AFSCME

Public Pensions Fuel Government Growth

by Ivan Osorio on January 4, 2012 · 1 comment

in Bailout Watch, Economy, Employment, Labor

The straitened finances afflicting state and local governments across the nation have brought unprecedented scrutiny to government employees’ compensation, particularly pensions. As pro-market critics have pointed out how generous many public pensions are, government union representatives have pleaded poverty in response.

Today in The Wall Street Journal, Andrew Biggs of the American Enterprise Institute and Jason Richwine of The Heritage Foundation, say, “Not so” to such pleas of poverty. They do so by comparing defined benefit pensions to defined contribution retirement plans, such as 401(k) accounts.

Complex formulas obscure the fact that public pensions typically are much more generous than 401(k)s, making the situation ripe for misleading claims.

A case in point is the Illinois Teachers Retirement System (TRS), which insists that, because Illinois teachers don’t participate in Social Security, the average teacher’s pension of almost $43,000 “cannot qualify as ‘too generous.’” One might assume from such a statement that the typical Illinois teacher who retires this year after a full career will collect $43,000 per year. Not so. That average figure reflects the pensions of employees who retired years or decades ago, as well as individuals who worked only part of their careers in public schools.

The 2010 annual report for the TRS actually shows that the average teacher who retires today after 30 to 34 years of service had final earnings of $84,466 and collects a pension of $60,756 a year, plus annual cost-of-living adjustments, providing an income higher than 95% of retirees in Illinois.

These sums — and the strain they put on government finances — need to inform the debate over public pensions. But reformers need also to keep in mind the political implications of overly generous government pensions.

Generous pensions allow union-friendly politicians to satisfy their labor supporters’ demands while pushing those demands’ costs well into the future. Taxpayer resistance to increased spending is less powerful when politicians hide the spending through years-long delay. And that delay is one of the tools that have allowed government employee unions to become the permanent lobby for ever expanding government that they are today.

For more on pensions, see here.

In Wisconsin Recall, Unions Run to Stay in Place

by Vincent Vernuccio on August 9, 2011 · 3 comments

in Economy, Employment, Labor

No matter what the outcome of today’s recall election, nothing substantive will change in Wisconsin. Even if organized labor were to sweep all six recall elections of Republican state senators, the unions would still not have the votes in the Assembly to pass any legislation. They will not be able to restore the government union’s lavish benefits, which were brought down to Earth this spring. And even if they were somehow able to muster legislation through both the Senate and the Republican-controlled Assembly, they still will not have enough votes to overturn a veto by Governor Scott Walker.

According to the John K. MacIver Institute for Public Policy, a Wisconsin think tank, Big Labor and its allies have funneled over $14 million into the recall effort.

The Washington Post reports that much of the money (on both sides) comes from groups outside of Wisconsin.

Outside groups — led by national unions on the Democratic side and limited government groups such as the Wisconsin Club for Growth on the Republican side — have shoveled more than $25 million into the recall effort, with both sides spending about the same amount. The candidates, meanwhile, have raised more than $5 million.

The staggering dollar amounts being showered on the eight recall campaigns — which after a July 19 election and Tuesday’s six contests will conclude with two elections on Aug. 16 — are shattering state records. In 2010, when the 99-member assembly and half the 33-member state Senate was up for election, outside organizations spent $3.75 million in Wisconsin — 15 percent of this year’s total.

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Massachusetts’ Collective Bargaining Law: A Worry for the Obama Administration?

by Ivan Osorio on July 13, 2011

in Economy, Employment, Labor, Politics as Usual

It’s not easy being a governor or state legislator these days. With states facing deep budget deficits, state lawmakers around the nation are working to close their budget gaps by tackling one of the biggest costs they face: government employee compensation. As we saw in Wisconsin (and to a lesser extent in Ohio), Republican lawmakers who take on the government employee union lobby can expect an all-out backlash from it.

