay 1.35 percent!

So, my advice to California is a straightforward revision of the taxation system:

• Enact a flat, relatively low income tax rate of 6 percent, which is around the national average.


• Create a lower tax rate for long-term capital gains, as does the federal government.


• Set the corporate income tax similarly.


• Set a relatively low sales tax rate of 6 percent.


• Modify Prop 13 as described above.

Such a change would create a more stable revenue stream and make the state a more compelling place for capital to be invested.

Time To Vote No Again

Like Oakland, California continues to stumble toward some kind of reckoning with profligate governmental policies.

By voting no today, or simply failing to vote at all, voters can help bring a dose of reality to our "leaders."



Those who do plan to vote today should take a look at a couple articles published yesterday in the Wall Street Journal. Here is a link to the first article. It does a good job of explaining the basic facts underlying the current situation.

Even more importantly, voters should read this article, appropriately entitled "Soak The Rich, Lose The Rich."

Of interest are quotes like this one: "California in 2007 had the highest-paid classroom teachers in the nation, and yet the Golden State had the second-lowest test scores."

No one likes to talk about it, but the truth is that extra spending on education has virtually no impact on student achievement. The factors that actually matter include things like parental involvement and whether the parents went to college or not.

Liberals like to say that they support higher government spending and taxation because they want to give the poor and downtrodden an equal shot at success. In and of itself, this is not too problematic of a goal.

The problem is that, in California, government policies have not pursued these ends. Rather, the Democrats run the government exclusively for the benefit of the public-employee unions. That's why, from firefighters and police to teachers, our public employees receive far more in pay and benefits than the average nationwide.

Even worse, the state's constant pursuit of high-income taxpayers has finally begun to push us irredeemably into the red. Consider this: Rush Limbaugh famously announced that he would no longer work in New York state because of the state's planned income tax increase. And, just yesterday the owner of the Buffalo Sabres made a similar announcement.

In the latter case, the lost revenue to New York will total $13,000 a day, or nearly $5 million a year. How many high-income exits like this does it take for a state to see a significant deterioration of revenue?

And, more importantly, consider the fact that New York is only planning to raise its income tax rate to about 9 percent. California's tax currently stands at nearly 10.5 percent! And, public employee unions continue to agitate that taxes aren't high enough.

Put another way, how many people making $100 million a year, and thus paying $10 million in state taxes, need to move to Nevada or Washington state, where the tax rate is zero, before it puts a big hurt in California's ability to pay the bills.

The truth is this is already happening, big time. And no amount of Leftism is going to change that. That is why the legislative compromise earlier this year focused mostly on sales taxes. They know that income taxes are pushing people to leave. So, they're doing what they always do -- soak the poor and middle class once there are no more rich to hit up.

California needs to lower its spending and lower its taxes. And until it starts down that path, I see no reason for voters to go along with any proposals. If it requires a bankruptcy to get out from under whatever ridiculous pension agreements we've made with the public employees, then I'm fine with that.

The reckoning is coming, and voting no on these propositions brings it still closer. And that is good for all of us who don't want to see sales taxes at 15 percent.

Oakland Chrysler Dealer To Close

I've obviously been offline quite a bit lately tending to some things, but I wanted to let readers know that our local Chrysler dealer on Broadway will be closing as part of Chrysler's round of dealership closings.

Here is a link to the full list of closures. Apparently Oakland's is one of five or so in the Bay Area, including one in Livermore.

I can't imagine this will be good for Oakland, and I would guess that the GM dealership is going to close too. We'll see...