Podcast podcast
Jun 07 2023

University of California, Berkeley associate professor of public policy and political science Sarah Anzia joins Brian Anderson to discuss public-employee unions’ influence on California's local governments.

Audio Transcript

Brian Anderson: Welcome back to the 10 Blocks Podcast. This is Brian Anderson, the editor of City Journal. Joining me on the show today is Sarah Anzia. She's an associate professor of public policy and political science at the University of California, Berkeley. She studies American politics with an emphasis on state and local governments, elections, and interest groups. She's written for City Journal and The Washington Post, among other publications, and her work widely appears in scholarly journals. She's the author of Local Interests: Politics, Policy, and Interest Groups in U.S. City Governments and Timing and Turnout: How Off-Cycle Elections Favor Organized Groups. Today we're going to discuss her essay “Stranglehold,” which appears in our recent special issue devoted to California, entitled Can California Be Golden Again? And her essay examines the power that public-employee unions hold over California's municipalities and some of the consequences of that. So Sarah, thanks very much for coming on 10 Blocks.

Sarah Anzia: Thanks so much for having me. It's a pleasure.

Brian Anderson: So many California cities and school districts, as you note in your essay, spend more than they receive in revenue. A sharp rise in the cost of compensating public employees makes up a big portion of many local government's budgets, and a growing portion of those local budgets. So this really has a significant part to play in the spending deficits that a lot of the municipalities are looking at. Public-employee unions have a real interest in maintaining those costs you write, and their influence over local politics and government is enormous. So one question is, why has the cost of compensating public employees outpaced revenue growth to such a degree in school districts and municipalities? And how are the public-employee unions making this problem worse?

Sarah Anzia: Yeah, it's a big question, and I think the first thing to emphasize is something you pointed out already, which is that for local governments in California and elsewhere, a lot of what they spend money on is the employees. The employees' salaries, their benefits, like health insurance and retirement. So much of what local government is about is those employees providing services. So we're talking about teachers, other school employees, police officers, firefighters, and most of local governments’ operating budgets go to compensating those employees. So that's a big thing that is worth emphasizing as a starting point. And then public-sector unions in California have a very large role in local politics and influencing local politics, both through their political activity and through their engagement and collective bargaining. And so this plays a big role in this bigger problem in the sense that the basic dynamics are, of course, are that the employees who have a strong interest in increasing their compensation, having more employees hired, they are very well organized, very politically active in school districts and cities across California.

And so when it comes to electing local officials, the public-sector unions play a large role in getting out the vote, supporting candidates financially, endorsing candidates, and so on. They show up at city council meetings, school board meetings, and many elected officials got into their positions with a large amount of help from public-sector unions in the electoral process. And that means that once they're elected, they don't want to turn on those unions for fear that the unions will run a challenger against them in the next election if they do something that runs against what they're hoping to accomplish.

And on top of that, there's collective bargaining. Many of the costs that are driving the spending increases are either in part or in whole negotiated through the process of collective bargaining. So salaries, health benefits, some features of pension costs, even though a lot of that's coming from the state level. So through all of these avenues, public sector unions have played a role in working to increase these costs, which are a large share of what local governments spend money on. And on the other side of this, local governments are in many ways limited institutionally and politically in their abilities to raise new revenue in California. So you put all this together and you have a situation in which growth and spending is outpacing growth and revenue, and there's no clear solution to that in sight at this moment.

Brian Anderson: Well, as you just noted, the local governments don't have a lot of options for reducing or closing these budget deficits, really, do they? They have only so many ways of boosting revenue. And so one response to this is staffing cuts, but as you also noted, many of these public employees, now, most are filling important roles in terms of providing services. So you've got teachers, police officers, sanitation workers, and so on. So I just wonder what we're looking at in terms of these staff cuts, and is that going to really have a severe effect on services, and who is going to be most affected by that?

Sarah Anzia: That's another really, really good question, and I think to understand how we got to this point and why right now in 2023 and going forward, these local governments are in a position of really the only way out of the predicament they're in, is to hopefully gradually reduce staffing in some way. Why? How did it get to this point? Well, these political dynamics are not new. So for a long time, local elected officials have faced these political dynamics with the strength of public sector unions and their elections and collective bargaining. Of course, getting elected is one thing, being in charge of governing is another. You have to balance the budget, it's hard to increase revenue. So how did local officials manage this for a long time? You keep salaries up to a point, but for a long time, what local officials did was grant better compensation in the form of fringe benefits.

So just a couple of examples of this that I highlight in the piece in City Journal, one is Sacramento City Unified School District committing to paying 100 percent of the health insurance premiums for teachers, most other employees, and their dependents for life, including in retirement. So this was a couple of decades ago. Fast-forward to the present, and now this commitment is eating up a huge part of the district's budget, but any changes to that provision have to be negotiated, which means the employee unions have to agree to those changes. Well, that hasn't been possible yet in that situation. Growth in this kind of spending is on autopilot. It keeps going until there's an agreement to change it. So that's one example. Others I could talk about in Stockton and elsewhere. So that's one thing.