But it’s not just Republicans. Some Democratic state elected officials are also trying to close their own states’ budget gaps. While public employee unions have not been as vocal in their opposition to Blue Team-proposed cuts, Democrats depend on campaign support from unions in a way Republicans do not, so alienating those unions could prove costly politically — at least in theory.

That’s difficult enough, but now it appears that Massachusetts Governor Deval Patrick, a Democrat, recently had to deal with the Obama administration on this issue. The Boston Globe reported this week:

The White House took the unusual step this spring of calling Governor Deval Patrick to discuss his plan to curb the collective bargaining rights of public employees, an indication that the Obama administration may have been concerned about the potential for national political fallout.

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Chicago Mayor Emanuel Gives Unions a Choice: Concessions or Layoffs

by Ivan Osorio on July 1, 2011 · 1 comment

in Economy, Employment, Labor, Regulation

Leaders of government employee unions must be feeling lonely these days. Across the country, Democratic state and local elected officials — traditional union allies — are asking their public employee unions for concessions, in order to bring their governments’ finances under control.

This week, Chicago Mayor Rahm Emanuel, a Democrat, presented the unions representing city employees with a tough choice: Agree to cost-saving concessions or endure layoffs. Emanuel said he had identified the first 625 employees who would face layoffs if the unions do not agree to concessions.

This trend could continue if voters reward those politicians who impose budget discipline, taking on entrenched union interests. As William Kovacs and I note in the new issue of Labor Watch, economic reality is finally winning out over politics in some areas.

To gain some measure of control over their runaway public ?nances, Democrat-controlled states are acknowledging that they will have to make tough decisions that Big Labor will hate. Despite accepting millions of dollars in union campaign contributions, some Democratic of? ceholders are ignoring Big Labor’s demands. They are seeking budget cuts and union concessions.

“Public unions have a symbiotic relationship with the Democratic Party,“ observes Manhattan Institute senior fellow Daniel DiSalvo. “They provide essential campaign dollars and boots on the ground to Democratic candidates. … Therefore, most efforts to alter collective bargaining rules, to give government managers greater autonomy to innovate, or to reduce the costs of compensation, are likely to come from Republicans.”

However, DiSalvo has noticed that larger changes are taking place. Writing in  The Washington Examiner, he argues that, “[T]here are outside forces that may make reform inevitable. Global competition and technological innovation will demand it. That is if the huge unfunded liabilities for pensions and health care don’t catch up with state and local governments ?rst.”

For more on the divisions between Democrats and government employee unions, see here.

In Wisconsin, Smaller Class Sizes through Fiscal Restraint

by Ivan Osorio on June 30, 2011

in Economy, Employment, Labor

Of the various hyperbolic leftist talking points against the recently enacted Wisconsin collective bargaining law, the “war on teachers” was easily the most shrill, dumb, and tiresome. It was also flat wrong.

Now a similar collective bargaining reform by the Kaukauna Area School District (part of the Appleton metro area) is projected to shift the District’s budget from a substantial deficit to a large surplus. The Appleton Post Crescent reports:

As changes to collective bargaining powers for public workers take effect today, the Kaukauna Area School District is poised to swing from a projected $400,000 budget shortfall next year to a $1.5 million surplus due to health care and retirement savings.

The Kaukauna School Board approved changes Monday to its employee handbook that require staff to cover 12.6 percent of their health insurance and to contribute 5.8 percent of their wages to the state’s pension system, in accordance with the new collective bargaining law, commonly known as Act 10.

“These impacts will allow the district to hire additional teachers (and) reduce projected class sizes,” School Board President Todd Arnoldussen wrote in a statement Monday.

Teachers unions have been advocating reduced class sizes for years. Whatever the merit of smaller classes — and there is no universally accepted definition of what constitutes an “ideal” classroom headcount — they would require the hiring of more teachers, resulting in more dues-paying union members.

