Fighting Public-Sector Unions and the Engineered Public Pension Crisis

But we can no longer live in a society where the public employees are the haves and the taxpayers who foot the bills are the have-nots.’ - Wisconsin Governor Scott Walker

In politics, nothing happens by accident. If it happens, you can bet it was planned that way. - President Franklin Delano Roosevelt.January 9, 2011

The movement toward public sector unionism and collective bargaining began in the late 1950's. Its proponents ought to be forgiven for their failure to foresee just how harmful it would be to our nation's governmental institutions. They had no empirical evidence on which to base their ideas. Now, almost forty years later, the politicians who insist on perpetuating the compulsory public sector collective bargaining laws that have given public sector unions disproportionate power in determining the size, cost and quality of public services are less easily forgiven. The record is clear. It is an unmitigated disaster. But, politicians are, after all, politicians and the laws that gave public sector unions so much influence on government decisions have also made them into very powerful political forces throughout the country. Fortunately, there is a new mood sweeping the country and the public is not content to allow politicians to maintain business as usual with special interests. Already, in small ways all across the country, public sector union power is being successfully challenged. But, Rome was neither built nor burnt in a day. There is a long way to go to restore the proper balance between the public interest and the interests of public employees. - David Denholm, Beyond Public Sector Unionism: A Better Way, Public Service Research Foundation, October 1994

A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship. - Justice Litle, Is America’s Economic Recovery on the Whole Based on a Rotten Sham?, Daily Markets, April 20, 2010

Fighting Public-Sector Unions

January 9, 2011

Boston Globe - As resistance to public-sector unionism has intensified, many of the noisiest confrontations have been on the coasts.

In New Jersey, freshman Governor Chris Christie has been locked in a battle royale with his state’s powerful teachers unions. In California, Oakland’s new mayor began her first full day in office by demanding that unionized police officers, who pay nothing toward their pensions, be required to contribute 9 percent of their salaries. In New York, federal prosecutors have opened a criminal investigation into whether Sanitation Department workers purposely paralyzed the city with a work slowdown during last month’s blizzard. In Massachusetts, Governor Deval Patrick infuriated public-safety unions by replacing costly police details with civilian flaggers at many construction and repair sites.

Now the Midwest is poised to become a major theater in the war against insatiable government unions.

Within days of taking office in 2005, two Republican governors — Mitch Daniels in Indiana and Matt Blunt in Missouri — issued executive orders rolling back collective-bargaining rights for state workers. Because public-sector unions in those states had been granted the right to bargain collectively through executive orders in the first place, Daniels and Blunt had only to rescind their predecessors’ actions.

In most states, however, public-employee unions are authorized by statute to negotiate wages, pensions, and health care. Any effort to weaken or repeal those laws is guaranteed to face bitter resistance from the unions and their legislative allies.

Two newly elected Republican governors say they’re ready for that fight.

Even before he was sworn in last week, Wisconsin Governor Scott Walker had fired a shot across the bow of his state’s public-sector unions. Speaking to the Milwaukee Press Club, he said he would consider using “every legal means’’ to weaken those unions — from decertifying their exclusive right to bargain on behalf of state employees to modifying state law.

“You are not going to hear me degrade state and local employees in the public sector,’’ Walker said. “But we can no longer live in a society where the public employees are the haves and the taxpayers who foot the bills are the have-nots.’’

More than 50 years ago, Wisconsin was the first state to enact a public-sector collective-bargaining law, and killing it outright might be too tall an order even for a governor whose party controls both houses of the legislature. But Walker and like-minded lawmakers may well succeed in excluding from collective bargaining the most highly-abused benefit categories, such as pensions and health insurance.

In Ohio, meanwhile, incoming Governor John Kasich has long made ending public-sector collective bargaining a priority. In 2009 he said he wanted to “break the back of organized labor in the schools,’’ and last month he underscored his conviction that government workers who go on strike should be fired.

“I really don’t favor the right to strike by any public employee,’’ Kasich said. “They’ve got good jobs, they’ve got high pay, they get good benefits, a great retirement. What are they striking for?’’

He is just as hostile to binding arbitration, which many states require when strikes are illegal, and government managers and public-sector unions are at an impasse.

“Binding arbitration,’’ Kasich says bluntly, “is not acceptable.’’

It was Calvin Coolidge who, as governor of Massachusetts during a police strike in 1919, famously declared:

“There is no right to strike against the public safety by anyone, anywhere, any time.’’

