Freaking Out About 2.43% Of The Budget Deficit
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By Robert Cruickshank
California Watch has a new article out examining payouts of accrued vacation time. Some employees have accrued so much unused vacation time that they get six-figure payouts upon leaving/retiring.
My first reaction to this is "so what?" It's an extremely common practice for employers to pay out unused vacation time as pay. It's better and fairer to the workers than "use it or lose it" policies regarding vacation time that tend to penalize workers for not making immediate use of benefits they have been given. This is especially true in an American working environment where vacations are discouraged as we quite wrongly believe that constant work is good either for the employer or the employee.
The California Watch article's point, of course, is that this practice is detrimental to the state at a time of budget crisis:
Amid a crippling fiscal crisis, managers throughout California's government have routinely allowed their employees to amass unused vacation time, enabling hundreds of workers to end their public-service careers with payouts topping $100,000, a California Watch investigation has found.
One worker combined vacation and compensatory time to walk away with more than $800,000, records show.
In the past four years, nearly 500 government workers earned six-figure paychecks mostly for unused vacation. In total, the state spent $486 million between 2006 and mid-2009 to pay more than 52,000 employees for time-off benefits - which includes a small percentage of unused comp time and holidays that weren't taken.
$486 million sounds like a lot of money. But that is just 2.43% of the current $20 billion deficit. In other words, if we had eliminated that practice in 2006, or capped it, the budget deficit would not be meaningfully impacted. In fact, given that we've had about $60 billion in budget shortfalls since 2007, these vacation payouts are 0.81% of the overall deficit.
So I don't understand why this is all that newsworthy. Sure, there might be some point to capping the payout at $100K or $200K, but even then it would be a very minor fix that would do nothing to address the deeper budget mess.
Of course, these kinds of articles help build a larger narrative that the budget problem is in large part caused by greedy public sector workers who are paid too much. The actual numbers here indicate that the vacation payouts are not a meaningful part of the budget problem at all. Similarly, Meg Whitman's desire to layoff 40,000 state workers would probably save about $2.5 billion (assuming those workers make the state average). That's a bigger chunk of the projected $20 billion deficit, but it's still only 12.5%. Whitman and other critics of public employees need to come up with solutions for the other 87.5% of the deficit.
Maybe one place to start is by looking at how the rich evade their tax obligations. Last week the LA Times's Michael Hiltzik showed that Frank and Jamie McCourt paid no federal or state income tax between 2004 and 2009. Many wealthy Californians and large corporations have similarly evaded taxes.
There's a lot there for investigative journalists to pore over. For example, California Watch could examine how much money some of California's largest corporate landowners have cost the state by using shell companies to get around property tax reassessments at sale, unfairly extending Prop 13 protections. Or they could examine how many other California CEOs follow Meg Whitman's lead and use offshore tax shelters. There is much more money the state loses through these means than the paltry $486 million over 3 years cited in the California Watch article.
But instead they seem to be focusing on attacking public workers. It's a sad reflection of the fact that in today's California, workers are seen as an acceptable punching bag, but corporations and the wealthy aren't.
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Robert Cruickshank is a historian, activist, and teacher living in Monterey. He is a contributing editor at Calitics.com and works for the Courage Campaign, in addition to teaching political science at Monterey Peninsula College. Currently he is completing his Ph.D. dissertation in US history, on progressive politics in San Francisco in the 1960s and 1970s. This article was originally published in Calitics.
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For instance; Meg Whitman's desire to layoff 40,000 state workers would probably save about $2.5 billion (assuming those workers make the state average). That's a bigger chunk of the projected $20 billion deficit, but it's still only 12.5%. He apparently is one of those people who thinks that $2.5 billion is a pittance - hardly even worth mentioning.
$486 million sounds like a lot of money. But that is just 2.43% of the current $20 billion deficit. In other words, if we had eliminated that practice in 2006, or capped it, the budget deficit would not be meaningfully impacted
He certainly believes $486 million -almost a half billion - isn't a lot of money. It just SOUNDS like a lot.
Conversely, he's all over a single married couple who, over a six year period, averaged a little under $20 million a year in income (mostly capital gains it would appear), BUT PAID NO FEDERAL or STATE INCOME TAXES (mostly due to capital loss carry-overs from previous years). Of course he doesn't mention that during this time they have offsetting capital losses which brought down their capital gains, or that they had purchased large amounts of California tax-free general obligation bonds, the interest income of which are - by state and federal law because they allow states to finance things they need at a lower rate than they would otherwise pay.
But you get the drift. A half billion in savings taken from overpaid government workers - or even five times that much - really isn't worth doing. What we OUGHT to do is extract another few million from people who have MORE THAN THEIR SHARE.
Except he also tells the other thing about those people. They are the ones best able to structure their investments to avoid tax increases - or move out of California altogether if they want.
It's guys like Mr. Cruickshank that are putting California on the road Greece is now on. They need to wake up to reality. The high tax - high benefit model was tried, and it failed miserably.