California’s endless budget battles come down to a straightforward question: Does the government spend too much or is it starved of revenues? A look at the useless commissions, duplicative agencies, outsized pay and benefit packages for public employees; the political rules (project labor agreements, prevailing wage, and so on) that inflate costs; and the recurring scandals involving public agencies suggests that the problem is spending, not revenue. But after convincing voters to approve tax hikes in November through Proposition 30, California Democrats (with help from some wobbly Republicans) have endorsed the other answer: they can never spend—or tax—enough. Enjoying legislative supermajorities, Democrats are busy removing mechanisms that keep spending in check, especially when it comes to public-employee unions.

The latest example: Senate Bill 7, which would strip charter cities of their authority to set wage rates. (Unlike general-law cities, which are governed according to state-government guidelines, charter cities govern themselves according to the framework established by their own charters.) State rules require the payment of the so-called prevailing wage—that is, the inflated, union-determined rate—but charter cities can get more for their dollar by setting their own rates for city-funded projects. As the Construction Compliance Group explains, “Voters in 121 California cities have enacted charters, mini-constitutions that give these cities full authority to govern their own municipal affairs without mandates or interference from the state legislature. One of the most high-profile powers of a charter city is the right to establish its own policies concerning government-mandated construction wage rates (so-called ‘prevailing wages’) on public or private projects that only receive government funding from the city itself.”

The question of whether public-employee unions could compel charter cities to adhere to the prevailing wage came before the California Supreme Court in July. The court sided with local governments in a five-to-two decision. “Autonomy with regard to the expenditure of public funds lies at the heart of what it means to be an independent government entity,” the court ruled. “The union here cannot justify state regulation of the spending practices of charter cities merely by identifying some indirect effect on the regional and state economies.”

Sponsored by Democratic senate leader Darrell Steinberg, SB 7 would undermine the court’s decision, punishing municipalities that set their own wage rates by denying state funding to those projects. The bill is in the senate appropriations committee’s “suspense” file, meaning it is on hold but still alive. If it eventually passes, the bill would effectively end home rule, at least on the subject of wages, as virtually every public-works project in a locality receives some state assistance. State officials clearly want to use their purse strings to force local governments to comply with all the costly and unnecessary regulatory rules passed in Sacramento—thus negating the motivation for cities to embrace home rule in the first place.

The pro-charter California League of Cities worries that SB 7, and a handful of similar bills winding their way through the legislature, are the first steps in undoing charter-city exemptions entirely. “While prevailing wages can be controversial, the opposition of the League to this measure is much more fundamental,” the group said in a statement. “If the legislature is successful in establishing the tactic of withholding funds or otherwise penalizing charter cities for having ordinances that vary with state laws, then the same model can be used to fully harness their communities to the state’s yoke.”

With their local autonomy, charter cities have long been a nuisance to public-sector unions and their allies. At the state level, the unions have used their ironclad control over lawmakers to get their way. Serious pension reform is currently a non-starter in the state legislature, for instance, despite an unfunded pension liability that Stanford University researchers say amounts to nearly $500 billion. At the local level, though, the unions have faced tougher resistance.

Even overwhelmingly Democratic San Jose, for instance—the third-largest city in California after Los Angeles and San Diego—advanced a pension-reform measure on the June 2012 ballot to address soaring costs and tight budgets. Mayor Chuck Reed, a Democrat who made the progressive case for pension reform, led the effort. Without it, he said, necessary public programs and services would suffer. Union officials were hard-pressed to win a battle waged from the left. Facing a 350 percent increase in pension costs in a decade, San Jose city officials persuaded voters to pass a reform that reduced retirement formulas, increased employee contributions, capped the city’s contribution to the retirement plans, and extended the retirement age.

Other cities have put forward reform proposals applying solely to new employees, but San Jose’s reforms terrified the unions by applying to current employees as well. City employees would have a choice: they could keep their current pension plan but contribute an extra 4 percent of their salary each year until they covered half of its costs; or they could opt into a new plan that delays retirement ages (57 for public safety, 62 for everyone else), lowers benefit levels, and computes the annual pension amount based on a three-year average, rather than on the final year’s (or highest year’s) pay.

California courts have prohibited government entities from reducing pensions for current employees, even going forward. San Jose got away with it, despite court precedent, for one reason: it’s a charter city, and San Jose’s charter specifically permits officials to change the pension plan. Unions have challenged the measure in court, and the case is ongoing. But without a doubt, charter cities’ home-rule provisions pose the gravest threat to state unions.

Kevin Dayton, a long-time leader in California’s battles against union power, notes that unions have fought local efforts to expand charter provisions to additional cities and have attempted to infiltrate or co-opt the California League of Cities through sponsorships and other tactics. As Dayton observes, the unions are perfectly happy seeking higher taxes rather than allowing government entities to embrace the cost savings that charter cities have pioneered. As long as the state’s leaders can tap more revenue, they will never have the impetus to embrace dollar-stretching reforms. Unfortunately, with enhanced Democratic legislative power and a sometime union advocate in the governor’s office, at least some of these assaults on home rule could succeed.


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