In the aftermath of the financial meltdown, as states scramble to slash their budgets in order to stay afloat and the federal government works hard to disguise new spending programs as deficit reducers, powerful unions representing government employees lobby for tax increases and higher spending.
What’s wrong with this picture?
Prior to the 1950s, government employees weren’t unionized. They earned slightly less than their private sector counterparts in exchange for decent benefits and virtually lifelong job security. That changed in the late 1950s when New York City Mayor Robert Wagner surmised that city workers could provide sufficient votes to ensure his reelection and issued an executive order authorizing them to unionize. Other local and state legislators around the country soon followed suit; and in 1962, President Kennedy gave federal employees the right to bargain collectively. Since the 1970s, union membership has grown dramatically in the public sector while steadily shrinking in the private sector. Last year, for the first time in our history, a majority of union members worked for the government.
Historically, the goal of union leaders has been to ensure that workers get their “fair share” of their employers’ profits. Their demands have been tempered by cognizance of the need for profitability (this was not the case, apparently, in the auto industry; witness G.M.). When the employer is the government, however, profitability isn’t a factor. Governments are funded by taxes, not profits. So what we have are powerful organizations with no interest in what’s good for the taxpayers who pay their salaries, only in what it can extract from them in order to ensure that that their members continue to earn more than other US workers.
Just how much more?
Currently, the average pay of federal workers is over $71,000 as compared to approximately $50,000 in the private sector. Over the last 18 months, the number of federal employees making over $150,000 has more than doubled, to over 10,000. In 2009, government salaries increased 2.4%, twice as much as private sector salaries.
Government unions have negotiated unbelievably generous employee pensions, some allowing workers to retire in their 50s with lifetime incomes equal to 90% to 100% of their final years’ salaries that come with cost of living adjustments and lifetime medical care. Keep in mind that government pensions are “defined benefit” plans, meaning the government guarantees the benefits even if the retirement accounts are inadequate to cover them, in contrast to 401(k)s or IRAs, which have no such guarantors.
This largesse comes at a very high price to the states. According to a new report from the non-partisan Pew Center on the States, by mid-2008, state governments, succumbing to overwhelming pressure from the unions, had promised employees and retirees benefit packages amounting to a trillion dollars more than the states had on hand. And that was before the market crashed, decimating the states’ pension funds. By coercing them to them to make promises they can’t possibly keep, unions are endangering the states’ very solvency.
How do they get away with it?
Think $182 million. That’s how much public sector unions have contributed to federal campaigns since 1990, according to the Center for Responsive Politics. In the 2008 election cycle, they contributed over $19 million, with 89% going to Democratic candidates. I would assume that buys a whole lot of benefits.
The unions also appear to be funneling dollars into slush funds for Democratic activists, including an online effort to take down Tea Party groups, www.thepartyisover.org.
It comes as no surprise then that Obama is working overtime to support the unions. One-third of last February’s $787 billion stimulus was sent to state and local governments to help cover tax shortfalls caused by the recession, and most of this is being used to maintain or increase government jobs. And while the private sector has lost seven million jobs since the start of the recession, the number of public sector jobs has risen steadily.
Although government employees are supposed to be working for the public, it is “we the people” who are making sacrifices – - in the form of higher taxes, reduced services and unsustainable levels of debt – - to support their unconscionable levels of compensation. It will take at least a generation to correct these inequities; but the political sands are shifting.
Amy H Laff
Photo Credit: Michigan Teamsters JC 43
Amy H Laff is a StateBrief.com partner. A graduate of Univ of Penn and Stanford Law School, Amy practiced law and mediation on the east coast before relocating to the Valley, where she founded and chairs the AZ chapter of the Republican Jewish Coalition. Amy makes frequent media appearances, including AZ Law Channel and Tony Katz Radio Spectacular. Additionally, she works with companies and candidates on branding and communication. 
I find it harder and harder to read such slanted views. There are two sides to everything and sometime a side you didn’t even know was there. I wish people would stop trying to blame someone or some organization for what has and is happening. We are all at fault and if we don’t accept the blame we are only delaying our ability to help make a change.
Tom, youre right that we are all at fault. We (because this is a democracy) allowed this to happen. The brutal truth is that we have promised benefits we (as a society) cannot afford. The first step in dealing with this problem is recognizing the problem exists.
It’s a shame the “other side” will have to be played out in the comments sections.
First, the author is grossly negligent to talk about state retirement systems in lump sum figures. There are 50 states. There are, therefore, up to 50 independently-run public retirement systems.
Would we address the US debt in terms of the collective debt of all the nations of the world? Of course not. It would be deceptive.
Second, the author uses reckless logic in describing defined benefits pensions as “largesse”. Untrue. A defined benefits plan is paid for by the employees. They either invest pre-tax dollars out of their salaries or they have money (which COULD be going to salaries and supplies) invested into the retirement system by “management”. In Arizona both happens. We give up money now so we will have a pension later.
Finally, the author mentions that public sector unions donated (gasp) $182 million to federal elections over the past 20 years. That comes out to about $9 million per year across the entire United States.
How do those public sector donations stack up against contributions from other areas? Her source, the Center for Responsive Politics (www.opensecrets.org) lists total donations from a variety of sources over the same 20 years:
Agribusiness $482 million
Communications/Electronics $793 million
Construction $467 million
Defense $149 million
Energy/Natural Resources $498 million
Finance/Insurance/Real Estate 2.3 BILLION
Health $879 million
Lawyers/Lobbyists 1.24 BILLION
Transportation $408 million
Misc. Business 1.4 BILLION
Labor (including public sector) $686 million
Ideology/Single Issue $1.26 BILLION
Other $1.4 BILLION
So.. out of the $11.962 BILLION dollars the Center tracked over that time period, public sector unions account for $182 million.