Now Kaukauna is poised to give the unions that, in exchange for some modest increases to their health insurance and pensions. Yet I  doubt the state’s NEA affiliate will be celebrating (hat tip: Iain Murray).

For more on public sector unions, see here and here.

New CBO Pension Report: Underfunding Could Be Higher

by Ivan Osorio on May 6, 2011

in Bailout Watch, Economy, Labor

That state and local governments  face serious pension funding problems isn’t a particularly controversial contention. However, the question of how much they’re underfunded by is much more contentious.

Last week, the Pew Center on the States released a report that estimates the nation’s total public pension underfunding at $1.26 trillion, based on the discount rate which  the Government Accounting Standards Board (GASB) allows fund managers to use in order to determine their level of contributions needed to meet future obligations. The Pew report is significant in that it acknowledges the arguments that the GASB-based estimate may be too low.

Now a new report by the Congressional Budget Office (CBO) follows suit, and goes further. It discusses in some detail the “fair-value approach” advocated by some GASB critics, and estimates what total pension underfunding would be using lower discount rates.

  • For assets, the fair value is what an investor would be willing to pay for them—that is, the current market value (or an estimate when market values are unavailable); it is not the averaged, or smoothed, market values that are reported under GASB guidelines.
  • For pension liabilities, the fair value can be thought of as what a private insurance company operating in a competitive market would charge to assume responsibility for those obligations.

In the case of state and local pension plans, the discount rate for future benefit payments using the fair-value approach is lower—and, therefore, the estimated present value of those payments is higher—than under the GASB approach. Under the fair-value approach, future cash flows are discounted at a rate that reflects their risk characteristics. Hence, for pension liabilities, the discount rate reflects the fact that the cash flows associated with accrued liabilities are fixed and carry little risk; it is very unlikely that the liabilities will not be honored. By contrast, under the GASB approach, the discount rate used for liabilities reflects the greater risk associated with pension funds’ assets. Under the fair-value approach, one way to approximate the discount rate applied to future benefit payments is by using the interest rate on municipal securities adjusted to remove the effect of tax deductibility): In 2010, the discount rate would have been about half as large as the median discount rate of 8 percent under the GASB guidelines. (For additional discussion of discount rates, see Box 1 on page 6.)

A study published last year that examined the sensitivity of estimates of underfunding to discount rates for pension plans in the Public Fund Survey illustrates the large difference between the GASB and fair-value approaches. Unfunded liabilities in 2009 amount to about $0.7 trillion when liabilities are discounted at 8 percent but total $2.2 trillion when liabilities are discounted at 5 percent and $2.9 trillion when they are discounted at 4 percent (see Table 1). Those unfunded liabilities, as calculated on a fair-value basis, indicate funded ratios of roughly 55 percent and less than 50 percent, respectively.

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Faulty Public Pension Accounting: A Problem too Big to Ignore

by Ivan Osorio on April 28, 2011

in Economy, Employment, Labor, Regulation

One reason the ongoing debate over collective bargaining for government employees has been so loud is that the stakes are so high — for unionized government employees on one side and for taxpayers on the other.

For years, public sector collective bargaining enabled government employee unions, especially at the state and local level, to aggressively lobby for generous compensation in exchange for political support for the politicians who grant such largess.

Those politicians, seeking to avoid taxpayer wrath today, deferred many of the costlier elements of that compensation well into the future, including pensions. To make matters worse, states underfunded those pensions for years, and the accounting methods they used hid the funding gaps.

Today, however, much as the budget crises affecting state government around the country has brought public attention to the bad bargain for taxpayers that is public sector collective bargaining, state pension accounting standards face considerable public scrutiny, from across the ideological spectrum.

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What Government Unions Want: One, Two, Many Californias

by Ivan Osorio on January 6, 2011 · 1 comment

in Economy, Employment, Labor, Regulation

That the large Republican gains in the 2010 midterm elections pose a setback for organized labor’s agenda is hardly news. What will be newsworthy is how incoming policy makers at both the federal and state level will fight back against union power — especially government union privileges — over the next couple of years, and to what extent they succeed.

