People supporting Wisconsin's government workers don't seem to understand they are actually supporting fiscal suicide.
Part 1: Wisconsin is not proposing anything unusual. Almost half the states have already outlawed government unions (i.e., right-to-work states). In all right-to-work states, a family can buy a 4/2 house in a safe neighborhood for less than $180K (at least as of 2011).
While correlation does not equal causation, higher government employment costs generally require higher taxes. Higher taxes tend to favor government workers, not private sector workers. In an ideal system, the private sector does not work to provide an ever-increasing share of resources to government workers; instead, the private sector maximizes the income of non-government workers while minimizing inflation and government costs that do not benefit the public at large.
It appears, however, that government unions tend to do too well in compensation negotiations, especially with Democratic politicians, which means that wherever they exist, they have over-reached. Voters don't usually notice the government's generous compensation schemes until there's a recession, which suddenly exposes the actual costs of government. Indeed, recent data shows that public sector unions lack real checks and balances and tend to work against the interests of the public at large. (See Economist articles cited at the end of this post, showing government workers have negotiated trillions of dollars of benefits for themselves--yes, I said "trillions," with a "t.")
Generally, the more powerful government unions become, the easier it is for them to use non-unionized workers (the general public) to benefit unionized government workers. (Imagine a government-sponsored snowball gaining more and more traction, sucking up compliant politicians along the way.) During a recession, when revenues decline, states that have allowed government unions tend to drive out all but very high earners and union members. This is because politically-connected and politically-protected employees (government unions) and people with unique skills usually have high job security.
Thus, as long as recessions and layoffs exist, if someone wants to own a home in a state with government unions, s/he must either join a union; have sources of income unrelated to the job market (inheritance, a trust); or make a very high income in the private sector. Since not everyone can make a very high income in the private sector, government unions appear to drive out non-unionized middle class and poor residents. Furthermore, as we will see in the second part of this post, not only do government unions tend to work against the interests of the public at large, they drive out jobs and increase unemployment by imposing higher costs on corporations and businesses.
Do you support home ownership for the poor and middle class? Then you ought to figure out whose side you're on--the government unions, who drive up taxes and costs for everyone else, or the middle class and poor, who deserve a shot at buying a home even if they're not in a union.
________________
Part 2: Let's assume we have two states, X and Y. In state X, gov workers must negotiate benefits that are reasonable, because the absence of gov unions forces them to accept reasonable, predictable compensation. In Y, gov unions exist, and they demand and receive millions more annually than in state X. During a recession, State X can more easily cut costs than State Y, which must cut services and raise taxes to pay gov unions. State X's financial flexibility is directly related with its refusal to allow collective bargaining for its government workers.
You are someone who wants to buy a home, an entrepreneur, or a business that is considering expansion. You realize that State X can offer you lower taxes and costs and therefore a better environment to grow your employees and business b/c it has fewer long term fiscal obligations and more financial flexibility.
You also realize that State Y has no choice but to come after businesses and/or potential customers (i.e., taxpayers) to pay off gov unions during a recession. In other words, state Y must raise taxes if its gov unions refuse to agree to substantial pay and benefit cuts. State X, on the other hand, can ask the highest earning members of its government workers to accept lower benefits and salaries, thereby avoiding higher taxes, which reduces the burden on the private sector. State X's ability to demand that its highest earners in the gov workforce accept pay cuts also allows the state to avoid laying off its newer or lower-earning members. Avoiding layoffs allows State X to maintain its services, whereas State Y must cut services or create disincentives for private sector expansion.
Thus, we can see that gov unions are capable of driving investment and private sector jobs to states that lack gov unions, creating a death spiral for states with gov unions (absent a quick economic recovery). In short, if gov unions negotiate unreasonable compensation or refuse to reduce current and long-term compensation during a recession, the state's private sector has an incentive to disfavor expansion in the state.
Bonus: more here, from The Economist ("Three Trillion Dollar Hole," October 14, 2010) and also here, from The Economist ("A Gold-Plated Burden," October 14, 2010):
CHUCK REED is the Democratic mayor of San Jose, California. You might expect him to be an ally of public-sector workers, a powerful lobby in the Golden State. But last month, at a hearing on pension reform held by the Little Hoover Commission, which monitors the state’s government, Mr Reed lamented his crippling public-pensions bill. “City payments for retirement benefits have tripled over the last ten years even though our workforce has declined dramatically, and we have billions of dollars in unfunded liabilities that the taxpayers must pay,” he said. Mr Reed estimated that the average cost to his city of employing a police officer or firefighter was $180,000 a year. Not only can such workers retire at 50, but some enjoy annual pension payments greater than their salaries. They are also entitled to cost-of-living increases of 3% a year, health and dental insurance for life and lump-sum payments for unused sick leave that could reach hundreds of thousands of dollars.
