pensions

Did Wisconsin Police Violate the First Amendment through Selective Enforcement of Limits on Protests?

by Hans Bader on March 3, 2011 · 1 comment

in Features, Labor, Legal, Personal Liberty, Politics as Usual, Sanctimony

Post image for Did Wisconsin Police Violate the First Amendment through Selective Enforcement of Limits on Protests?

Ordinarily, protesters who tried to occupy the Wisconsin Capitol Building would be swiftly arrested and removed. But this weekend, police in Madison, Wisconsin, not only allowed pro-union protesters to stay and sleep in the state Capitol Building, they joined them.

Wisconsin union supporters applauded this lawlessness. One exulted, “Police have just announced to the crowds inside the occupied State Capitol of Wisconsin: ‘We have been ordered by the legislature to kick you all out at 4:00 today. But we know what’s right from wrong. We will not be kicking anyone out, in fact, we will be sleeping here with you!’ Unreal.”  (Days later, the police finally told the protesters to leave the Capitol Building, but “didn’t evict“ them at that time, and protesters were still camped out in the Capitol Building on the morning of March 1, with their garbage and trash littering the building and the surrounding areas. By the time the police finally took grudging action to limit the protesters’ access to the building, it was during business hours — when the building has traditionally been open to the public. So a union lawyer then promptly got a temporary restraining order that, with little explanation, forced Wisconsin officials to reopen the building to the public during business hours, thus making it harder for them to clean up the building and prevent future occupations.)

This foot-dragging by police and their selective enforcement of the law was a violation of federal court rulings, like Dwares v. City of New York (1992), that require police to enforce the law in a viewpoint neutral manner. In Dwares, police were sued for refusing to arrest people who attacked flag-burners because they disagreed with the flag-burners’ message — even though police ordinarily enforce laws against assault.

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Election 2010: Union Losses, Worker Gains

by Ivan Osorio on November 3, 2010

in Agenda for Congress, Bailout Watch, Deregulate to Stimulate, Economy, Employment, Labor, Regulation

Yesterday’s election results will make it much more difficult for organized labor to advance its agenda in Congress. This is good news for the American economy, especially struggling businesses and workers who do not wish to join unions.

The deceptively named Employee Free Choice Act (EFCA) remains at the top of the union agenda. It failed to become law when Democrats controlled both houses of Congress and the White House, so its chances of gaining any traction in its current form now are nil. However, during upcoming Congress lame duck session, EFCA supporters could alter the bill in various ways in order get at least parts of it through.

One possibility is jettisoning the bill’s card check provision, which would in effect eliminate secret ballots in union organizing elections. This provision generated the most opposition and is now politically toxic. EFCA supporters could either replace that provision with one mandating expedited elections or push EFCA without an organizing provision. Either option is bad.

Expedited elections very likely would function as ambush elections, in which employers get very little time to respond to union organizing campaigns, and thus give the union a significant advantage.

Meanwhile, EFCA’s other provisions are also very bad policy. The Act’s binding arbitration provision would enjoin a federally appointed arbitrator, who would have no knowledge of the business, to impose a contract on a newly unionized company if the management and the union cannot reach an agreement after 120 days. Such an imposed contract could include obligations to pay into severely underfunded union pension funds. Thus, employers could find themselves facing millions of new liabilities practically overnight, without having much of a say in the matter. (As Brett McMahon of Miller & Long Construction describes it, for a newly unionized company, that would be “a good time to start liquidating.”)

EFCA’s last provision would increase penalties on employers for “unfair labor practices,” which can include actions resisting unionization that would be legal in any other context outside of the bizarre world of U.S. labor law — such as raising wages or promising to do so. Increased penalties for such actions give unions a bigger club with which to browbeat employers during organizing campaigns.

EFCA opponents in Congress — mostly Republicans but also a few Democrats — should be on guard against EFCA supporters attempting to attach the bill’s binding arbitration and increased employer penalty provisions to other legislation. In short, they should be vigilant against EFCA-minus-card-check and EFCA-in-pieces.

Another Big Labor priority to watch out for is the companion union pension fund bailout bills, 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.). The Pomeroy-Casey bailout would create a new fund within the Pension Benefit Guaranty Corporation (PBGC), an agency chartered by Congress that insures private sector pensions. As my colleague Vinnie Vernuccio and I explain in a recent op ed:

PBGC is funded through premiums paid by private companies to insure retirees if a plan sponsor were to become insolvent. Casey’s bill 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.

