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Patch Blog: Coping With South Pasadena's New Reality

One City Council candidate is ready to cut, cut, cut. I say not so fast.

Ernie Arnold is a nice guy, a sensible guy (I actually met him once), but I cannot allow his facile, and currently in vogue assessment of South Pasadena’s public sector financing crisis to go unchallenged. A few facts first: 

Local & California Income Data:

  • About one-half of South Pasadena households earn more than $75,000 annually. 
  • The California State median income is about $58,000. 
  • South Pasadena has nearly double the percentage of households—earning $200,000 annually—than the rest of California.  

 

While economic times are certainly tough across the United States following the housing bubble and financial sector collapse of 2008, South Pasadena, by almost any measure, remains a relatively wealthy city. And while it is fundamentally true that all public sector services such as fire, police, infrastructure maintenance and schools can only be funded at a level which can be supported by the surrounding real estate and business sector tax contributions, it would be a mistake to look at just one side of the budgetary equation when considering cuts to services, salaries and benefits in the public sector.

Ernie Arnold states that, “Public sector employees have become accustomed to and expect regular pay raises and fully funded pension and health benefits,” as if that was some sort of crime or not the norm in the private sector world.

It should be noted that within one year of receiving multi-billion dollar publicly funded bailouts, the State Comptroller of New York indicates that Wall Street Firms have paid out $22.5 billion dollars in bonuses to its workers. These are the same good corporate citizens that packaged the deceptive, irresponsible, and highly leveraged financial instruments that imploded our national economy. Somehow, that kind of productive, private sector behavior is deemed worthy of recompense, while the work of those who provide necessary community services is suspect and needful of trimming.

Mr. Arnold seems quite proud of this private sector achievement, “As Chief Financial Officer for a firm, I had to close an entire department and lay people off in order to save the company.”

While it is true that the rigors of the free market can often force private businesses to make difficult, cost-cutting decisions, it is less clear that other corporate strategies cannot be utilized to soften the blow or share the pain of economic downturns, especially when it comes to job loss. Germany (a high labor cost country) entered the current recession with strong employment protection legislation, which “has been supplemented with a short-time work scheme, which provides subsidies to employers who reduce workers’ hours rather than laying them off. These measures didn’t prevent a nasty recession, but Germany got through the recession with remarkably few job losses,” reported the New York Times.

South Pasadena is a smart town—one look at the resumes of our School Board is enough to intimidate anybody. So rather than crow about firing people, might we not be better served by leaders who are willing to learn from and adopt better, job sustaining strategies rather than simply “closing entire departments?"

Here is Mr. Arnold’s premise: “The income of many South Pasadena residents have not increased over the past five years…..The private sector has moved away from fully-funded retirement plans but instead provides matching funds to employee contributions. The private sector moved away from defined benefits because it is unsustainable."

While I’m sure that a number of City residents have experienced financial hardship in one way or another during the recent downturn, as the income data I’ve provided indicates, South Pasadena remains a relatively prosperous town. I’m certain, as has been demonstrated among public (Wisconsin) and for that matter, private (General Motors) unions across the United States, that the public sector workers in our town are not blind to economic realities, and would be quite willing to negotiate some reductions in their pay and benefit scales. I would be disappointed in them if that was not the case.

Mr. Arnold uses the term “unsustainable” to justify both cuts in public sector funding as well as private sector reductions in retirement and medical insurance plans, again, as if the economic facts suggest that there is no alternative. It is time, I think, to absorb a few more economic facts: 

 

These economic numbers are significant, because they capture the reality of economic growth and performance in the United States in a big picture kind of way. For a host of complicated reasons, income has been flowing (by historic comparison) to a disproportionately smaller segment of our society—when corporate profits and worker productivity is high, but median income and workers salaries decline or stagnate, that is not a sign of a properly functioning economy.