More here, on one particular difference between the private sector and government sector (data from 2008-2009).
22 states refuse to allow collective bargaining: http://en.wikipedia.org/wiki/Right-to-work_law
"And if an epitaph be my story, I'd have a short one ready for my own: I had a lover's quarrel with the world." -- Robert Frost
Showing posts with label public sector unions. Show all posts
Showing posts with label public sector unions. Show all posts
Friday, February 18, 2011
Wednesday, February 9, 2011
FDR on Public Sector Unions
Fred Siegel has an interesting article in the WSJ (January 25, 2011) on liberals and government unions:
Liberals were once skeptical of public-sector unionism. In the 1930s, New York Mayor Fiorello LaGuardia warned against it as an infringement on democratic freedoms that threatened the ability of government to represent the broad needs of the citizenry. And in a 1937 letter to the head of an organization of federal workers, FDR noted that "a strike of public employees manifests nothing less than an intent on their part to prevent or obstruct the operations of Government until their demands are satisfied. Such action, looking toward the paralysis of Government by those who have sworn to support it, is unthinkable and intolerable."
More here and here. More complete quote from FDR below (FDR to National Federation of Federal Employees, 1937):
Also, unionization typically leads to higher salaries and benefits for employees, which is generally laudable, but with an important caveat: the more expensive you make something, the less of it you can have. If cops and teachers cost $150K a year, you can't have as many of them--at least not absent massive tax increases that will cause businesses to expand outside the state, thereby harming immigrants and poor persons who rely mostly on the private sector for jobs.
Also, isn't it generally better to have more teachers and police officers than fewer of them? If so, the more benefits and money you give them, the fewer of them you can hire down the road, especially if you're spending hundreds of millions of dollars a year on retired/non-working officers and teachers (in the form of pensions). By switching government workers to 401(k) plans rather than pensions, the same money we're using to pay non-working government employees could be used to hire more teachers and police officers and to pay them higher starting salaries.
One last point: when government unions cause a significant portion of their members' compensation to be back-ended, i.e., in the form of pensions and lifetime medical benefits, you have two major problems: one, the politicians involved in negotiating the promises won't be around to suffer any consequences if they made unfair, overly generous, and unsustainable promises; and two, budget planning becomes very difficult because governments are not life insurers and cannot accurately or fully predict the costs of their employees' lifetime health care and pension benefits.
[This post was updated on June 8, 2012. More here, from Bruce Bartlett.]
Liberals were once skeptical of public-sector unionism. In the 1930s, New York Mayor Fiorello LaGuardia warned against it as an infringement on democratic freedoms that threatened the ability of government to represent the broad needs of the citizenry. And in a 1937 letter to the head of an organization of federal workers, FDR noted that "a strike of public employees manifests nothing less than an intent on their part to prevent or obstruct the operations of Government until their demands are satisfied. Such action, looking toward the paralysis of Government by those who have sworn to support it, is unthinkable and intolerable."
More here and here. More complete quote from FDR below (FDR to National Federation of Federal Employees, 1937):
All Government employees should realize that the process of
collective bargaining, as usually understood, cannot be transplanted into the
public service. It has its distinct and insurmountable limitations when applied
to public personnel management. The very nature and purposes of Government make
it impossible for administrative officials to represent fully or to bind the
employer in mutual discussions with Government employee organizations. The
employer is the whole people, who speak by means of laws enacted by their
representatives in Congress. Accordingly, administrative officials and
employees alike are governed and guided, and in many instances restricted, by
laws which establish policies, procedures, or rules in personnel matters.
Particularly, I want
to emphasize my conviction that militant tactics have no place in the functions
of any organization of Government employees. Upon employees in the Federal
service rests the obligation to serve the whole people, whose interests and
welfare require orderliness and continuity in the conduct of Government
activities. This obligation is paramount. Since their own services have to do
with the functioning of the Government, a strike of public employees manifests
nothing less than an intent on their part to prevent or obstruct the operations
of Government until their demands are satisfied. Such action, looking toward
the paralysis of Government by those who have sworn to support it, is
unthinkable and intolerable.