Casey’s bill would create a new fund to the PBGC called the “fifth” fund. The legislation states that the new fund’s obligations would be “obligations of the United States.” In other words, taxpayers, not just by PBGC premium payers, would be on the hook. Money in the “fifth” fund would go to “orphans”—employees whose employers have stopped contributing to their plan—of certain existing pensions.

The taxpayer liability could be huge, extending to cover the PBGC’s existing, already-large deficit.

Worse, Casey’s bill would also bail out a dysfunctional agency. The PBGC’s premiums are set by Congress, not the market. As a result, years of too-low premiums, combined with the moral hazard that creates for companies under Chapter 11 to shunt off their pension obligations to the agency, have left the PBGC with severe deficits of its own. The PBGC faces a deficit of $22 billion, which is projected to go as high as $34 billion by 2019, according to its own 2010 annual management report. Taxpayers could also be on the hook for this deficit. A provision in the “fifth fund” allows it to transfer money to others funds in the PBGC, which could use that money to reduce its deficit.

And that’s not all. The Pomeroy-Casey legislation would increase the pension liabilities of companies that already face those obligations, before those pensions wind up as wardens of the state in the new taxpayer-funded PBGC. As Vinnie and former CEI Brookes Fellow Jeremy Lott explain, it would allow multi-employer — i.e. union — pension funds to create “alliances” — that is, combine into larger funds.

Multiemployer union pension alliances might sound innocent enough, but consider what that actually means. Moody’s Investors Service recently warned of a vast underfunding problem with multiemployer pensions. Many employers fear being shackled into them. Even though the funds are controlled by unions, employers are liable not just for their own employees, but for every worker in the plan regardless of how the plan is managed or mismanaged.

The so-called last-man-standing rule holds that if every other company in a multiemployer pension plan goes bankrupt, closes or pulls out of the plan, the one survivor is responsible for every single employee covered by the plan, even those who never worked for him. UPS paid $6.1 billion in withdrawal fees just to escape the Teamsters Central States pension fund.

Earl Pomeroy lost his reelection bid yesterday, and soon will no longer be in Congress, which makes the prospects for his legislation dim indeed. However, just because unions lost one champion of this legislation doesn’t mean they can’t find another. Pomeroy was an odd sponsor of such legislation anyway; unions aren’t exactly political powerhouses in North Dakota. Still, given enough support from the national Big Labor establishment, another unlikely lawmaker could take this up. In addition, Pomeroy himself could try to push this legislation during the lame duck session, which could gain him favor with the Obama administration — and its major labor supporters — and improve his chances for an executive appointment.

Finally, organized labor’s reduced clout in Congress may clear the way politically for the long overdue ratification of free trade agreements with Colombia, Panama, and South Korea. Colombia and Panama are promising emerging markets. South Korea is one of the world’s leading economies. All three countries are U.S. allies. America’s trade agreements with all three deserve prompts ratification.

For more on labor, see here and here.

General Motors’ Losses Hidden by Deferral of Union Pension Obligations

by Hans Bader on October 21, 2010

in Bailout Watch, Economy, Employment, Labor, Regulation

Any General Motors bonds issued this year will be classified as junk by a key ratings agency.  Why?  There’s some risk GM will go bankrupt again, and it hasn’t really returned to profitability, the way it appeared to have. That’s because GM’s recent quarterly profit, which came after years of losses and tens of billions of dollars in taxpayer bailouts, was artificially created by the temporary deferral of billions of dollars in pension obligations that it owes to the United Auto Workers union.  Those unfunded pension obligations have risen by $6 billion since the end of 2009.  As Charles Lane of The Washington Post notes,

[A] little-noticed October 6 report from Fitch, the ratings agency, which highlighted the major unresolved issue of the bailout: pension obligations to its United Auto Workers employees. The union successfully resisted efforts to trim this long-term burden on the company through the bankruptcy process, and they continue to weigh heavily on the company’s future. Specifically, GM’s relatively robust free cash position – one of its major selling points in its pending IPO – is being artificially propped up by the fact that it is not yet legally required to make multi-billion-dollar payments into its ‘heavily underfunded’ U.S. pension funds. How underfunded are they? Well, the U.S. plans alone are $17 billion underfunded as of the end of 2009, Fitch says. When you include global operations, the total is $27 billion. . . GM’s pension obligations are actually $6 billion higher than they appeared at the end of 2009.