When 1% of society captures 52% of all income growth over the past 15 years, and 400 people own more wealth than half of America that too is bad sign—unless one believes in a plutocracy. Mr. Arnold, and no doubt others, while highly alert to the worker/wage aspect of our current difficulties, seem quite content to ignore these “other” negative aspects of our changing economic landscape.

More importantly, he reflects a certain knee-jerk reaction to what has been described as the “new reality” by blithely placing all the burden of coping with difficult economic times on the worker side of the equation. If CEO’s are earning 300 times their average workers, and corporate profits are soaring, and Wall Street can see fit to pay billions in bonuses after receiving a publicly funded bailout, might that not indicate that a different approach to balancing the revenue/cost sides of the equation is in order? 

Like I said, Ed Arnold is a nice guy, but he’s also a guy who’s a little too eager to apply status quo analyses and remedies to today’s “new reality” economic problems. We can do better than that in South Pasadena.

This post is contributed by a community member. The views expressed in this blog are those of the author and do not necessarily reflect those of Patch Media Corporation. Everyone is welcome to submit a post to Patch. If you'd like to post a blog, go here to get started.

S. Ray October 18, 2011 at 06:10 PM
You seem to be saying that simply because many people in South Pasadena earn more than average, we should have it taxed away to support a class of government workers, some of whom are unproductive or unnecessary. It seems you begin with the wrong premise and move from there. That premise appears to be that since more than half of South Pasadenans make more than the statewide median, the government should somehow have the right to require them to pay more to support government workers. In other words, you advocate a welfare state for government workers. While I don't begrudge people salary increases when appropriate, let's not forget that there's a difference between the public sector and the private sector. The private sector makes money by contributing to the economy, its members have to earn the money they make in the open market, and then they get to share the benefits of their hard work via salary increases. That money is then taxed to pay for government services. As such, to a point, government is a leech on the private sector, drawing capital from it to support what government does. Some of it is necessary (fire & police protection, water service, trash collection, road maintenance, election organization, etc.), but a lot is not. Thus, government provides a lot of services not because they are required for an orderly society and healthy community but because they are deemed beneficial to a large group of people (park maintenance, senior services, libraries) [more]
S. Ray October 18, 2011 at 06:29 PM
which could be provided by private industry, probably for a lot less money. With that in mind, there is no reason for wasteful programs and unproductive or unnecessary workers paid by local government to be viewed as sacred cows whose jobs are lifetime annuities. As Ronald Reagan said, "The closest thing to eternal life we will ever see on earth is a government bureau." Our elected officials must view themselves as trustees of a public trust, that trust being the hard earned tax money taken from us citizens to maintain our community. The problem with people like you is that you are of a mindset that simply because others may have earned what you deem to be more money than they need, it is the right of the government to confiscate it and distribute it to those who don't have as much provided you can loosely tie it to some notion of a "public good." That is simply tyranny. I too have met Ernie Arnold, and I agree that he is a nice guy. I have not decided if I'll vote for him, but I think that he is right when he says that we need to move away from unsustainable bloated public payrolls with bloated pensions, neither of which can be cut, at a time when the private sector is cutting to the bone simply to survive. I know what I am talking about. I have not had a salary increase since 2008 at my job in an industry where jobs are scarce, and I have a difficult time justifying giving one to a so-called public servant, especially an unproductive one.
Mindy B October 18, 2011 at 07:09 PM
"which could be provided by private industry, probably for a lot less money." Bull. I have seen so much waste, inefficiency and outrageous charges in the private sector. Talk about sacred cows.
Robert Defulgentiis October 18, 2011 at 07:10 PM
