Business Update with Mark Lacter

Breaking down pension reform in California

KPCC's business analyst Mark Lacter says pension reform in California still has a ways to go.

Steve Julian: Mark, did the state legislature accomplish much with its pension measure?

Mark Lacter: Not really, Steve - in rough numbers, the state might have to pay $500 billion in retirement costs over the next 30 years and the measure they passed last week might reduce the amount by a tenth. So, you couldn't call that a real breakthrough. And pension and health care costs helped create those monster deficits, which have meant huge cuts in education, in programs for the poor and the sick, and in basic services such as the court system and law enforcement - all because California owes way more to its retirees than it's going to bring in.

Julian: Jerry Brown tried last year with a more ambitious plan and got nowhere fast with his fellow Democrats...

Lacter: Right, so they came up with a weaker version that does address a few egregious practices like pension spiking (that's when workers are able to inflate their pension payments). But, the legislation focuses on lower benefits for future workers. For current workers, it's mostly business as usual - and that's the problem. Union officials say that state and local governments are legally obligated to abide by the contracts they had agreed to, and you can certainly understand their position. If you accepted a job offer at $50,000, you don't want to be told six months later that the company can only afford to pay $40,000. And yet many of the experts say that the only way to get government finances in order is by cutting back on the benefits of current employees.

Julian: Is that what voters in San Jose supported a few months ago?

Lacter: That's right. They approved a ballot measure that would give city workers a choice: either contribute more to your pensions, or accept lower benefits. Except that the public workers union has gone to court over the measure, saying it's not legal, and it could be a long while before there's a resolution in the courts.

Julian: Thing is Gov. Brown doesn't have a long while.

Lacter: Exactly. Politically, he needs to show that some action is being taken on pensions before the November elections. That's when voters will be asked to consider tax increases. If voters say no, there will be additional cuts to public education and other services. So, what was passed is not really pension reform - it's just a maneuver that pushes the problem down the road.

Julian: Before the session ended, Hollywood got some help.

Lacter: That's right - the legislature did manage to approve a two-year, $200-million extension of the tax break program for movie and TV companies wanting to work in California. The tax credits were first passed in 2009 in response to efforts by the other states to develop their own entertainment industry. Clearly, some local business has been lost - and clearly the California tax credit program has had some success.

Julian: Will the extra tax revenues from making movies here offset the taxes that are being lost by giving away these credits?

Lacter: That's the thing. If less money is coming in than going out, it's not exactly a great deal. Frankly, the program is too new to offer any definitive conclusions, but the bigger issue is whether the state should be in the business of giving away tax credits in the first place - especially for an industry that is in pretty good health.

Julian: How healthy is it this year compared to last?

Lacter: Well, the latest payroll numbers show that 3,200 entertainment jobs in L.A. County were actually added over the past year. You know, for all the griping about lost production, Los Angeles has the biggest workforce in the entertainment business; produces the largest number of movies, TV shows, and commercials; and is home to more sound stages, back lots, post-production houses, casting agencies, and payroll firms than anywhere else - and by a pretty good margin. So, it seems a little strange that this very well-off industry gets tax breaks, while most every other industry in the state gets nothing. Then again, if you're in show business you tend to get away with a lot.

Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.


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