These obligations will likely have far more impact on GM’s financial future than the recent revelations that it lied about the Chevy Volt, which it was trumpeting in a “publicity stunt” to curry favor with politicians crusading against global warming.

Earlier, GM lied about whether it had paid back taxpayers for its bailout, which resulted in GM getting $50 billion in taxpayer money, and its finance arm GMAC getting another $17 billion.  (GM also received billions indirectly from taxpayers, through programs like the incredibly wasteful Cash for Clunkers, which cost  used-car and car-parts dealers billions.)

The Obama administration used the bailouts to keep the United Auto Workers’ massive compensation (worth up to $70 an hour), pension benefits, and rigid union work rules largely intact, while giving the UAW a big chunk of General Motors‘ stock, even though the UAW helped bankrupt the company.  The auto bailouts were so wasteful and so biased in favor of the UAW that they disturbed even the liberal Washington Post editorial board.

Another reason for treating GM bonds as junk is the way the Obama administration mistreated GM’s past bondholders.  It engineered the wiping out of General Motors’ bondholders, some of whom were non-union employees who had invested their life savings in the company, so that the GM stock that the Obama administration was giving the UAW would be worth more.

GM also faces increased regulatory burdens, such as CAFE rules ratcheted up in the name of global warming  (the initial tightening of those rules will wipe out at least 50,000 jobs in the auto industry), that will make it hard for it to expand its anemic 19 percent market share.  Other EPA global warming rules are expected to wipe out at least 800,000 American jobs and impose heavy costs on suppliers of materials used in manufacturing automobiles.  The EPA’s proposed ozone rules would wipe out 7.3 million jobs, according to one study.

Killed by Pension Accounting

by Ivan Osorio on October 18, 2010

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

Think accounting rules are a boring topic? You wouldn’t if the fate of your business rested on it. Indeed, a rule change may be coming soon that may expose the huge liabilities many companies face as a result of their participating in some grossly underfunded union pension funds. In a straightforward, non-boring manner, Washington Examiner columnist Mark Hemingway breaks it down.

On Nov. 1, the Financial Accounting Standards Board (FASB) ceases to take public comment on a new rule requiring that companies more accurately report liabilities they have from participation in multiemployer pension plans. Unless FASB is persuaded otherwise, the rule takes effect Dec. 15.

There are some 1,500 multiemployer pension plans in the United States, which are unique to unions. In these plans, multiple companies pay into the pension plan, but each company assumes the total liability.

Under “last man standing” accounting rules, if five companies are in a plan and four go bankrupt, the fifth company is responsible for meeting the pension obligations for the employees of the other four companies.

What this means is that companies with union labor often have pension liabilities that are several multiples higher than the pension expenditures they report — the Kroger grocery store chain shocked analysts last year when it disclosed its multiemployer pension liabilities more than doubled in a year to $1.2 billion.

Ratings agencies such as Moody’s and Standard and Poor’s have been highlighting the lack of transparency in union pension plans. Now Wall Street wants union businesses to be upfront about their liabilities.

FASB’s new rule could effectively wipe out the paper worth of many companies, especially in the trucking and construction industries. Once banks and creditors are aware of these staggering pension liabilities, it will make it nearly impossible for union businesses to get loans, credit lines or bonding.

If forced to report their true liabilities, hundreds — perhaps thousands — of companies will scramble to get out from under their union obligations.

UPS did precisely that three years ago, opting to pay $6.1 billion to withdraw from the Teamsters Central States Fund. That’s right, UPS decided that $6.1 billion was less costly than the Central States Fund’s liabilities! The last-man standing rule made the situation especially bad. As Bloomberg reported at the time, “The Central States Fund has suffered as several unionized trucking companies have failed or been acquired during the past decade, leaving UPS and other remaining employers to bear greater liability for retirees covered.”

As Hemingway notes, it is largely to shore up such failing pension funds that organized labor worked so hard for passage of the so-called Employee Free Choice Act — its card-check provision would enable unions to organize new members without the hindrance of a secret ballot election, while its binding arbitration provision would make it easier to impose pension liabilities on employers. He also rightly notes that the fight over EFCA isn’t quite over yet, and Republicans need to be on guard during the upcoming lame duck session of Congress.

Businesses should be even more on guard. As Brett McMahon of Miller & Long Construction (whom Hemingway also cites) described it, for a business, facing millions in new multi-employer pension liabilities would be “a good time to start liquidating.”