Pensions are another. Now, most California local governments cover retirement benefits for employees through CalPERS and CalSTRS. And in 1999, the state allowed an increase in benefits. Most local governments took that to satisfy the employees who very much wanted those better pension benefits. And then everyone together went on to contribute too little to those more expensive pension benefits. Why did they do that? Well, it all has to do with the politics I've been talking about. Pensions for a long time seemed appealing because you could grant better benefits and not pay for them for a while and score the political points for doing it, but not pay the costs right away. Well, now the bill is due, and what's happening to local governments is they're facing increased contribution requirements, and that's a huge part of what's driving the spending growth side of local government structural deficits. So your question as to how and why is this leading local governments to reduce staffing and what is that going to mean for service provision? Well, you start to think about what are the options, what could they do in response?

One thing they could do would be to increase revenue, but that's very hard to do in California. There's Prop 13, which constraints property taxes. To increase other taxes like the sales and use tax, you have to have an election and get approval from the local electorate. Sometimes those rates are capped by the state. So local governments have taken this route when they can, but even then when they do, it doesn't solve the whole problem.

So other options are you don't agree to salary increases or you try to reduce fringe benefits. Well, that's going to possibly lead you into a situation where you're facing a bargaining impasse, possibly a strike. Then you have real immediate shutdowns of services. That is not appealing to anyone. So what happens instead, given that pension costs are mostly at this point out of their control for the moment, because a lot of that's coming down to them from the state. Raising revenue is hard. You're facing strikes if you don't increase salaries enough, potentially. So what do they do? They say, well, we could just try to lower employment levels, not by laying people off usually, but instead gradually, you freeze positions and then eliminate them. Or you eliminate vacant positions.

So the number of police officers over time goes down, or the number of instructional aides and guidance counselors in school districts goes down. You limit the library hours, the pool hours, you cut summer learning problems, you do things like that bit by bit. And if you're an elected official, you would want to do this gradually so as to not draw public attention to the fact that services are being cut. But now we're at a point where in some places things are bad enough and these changes are sufficiently large that people start to take notice, and that is not going to get positive public attention from the unions or anybody else.

So what they're facing, many places are facing now is . . . Stockton, the size of the police force is way down from what many would consider to be optimal. And part of that is increased difficulty of recruiting people to the job and retaining them. Part of it is the budgetary challenges I'm talking about. In schools, enrollment is declining. There are a lot of contributors to this, public-school enrollment declining, but it does mean lower revenue for the state because money follows the kids and politically, shrinking is really hard to do. Attempts to close under-enrolled schools to save costs, that goes very badly. Not only do education unions not like it, but the public doesn't like it either. Exhibit A being Oakland Unified School District, near to where I live.

So this is a real conundrum. You see, local elected officials, they're in the position of governing their way out of this situation, and a lot of these costs are on autopilot. They are going to increase. And the ones that they could change, they have a very, very difficult time, politically, doing. So what they do, sort of the path—not the path of least resistance, but the most politically appealing path is to try to slowly reduce the number of employees to cut costs in that way and not try to reduce or not sufficiently increase compensation costs for those who are already employed by the city or the school district. This is a real challenge facing California local governments.

Brian Anderson: It sure is. Now, you also write in this essay about what you might call budget denialism, which has been pretty extensive, although it's getting harder to deny these huge deficits. Municipalities, school districts, they've passed unbalanced budgets regularly. Many officials who push for spending cuts have been denounced as alarmists or just ignored. And local governments that are starting to acknowledge their precarious fiscal situation are often trying to issue debt, such as pension obligation bonds, or they were relying for a time on the temporary Covid funding. Why, in your view, are those tactics unsound? And are there other options here for reducing some of these deficits, whether contracting out services to the private sector, doing something like that, or is that just going to create a lot of political opposition?

Sarah Anzia: Well, I think one of the things I'm struggling with is, it doesn't appear to me that there are obvious solutions that would be politically feasible, given the incentives and constraints many local governing officials face. So you're right that one thing that has happened, you start to see patterns and how people react when a local official says, "We have a real problem, we have a real challenge here, and here's what's driving it." People will come to the city council meeting, the school board meeting, or the negotiation and say, "You're making this up, you're fabricating a crisis. This is a phony crisis." So denialism is all over in American politics, all over the place in American politics right now, and this is one example at the local level, denying that there are these structural deficits.

Then another one, as you've mentioned, is for pension costs, which is a huge driver of the cost increases. One thing that many California local governments have done is issue pension-obligation bonds. What they do is, they issue the bonds, they take the revenue from the bonds, they use that to make their pension contributions and hope that the interest that they earn is greater than the interest they're paying on the bonds. So that could possibly work out. There are a few local governments, which are sort of the poster children of that not working out, and then you end up in a situation that's worse than the one you started in. But in California, that has been a very popular way of local officials sorting out the predicament they're in.