I am saying that South Pasadena, relative to most of California, is a wealthy community. This suggests that South Pasadena is in better condition than most other municipalities in the state to support necessary public services. The definition of what is necessary can be debated, but just because teachers, policemen, firemen, park maintenance workers, etc. do not produce "profits" in the marketplace, one should not malign their necessary contribution to the community. Our recent economic collapse can in fact be directly attributed to private sector entities that, how shall I put it, grew overly fond of profit-making. "Government is a leetch", "welfare state for government workers".....the last time I checked, in our Democratic Republic, the power of government flows from the people in very unleetch-like fashion. The community/people can decide via their representatives how best to spend the tax revenues. In an era of 300-1 CEO pay to average worker, and 80% of the population owning only 15% of the nation's wealth, I'm thinking that trimming the salaries and benefits of everyday workers, as a default solution for budgetary crises, may not be as firmly entrenched in the minds of most citizens as you think. I do know that recent polls do support, by about 70%, raising taxes on millionaires.........now there's a start right there.
Robert Defulgentiis October 18, 2011 at 07:16 PM
As Ronald Reagan said, "The closest thing to eternal life we will ever see on earth is a government bureau." Yes, he said lots of things, most of which, over time, have lost their glow. Perhaps his most famous was "I'm from the government, and I'm here to help you," which is certainly true if you're a highly profitable oil company seeking subsidies, or a bankrupt bank in need of publicly funded saving. Now that's what I call unsustainable.
S. Ray October 18, 2011 at 09:13 PM
You take Reagan's words out of context. What he said was, "The ten words we should fear the most are, 'I'm from the government; I'm here to help you.'" America is a country that has always prided itself on fostering entrepreneurship. That spirit is under attack today by the notion that if anyone succeeds, that success should be stripped away from them to favor those who have not succeeded. Bill Clinton even said recently that Americans have always appreciated the success of others, not sought to punish it, yet here we are talking about just that. The problem is who decides how much is enough and on what basis? What makes it so that just because a millionaire has more money that I do, she should have to pay a greater percentage of her income for the same benefits and burdens that government imposes? What incentive does that create for any of us to want to do better? None. I am not in favor of government bailouts for anybody, be they Wall Street Banks or car companies overburdened by union pension obligations. But that does not mean that I favor overtaxing the successful to support those who simply do not work as hard, have not taken the risks, or simply do not have the tools to succeed (by this, I mean those who are not intelligent enough to succeed the way others do). In short, what seems fair to one man is robbery to another. I hope to be comfortable some day, and I'd hate to have someone take it away to support someone who chose not to work as hard as I do.
S. Ray October 18, 2011 at 09:29 PM
Mindy, The difference is that government workers are rewarded with job security and benefits for their inefficiency, while in private industry, the bottom line is affected and as a result, there is less money to pay to workers. Also, in private industry, customers can go elsewhere, while in the public sector, our only choice is to replace inefficient workers with more efficient ones. Unfortunately, that rarely happens due to the mentality that has government department heads protecting their (taxpayer sponsored) fiefdoms. In other words, a manager in private industry makes more money if she has an efficient and well run department that is profitable. By contrast, a manager in government justifies a larger salary simply based on the number of employees she manages. The more people she manages, the more she can argue that she should be entitled to greater compensation due to the difficulty of her task in managing all of those people. There is no incentive to be efficient, and the only limitation is budgetary.
Robert Defulgentiis October 18, 2011 at 10:02 PM
"That spirit is under attack today by the notion that if anyone succeeds, that success should be stripped away from them to favor those who have not succeeded." Really.......last week Democrats in the Senate proposed a .056% surtax on incomes over $1,000,000 (a tax supported by 65% of Americans). That means someone earning $1,100,000 would pay an extra $5,600. Hardly "stripping away" or "overtaxing". And BTW - with that minimal surtax, Obama's entire American Jobs Act would be paid for. And who supports the American Jobs Act - the American Business Roundtable + U.S. Womens Chamber of Commerce + the CBO. Who doesn't support the Act? Every Republican who voted to block it. "What makes it so that just because a millionaire has more money that I do, she should have to pay a greater percentage of her income for the same benefits and burdens that government imposes? Government is not from outer space - it is in our society, a direct reflection of the will of the people (at least in principle)....so yes, the citizenry "imposes" things like taxes, and yes, our nation has imposed a progressive tax, which means those with more pay more. We call it a social contract.