Coolidge’s assertion made him a rising star in national Republican circles, but opposition to public-sector unionism has an honorable Democratic pedigree as well.

“The process of collective bargaining, as usually understood, cannot be transplanted into the public service,’’ President Franklin D. Roosevelt wrote in 1937.

He recognized that government can never be just another employer, and that empowering labor unions to negotiate wages and benefits with public officials would inevitably result in abuse.

Today, evidence of that abuse is everywhere. Private employees find themselves working longer and being taxed more heavily so that government employees can enjoy outlandish pay and perks.

“Public-sector unions have become the exploiters,’’ Minnesota’s outgoing Governor Tim Pawlenty argued last month, “and working families once again need someone to stand up for them.’’

In the heartland as on the coasts, that challenge is being taken up.

Public Pay, Benefits Set Off New 'Civil War'

Corporations have been moving away in massive numbers from the defined benefit programs that governments had emulated. In 2008, just 48,000 companies in the U.S. offered pension programs -- down from 150,000 in 1988. Instead of maintaining costly pensions and committing to a lifetime of defined benefits for retirees, companies contributed to mobile retirement accounts, such as 401(k)s. The nation's workforce has also changed. By January 2010, for the first time, public employees made up the largest percentage of union workers. Several recent studies show that at least some public employees now make more than their private-sector counterparts, although that is not true across the board.

Low-wage public-sector workers also had better access to retirement plans: 74% were eligible, compared with 40% in the private sector. - The Public Sector “Haves” Get Richer Benefits Too…, The Swine Line, July 28, 2010

February 13, 2011

Star Tribune - For years, government work was seen as a tradeoff: slightly lower salaries in exchange for security, good benefits and a comfortable pension. Over time, other perks crept in.

At the University of Minnesota, employees attended school free until last year; they now pay 25 percent. Up until just a few years ago, Duluth city employees got free health care when they retired -- including public safety workers who could retire in their mid-40s with young families.

Corporations, meanwhile, have been moving away in massive numbers from the defined benefit programs that governments had emulated.

In 2008, just 48,000 companies in the U.S. offered pension programs -- down from 150,000 in 1988. Instead of maintaining costly pensions and committing to a lifetime of defined benefits for retirees, companies contributed to mobile retirement accounts, such as 401(k)s.

The nation's workforce has also changed. By January 2010, for the first time, public employees made up the largest percentage of union workers. Several recent studies show that at least some public employees now make more than their private-sector counterparts, although that is not true across the board.

As the economy soured, resentments got new breath and the GOP grabbed hold.

Former Gov. Tim Pawlenty, a Republican with presidential aspirations, has taken to calling the rise of government unions "a silent coup."

State Rep. Keith Downey, R-Edina, said we need to "starve the beast" as he unveiled a proposal to cut the state's workforce 15 percent.

Government workers say they are sick of being demonized at dinner parties and on the stump, where they are reviled as lazy and inferior. They also resent the criticism for hard-fought union contracts they say are tough, but fair.

Mike Buesing, 62, said the rancor has reached a crescendo. A skilled highway construction planner, Buesing has put in 38 years at the state Department of Transportation. He owns a modest townhouse in Shoreview with a mortgage and makes $54,000 annually. When he retires later this year, he'll take in about $3,000 monthly from his pension.

"I am not living high off the hog," Buesing said. "It's a struggle, paycheck to paycheck. People think I am making a lot more money than I am. When I tell them, they usually are surprised."

Union leaders note that employees like Buesing are on the high end. State retiree pensions average a modest $13,000 a year.

Eliot Seide, president of AFSCME Council 5, said that such pensions are a testament to the union belief that middle-class workers should be able to enjoy retirement "with dignity."

Taxpayer risk

But in a badly battered economy, that level of comfort comes with big risks for taxpayers. The state faces a $14 billion unfunded liability in coming decades for the 644,000 state workers who are or will be eligible for pensions. That's about $3,200 for every person in Minnesota.

Union officials say the problem is less about increasing benefits and more about investments that sagged during the recession. The pension shortfall has become less breathtaking as those investments have rebounded. Pension analysts also note that the problem stretches over 30 years, allowing ample time for modifications.

But the problem is not just theoretical.

Moody's Investor Service, a premier credit-rating agency, issued a report this year that added pension obligations to its formula for determining a state's fiscal health.

