Taking power away from labor won't rescue states from their fiscal woes--but giving power to voters might.
Photo: Getty Images
If you are an informed, fair-minded person, chances are you feel at least conflicted about all the hard-knuckle attacks on public employee unions in Madison, Wisconsin, and other state capitols. While Governor Scott Walker’s agenda was clearly much larger than balancing his current budget, there is no denying the magnitude of the pension crisis. Long predicted, it’s finally here, and it’s constricting the art of the possible in almost every state.
California finds itself paying more for benefits to public workers’ pensions than it does to fund higher education. And because public employees now on the job keep accruing new, underfunded retirement benefits, the pension debt keeps growing. Despite having some of the most underfunded public pensions in the country, Illinois will reduce its pension trust holdings this year to meet its pension payroll. One study suggests it will exhaust its assets by 2018 and finds that New Jersey is close behind. In places like Indiana and Louisiana, where policymakers have been making added pension contributions to cover past underfunding, they are still losing ground. Perhaps needless to say, any money that state and local governments use to bail out their pension plans can’t be used for any other purpose. Not only is that money needed to replace the teachers and police officers now retiring in their fifties; it could also be spent on exploding costs for health care and other pressing social needs.
Yet many Americans are uncomfortable with the solution being pursued by Governor Walker and some of his Republican counterparts, which boils down to busting public employee unions. Whatever the faults and excesses of some unions, polls confirm that most of us support a basic right to collective bargaining, even in the public sector. It’s one thing to, say, criticize the opposition of some teacher’s unions to merit pay or demand that firemen contribute more to the cost of their own pensions and not game the system, and quite another to assert that teachers and firemen have no right to organize and communicate their grievances collectively to their employers. Article 23 of the Universal Declaration of Human Rights identifies trade union organizing as a fundamental human right.
There are also political considerations that factor into the discussion. Many people are concerned about the ramifications of the Supreme Court’s Citizens United decision, which struck down any restraint on political spending by corporations and wealthy individuals to influence elections. Not only partisan liberals fear that, without a counterbalance, there will be no effective check on the power of well-heeled corporations in either party. Public-sector unions can serve as an important element of this counterbalance. At the same time, however, nothing could be more toxic for the Democrats than insisting that ordinary taxpayers fund pensions that are far more generous than what most can ever expect to receive themselves.
The problem doesn’t just involve the egregious cases that grab headlines, such as the small-town California fire chief described by the Wall Street Journal who was able to retire at age fifty with a pension of $241,000 a year—and who was then hired back as a consultant at $176,400 to help find his replacement. Even the pensions received by ordinary government employees are practically unheard of in the private sector these days, particularly among younger Americans.
Outside of government, only about 15 percent of private workers are covered by a defined-benefit pension, and even those are not as generous as those enjoyed by public workers, which promise to replace a substantial portion of their final salary for life regardless of market conditions and are often adjusted for inflation as well. It would be great if someone had a credible plan for offering every American that kind of retirement security, but no one does.
Public employees sometimes complain that they receive lower salaries than their counterparts in the private sector. That’s often true, but when the value of their pensions and other benefits are factored in, their total compensation, especially for blue-collar jobs, is frequently at least competitive, if not superior. Proof of this is how few public employees quit. It’s telling that workers in the private sector, according to the Bureau of Labor Statistics, are more than three times more likely to quit their jobs than state and local workers, whose monthly turnover is just .5 percent.
But the preferred solution by some policymakers— bust the unions—isn’t the appropriate response. That’s because it doesn’t address the core problem, which predates collective bargaining in the public sector and is found even where unions don’t exist. Instead, the real problem is something no one wants to talk about precisely because it’s so bipartisan: both political parties, for different reasons, have incentives to use pensions as ways to borrow from the future. The way to fix, or at least alleviate, this problem is not to take rights away from unions. It is to give more power to voters.
There’s plenty of blame for the pension crisis to go around, but no particularly good reason to blame only the unions. Military retirees, after all, don’t have a union, and yet the cost of the pensions promised to them by Congress over the years now comes to $1.3 trillion, or $10,700 for every U.S. household. Similarly, long before most federal workers earned any formal right to collective bargaining under the Civil Service Reform Act of 1978, the Civil Service Retirement System, created in 1920, was amassing huge unfunded liabilities for which we are still paying now. Today, the handful of states that don’t allow collective bargaining among their public employees generally have benefit plans that are just as generous as states that do allow it. One of those nonunion states, Virginia, faces $17.6 billion in unfunded pension liabilities.
Consider as well that by the late 1920s—a time when unions still had almost no toehold in government employment and were often violently repressed—all major cities in the United States had pension plans for either policemen or firemen or both, and twenty-one states had formal pension plans for their teachers. These plans were far more generous than what was typically found in the private sector, where most workers got no pensions whatsoever. And without the meddling of union bosses, public-sector plans were almost universally mismanaged and underfunded, if they were funded at all. In Massachusetts, pension assets simply consisted of “such amounts as shall be appropriated by the general assembly from time to time.” As economic historian Lee Craig has documented, other states and municipalities pretended to fund the pension plans simply by having them purchase their own bonds, meaning that the pension fund’s so-called assets were in fact being used to meet the other costs of government, such as paying off favored contractors. Already actuarially unsound, and with their so-called assets already spent, most failed or had to be bailed out in the 1930s.
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