S. Ray October 18, 2011 at 11:00 PM
Robert, I beg to differ with you on several points. Our recent economic collapse was directly tied to the housing bubble bursting. This was due to the fact that Fannie Mae and Freddie Mac, directed by Congress, forced lenders to make loans that were riskier than they had previously under the guise of increasing home ownership. When the cycle of purchasing, selling and refinancing accelerated, the entire system melted down when it was realized that the value of mortgage security was inflated; the bubble burst. Had the government not pressured lenders to act with impunity, prudence would have reigned in the private sector as it had before the pressure began, and the bubble would never have inflated to begin with, at least not to the extent it did. I am not maligning the contributions of police, firemen, or park maintenance workers (and I never mentioned teachers), I am just suggesting that they are not always the most economically efficient for what they do. For example, why shouldn't a police officer or a fireman pay into the Social Security system and have to save for retirement like the rest of us as opposed to benefiting from the CalPERS system? There is no good reason. Also, the perceived inequity in salaries is a straw man argument. The real problem is that unions support politicians who will use public money to pay union members bloated salaries, which fund the unions to keep the politicians in power. That is a violation of the public trust by the politicians.
Gary Rowe October 18, 2011 at 11:08 PM
Elizabeth Warren, the great consumer advocate, professor, and Senate candidate in Massachusetts nailed the critical point in this clip. It's really good, if you haven't seen it yet: http://www.youtube.com/watch?feature=player_embedded&v=htX2usfqMEs [She said the following in the clip: "There is nobody in this country who got rich on his own. NOBODY! You built a factory out there – good for you! But I wanna be clear, you moved your goods to market on the roads the rest of us paid for. You hired workers – the rest of us paid to educate – you were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that maroting bands would come and cease everything at your factory and hire someone to protect against this, because of the work the rest of us did, now look, you built a factory and it turned into something terrific, or a great idea, god bless, keep a big hunk of it, but part of the underling social contract – you take a hunk of that and pay forward for the next kid who comes along."] And Oliver Wendell Holmes riffed on the same theme when he said, "I like paying taxes, with them I buy civilization."
S. Ray October 19, 2011 at 12:22 AM
Gary, I have seen the clip. Ms. Warren is a Marxist, plain and simple. Under her reasoning, everything belongs to the state, and entrepreneurs take risks and succeed not to enjoy the fruits of their success but only to benefit the collective whole. That is not how our Capitalist system works. That type of thinking was rejected in America when the Pilgrims determined that collectivism under the Mayflower Compact discouraged hard work and encouraged slacking off. Again, Ms. Warren errs because she begins with the wrong premise. Our Founders created America as a nation of natural law, not collectivism. Natural law states that we have a right to life, liberty, and according to our Constitution, PROPERTY. Ms. Warren's starting point is that all property belongs to the state. She would believe that all rights flow from government, not from the inherent state of being. According to her, if you breathe, you belong to the state. Fortunately, our system rejects Warren's views. The Bill of Rights (Tenth Amendment) specifically states that the powers not expressly given to the Federal Government by the Constitution are reserved to the States and to the people. Warren stands this on its head and argues that unless the government has extended the rights to the people, they belong to the government. For instance, she suggests that your education belongs to the government if you went to a government school. Even the California Supreme Court rejects this. [more]
S. Ray October 19, 2011 at 12:22 AM
So, Gary, Ms. Warren's position is a Marxist position. Are you advocating Marxism? It is true that Holmes said taxes are the cost of living in a civilized society, but they should not be a tool of punishment of the successful. Voltaire said, "The art of government is taking money from one class and giving it to another." Unfortunately, our government in general, including our local government, has created a class of government workers who are the beneficiaries of this art.
