Are government employees overpaid? A six-part Bloomberg report answers that question with a resounding “Yes.” It also singles out one state as the biggest spender by far: California. This isn’t a case of a handful of isolated incidents. The team of Bloomberg reporters found a pattern of fiscal irresponsibility characterized by:
- Lack of control in overtime pay and unused vacation time payouts;
- Lack of coordination among state agencies which in one instance launched a costly salary bidding war for qualified personnel; and
- Compensation for pension fund managers that bears little relation to performance.
Government employee unions supported many of the policy changes that have led to the Golden State’s current mess. During his first tenure (1975-1983), Governor Jerry Brown gave state employee unions the right to collectively bargain, greatly increasing their ability to gain more generous compensation — which makes a Brown spokesman’s assertion that, “Governor Brown is busy fixing the many problems that he inherited from past administrations” oddly ironic. (Interestingly, local government employees had been granted collective bargaining privileges by Brown’s Republican predecessor, Ronald Reagan.)
However, it would take the next Democratic governor to really put the state in hock to the government unions. In Gray Davis, the unions found a compliant ally willing to break the bank for them. It led to a public backlash against Davis, who in 2003 became the first U.S. governor in 82 years to be recalled by voters. But the damage had been done. In the first part of the series, Bloomberg’s Mark Niquette, Michael B. Marois, and Rodney Yap note:
One of the first goals of state employee unions when Davis took over in 1999 after 16 years of Republican governors was to unwind curbs on pensions put in place by Governor Pete Wilson in 1991. Workers also wanted broad wage increases.
Unions persuaded the California Public Employees’ Retirement System to sponsor legislation called Senate Bill 400, which sweetened state and local pensions and gave retroactive increases for tens of thousands of retirees. Highway-patrol officers were granted the right to retire after 30 years of service with 90 percent of their top salaries, a benefit that was copied by police agencies across the state.
California’s annual payment toward pension obligations ballooned to $3.7 billion in the current fiscal year from $300 million when the bill was enacted. Some cities that adopted the highway-patrol pension plan later cited those costs for contributing to their bankruptcy filings.
But that was just the beginning.
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One reason Wisconsin Governor Scott Walker’s labor reforms are considered far-reaching — by both supporters and detractors — is the fact that they were structural. Rather than trim around the edges — trim some salaries here, reduce the growth of some benefits there — Walker’s reforms went to the root of the problem by curbing the mechanism used by government employee unions to gain ever more generous benefits for their members: collective bargaining.
Binding arbitration is another favorite structural tool of government unions that state and local governments need to address. Originally conceived as a way to avoid strikes by public safety personnel. The Manhattan Institute’s Steven Malanga explains:
Arbitration for government workers originally arose as a byproduct of states’ bans on public employee strikes. If workers couldn’t go out on the picket line, legislators reasoned, they should be given some system of independent mediation in contract disputes. But as public employee unions gained power, they helped shape these systems to their advantage. In some states, like New York, laws ban arbitrators from considering a local government’s fiscal limitations when ruling on new contracts. In other states, arbitrators calculating an award for workers in one city can base the amount on the pattern of pay increases in nearby cities, even if those cities are much wealthier and can afford to pay more. Government unions have learned to claim that negotiations with local officials are at an impasse, thus moving the process into arbitration, where they can expect a better deal. A study by the Manhattan Institute’s Empire Center for New York State Policy has found that, for New York government workers in jobs covered by arbitration, pay increased over a 10-year period by 59 percent — compared with a one-third gain for other government workers.
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In America, it is impossible to snuff out money from politics. As long as government has the power to dish out favors to politically connected interests, it will continue to attract money, in the form of lobbying and campaign contributions, from those seeking to influence how it doles out its largess.
This November, California voters will have the opportunity to throw a wrench in this vicious cycle by voting for Proposition 32, which would ban corporations and unions from directly contributing to elected officials, bar government contractors from making political donations to state officials who control their contracts, and prohibit automatic deductions of wages from employees for political purposes.