Minnesota holds one of the best credit ratings in the nation, but adding in its unfunded pension liability drops it to the middle of the pack.

On Wednesday, the rating agency Standard & Poor's downgraded New Jersey's bond rating. The reason? Its mounting pension obligations.

"There isn't a push to get rid of pensions; it's to lower dollars going in," said former State Auditor Pat Anderson, a Republican who joined the Minnesota Free Market Institute's Pension Reform Project.

Anderson and others say the pension system encourages risk-averse employees who never leave. The longer they stay, the more seniority they acquire and the sweeter their pension becomes. That, she said, leaves little room for more entrepreneurial types.

"If we want to attract good people to government, who aren't careerist, you need a system that works," she said.

Anderson, for all her criticism of the system, will receive money from two government programs when she retires: one from her time as mayor and city councilwoman in Eagan, plus additional benefits from her term as an elected state official.

Pawlenty, who has criticized public employees' "Cadillac" health care plans, requested a letter before he left office outlining his future state health care benefits. The former legislator and state employee can draw from two state retirement programs, including a defined benefit pension program, when he retires.

Without Action, Pensions Could Bankrupt State

June 6, 2010

Daily News - California's $19 billion budget deficit seems to worsen by the day, but an even larger financial crisis is brewing in the state's pension system. Over the last two decades, state lawmakers have bestowed massive pension and benefit increases upon government workers.

Unfortunately, taxpayers are now getting the bills for these handouts. Recent studies estimate California has $500 billion in unfunded pension liabilities, not to mention more than $50 billion in unfunded retiree health care liabilities. It's important for the state to recognize how it got into this fiscal disaster-and how to get out of it.

California's public pension and retiree health and dental care expenditures have quintupled since fiscal year 1998-99, going from about $1 billion to $5 billion this year. And retirement spending is expected to triple again -- to $15 billion -- within the next decade.

Part of the problem is the growth of state government. Since 1998, California's state workforce has grown by 31 percent and taxpayers now pay for more than 356,000 state workers. Even during this terrible recession, instead of cutting back, California has added over 13,000 workers to the state payroll since 2008.

The benefit increases doled out by Sacramento are also crushing the state. Consider that public pension benefit increases passed in 1999 via SB 400, which offered retroactive benefit increases to government workers, were supposed to cost $650 million in 2010. The actual costs of SB 400 to taxpayers: $3.1 billion this fiscal year and $3.5 billion next year.

To make matters even worse, California is the only state in the nation that calculates pension benefits based on an employee's highest salary in a single year. Most states use three- or five-year periods to determine pension benefits, making their systems less susceptible to pension spiking. SB 2465, which implemented the one-year final salary rule in 1990, has cost taxpayers more than $100 million a year. It was supposed to cost "only" $63 million per year.

The results are lavish pensions for government workers and big bills for taxpayers. California taxpayers are now paying pensions that exceed $100,000 a year to more than 12,000 former state and local government workers, including more than 9,000 state and local employees covered by the California Public Employees' Retirement System (CalPERS) and over 3,000 former school administrators or teachers covered under the California State Teachers' Retirement System (CalSTRS).

This pension crisis threatens to bankrupt the state. To his credit, Gov. Arnold Schwarzenegger has urged action on this issue but current reform proposals merely tinker around the edges of the current defined-benefit system and do not go nearly far enough. There are several steps California must take to permanently get pension costs under control.

The private sector long ago abandoned defined-benefit pensions due to their volatility and unsustainable costs. California is going to have to do the same. Close the defined-benefit pension plans for state employees and enroll all new or future employees in 401(k)-style defined-contribution plans for pensions and other post-employment benefits, such as retiree health care and dental benefits. These 401(k) retirement plans are good enough for the rest of the population; they should be good enough for government workers.

To prevent the handouts and pension favors that politicians have been giving to certain groups, California should adopt an amendment to the state constitution requiring that all future government employee benefit increases be approved by voters, who end up stuck with the bills. It should also pass another amendment prohibiting retroactive benefit increases.

California's pension and retiree health care benefits are unaffordable and unsustainable. Schwarzenegger and a few politicians, from both sides of the political aisle, are now calling for action on this tremendous problem. They'd better hurry.

Taxpayers are sick and tired of being forced to pay ever-greater amounts of their hard-earned money towards increasingly generous benefits for government employees, all while their own retirement accounts shrink amidst the recession.

Florida Must Enact Pension Reform Before Inflated Retirements Bankrupt the State

Bill seeks to limit public pensions.

