In 1978, Howard Jarvis launched the U.S. anti-tax movement in California with Proposition 13, which capped annual increases in property taxes and kept people from being forced from their homes during real-estate bubbles. A generation later, the Golden State could be on the brink of launching another populist movement, one driven by anger over government compensation practices. A key battleground is San Diego. In June, voters will decide on Proposition B, the Comprehensive Pension Reform Initiative. It would end defined-benefit pensions for all new city hires except for police officers, instead providing pensions similar to 401(k)s. It would prevent pay sweeteners from being added to base salary when calculating pensions, and it would require city workers to pay a bigger share of their pension costs. Finally, Prop. B would mandate a five-year salary freeze.

Prop. B’s chief author is San Diego city councilman Carl DeMaio, a Republican former management consultant and leading candidate for mayor. DeMaio, 37, doesn’t just want to end costly defined-benefit pensions for public employees, a position he shares with former Republican and newly Independent Nathan Fletcher, one of his rivals in the race. He’s also a vigorous advocate of “managed competition,” in which public-employee groups bid against private providers on the provision of government services. San Diego’s version of managed competition—which DeMaio would like to expand upon—so far has driven down the cost of municipal fleet maintenance, street sweeping, and printing. “Managed comp” carries the promise of extending to government—at last—the productivity revolution that has transformed the private sector over the past 30 years. Even with total U.S. employment at historically low levels, the gross domestic product has never been higher. It’s been nearly a decade since the McKinsey consulting group reported that “the opportunity to improve government productivity is huge . . . [with] three classic management tools . . . organizational redesign, strategic procurement and operational redesign.”

Nor does DeMaio’s reform agenda stop there. Politicians often talk of tying government pay more closely to performance, starting with teachers. DeMaio, a Georgetown University graduate, wants to take the performance emphasis further and end the standard government pay practice in which most public employees receive automatic, annual “step” wage increases solely for accumulating years on the job. Many California school districts, including San Diego’s, now spend more than 90 percent of their operating budgets on compensation. Automatic raises also are a driving force behind the maddening practice of government “baseline budgeting,” in which taxpayers are told that every agency’s budget must go up by 6 percent or 8 percent each year, or else the agency’s budget is being “cut.” “Instead of automatic salary increases based on ‘time served,’ we should have targeted increases based on ‘performance achieved,’” DeMaio says.

Defenders of so-called step raises insist that the practice is necessary to stem employee turnover that would hinder government performance—a dubious argument. With the exception of law enforcement and some niche categories, no evidence exists of substantial market demand in any area of public employment. Public-sector compensation is so much higher than private-sector pay because of pay practices—including automatic raises negotiated by bureaucrats who often stand to benefit from the policies—and because of the political clout of public-employee unions.

If DeMaio has his way, these practices would end—first in his scenic city on the coast and then across California. The need for radical reform has never been clearer. The working-class city of Bell in Los Angeles County made headlines in 2010 when the Los Angeles Times uncovered how the city’s treasury had been looted by a handful of public employees who paid themselves enormous salaries. In an e-mail exchange with DeMaio, I suggested it was appropriate for Californians to think, “We are all Bell”—because government compensation practices that amount to legal looting are so widespread. DeMaio agreed. “California used to be the envy of the nation. People used to move to California for a second chance on life. Today California itself needs a second chance,” DeMaio wrote. “That’s exactly why I’m pursuing the reforms here in San Diego, so we can provide a model for how to fix the problems and get that second chance.”

DeMaio’s effort faces ferocious resistance. California is so beholden to union power that the head of the state Democratic Party actually endorsed a policy under which students suffering epileptic seizures couldn’t receive life-saving medicine unless union nurses dispensed it. From the unions’ perspective, DeMaio must be stopped. DeMaio and supporters gathered the signatures to place Prop. B on the June city ballot only after overcoming opposition efforts to intimidate signature-gatherers, including radio commercials warning that signing petitions would lead to identity theft. DeMaio, who is gay, also has faced baiting over his sexual orientation (a rich irony in gay-friendly California).

The union-allied state Public Employment Relations Board tried and failed to keep the ballot measure from being voted on; it vows to challenge its implementation if approved. The board contends that the initiative is an end run around legally mandated collective bargaining because current San Diego mayor Jerry Sanders was involved in crafting the measure’s language. But as San Diego City Attorney Jan Goldsmith noted in February, “Never in the history of California has there ever been a requirement to negotiate with labor unions over terms of a citizens’ initiative placed on the ballot by voter signatures.” Plainly, the San Diego pension-reform effort has California’s union leadership worried. Whether Carl DeMaio becomes a twenty-first-century version of Howard Jarvis remains to be seen—but for now, in the Golden State, the young Republican has become the unions’ Public Enemy Number One.


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