For more on union pensions, see here.

Pension Insanity in France

by Lee Doren on October 13, 2010 · 1 comment

in Economy, Labor

Many people in France are waking up to the reality that they cannot sustain the welfare state indefinitely. Apparently, it isn’t economically feasible to have citizens take five weeks of vacation, produce very little, and then be guaranteed pension benefits at age 60. It just doesn’t work.

Consequently, Nicholas Sarkozy has attempted to solve this problem by raising the standard pension age from 60 to 62 and the age of a guaranteed “full” pension from 65 to 67. This “extreme” measure has led to French unions striking and shutting down the French economy.

Yes, that’s correct. Asking people to work two more years in France in order to prevent the country from bankrupting itself is worthy of a strike.

The unions claim Sarkozy is being unfair to people who enter the workforce later in life; those individuals would not be eligible for pensions until they were 67. Ironically, the unions never question how their own policies have prevented people from entering the workforce. For example, unions increase demands on employers and make it virtually impossible to fire anyone. This increases unemployment, especially for those below the age of 25.  However, this would not be the first time that union policy had the result of harming workers.

Overall, the problem with guaranteed pensions is that the public will never be satisfied with the reality that long-term income security can’t be created by legislation. Only increased productivity and wealth creation can accomplish that.  Sadly, there are people in our government currently advocating that America move towards a French-style pension system (see PDF). While it may create a guaranteed political future for those who distribute these “guaranteed” benefits, it will only lead to economic disaster for the country.

Photo credit

Around the Country with Public Sector Unions

by Ivan Osorio on August 10, 2010 · 1 comment

in Bailout Watch, Economy, Employment, Labor

It’s often a sign that a problem is turning into a crisis when the public outcry over it becomes ubiquitous. That seems to be the case with the stress that government employee compensation is placing on government budgets at all levels, as several news items today indicate.

In a front-page story, USA Today reports that federal employees earn far above their private sector counterparts, and that gap has widened considerably in recent years.

Federal workers have been awarded bigger average pay and benefit increases than private employees for nine years in a row. The compensation gap between federal and private workers has doubled in the past decade.

Federal civil servants earned average pay and benefits of $123,049 in 2009 while private workers made $61,051 in total compensation, according to the Bureau of Economic Analysis. The data are the latest available.

The federal compensation advantage has grown from $30,415 in 2000 to $61,998 last year.

Public employee unions say the compensation gap reflects the increasingly high level of skill and education required for most federal jobs and the government contracting out lower-paid jobs to the private sector in recent years.

However, as Reason‘s Nick Gillespie rightly notes, such touting of government employees’ education credentials “probably reflects credentialism run amok as a demonstrated need for specialized skills.”

Moreover, higher salaries are just the beginning. In addition to generous benefits, many government workers enjoy retirement benefits that most private sector workers can only dream of. Negotiated as part of collective bargaining agreements, lavish pensions allow union-friendly politicians to keep their organized labor supporters happy, while they get to kick the can down the road to their successors — when the bill comes due, it becomes the new office holders’ problem.

And how lavish can those pensions get? Take the city of Bell, California,  where, The Wall Street Journal notes in an editorial, “City Manager Robert Rizzo stepped down after news broke that he was making $800,000 a year to oversee the blue-collar town of 40,000.”  And he’s just the tip of the iceberg.

According to the California Foundation for Fiscal Responsibility, a nonprofit that advocates pension reform, Mr. Rizzo is hardly alone. The foundation lists 9,111 retired California government workers receiving pensions in excess of $100,000 a year. The top earner, one Bruce Malkenhorst, receives $510,000 a year for his tenure as city administrator of Vernon, California (population, 91). Not including health benefits.

These paydays are the inevitable result of the dominance of government unions in city and state politics. While most private workers have 401(k)-type plans that rise and fall in value with economic growth, unions negotiate guaranteed payouts that stay lucrative whether or not the cities can afford them. California Attorney General Jerry Brown is investigating the Bell episode, but he’d enhance his chances to become the next Governor if he proposed more ambitious pension reform.

That is bad enough, but making that situation even worse is the fact that those same politicians who negotiated those generous pensions have neglected to adequately fund them, while setting up rules that could be gamed to increase payouts — sometimes even beyond retirees’ former salaries. Now those states face huge financial shortfalls, which underfunded pension obligations are making far worse. As the Mercatus Center’s Eileen Norcross and Todd Zywicki note in The New York Daily News:

At 44, Hugo Tassone retired from the Yonkers police force with an annual pension of $101,333 – thanks to overtime pay he tacked on to his $74,000 salary. Tassone told The New York Times it was the pension he could collect after 20 years of service that attracted him to the job in the first place.