Opponents of Prop 32, comprised largely of labor unions and their allies such as the League of Women Voters, counter in a statement that the measure “does not take money out of politics—because super PACs and independent expenditure committees are exempt from its controls.” Special interests — unions, corporations, and government contractors — would still be able to spend substantial funds on politics, but through indirect means. The bans on direct donations to elected officials simply would change how political spending is done, but would not roll back special interests’ influence on California’s state government.
True enough, but that is not the whole story. Prop 32 adversaries gloss over the voter initiative’s lone stride toward loosening special interest power. The paycheck protection component, which would prohibit automatic payroll deductions of union dues, does take away one government-granted privilege to one special interest group: organized labor.
Currently, California and many other states provide public sector unions with what amounts to a taxpayer-funded dues collection service. Prop 32’s paycheck protection clause would relieve taxpayers and individual union members from being forced to finance organized labor’s political agenda. The seemingly commonsense reform closes the door on an instance where government does hold the power to aid a special interest.
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In the media coverage of the presidential election, one state that is unlikely to get much attention is California, which appears to be solidly in President Obama’s column. Yet that doesn’t mean that Golden State voters don’t face some important decisions on November 6. Two very different ballot measures will help determine the trajectory of government growth in California — and given California’s size and influence, potentially throughout the nation.
The opposing measures would either curb or bolster the political influence of California’s government employee unions, one of the state’s most powerful interests — which, like government unions elsewhere, constitute a permanent lobby for bigger government. As Manhattan Institute Senior Fellow Daniel DiSalvo notes in a new analysis of the measures and the current California political landscape, “California reformers face an outsize challenge. The state’s public-sector unions are among the most powerful in the country, and 57 percent of state and local workers belong to unions.”
Proposition 30, supported by Governor Jerry Brown (D) and several public sector unions, would increase the state’s sales tax, from 7.25 percent to 7.5 percent, and the state income tax, by a percentage point or more, for all incomes above $250,000. For the public employee unions, the benefit of this measure is clear: More money to pay their members. For Governor Brown, it gains him the unions’ support — at least for now. (Proposition 38, an even bigger tax hike, is also on the ballot, though its chances look slim.)
For businesses, however, passage of Proposition 30 means an even more hostile environment — which translates into more reasons for people to move out of state. And it doesn’t even address the state’s budget problems, since, as DiSalvo notes, “These are year-to-year cuts, not structural reforms.”
Seeking to curb the unions’ power is Proposition 32, which would bar direct donations to candidates by corporations and unions (a provision that could prove constitutionally problematic). However, another provision would prohibit unions from making direct deductions from members’ paychecks tospend on political activities. This, says DiSalvo, would “deal a devastating blow to unions’ political power.”
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On October 1, the Greek government unveiled an austerity package that aims to reduce public spending by $15 billion (11.5 billion euros) for 2013-2014, which includes cuts to welfare as well as salaries and pensions of government employees.
The reductions are necessary to receive a 31.5 billion euro installment from the 130 billion euro (second) bailout that has been keeping Greece’s head above the wine-dark sea. The International Monetary Fund, European Commission, and the European Central Bank, collectively referred to as the Troika, have assured that no more money will be given without credible steps being taken to ensure a sound investment.
As necessary as the measures are, unions are pitching a fit at the thought of decreased government funding. Two of Greece’s largest unions called for a 24-hour strike in late September in anticipation of the proposed austerity measure. The General Confederation of Greek Workers (GSEE) and the Civil Servants Confederation (ADEDY), which represent half the nation’s work force, mobilized 50,000 teachers, lawyers, civil workers, and other Greek employees to protest in Athens, promising more to come if the cuts are implemented. This is the third strike this year, but perhaps one of the most significant Greece has had in a while, as it has brought together people of varying political beliefs who collectively oppose austerity.
Union officials want to negotiate with the government for fewer salary and pension reductions, and they don’t seem to care how the government gets the money to pay them. Sotires Martalis, a high school physics teacher in Athens who was on the National Council of the Public Employees Union Federation, spoke to Labor Notes in 2010, claiming:
“The rank and file is so angry,” he said. “Their main idea is ‘we don’t pay for your crisis, not even one euro. Take the money from the rich.’ So the leaders of the federations have had to support and call strikes.”