The Economist sums up the challenge elected officials face as they stare down the government union political machine (and offers a good overview of the global nature of this problem):

It would be a mistake to write off the public-sector unions. They are masters of diverting attention from strategic to tactical questions. Undoubtedly the unions will lose some of their privileges over the coming years; the scale of the debt crisis makes this inevitable. But will governments have the courage to tackle the root causes of the problem (such as pensions) rather than dealing with secondary problems (such as wages)? And will they dare to tackle questions of power rather than just pay and perks? If they are to claim victory in the coming fight, they need not just to restore the public finances to health. They also need to breathe the spirit of innovation into Leviathan.

And not all politicians challenging government unions are Republicans. As The New York Times reported this week:

State officials from both parties are wrestling with ways to curb the salaries and pensions of government employees, which typically make up a significant percentage of state budgets. On Wednesday, for example, New York’s new Democratic governor, Andrew M. Cuomo, is expected to call for a one-year salary freeze for state workers, a move that would save $200 million to $400 million and challenge labor’s traditional clout in Albany.

Indeed, as I noted recently, the longstanding alliance between government employee unions and Democratic politicians has become strained. Public sector unions may be among the Democratic Party’s most loyal constituencies, but the gaping budget deficits to which unionized government employees’ generous compensation packages have substantially contributed bear no party label.

And it’s not as if bloated state budgets guarantee a high quality and adequate supply of public services. As Arnold Kling puts it so well in EconLog blog:

If you do not have enough sanitation workers because you cannot fill job openings at the current level of pay, then those government workers are underpaid.

On the other hand, if you do not have enough sanitation workers because your budget is busted by the ones you have, then those government workers are overpaid.

Thus, the bipartisan nature of this pushback should not be that surprising — yet it has taken government union leaders by surprise, being unaccustomed as they are to finding themselves on the defensive. Naturally, they plan a response.

And what the unions want should worry anybody who cares about fiscal sanity. As Politico reports:

Labor leaders take hope in the story of California, where Schwarzenegger arrived after a recall with an apparent mandate for dramatic change and, in 2005, moved to shift state employees from a defined benefit to a defined contribution pension plan — the goal of many Republicans, but anathema to unions that see it as a threat to traditionally secure retirements.

Instead, Schwarzenegger found himself stymied by a state Legislature whose Democrats were tightly tied to labor, as well as by failures at the polls. Most public workers ultimately negotiated new benefit “tiers” with Schwarzenegger, but the changes fell far short of the Republican wish list, and the governor leaves his Democratic successor, Jerry Brown, a large budget gap.

We all know how that turned out.

(Hat tip: F. Vincent Vernuccio)

For more on public sector unions, see here and here.

New York Snow Debacle Shows: It’s Government Unions vs. Taxpayers

by Ivan Osorio on January 5, 2011 · 1 comment

in Deregulate to Stimulate, Economy, Employment, Labor, Regulation

The longstanding alliance between Democratic politicians and government employee unions has come under increasing strain, as I recently noted in a Washington Times op ed. Now the New York City snow cleanup slowdown is adding to that strain.

As state and local governments face large and growing budget shortfalls, the individuals who lead those governments are having to make hard decisions on where to cut spending. And the area with the most room to cut is public employee compensation, which has far outstripped that in the private sector. Thus, simply eliminating waste in other parts of city and state budgets won’t bring the books into balance. As the Manhattan Institute’s Nicole Gelinas notes in City Journal:

Only if state and local politicians identify the true culprit behind the botched post-storm cleanup: the misguided idea that management expertise can overcome the benefits costs that are consuming the city budget.