He’s not alone. In the last decade, half of the police and firefighters who retired in Yonkers collected pensions that exceeded their base pay, in (at least one case) by as much as 75%.

Don’t blame the officers. New York’s pension rules make it pay more to retire than to work.

[...]

But loopholes and gamesmanship aren’t the only reason why public pension systems nationwide face massive funding shortfalls. They are the result of a perfect storm of flawed accounting, which fueled unrealistic employee demands that were then underfunded by politicians. In plans across the country, during booming years of the late 1990s, many workers were promised retirement payouts that were “too good to be true” and, thus, impossible to make good on.

New York’s budget situation is bad. In California, it’s reached a point that Governor Arnold Schwarzenegger calls “unsustainable.” He lays out the numbers in a Los Angeles Times op ed:

We have $500 billion in government-employee pension debt alone, a mind-numbing figure that is six times the size of our entire state budget and 10 times the amount we spend on education.

[...]

We must also reform California’s pension system for government employees, whose costs to taxpayers for just one of our major pension funds have skyrocketed from $150 million a year a decade ago to almost $4 billion this year. Private-sector workers already struggle to pay for their own retirement. Now they are being forced to pay more and more for the government workers’ retirement, at the very time their own retirement accounts have declined. What is worse, in five years those pension costs will grow to well over $10 billion per year, and keep growing from there.

Fixing this will not be easy, but public attention turning to this crisis is a welcome first step.

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

LibertyWeek 101: Urban Beekeepers Unite!

by Richard Morrison on July 12, 2010

in CEI Projects, Features, Podcast, Zeitgeist

Richard Morrison and Marc Scribner welcome back long-lost co-host Michelle Minton to Episode 101 of the LibertyWeek podcast. We discuss the sobering recommendations of the White House debt commission, the intoxicating budgetary success of Chris Christie in New Jersey, the bunker mentality of UN climate scientists, the travails of urban homesteaders and the birth of scandal-based tourism.

Divorce Courts Mistreat America’s Soldiers and Small Businesses

by Hans Bader on June 1, 2010 · 1 comment

in Culture, Deregulate to Stimulate, Economy, Employment, Legal, Nanny State, Personal Liberty, Politics as Usual, Regulation, Sanctimony, Zeitgeist

Memorial Day is an opportunity to thank our troops, and open our eyes to the disgraceful way they are treated by divorce courts. The bias that divorce courts in my home state of Virginia often exhibit against males, people who start small businesses, and breadwinner spouses in general has been ably chronicled by Richard Crouch, a prominent family lawyer, in the Virginia state bar publication Family Law News.

But what ashames me most as a lawyer is how divorce courts routinely violate our soldiers’ rights under federal law. Crouch notes that Virginia courts ignore federal law by ordering members of the military to share their pensions with spouses who divorced them after even short marriages: “Something everybody learned early on is that a military wife had to have ten years of marriage to the service member overlapping ten years of military service to divide the pension. However, the Virginia Court of Appeals has adopted the rule that this statutory limitation in 10 U.S.C. 1408 limits only direct payment by the military of the former spouse’s half of the pension. Thus a service member can be required by a Virginia court to split his or her military retirement with the former spouse even if it was less than a ten year marriage. Cook v. Cook, 18 Va. App. 726, 446 SE2d 894 (1994).”

This contempt for the legal rights of divorced soldiers matters a lot, because soldiers have fairly high divorce rates, thanks to the stresses and strains of military life, such as unforeseen deployments overseas. Usually, it is the wife, not the husband, who initiates the divorce (two-thirds of divorces in America are initiated by the  wife, not the husband, although male spouses of female soldiers also initiate many divorces. Most divorces are no-fault divorces. By the way, I am not divorced).

Another way the state courts put soldiers at a disadvantage, and discourage them from serving their country, is to award their ex-spouses a share of their potential military pension starting at the earliest date they could possibly retire — even if they intend not to retire then but rather to keep on serving their country. That effectively forces them out of the military, depriving the armed forces of seasoned troops. This injustice is permitted, but not mandated, by federal law.