And then the Covid-relief funds, the thing is this is going to end whether people like it or not. It was really appealing last year, the year before that to say, "Look, local governments, you are flushed with cash. You have the money. You can give us this big salary increase. You can do what we're asking you to do. You are fabricating the crisis, because look at all the funding you have." But the thing is that funding is one-time funding. These deficits, the projections, and spending and revenue growth are projected to continue into the future. So, talk about root causes saying use these Covid-relief funds to plug holes in your deficit. Well, that did it for a couple of years, and many local governments in California used that money to plug holes in their deficits, but that's going to end very soon. And then you still have the same problem to start with.

So the challenge is that if you are a local official who says, "We need to get serious about this, and if there is a service that is not essential to what we do and it's not serving in the case of school districts, it's not serving students or it's not serving the people we're supposed to be serving, we can think about getting rid of it." Well, guess what? In the next election, that person is probably going to face a very powerful challenger, funded by the people who are being hurt by those efforts to either shrink the workforce or not increase compensation enough. They have a very large stake in those decisions.

But then on the flip side of this, who is affected when services get cut? The public. And I would argue it's the people who are actually most dependent on government service provision for things like public safety, for education. And this is where any political or partisan or ideological alignments you have, it gets really tricky. The thing is, people with means can often substitute in the private sector for what they're not getting from government, but the people who don't have the means to do that are the ones that are most impacted when government shrinks, and government can't provide the services that people depend on it for. So this is something that cuts across ideological and partisan lines. And I worry most about the people who are not able to hire a security guard or send their kid to private school, and are left with what the local government provides for them.

Brian Anderson: Now, Sarah, in your book, Local Interests, you look at all of these problems, analyzing the power that interest groups hold over municipalities, which really those local governments do influence and shape our national conversation on a lot of different issues. So I wonder, though, how does the influence of local interest groups vary across the country? And California's obviously in a very difficult situation right now, but how can states and cities really establish proper limits on their power where that is still possible?

Sarah Anzia: Thanks for asking about the book. I appreciate it. The book says a lot about the role of public-sector unions and city governments in particular. So, police and firefighters unions are some of the most active groups in city politics in municipalities across the country. And one way of answering your question is just to highlight that the degree to which police officers, firefighters, other city employees are in unions and organized and active in politics varies a great deal with the state policies, the labor-management relations laws that were passed in the 1960s, and ‘70s, and ‘80s. So in a state like South Carolina, you have a very different labor dynamic than you do in a place like California. California, however, in this way is not all that different from other states like New York, like Illinois that require that local governments whose employees elect to form a union, they have to negotiate in good faith with those unions.

So you see similarities across states that have these mandatory collective-bargaining laws and the degree to which unions have high membership rates, and the degree to which those folks are very active in local politics, where it's going to be quite different in places like South Carolina, where those laws are not in place from the ‘60s, ‘70s, and ‘80s. That is something that varies a great deal across the U.S. But there are other groups that tend to be very active in city politics, like local chambers of commerce, real estate developers, oftentimes neighborhood associations. And there's a lot I could talk about there. But one thing I will stress is that the kinds of local issues, policy issues on which chambers of commerce, real estate developers, and neighborhood associations get involved are often very different from the kinds of issues in which police officers, firefighters, and public-sector unions get involved.

So sometimes I think we have the wrong perception that if you have all of these groups active in a single city that they're fighting one another or that it’s a source of conflict and they're directly opposing one another on policies they care about. That's often not the right picture to have. Typically, instead, what you have is police officers and their unions are very active on matters of policing, local government budgets, and their compensation. Same with firefighters. If there's some decision that affects the equipment used, that affects staffing requirement levels, firefighters will be very active on that issue. You won't see real estate developers involved in those kinds of decisions. However, when it comes to housing, tax abatement, things of that sort, those kinds of decisions, land use, very much so get neighborhood associations, chambers of commerce, and local businesses involved, and real estate developers. So in some ways it's a much more fragmented sense of politics at the local level in most places than you would expect, given what we know about conflict, and partisanship, and ideology, and national politics, or even state politics.

Brian Anderson: Well, it's a tremendously interesting book. It's called Local Interests, and we've been talking with Sarah Anzia. She's also written this wonderful story, very informative, called “Stranglehold” in our special issue on California. So I just wanted to thank you again for coming on 10 Blocks. Don't forget to check out her piece on the City Journal website. It's www.city-journal.org. We'll link to her author page in the description, and she's also on Twitter @SarahAnzia. You can also find City Journal on Twitter @CityJournal and on Instagram @CityJournal_MI. And as I always say, if you like what you've heard on today's podcast, please give us a nice rating on iTunes. Sarah, thanks very, very much.

Sarah Anzia: Thank you, Brian.

Photo by Anibal Martel/Anadolu Agency via Getty Images

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