That’s %1.5.
Scary.
I would welcome a story that took an honest look at the state of public pensions today. For example, one of the largest reasons the various public pension plans are in the shape they are in right now is last year’s financial meltdown. Pensions have a long track record of success. Pensions, by law, have to invest in stock which pays the highest dividends. The poisonous mortgage-backed securities peddled by financial institutions as “safe bets” over the past few years did great damage to the stability of public pensions (and millions of 401K plans) once they turned out to be so toxic.
Instead of a real investigation into the topic, we have “Amy Can Write” (Google it) presenting one-sided facts which add little to overall understanding of the issue.
If this is the sort of misrepresentation of facts is what will pass for “common sense politics, economics, business, and life” then the credibility of the site will be seriously compromised.
Joe Thomas
Joe,
As a financial advisor and planner, I can state with certainty that most corps have closed their defined benefit plans because they are too expensive. They create unfunded liabilities corporations cannot afford. If you look at the math, the reality is that most people withdraw the entire amount they’ve contributed to their pension plans early within their withdrawal cycle. The rest that they recieve is largesse….
As an economist with many years experience in research (forecasting) I can state with certainty that it is almost impossible to rpedict with absolute certainty what profits will be, let alone dividends or market performance. Economics is a soft science, and economists have a very spoty record of accuracy.
The poisonous backed mortgage back securities were listed as safe due to the implied government backing of fannie and freddie. Fannie and Freddie since 1978 have been forcing banks to issue loans that were based on political considerations (The Community Reinvestment Act)not based on borrowers ability to repay the loans.
In economics there are a couple of hard and fast rules… you cannot outmaneuver the laws of supply and demand… nor can you prevent economic rent seeking (people using the political process to seek economic and financial benefits for themselves) when you allow governmental interventions in the market place.
Thank you, Joe, for pointing out the fallacies in Ms. Laff’s (appropriate, it gave me some Laughs) article. Clearly, she thought no one else would go to the site and use the same study to blow her arguments out of the water. In addition to her unfortunate reference to the CRP study which shows her arguments as so much puffery, she also refers to the Pew Center study which she reads as a condemnation of unions. Clearly she neglected the Pew Center’s study which evaluated each state’s retirement system. Arizona’s well-mamaged DEFINED BENEFIT plan is regarded as one of the top seven plans in the country! This link will save her all of that bothersome research. http://www.pewtrusts.org/uploadedFiles/wwwpewtrustsorg/Fact_Sheets/State_policy/FINAL_Arizona.pdf
Amy made the same critical error many ultraconservative commentators make. She focussed on one piece of one study to make her fallacious argument. Sloppy research makes for sloppy conclusions.
AZ’s defined benefit plan may be in the top 10, but remember a couple of things.
First, that’s a relative comparison. Just because most of the states’ plans are performing at a lower level does NOT mean that AZ’s plan is on target to achieve its goals (legal responsibilities).
Secondly, that doesn’t address the core argument: namely that if private corps must be responsibile to their shareholders and have recognized that they cannot afford defined benefit plans, is it irresponsible for the public plans (in a sense, are they financially irresponsible to their shareholders aka the tax payer) to continue.
Again, I refer to the reality that most participants in a defined benefit plan withdraw most of their contributions early in their withdrawal cycle.
The larger and more painful question we must address is what can we afford? Take the emotions out of the debate.
Thanks, Joe and Frank, for holding Laff accountable for her blatant lies. It’s her sort of “reporting” that gives blogging a bad reputation. However, it seems that she’s really just following the Republican playbook: tell a lie often enough, and those not intelligent enough to dig out the truth for themselves will believe it. The humorous irony here, though, is that her own sources have revealed her growing nose. Way to go, Pinocchio!
Janie
This isn’t a GOP vs DEMS issue. This is about financial reality. Ms. Laff isn’t lying… nor is she misrepresenting the brutal facts. We dont like this reality… as a citizen of this country I am not happy that we have promised benefits we cannot afford. I dont like the idea of not following through on contracts. Again, we need to take the emotions out of the discussion and discuss hard core financial facts. Defined Benefit plans similar to the ones offered to public sector employees are too expensive for private enterprise. If for profit companies cannot afford them, how can we expect the public sector to continue affording them?
It would require a book, not an op ed piece, to catalogue each state’s’ myriad retirement systems. A trillion dollars in unfunded pension liabilities (before the market crash) averages out to $20 billion per state. Arizona’s relatively low unfunded pension liability is praiseworthy but not the topic of this piece.
By “largesse” I refer to states’ assumption of the risk that contributions – - by employee, employer, or both – - will be sufficient to fund the promised benefits. While many if not most Americans saw their 401(k) s and IRAs evaporate in late 2008, government employees were protected. The term “largesse” applies as well to plans, common in big-spending states such as California, which provide 90% or more of a worker’s final year’s pay, often inflated with overtime hours.
While the unions’ political donations are less than those of some other sectors, they seem to be sufficient to perpetuate “business as usual.” And labor as a whole is an influential special interest group, contributing $686 million.
I don’t see anything funny about a system that threatens the solvency of many states and perhaps the United States, which may well turn out to be the ultimate guarantor.
Amy is absolutely correct. Union defenders should do the math. Their pension benefits are acturarially unsound and have always been. The unions were smart enough to know that they could deliver votes and benefits with the government bailing out the unfunded portion of the benefits. There is no way a single union member aside enough of their annual pay to be able to fund a pension for 35+ years of retirement at almost 100% of their highest earning years.