Lt. Col. Patricia Larrabee was effectively forced out of the military by “a court order directing that she pay her ex-husband a share of her retirement when she reaches 20 years of service in 2006, whether or not she retires.” “‘I can’t afford to write a check to my ex-husband every month out of my military pay,’ she told then-Defense Secretary Donald Rumsfeld. ‘By the way,’ Larrabee added, ‘he makes thousands and thousands of dollars more than I do.’”

Colleen M. Timpano, who served in the Navy, describes how she was royally ripped off by a state divorce court, which effectively “indentured” her “for life” to her “former husband,” who used drugs before and after his expulsion from the Navy, and “contributed absolutely nothing” to her career, even as she helped “finance his college education.” The court awarded her “ex-husband 30 percent of” her “retired pay for life, which will be paid to her “ex-husband and his third wife for the rest of his life.” Federal law did nothing to stop this.

State courts also jail returning reservists based on their inability to pay excessive child support levels that accumulated after they were called into service at pay levels far lower than what they received in civilian employment. The Bradley Amendment keeps their child support from being reduced retroactively when they return from the field of battle, even if they had no time to get their child support payments reduced before being suddenly called up and sent into battle. The Bradley Amendment has contributed to state courts jailing many hapless fathers, including “a veteran of the first Gulf War who was captured in Kuwait in 1990 and spent nearly five months as an Iraqi hostage before being arrested the night after his release for not paying child support while he was a hostage.” It also has resulted in “a Texas man wrongly accused in 1980 of murder” being billed “nearly $50,000 in child support that had not been paid while in prison” and a “Virginia man required to pay retroactive child support even though DNA tests proved that he could not have been the father.”

Even if a reservist manages to hire a lawyer to file a motion to reduce his child support payments to an affordable level while he is overseas, the child support agency often simply refuses to do so (sadly, this is not surprising given that child support agencies have a financial incentive to artificially inflate child support levels, since they receive federal funds based in part on how much child support they collect).

Nor can soldiers called off to battle just pay the child support in advance, if they have the money, to avoid complications of paying on a monthly basis while abroad. Virginia Delegate Jeff Frederick introduced a bill to allow child support to be paid in advance, but it was killed by the Virginia State Senate’s Courts of Justice committee. Dave Briggman of Prince William County, Virginia, was held in contempt for paying his child support early. When he could not afford to pay the penalty, he was then denied the ability to appeal the penalty based on his argument that he was unable to pay, based on the absurd Catch-22 ground that he had not put up an appeal bond in the amount of the penalty — something he by definition could not afford to do, precisely because he lacked the money to pay the penalty. Under the Virginia Court of Appeals’ decision in Mahoney v. Mahoney, if you want to appeal an excessive child support obligation or sanction based on the fact that it is beyond your means, you must first put up an appeal bond in the full amount you can’t afford.

Virginia has the weirdest case law on alimony in the entire southern United States. In Bristow v. Bristow (1980), the Virginia Supreme Court overturned a lower court’s refusal to award lifetime alimony to a wife who separated from her husband less than a year into their marriage, ruling that the trial judge could not deny alimony without making extensive findings, even after such a brief marriage, even though state law explicitly lists the duration of a marriage as a factor in whether to award alimony. (By contrast, in many states, like California, there is a judicial rule-of-thumb that alimony should not last longer in years than half the length of the marriage).

The Virginia Supreme Court’s “generosity” with other people’s money was selective and discriminatory. That same year, in Counts v. Counts (1980), the state supreme court barred a man from suing his ex-wife for deliberately maiming him, applying the now-defunct doctrine of “interspousal tort immunity,” even though Virginia circuit judges previously allowed ex-wives to sue their husbands for domestic violence under an “intentional tort” exception to that immunity. The state supreme court barred the ex-husband’s suit even though it had earlier (rightly) allowed an ex-wife’s estate to sue the ex-husband who murdered her in Korman v. Carpenter (1975). (In response to public outcry, the legislature eventually abolished marital tort immunity).

Divorce law is of enormous economic importance. Divorce cases outnumber any other category of civil case in state courts (nearly half of the docket of the Virginia Court of Appeals is made up of family-law cases), and redistribute far more money from any other category of case. And decisions by divorce courts on how to set alimony and child support payments can be potent disincentives to setting up a small business.