Greece’s finances are spinning out of control. If nothing is done, public debt could reach 179.3 percent of GDP by next year. But this does not concern unions. They are fighting the austerity measures that could give Greece its first budget surplus in 10 years.
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The major focus on issues involving public sector unions right now is the current teachers’ strike in Chicago. Now that the strike is in its second week, the stakes have risen on both sides and the outcome could have an impact across the nation.
While the city of Chicago has been receiving the most attention lately, Michigan is gearing up for an electoral battle that could potentially have disastrous consequences for the state, as well as the nation.
The current, contentious debate on labor unions and supposed collective bargaining rights has been ignited over a series of recent political defeats suffered by unions. These defeats have occurred most notably in Midwestern states, such as Wisconsin, where state governments have had to address collective bargaining agreements to offset fiscal concerns.
Compared to the rest of the country, Michigan has a large number of workers who are unionized. According to the U.S. Bureau of Labor Statistics, Michigan had the fifth largest unionized labor force in the country in 2011.
Recent polling has shown a change in perception towards labor union issues. According to a 2011 Washington Post poll, 67 percent of Americans support the right of public workers to unionize; a separate Bloomberg poll that same year showed that “[s]ixty-four percent of respondents, including a plurality of Republicans, say public employees should have the right to bargain collectively for their wages.” These data should not be seen as an endorsement by the American people of everything public sector unions want, as polling from Wisconsin in 2012 and California in 2011 has shown a majority support for reforms to collective bargaining agreements if the situation calls for it.
What is most telling about the situation facing labor unions is how those in the labor force are voting with their feet. According to the U.S. Bureau of Labor Statistics, the percentage of the workforce that is unionized has dropped to 11.8 percent in 2011, which The Detroit News says is the lowest percentage seen since the FDR administration. The decline in union membership across the country means that the labor organizations take in less revenue, resulting in fiscal problems of their own.
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California Governor Jerry Brown (D) yesterday announced a pension reform agreement, which if approved by the legislature, likely will help narrow the Golden State’s huge public pension gap. Brown’s proposed reforms take several steps in the right direction, but they do not address the fundamental problem that could lead to renewed pension shortfalls in the future: the structure of defined benefit pensions.
Defined benefit pensions operate on a pay-as-you-go basis. Under such a system, a defined benefit pension plan’s liabilities can continue to grow regardless of its ability to pay. Thus, an increase in benefits when times seem flush can lead to significant shortfalls in later years, when the boom times end. That is exactly what happened in California under former Governor Gray Davis (who was recalled by voters in 2003).
And therein lies the danger in not moving away from a defined benefit pension system to a defined contribution one. At the slightest sign of economic recovery, labor-friendly politicians find it hard to resist the temptation to reward their union allies with ever more generous compensation — a real likelihood in a blue state like California.
Unfortunately, Governor Brown backed away from a proposal to create a hybrid pension plan that includes a 401(k)-style defined contribution component.
Still, Brown’s pension reform agreement includes some sound and significant reforms. Among its provisions, it:
- Requires all state employees — both new and current — to pay 50 percent toward their pensions;
- Raises retirement age by two years or more for all new employees;
- Caps the amount of salary to be considered for pension purposes ($100,000 for employees who participate in Social Security and $130,000 for those who do not, such as public safety personnel);
- Seeks to end pension spiking by requiring annual pension payouts to be calculated based on a final three-year average;
- Eliminates state-imposed barriers that have prevented local governments from increasing employee contributions;
- Limits retirees to working a maximum of 960 hours per year.
- Bans retroactive pension increases;
- Bars felons from collecting pensions.
These reforms are all welcome, but a long-term solution requires moving away from a pay-as-you-go defined benefit system. Otherwise, a spendthrift future governor and legislature could undo the above reforms when state revenues spike up again.
For more on public pensions, see here.
For more on Democratic politicians taking on public sector unions, see here.
With little success on the economic front, President Barack Obama in 2012 is embracing much of his message on the economy from 2008. And from that playbook, he has two basic strategies.