If money could melt snow, Mayor Bloomberg would be basking in victory over the storm. When he took office in 2002, Gotham spent $1.3 billion annually on the Department of Sanitation. Today, the city spends more than $2.2 billion on “New York’s Strongest.” That increase during Bloomberg’s tenure was almost three and a half times the inflation rate. It follows that we should have a sanitation army well equipped to clean the white stuff up fast. Not quite. Today’s budgeted sanitation force—from supervisors to garbage collectors—is 392 people smaller than it was nine years ago, a 4 percent decline even as population is up. And the department is shrinking further, as Deputy Mayor Stephen Goldsmith knocks 200 people off the rolls to save $21 million by moving supervisors into front-line jobs.

So where has the city’s swelling sanitation budget gone? Not into better services but into workers’ health care and pensions, as well as borrowing to fund infrastructure, which would otherwise be unaffordable because of those sky-high benefits. Taxpayers now spend $144,000 on salary and benefits for each sanitation worker, up from $79,000 nearly a decade ago. Nine years ago, taxpayers contributed about $10.5 million annually to support sanitation pensions; this year, they’ll cost $240 million—a more than twentyfold increase (the final number may be lower, though, as some changes to the pension funds, which push up contribution rates, may not go into effect until next year).

Such generous government employee compensation packages are not only expensive — they are impervious to economic downturns. So, as private businesses retrench or cut back hours, governments must carry on, even as tax revenues fall, until they reach a crisis stage at which draconian measures become necessary. Yet even then, government employee unions are wont to push back against any curbs in compensation, as the New York snow cleanup slowdown painfully shows. Thus, elected officials have no option but to face government unions head on, as Gelinas recommends.

Bloomberg should direct his innovators to focus on where the money is, reducing taxpayers’ commitments to pay future retiree benefits before they consume even more of the budget. He could run a media campaign, for example, to help the public understand that Governor Andrew Cuomo must do wholesale pension change so that new workers, not taxpayers, take more responsibility for their retirements. Further, as union workers would chafe under a serious effort to pare back health benefits in future contracts, the mayor needs an old-fashioned labor-wars veteran to make sure that employees aren’t executing stealthy work slowdowns, as some sanitation workers may have done last week.

That course of action will be difficult, but if carried out effectively, likely would meet widespread  support among the general public — from whom government unions are also becoming increasingly disconnected. As Wall Street Journal columnist William McGurn notes:

In theory, of course, organized labor is all about fraternal solidarity. For many years, it is true, private-sector unions supported collective-bargaining rights and better benefits for government workers, while public-employee unions supported the private-sector unions in their opposition to legislation such as the North American Free Trade Agreement in the 1990s.

Suddenly, it’s a different world. In this recession, for example, construction workers are suffering from unemployment levels roughly double the national rate, according to a recent analysis of federal jobs data by the Associated General Contractors of America. They are relearning, the hard way, that without a growing economy, all the labor-friendly laws and regulations in the world won’t keep them working.

What’s more, “blue-collar union workers are beginning to appreciate that the generous pensions and health benefits going to their counterparts in state and local government are coming out of their pockets,” says Steven Malanga, a senior fellow at the Manhattan Institute. “Not only that, they are beginning to understand the dysfunctional relationship between collective bargaining for government employees and their own job prospects.”

It’s no coincidence that states that have barred collective bargaining for government employees, such as Virginia, have found it much easier to keep their finances in order. That’s the least the taxpaying public should expect.

For more on government employee unions, see here and here.

Unions’ Shifting Lame Duck and NLRB Agenda

by Ivan Osorio on November 22, 2010

in Bailout Watch, Economy, Labor, Regulation

With Democrats losing control of the House of Representatives and a substantial number of seats in the Senate, organized labor’s hopes of seeing its legislative agenda enacted are fading fast. But that won’t keep union bosses from trying, in two ways. First, a last-ditch push in the current lame-duck session of Congress; and second, shifting efforts away from the legislative to the regulatory process, specifically in the National Labor Relations Board (NLRB). Thankfully, this shift in union strategy is getting some public attention — and more is needed.