Also, unionization typically leads to higher salaries and benefits for employees, which is generally laudable, but with an important caveat: the more expensive you make something, the less of it you can have. If cops and teachers cost $150K a year, you can't have as many of them--at least not absent massive tax increases that will cause businesses to expand outside the state, thereby harming immigrants and poor persons who rely mostly on the private sector for jobs.
Also, isn't it generally better to have more teachers and police officers than fewer of them? If so, the more benefits and money you give them, the fewer of them you can hire down the road, especially if you're spending hundreds of millions of dollars a year on retired/non-working officers and teachers (in the form of pensions). By switching government workers to 401(k) plans rather than pensions, the same money we're using to pay non-working government employees could be used to hire more teachers and police officers and to pay them higher starting salaries.
One last point: when government unions cause a significant portion of their members' compensation to be back-ended, i.e., in the form of pensions and lifetime medical benefits, you have two major problems: one, the politicians involved in negotiating the promises won't be around to suffer any consequences if they made unfair, overly generous, and unsustainable promises; and two, budget planning becomes very difficult because governments are not life insurers and cannot accurately or fully predict the costs of their employees' lifetime health care and pension benefits.
[This post was updated on June 8, 2012. More here, from Bruce Bartlett.]
Thursday, January 13, 2011
Unions and Courts: Harming Taxpayers?
The Atlantic--generally an excellent, unbiased magazine--posted commentary from a visiting writer that defended unions. I responded with the following comment:
The UC system is planning on having its employees contribute just 5% of their salaries for a pension in 2013 while California taxpayers contribute 10%. This is their idea of "reform"--a measly 5% savings rate for retirement benefits that might cost hundreds of thousands of dollars more on the open annuity market. (See http://universityofcalifornia.edu/youruniversity/archive/2011/january/uc-retiree-benefit-plan-to-change.html , Carolyn McMillan, "UC retiree benefit plans to change": "The changes approved require both UC and its employees to contribute more to the pension fund, with employees contributing 5 percent of pay to their pensions by July 2012 and UC contributing 10 percent.")
The problem with unions voting themselves higher benefits is the lack of usual checks and balances, which leads to corruption across all government branches. Even the court system has seemingly gotten into the act: "More than 100 new judgeships were added in the past decade, judicial pay increased almost 46 percent—to $178,789—and annual spending on trial court operations climbed to more than $3 billion."
"In 1998 the AOC's budget was about $77 million; last year it was $138.9 million—or if you include the court facilities budget, $320 million."
"The AOC's staffing has increased from 268 full-time employees in 1998 to 878 as of last March, and about a quarter of those workers are paid $100,000 a year or more."
"At the courts of appeal, for example, he says 46 percent of employees earn more than $100,000; the figure is 38 percent at the California Highway Patrol and 27 percent at the California Department of Forestry and Fire Protection." [California Lawyer, January 2011]
(http://www.callawyer.com/story.cfm?eid=913375&evid=1 )
The judicial branch collaborating with politicians, who are themselves in bed with unions, especially unionized police officers, firefighters, and prison guards? Who will look out for the average taxpayer and small businessowner, I wonder?
The writer glosses over the long-term, unpredictable, and unsustainable financial obligations bargained for by government workers over the past 10 yrs--none of which would have been possible without unions and politicians in bed together, screwing taxpayers.
The UC system is planning on having its employees contribute just 5% of their salaries for a pension in 2013 while California taxpayers contribute 10%. This is their idea of "reform"--a measly 5% savings rate for retirement benefits that might cost hundreds of thousands of dollars more on the open annuity market. (See http://universityofcalifor
The problem with unions voting themselves higher benefits is the lack of usual checks and balances, which leads to corruption across all government branches. Even the court system has seemingly gotten into the act: "More than 100 new judgeships were added in the past decade, judicial pay increased almost 46 percent—to $178,789—and annual spending on trial court operations climbed to more than $3 billion."
"In 1998 the AOC's budget was about $77 million; last year it was $138.9 million—or if you include the court facilities budget, $320 million."
"The AOC's staffing has increased from 268 full-time employees in 1998 to 878 as of last March, and about a quarter of those workers are paid $100,000 a year or more."