Virginia courts routinely do things that are economically inefficient and unfair, like allowing awards of permanent alimony even after very short marriages (Bristow v. Bristow, 1980), then allowing child support or alimony levels to be reset based on upward changes on the paying spouse’s income (Conway v. Conway, 1990), but not downward changes (Antonelli v. Antonelli, 1991), and allowing child and spousal support levels to be set based not on what the paying spouse actually makes (which would be an easy mechanical calculation that would not require any lawyer time or attorneys’ fees to compute), but rather based on higher, hypothetical (and sometimes arbitrary) estimates of what the paying spouse could make (”imputed income”), as in the cases of Cochran v. Cochran (1992), Antonelli v. Antonelli (1991), and Auman v. Auman (1995).

Setting support levels based on hypothetical rather than actual income results in lots of argument between opposing lawyers about what the hypothetical income should be, generating work for lawyers at the expense of the paying spouse. Similarly, allowing permanent alimony based on very short marriages results in lots of demands for such alimony by wives, and lots of arguments by their lawyers, even though such demands are often rejected anyway by the courts (see, e.g., Bruemmer v. Bruemmer).

Virginia’s divorce laws are an impediment to small business creation by divorced people, who comprise more than a million Virginia residents. As prominent family lawyer Richard Crouch once noted, Virginia courts employ a “heads-I-win, tails-you-lose” approach to people who try to start small businesses.

If you leave a steady salaried job in order to try to set up a small business, and it succeeds, increasing your income, you will have your child support payments increased over their prior levels (and perhaps your alimony payments as well). (Conway v. Conway, 1990.)

But if the business fails (as most small businesses do), resulting in your income falling below its prior levels, the courts will force you to pay alimony and child support as if you were still making the higher income you made at your prior job, rather than at the income you currently make (Antonelli v. Antonelli, 1991.)

As Crouch notes, “So much for encouraging small business. The wage-slave working stiff is shackled forever to salaried employment with big business, which he leaves at his peril.” Virginia gets a undeservedly generous rating from some business groups for how its courts treat businesses, but those ratings really only take into account how big business fares in tort lawsuits, and in reality, it’s Virginia’s fair-minded juries — not state judges — who make Virginia relatively “pro-business” in that respect.

I have often used gender-specific words such as “father” and “husband” to describe those who pay alimony and child support in my above discussion, even though state laws do not prevent judges from giving a father custody of the children or awarding support to the father. I do that because, in practice, it is usually the husband and father who pays them, and the law is not applied in a gender-neutral fashion, as Virginia attorney Richard Crouch observed in a 1992 article in Family Law News. (For example, the Virginia Court of Appeals denied alimony to a father even though his ex-wife made five times what he did, and he was the caregiver for the couple’s children, and instead ordered him to pay his ex-wife 40 percent of his meager disability pension, in Asgari v. Asgari [2000]. It is hard to imagine a similarly-situated ex-wife not receiving alimony for at least a few years.  For example, in Calvin v. Calvin [1999], the appeals court awarded a wife alimony despite describing her as adulterous, “vindictive and cruel”). As Crouch notes, in Virginia family law, “sex is the difference that makes a difference.”

Defenders of these rulings sometimes claim that they are needed to offset imaginary financial advantages enjoyed by non-custodial parents or men. Those claims are based on ignorance. Arizona State University’s Sanford Braver conducted his own study in the late 1980s, using better methodology, and found that ex-husbands do no better than ex-wives following a divorce, as he recounts in Divorced Dads (1998). Indeed, his study probably understates divorced husbands’ losses as a result of a divorce nationally, since it was conducted in Arizona, which has lower than average child-support collections (as the U.S. Supreme Court observed in Blessing v. Freestone (1998)) , and since it was conducted before increases in child support resulting from Congress’s passage of the 1988 Family Support Act, which prompted state legislatures to substantially increase state child support guidelines, awards, and enforcement.

Similarly, in 2000, a Virginia study (the JLARC study) erroneously claimed Virginia’s child support guidelines were too low only because it compared apples and oranges. It compared just one part of the state’s child support guidelines (the “basic” schedule, excluding statutory add-ons for health insurance and day care expenses) to ALL child-rearing costs, making the guidelines appear artificially low. It also treated as child-care expenses housing and other expenses shared by the custodial parent, for which the custodial parent could seek alimony — potentially resulting in the custodial parent getting paid twice for the same expenses, first in alimony, then in child support. If these errors had been remedied, the study would have found Virginia’s child support levels to be too high.