One is to blame the supposed deregulation policies of the Bush administration that Obama and his surrogates endlessly say “got us into this mess.” And the second is to hug former rivals Bill and Hillary Clinton as hard as he can and harken back to the prosperity and economic growth of the 1990s.
But there is just one problem with this theme. The Obama campaign’s twin messages of bashing deregulation and embracing the Clinton years are inherently contradictory. Despite yesterday’s much-hyped new pro-Obama ad in which Clinton warns that a Mitt Romney president would “go back to deregulation,” on financial regulation, Bill Clinton as president was actually more of a deregulator than Bush.
Clinton pushed for and signed the very deregulatory measures that have been blamed (wrongly) for causing the financial crisis of 2008. What’s more, Clinton administration officials have credited these policies for contributing to the ‘90s economic boom — the very “shared prosperity” that Obama says he wants to go back to.
Late in Clinton’s tenure, the White House put forth a document celebrating “Historic Economic Growth” during the administration and pointing to the policy accomplishments it deemed responsible for this growth. Among the achievements on Clinton’s list were “Modernizing for the New Economy through Technology and Consensus Deregulation.” That’s right, a Clinton White House document credited part of the administration’s success to that now dreaded d-word, deregulation.
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Two items in The Wall Street Journal today highlight a feature of organized labor that distinguish it from other special interests: Unions, as they have existed in the U.S. since the New Deal, are inherently political institutions.
An analysis by the Journal of union political giving shows that unions spend about four times as much on politics as previously thought and spend on a wider variety on political activities than do corporations. While union political action committees spent about $1.1 billion in support of candidates during 2005-2011, which they reported to the Federal Elections Commission, they also spent three times that — $3.3 billion — on other political activities, which were reported to the Labor Department. The Journal reports:
The costs reported to the Labor Department range from polling fees, to money spent persuading union members to vote a certain way, to bratwursts to feed Wisconsin workers protesting at the state capitol last year. Much of this kind of spending comes not from members’ contributions to a PAC but directly from unions’ dues-funded coffers. There is no requirement that unions report all of this kind of spending to the Federal Election Commission, or FEC.
Why the huge investment in politics? Because it’s the source of much union power. Since the enactment of the 1935 National Labor Relations Act (NLRA, also known as the Wagner Act), labor unions in the United States have operated under a regime of government protections that favored unions over other parties in the economy. Specifically, the NLRA’s closed shop provisions allowed unions to compel individuals to join — a power no other private sector entity enjoys.
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In his column today, George Will identifies a key problem in addressing overly generous government employee compensation: incentives. While he rightly places the blame for many jurisdictions’ dire fiscal conditions on the politicians who routinely give in to outlandish union demands, he doesn’t mention the incentives the politicians themselves face. Until those are addressed, public officials who seek to bring their jurisdictions’ finances under control will continue to face an uphill struggle.
The CTU [Chicago Teachers Union] wants a pay raise — 30 percent — proportional to [Chicago Mayor Rahm] Emanuel’s 90-minute increase in the school day and 10-day increase in the school year. He has canceled a 4 percent raise and offers only 2 percent. He says benefits the CTU has won — e.g., many teachers pay nothing toward generous pensions they can collect at age 60 — could in just three years force property taxes up 150 percent and require classes with 55 students.
Even discounting Emanuelean hyperbole, whose fault is this? Just as foggy rhetoric about corporations’ “social responsibilities” obscures the fact that a corporation’s responsibility is to maximize shareholder value, blaming unions for improvident contracts ignores the fact that a union’s principal task is to enhance members’ well-being — wages, benefits, working conditions. Unions can wound themselves by injuring their industries (e.g., steel and autos), but primary blame for improvident contracts with public employees belongs to the elected public officials who grant them.
Will is correct, but he only paints a partial picture. Many politicians eagerly give in to union demands because it is in their self-interest to do so. Political contributions give government employee unions outsize clout in negotiations. They are, after all, helping to elect their own bosses. Contributions extend beyond money. Union activists do a lot of campaign legwork for union-friendly politicians, including knocking on doors, distributing yard signs, and running get-out-the-vote efforts.
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