Jones Foyer October 19, 2011 at 01:30 AM
We are very fortunate that our community is well off and less hard hit than others during the downturn, but we are not immune, hardly. The budget shortfalls that have hit other cities will hit ours, just later than those with lower incomes. We can take advantage of this foresight and reduce budgets, re-think pensions for new employees and aggressively take action on items that have taken other cities by surprise. To sit back and think that our city government does not need to cut back is blind optimism.
Hugh Hemington October 19, 2011 at 01:41 AM
Let's stick to SOUTH PASADENA shall we? Otherwise, this thread will mutate into something that has no bearing on our city at all. YOU call it a social contract. I call it SocialISM. I know a lot of people in South Pasadena that are struggling, and a lot of seniors on fixed incomes. We don't have "progressive" utility taxes, or "progressive" property taxes apart from the residual effects of Prop. 13. What we do have is a sewer infrastructure that has been neglected, streets and curbs that are in bad shape. We also have a water system that is being repaired, by in the worst way possible for residents and businesses (but the easiest way possible for the City Council). Personnel has absorbed a disproportionate share of City funds for a long time, and threatens to in the future. Why? Because we've had FAR too many Council members whose loyalties lie OUTSIDE this City. They work for the County, State, or a Union. They want to serve on the council as a "job interview" for future political office. Or they just want to be a "nice guy" and say yes to every expenditure. We need a Council that represents South Pasadena FIRST and ONLY. Council members who are NOT looking to please "their next employer" instead of us. And we need people with business experience -- people who have balanced budgets, hired and fired. WE NEED A BETTER COUNCIL.
Janet Cartwright October 19, 2011 at 02:46 AM
S.Ray is a blowhard!
Janet Cartwright October 19, 2011 at 02:47 AM
Never understood why people are so afraid of taxes....taxes are good!
Robert Defulgentiis October 19, 2011 at 02:52 AM
"Ms. Warren's starting point is that all property belongs to the state"...S. Ray, you do have a knack for overstatement. As they say in Maine - you can't get theya ("Ms. Warren is a Marxist") from heya ("There is nobody in this country who got rich on his own.")
Robert Defulgentiis October 19, 2011 at 02:56 AM
"YOU call it a social contract. I call it SocialISM."...............that is your definition of a progressive tax system and combining resources to support community services?
S. Ray October 19, 2011 at 05:10 AM
I don't draw my conclusions about Ms. Warren from her statements but from my knowledge of her body of work and her positions in general.
S. Ray October 19, 2011 at 05:11 AM
Janet Cartwright must be a liberal. When she can think of nothing else, she resorts to name calling...
S. Ray October 19, 2011 at 05:14 AM
So you like having money you have worked hard to earn confiscated by the government to give to others? Fine. You pay the taxes. I will fight to keep more of what I work outlandish hours to earn.
S. Ray October 19, 2011 at 05:31 AM
If Obama's Jobs Bill was so great, why did Harry Reid prevent it from being voted upon? http://news.yahoo.com/reid-blocks-obama-jobs-bill-vote-054100776.html The surtax you discuss would be IN ADDITION to the tax that the millionaire already pays. It is easy to say, "It's only $5,600" when you ignore that the person earning $1 Million could pay as much $390,000 in Federal Income Tax, and of the 237,000 tax returns filed in 2009 with incomes in excess of $1 Million, those taxpayers paid on average $291,000 in taxes. With this background, that extra $5,600 is significant. That's the amount, for example, that the million dollar earner might pay a gardener, household help, or someone else to work for her. It reminds me of those game shows like "Who Wants to Be A Millionaire?" If a person wins $1 Million on the show or even in the lottery, after Federal, State and Local taxes, they normally take home about $530,000, not exactly the stuff of a millionaire.
Ernest Arnold October 19, 2011 at 06:00 AM