The same errors were behind a recent major increase in Maryland’s child support guidelines, which already exceeded the actual cost of raising children for most households.  (The legislation’s backers also falsely claimed that the guidelines needed a massive increase to adjust for inflation, even though the guidelines were largely self-adjusting for inflation).

Perhaps as a result of the unfounded belief that men generally suffer less than women after a divorce, states periodically rewrite their divorce laws to make life harder for breadwinner spouses. For example, Texas, which once forbade alimony as against public policy, now permits it under certain circumstances. North Carolina, which required a showing of fault by the breadwinner spouse to impose spousal support until the mid-1990s, no longer does. And as Richard Crouch notes, courts apply child and spousal support laws in a gender-biased fashion.

Preempting State Pension Bailouts

by Ivan Osorio on May 17, 2010 · 1 comment

in Bailout Watch, Economy, Employment, Labor, Regulation

Congress has long used its control of the federal government’s purse strings as a club with which to force states to change laws that fall under state governments’ traditional police powers, such as speed limits and legal drinking ages, by threatening to cut federal highway funds. Given the current trend in government growth, I expect the categories of funds so manipulated to expand.

The two most notorious policies so crammed down states’ throats — the 55-mph speed limit and the 21 legal drinking age — constituted nanny-state social engineering of the worst kind: government forcing behavior on certain citizens for their own good.

However, when it is the money of the nation’s taxpayers, rather than behavior politicians don’t like, that is at stake, pulling such funding may be called for. In his Washington Examiner column today, Hugh Hewitt proposes such a solution to prevent a federal bailout of underfunded state public employee pensions.

Federal spending power was used to oblige states to lower their speed limits to 55 miles per hour a few years back. The same authority could be employed to oblige states to curtail public employee pensions. A new federal statute, stating simply that the Treasury will not be sending assistance to any state awarding any new six-figure pensions under any circumstances, would be approved by overwhelming margins.

The federal government discouraging state government profligacy is very different from its manipulating federal funds to enact state-level policies over which it should have no authority. For that reason, comparing the two is troubling, even when accomplished by similar means. Still, if the federal government is ever to withdraw funding for any reason, it should be to rein in its own, and other governments’, power.

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

Big Labor Pension Strategy: United States of Argentina?

by Ivan Osorio on April 19, 2010

in Bailout Watch, Economy, Labor, Regulation

Service Employees International Union (SEIU) President Andrew Stern made a big splash last week, when he announced his retirement from leading what is arguably America’s most powerful union. As I noted then, Stern leaves SEIU with the union’s pensions for rank-and-file members seriously underfunded.

Yet he may have a plan to bail out those pensions — at taxpayer expense. Worse, Stern and his labor allies are working with the Obama administration to facilitate a direct government takeover of pensions. (It’s worth noting that the Obama administration includes a lot of organized labor appointees, especially from SEIU, as well as Vice President Joe Biden’s chief economic adviser, Jared Bernstein, who was previously chief economist at the labor-backed Economic Policy Institute.)

As The Washington Examiner‘s Mark Hemingway explains, one vehicle being used to push this agenda is the  White House’s Middle Class Task Force.

The section of the [Task Force's] report devoted to “Protecting Workers and Creating Middle-Class Jobs” reads like organized labor’s policy wish list. It pushes expensive “high road” federal contracting, plans for project labor agreements, enforcing labor standards, a “National Equal Pay Enforcement Task Force” and, most perniciously, “retirement security.”

Social Security is bankrupt and the average union pension plan only covers 62 percent of its liabilities, well below the 65 percent threshold at which the government considers the plan “endangered.” Given these facts, the Economic Policy Institute has teamed up with two of the most powerful unions in the country — the AFL-CIO and Service Employees International Union — to push something called “Retirement USA” (visit Retirement-USA.org).

Retirement USA looks like a scheme to prop up trillions of dollars worth of failing pension plans by seizing your personal savings. It would create a universal retirement plan for all Americans that centralizes all existing retirement plans — including your personal 401(k) savings and private pension plans — into the same retirement system.

Free-market advocates often accuse those on the Left of trying to turn America into France, but would follow a model even more bureaucratic and dysfunctional: Argentina, where the government of President Cristina Fernandez (pictured above) has seized pensions to pay for its profligacy. Kirchner seems to have learned little from her country’s epic economic decline during the 20th century, which was due largely to abysmal policies. For America to consider something even slightly similar today is terrifying.

For more on pensions, see here, here, and here.

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