California’s local governments face a crisis of structural deficits. In cities and school districts across the state, spending growth outpaces revenue, forcing tax hikes and reduced services—from shortened library hours to fewer programs for students to slimmer public-safety workforces. These reductions affect all residents, but especially those most in need of public services. One might expect that this fact would prompt cries for reform in a deeply liberal state. But they don’t, in part because this is a deeply liberal state. California’s blue-state brand of state and local politics, in which public-sector unions play an inordinately powerful role, creates a difficult bind for local officials.

It’s only a small exaggeration to say that local government is local-government employees. Local governments are responsible for such vital services as public safety, education, libraries, parks, water, sewers, and trash collection. Providing these services means compensating employees for doing this important work.

Employee compensation thus occupies a large share of the typical local-government budget, and large shares of local-government employees work in occupations traditionally deemed essential. In the working-class city of Richmond, for example, roughly 74 percent of the city’s expenditures in 2021–22 went to salaries, wages, and benefits. Further north, in Humboldt County, 72 percent of the expenditures of tiny Loleta Union Elementary School District went to employee compensation that same year.

California local governments have limited options for raising more revenue. Property taxes are tightly constrained by Proposition 13. Increases to other local taxes require voter approval, sometimes by supermajorities. Cities’ and counties’ sales- and use-tax rates are also capped by the state, with many already at the maximum. The difficulty of increasing revenue thus forces most local governments to contemplate spending cuts. For many, reducing spending means not only eliminating popular programs but also trimming basic services.

The influence of public-employee unions—paramount in local budget politics—often thwart budget reductions. Golden State unions of teachers, police officers, firefighters, and other workers are well organized and highly engaged in state and local politics. In city and school board elections, they endorse candidates, mobilize supporters, contribute money to politicians, and campaign for or against ballot measures. In virtually every local government throughout the state, they play a direct role in negotiating the terms of their members’ employment, including compensation.

Local candidates and officials are loath to upset public unions. Many were helped into their positions with union support or recruited by unions outright. Once in office, though, they must manage a budget, keep spending in line with revenue, and ensure that services work. This pulls them in different directions. The people who ensure that services keep humming—the employees—push for staffing and pay boosts, but it’s precisely these employee costs that constitute the bulk of local-government spending. Large or frequent expansions in staffing and compensation can threaten a government’s balance sheet.

For years, many local officials solved this puzzle by raising public-employee compensation in the form of fringe benefits. Since salary increases show up on the budget right away, it seemed cheaper and easier to give local employees generous health benefits. Fast-forward a few decades: health insurance is anything but cheap, but unions resist rolling back the benefits that members have long enjoyed. Pensions are another whopper for California local governments, many of whom are struggling to afford big increases in their required contributions to the funds.

Local officials must navigate the same maze that their predecessors did, but most of the old exits, such as sweetening pensions and health-care benefits, are closed off. Current escape hatches tend to include denial, debt, and patching structural budget holes with one-time funds. Of late, local governments have also relied on federal Covid-relief funds to help plug deficits. Budget denialism is widespread, especially when it comes to pensions. Local officials who do take steps to cut spending risk accusations of fabricating a crisis, as in Sacramento City Unified, where a labor representative called the district’s situation a “phony budget crisis.”

Avoiding such approaches and actually doing something to address growth in employee-compensation costs is hard. Pension-contribution hikes are mostly out of local officials’ control. Changes to salaries and health care must be negotiated with the employee unions and are major points of contention. Usually, disagreements between local officials and unions revolve around whether salaries are being boosted enough. Local officials will often agree to salary increases in order to avoid strikes and other unpleasantries, even when they don’t know where the extra money will come from.

True, unions’ claims of lower staffing levels are not imagined. That’s because with retirement costs rising and salaries growing, staffing reductions have been one of the only viable levers available to governing officials for controlling employment costs. Moreover, when reductions are done incrementally and in a way that doesn’t directly affect current employees—keeping positions vacant, for example, or eliminating frozen positions—they can, for a time, avoid the ire of unions and residents. But these staffing reductions add up and translate into fewer services.

Furthermore, staffing reductions can stay under the political radar for only so long. If employment levels get low enough, or if reductions have to be made suddenly and in a way that affects current employees, the reaction is usually fierce.

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Local officials seek new sources of revenue where they can, but options are limited and require voter approval via ballot measures. Getting the requisite voter buy-in usually requires a careful political dance: the ballot measures are typically framed as needed for maintaining popular services, presumably because more voters are willing to open their wallets for education and public safety than for shoring up pensions. But passage of these tax increases is uncertain, and failure can leave local officials in a lurch.

California local governments are in a bind. Retirement costs are rising. Prospects for new revenue streams are few and uncertain. Viable options for controlling spending are limited.

Local governing boards are, ostensibly, elected to provide services to the public and keep budgets in balance. It’s not clear that they can all do the job. Many local officials got into their positions with union backing. To have a good chance of staying there, they need to maintain that support—but that usually means leaving the compensation spigot open, even at the risk of insolvency. Many local governments are choosing political self-interest over good governance. Californians should be worried, indeed, about the governing boards tasked with providing their key services.

Sarah Anzia is Associate Professor of Public Policy & Political Science at the University of California, Berkeley. This piece is adapted from City Journal’s special issue “Can California Be Golden Again?”