March 27, 2010

Sun Sentinel Editorial - Predictably, a proposal that would reduce future retirement pay for hundreds of thousands of Floridians has irked the ire of union leaders across the state. Nonetheless, state lawmakers are right to push long-overdue reforms, including opening up broader use of retirement alternatives, such as 401(k) plans.

The legislation has gained momentum because of Tallahassee's budget crisis, and the need to fill a gaping $3 billion hole. Truth is, though, Florida has sorely needed pension reform for many years.

Under the current system, civil service workers, from teachers to municipal and first-responder employees, can inflate their retirement benefits through various ways, some by counting accrued sick days, others by counting overtime pay.

That's wrong because it distorts the formula used to calculate pensions, and it costs taxpayers way too much over the long haul. Sure, it leads to some very tidy and lucrative pensions. But those are expenses the state and its municipalities cannot afford.

Already, salary, benefits and pension costs are eating up anywhere from 60 percent to 80 percent of some city hall budgets across the state. It's unsustainable, pure and simple. The ugly truth for irate union leaders is that much of the changes in House Bill 1319 and Senate Bill 1902 make a lot of sense.

That said, some provisions in the legislation are unjust, and lawmakers should be judicious in eliminating them. Not because they don't make economic sense, but because they change the rules of the game too late for many employees who are coming to the end of their careers.

Namely, it's the plan to recalculate pensions based on an average of an employee's salary throughout their career. That makes sense -- but it should only be applied to new employees, and not those employed at the moment.

Yes, broad implementation would save lots of money. But to tell an employee now, as he or she nears retirement, that their pension will be worth significantly less without enough time to plan or make up the difference is acting in bad faith.

Beyond that, it's time to face reality. The current pension system across the state is unaffordable. It has to be pared back.

BOTTOM LINE: Today's system unaffordable.

Pensions: The Haves and the Have-nots

In 2002, there were 5.1 people of working age for each pensioner, but by 2030 this ratio is expected to fall to just 2.7 people. Workers will need to secure sufficient saving to support their retirement and avoid a decline in living standards. Demographic trends are also showing a shift in household dynamics. This can be expected to affect social infrastructure planning and delivery requirements. Households are getting smaller with fewer households including children. In 2001, the largest household-type consisted of a couple with children. However, divorce rates are high at 33 per cent, and between 1986 and 2001, the incidence of single-parent families increased by 53 percent. Nevertheless it is single person households followed by couple households without children that are expected to become the most prevalent type in the coming decades. - The future of the public sector in 2025, The Victorian Government State Services Authority 2006

Originally Published on December 28, 2006

The Daily Mail - This paper has great admiration for many public sector workers. Where would we be without dedicated teachers, NHS staff, servicemen, firemen and police? Even back-room bureaucrats (though we have far too many of them) perform functions vital to the smooth running of any modern nation. Like everyone else, they deserve decent pensions.

But none of this can silence our growing disquiet over the Government's feather-bedding of public employees at the expense of wealth-producers in the private sector.

Alarming figures, collated for the Mail by the authoritative Institute of Economic Affairs (IEA), show that the average family has had to contribute nearly £1,000 this year to finance the gold-plated pensions of public sector workers.

This wouldn't be so bad if the money was invested, like private funds, in pension pots that grow to meet future needs.

But the great majority of state sector pensions are unfunded -- meaning that money is transferred straight from the pay-packets of today's workers into the bank accounts of former public employees.

So as the years go by, and more workers in the swollen state sector reach retirement age, the burden on successive generations will grow even greater. Over the next three decades, predicts the IEA, the bill will increase to £76billion a year -- around £3,000 for each family.

All this would be hard enough to stomach if those being made to finance inflation-proof public sector pensions could look forward to similar benefits themselves. What makes it intolerable is the huge disparity between the perks offered to state and private employees.

With his £5billion-a-year raid on pension funds, Chancellor Gordon Brown has all but killed offfial-salary pensions in the private sector. But they remain the norm for state employees. Meanwhile millions of Britons cannot afford to save for a pension -- while others have to wait years longer than state employees before they can start drawing on their savings.

What we are seeing is a growing chasm between the haves in the public sector and have-nots in the rest of the economy. This is divisive and wholly unfair.

By all means let Mr Brown make proper provision for public employees. But he should remember that the Government was elected to serve the whole nation -- not just to pamper a part of if.

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