In Congress, Big Labor’s allies are most likely to focus on passing bills bailing out underfunded union pensions and forcibly unionizing state and local government public safety employees. As my colleague F. Vincent Vernuccio and I noted recently in Forbes regarding the proposed bailout:

During the lame duck session, the main Big Labor priority to watch out for is a union pension bailout. Introduced in the House (Create Jobs and Save Benefits Act, H.R. 3936) by Rep. Earl Pomeroy (D-N.D.) and in the Senate (Create Jobs and Save Benefits Act, S. 3157) by Rep. Robert Casey (D-Penn.), this legislation would create a new fund within the Pension Benefit Guaranty Corporation ( GRTYA.PK - news -people ) (PBGC), through which it would direct taxpayer dollars to shore up some underfunded union pension plans. The use of public funds to insure private pension plans is a first for PBGC and stark departure from the way it has operated since its creation in 1974.

Earl Pomeroy lost his reelection bid, which makes the prospects for his legislation dim. However, just because unions lost one champion of this legislation does not mean they cannot find another. Pomeroy was an odd sponsor of such legislation anyway; unions are not exactly political powerhouses in North Dakota, which is a right to work state.

The so-called Public Safety Employer-Employee Cooperation Act (S. 3194, H.R. 413) would corral public safety — police, firefighter, and EMT personnel — into unions. For organized labor, this may be its best option for a long-term growth strategy, now that more union members works for governments than for private businesses. But states and cities struggling to balance their overstretched budgets, higher labor costs is the last thing they need. As National Right to Work Committee President Mark Mix notes in The Washington Examiner:

Last year, even as the nation’s economy endured a severe recession, state and local employee real compensation rose by nearly 3 percent. Meanwhile, businesses whose revenues were plummeting had no choice but to cut back real compensation for private-sector employees by 4 percent.

Incredibly, Reid and many likeminded senators and representatives now appear eager to put an even more onerous burden on private-sector employees and employers so that already bloated unionized government payrolls can keep expanding.

The Public Safety Employer-Employee Cooperation Act would force countless policemen, firefighters and emergency medical technicians to accept as their monopoly-bargaining agent a union they never voted for, and want nothing to do with. All contrary state laws and local policies would be overridden.

Even in many states that already authorize public-safety union monopolies, the bill would widen their scope. That’s why the vast majority of the 50 states will be forced either to rewrite their public-sector labor statutes, or hand over control of their public-safety officers to the federal government, if it becomes law.

Moreover, as former Service Employees International Union second-in-command Anna Burger has boasted, it would “create a national collective,” i.e. monopoly, “bargaining standard for all [state and local] public workers.”

Meanwhile, the fight over card check and other pro-union legislation is shifting to the NLRB, where Board members Craig Becker and Mark Gaston Pearce — both recess-appointed by President Obama — are likely to push Big Labor’s agenda. As Katie Gage of the Workforce Fairness Institute notes in The Daily Caller:

Recently, the NLRB has taken action to favor labor bosses over employees and employers. Obama’s appointees to the board are carrying Big Labor’s water, and our freedoms and jobs are at risk.

Cases that have been decided and closed for years are now being reopened by these new board members, who aim to change pro-worker and pro-small business decisions into pro-union boss ones.

For example, most recently, the board backed unions in their practice of holding protest signs at small businesses who use contract workers, claiming that the signs are not coercive.

In addition, the NLRB is now considering implementing electronic voting services for remote elections as opposed to worksite elections where physical ballots are both cast and counted, a move that would open elections to potential fraud and workers to intimidation.

And now there is discussion that this “independent federal agency” will shorten the amount of time for workplace elections even though most take place within a month. While Big Labor bosses could begin planning and organizing months ahead of an election being called, small business owners could be caught unaware and have only a few days to make their case to their own employees.

The lame-duck session ends next month, but Becker’s and Pearce’s recess appointments run through the end of the next session of Congress, so they’ll be on the Board through 2011. The NLRB bears watching.

For more on labor, see here and here.

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