Robert, I seem have struck a cord. I for one like having an independent city where we decide what happens in our neighborhoods, and have our own schools. The last time I looked Wall Street is not in the City of South Pasadena. The City of South Pasadena does not have an income taxe, so the taxes on millionaries is irrelevent for our budget. If we in South Pasadena are unable to fund ourselves then we can merge with Pasadena or Los Angeles and lose our own school district and control over the zoning in our neighborhoods. These larger national/global arguments while interesting in their own right have nothing to do with the city council in South Pasadena. I really don't care what other cities can pay or how much money other cities have. I am running for city council in the City of South Pasadena, not for office in Sacramento or Washington D.C. The only issue I care about is what can we afford in South Pasadena. If we can't manage our own expenses or pay our own way, then we cannot be an independent city.
Gary Rowe October 19, 2011 at 06:24 AM
Ms. Ray: I'm not sure whether to laugh, or sigh, or cry. Someone who fights in the political sphere for consumers and the middle class (i.e., the bourgeoisie) is, well, not exactly a Marxist. And while it may be fun to get smear liberals for their "Marxism," that kind of falsity doesn't do much to advance the discourse. Also, Prof. Warren's scholarship consists mainly of careful, empirical bankruptcy studies. (Look for yourself: http://www.law.harvard.edu/faculty/directory/index.html?id=82). It's pretty difficult reading, mostly untouched by those outside her field, and hardly the stuff capable of generating the kinds of fears you invoke.
Jones Foyer October 19, 2011 at 06:27 PM
Taxes are not good, they are necessary. We don't pay taxes for the fun of it (at least I don't). Because taxes are not paid voluntarily, the city government has a duty to taxpayers to fulfill its obligations within the budget. To spend freely, unwisely, and simply increase taxes to cover the expanding budget is disrespectful of the community and taking advantage of the system.
Robert Defulgentiis October 19, 2011 at 06:54 PM
"With this background, that extra $5,600 is significant." With this background - 80% of income gains since 1980 have accrued to the top 1% - it is not significant. And as much as I might try to commiserate with the tax obligations of millionaires, how bad can it be when one's tax contribution (as stated by S. Ray of $291,000) is about 6X the median income (about $50,000 and declining) of the average American family of 4?
Marcy October 20, 2011 at 04:33 AM
To S. Ray: Thank you for taking the time to respond to all of this. I learned a lot.
Robert Defulgentiis October 20, 2011 at 07:34 PM
Wall Street certainly is not in South Pasadena. But the effects of Wall Street's malfeasance have certainly been felt in South Pasadena. I understand the need to focus directly on the specific issues facing South Pasadena, but I don't think the understanding or strategy applied to solving those issues (in this case, public sector salaries/benefits) can be formed without looking at certain, relevant macro-issues and acknowledging South Pasadena's connection with the "big picture." We don't exist in a political, economic bubble. Clearly, the conservative approach to solving current public sector union issues is to denigrate public sector workers (see other posts) and place the burden of solving those issues on the backs of middle-class workers. Governors in Wisconsin and Ohio are doing just that, and Governors in Wisconsin and Ohio are either facing recalls or defeats of anti union legislation in the next few months. Go here to see a chart (about 1/2 down the page) that says a lot about workers and wages in the U.S. over the past 30 years - they have been stagnant while the incomes at the top 1% have soared. As my South Pasadena income figures show............there's a lot of 1% in South Pasadena. http://motherjones.com/politics/2011/02/income-inequality-in-america-chart-graph
Ernest Arnold October 21, 2011 at 01:57 PM
Robert, We only have about 7,000 households in our city. If we had alot of households earning in excess of $1,000,000, our median and average household income would be much higher. I can't see even $1,000,0000 from $78,000. I am sure we have a couple of people whe have earned $1,000,000 or more in any given year with the exercise of stock options or the sale of a company, but they don't get that every year. I really doubt if we have anyone who is consistantly earning more than $1,000,000 as earned income every year, You might look on the west side in liberal Beverly Hills. I would not say that the conservative approach is to denigrate public sector workers any more that I would say that the liberal approach is to denigrate tax payers. I see a difference between the Union and the rank and file. The rank and file are just hard working people trying to providing for their families. The Unions however are run by people as power hungry and greeding as anyone in the board room. I will stop there because t is easy to get into name calling and insults, but that solve nothing. The question is how does the City of South Pasadena, pay our employees a fair wage and sitll maintain our streets and public utilities? If we cannot then we cannot survive as a city.

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