I will be hosting a two-hour radio show on KRXA 540 AM this morning at 8, to discuss this and other issues in California politics

Given the recent losses in the stock markets, this news should come as no surprise:

The California Public Employees’ Retirement System portfolio has lost 31.1 percent of its value since peaking last fall, a staggering $81.4 billion drop. CalPERS officials say a “rainy day fund” is helping to defray the losses – for now. But if the market slump continues, they will hit up state and local employers for more money. That’s a painful prospect as California struggles through a fiscal emergency and municipalities cope with the foreclosure crisis and economic downturn.

Cal-PERS has the power to force the state and local governments to increase contributions to make up for shortfalls. That is good for the state economy, because well-funded pensions help provide jobs and ensure that retired workers are financially secure, easing the burden on and creating more job openings for younger workers.

But that’s also a political problem as the costs can cause a political backlash against not just Cal-PERS as an institution, but against public workers for being “greedy” for daring to want a secure and properly funded pension. Already Orange County has decided to put public workers’ pensions to a public vote, a move designed to screw those workers out of a fair retirement.

Here in Northern California public workers have taken the brunt of the blame for the Vallejo bankruptcy. In Pacific Grove, the town next to Monterey, I was treated to the spectacle all year of so-called progressives attacking public workers and Cal-PERS for causing the city’s financial problems (which actually stemmed from poor accounting, giveaways to the politically connected, and a refusal to raise taxes).

As the economic crisis worsens across California well-funded pensions are an absolute necessity. The movement that eventually produced Social Security, for example, was born in California out of a desire to provide for elderly folks without the cost burdening families already mired in Depression.

We run a very real risk in California of this economic and budget crisis dramatically accelerating the destruction of the public sector, the race toward the bottom. It’s important for us to recognize that government jobs and fair wages and benefits promote economic growth. To undermine and cut them at this time would feed the deflationary cycle and worsen the economic picture.

But maybe that’s just what the right-wing wants…

After months of wrangling and negotiating the city of Vallejo has voted to declare bankruptcy. And to hear the local media tell it, like the San Francisco Chronicle, it is the fault of public workers, not poor political leadership:

After about four hours of discussion and public comment from the standing-room-only crowd, the council voted 7-0 to approve Tanner’s recommendation to declare Chapter 9 bankruptcy protection as a means to reorganize its finances, which have been shattered by spiraling public employee salaries and the plummeting housing market….

The city and its public safety unions have been at the bargaining table for about two years. The city is asking for its police and firefighters to take salary, benefit and staff cuts, while the unions say any further cuts would endanger public safety as well as the safety of the police and firefighters.

Vallejo spends 74 percent of its $80 million general fund budget on public safety salaries, significantly higher than the state average. The generous contracts are the result of deals struck in the 1970s, following a police strike that left the city in turmoil.

What is not said here, or anywhere in the article, is the reason for that public safety spending. Vallejo’s police and fire services are understaffed – as are many agencies in California, in a little-known but extremely important and widespread phenomenon. City leaders have been loath to hire new workers, but they have also needed the public safety services – so the workers that are on the payroll have been working overtime. And overtime pay is usually always higher than regular pay.

Vallejo, like many California cities, wanted to maintain a high services and low tax environment, and has found this is not possible, especially when an artificially-created bubble bursts. Instead of accepting responsibility and seeking new revenues to balance the city’s books without endangering the public, city leaders chose to blame the public workers for the problems and declare bankruptcy instead of avoiding the underlying issues.

To be fair, Vallejo is not in complete control of its own destiny. Decades of state and federal budget cuts, made to pay for tax cuts for the wealthy, have had a trickle-down effect of eviscerating services and leaving cities more and more financially exposed as state and federal aid has begun to dry up. It’s not exactly as if Bush and Arnold have directly told Vallejo to drop dead but through their inaction in the face of widening government financial crisis, they have achieved the same result.

Vallejo IS the tip of the iceberg, as many cities face similar problems. Some have done the right thing and sought new revenues, like Salinas, and avoided destructive service cuts. Others are following Vallejo down the path of blaming public workers. Without state and federal solutions, this scene may well replay itself again and again across the state in the coming years.

We have become so used to the rabid anti-tax politics of the right-wing, in thrall to the Club for Growth and the Howard Jarvis Association, that we might have forgotten that they have other ways to use the budget to destroy working Californians and the public services they depend on.

Such is the case with a recent op-ed from the California Foundation for Commerce and Education which is, as Shane Goldmacher notes, the California Chamber of Commerce’s think tank. The op-ed ever so gingerly floats the idea of raising taxes to close the budget deficit:

Yet, as with the securities markets, common sense must prevail against principle if critical public services are at risk.

It is simply implausible that we can solve in a single year a deficit problem unaddressed for years without devastating important education, public safety and safety net programs.

But this comes at a price:

Any budget solution – but especially one purchased with new taxes – must unshackle elected officials to set priorities: repeal automatic inflation adjustments, cap guaranteed benefit programs, reopen union contracts that automatically boost wages (including in school districts) and at long last control future public employee health care and retirement obligations.

And a budget solution that includes tax increases must be accompanied by education reforms that improve performance of programs that spend half of state revenues and are critical to California’s economy.

Any tax increase should be legislated as a stop-gap measure that would be temporary. Taxpayers should be made whole during the upside of an economic cycle if they have been tapped for help during the downturn.

In other words, we can have some temporary tax increases to help close the budget but ONLY if we tie this to yet another attack on those public workers we hate. Accomplish Grover Norquist’s anti-government agenda by cleverly tying it to desperately needed new revenues.

For example – repeal inflation adjustments and cost of living increases? That is not a very smart solution in this age of increasing inflation. It would set public workers even further behind the cost of living and push them out of the middle class entirely, thereby hurting the state’s economy. The “control health care costs” language is code for “cut health benefits,” as is “cap guaranteed benefit programs.”

In this scenario, public services would be impacted anyway, as they would be locked into a downward spiral, prevented from catching up to real-world costs and real-world needs. It might stave off collapse of some of the public services threatened in this year’s budget, but only by a few years – this concept would accomplish the same goal over a slightly longer timeframe.

And “taxpayers should be made whole?” This sounds like a recipe for sending checks to taxpayers when the budget picture recovers – which would simply continue the real problem with the state budget, which is a decades-long hollowing out of our revenue streams by ill-advised tax giveaways during the good years.

Unfortunately this plan may not be limited to a think tank op-ed. Goldmacher again:

That position — advocating new, if temporary, taxes in return for budget reforms — is where many are speculating the governor is headed, especially with his shifting rhetoric about taxes, loopholes and fees.

That would not surprise me in the least, and would complicate the budget fight even further.