"At the courts of appeal, for example, he says 46 percent of employees earn more than $100,000; the figure is 38 percent at the California Highway Patrol and 27 percent at the California Department of Forestry and Fire Protection." [California Lawyer, January 2011]
(http://www.callawyer.com/s
The judicial branch collaborating with politicians, who are themselves in bed with unions, especially unionized police officers, firefighters, and prison guards? Who will look out for the average taxpayer and small businessowner, I wonder?
Thursday, October 14, 2010
On California Education
Three must-read links on education:
Grand Theft Education [Warning: PDF] (Hat tip to Jon.)
Reason.com: "The two largest teachers unions, The American Federation of Teachers and the National Education Association, overwhelmingly supported Obama with their votes and their contributions. Some 95 percent of the groups' campaign contributions go to Democratic candidates and the NEA, spends more money on elections that Microsoft, ExxonMobil, Walmart, and the AFL-CIO combined. No wonder Obama's big talking point is that he wants to add 10,000 more teachers to public payrolls despite the fact that there are already more teachers per student than ever.
Reforming education may not be politically easy, but the solution is pretty simple: Give parents and students more ability to choose - and exit - schools. This works for every other sort of business and it works for higher education, too. There's no reason to think it wouldn't work for K-12 education."
Economist blog: "America's public-sector unions...have an extraordinary power to force the state to dance to their tune, squashing innovation, reducing productivity and undermining competitiveness."
"With poor prospects in the ultra-competitive private sector, government work is increasingly desirable for those with limited skills; at the opposite end of the spectrum, the wage compression imposed by unions and civil-service rules makes government employment less attractive to those whose abilities are in high demand..."
Bonus: more facts here.
Grand Theft Education [Warning: PDF] (Hat tip to Jon.)
Reason.com: "The two largest teachers unions, The American Federation of Teachers and the National Education Association, overwhelmingly supported Obama with their votes and their contributions. Some 95 percent of the groups' campaign contributions go to Democratic candidates and the NEA, spends more money on elections that Microsoft, ExxonMobil, Walmart, and the AFL-CIO combined. No wonder Obama's big talking point is that he wants to add 10,000 more teachers to public payrolls despite the fact that there are already more teachers per student than ever.
Reforming education may not be politically easy, but the solution is pretty simple: Give parents and students more ability to choose - and exit - schools. This works for every other sort of business and it works for higher education, too. There's no reason to think it wouldn't work for K-12 education."
Economist blog: "America's public-sector unions...have an extraordinary power to force the state to dance to their tune, squashing innovation, reducing productivity and undermining competitiveness."
"With poor prospects in the ultra-competitive private sector, government work is increasingly desirable for those with limited skills; at the opposite end of the spectrum, the wage compression imposed by unions and civil-service rules makes government employment less attractive to those whose abilities are in high demand..."
Bonus: more facts here.
Monday, September 6, 2010
Friday, May 28, 2010
Grand Jury Report: Gov Employee Costs "Unsustainable"
Check out the latest report from Santa Clara County's Grand Jury ("Cities Must Rein in Unsustainable Employee Costs"):
The first priority in any government office should be to reduce undefined, unsustainable costs--such as taxpayer-guaranteed pensions.
Thursday, April 29, 2010
Government Workers and Pensions
In today's WSJ (April 29, 2010), Gary Shilling delivers the lowdown on government pensions:
http://online.wsj.com/article/SB10001424052748704131404575117943161614762.html
Years ago, there was an informal "social contract"—public employees generally received lower wages than private-sector workers, and in return they got earlier retirement and generous pensions, allowing them to catch up. That arrangement has long since gone by the boards. The result is a remarkable trend. State and local government employees for years have received pay increases in excess of inflation, and BLS figures show they now have wages that are 34% higher on average than in the private sector.
To me, it's even more simple. It is foolish to spend lots of money on unproductive people, because each dollar that goes to someone who isn't working is a dollar taken away from someone who wants to work or is currently working. Typically, working and non-retired people contribute more to the economy because they spend more money on purchases such as homes, cars, appliances, and miscellaneous items, including items for their children.
Also, if retired people--whether Joe the Plumber or Joe the Police Officer--continue to make large purchases, they would actually hurt younger, newer couples by raising demand and prices. For example, if a retired person has a large pension and decides to buy a second home, s/he takes the home off the market for a first-time homebuyer who now has to look elsewhere for a home or try to compete with someone who has a stable pension and who has had decades to built up assets.
In a world where products and money are not infinite, each dollar makes a difference, whether positive or negative.
http://online.wsj.com/article/SB10001424052748704131404575117943161614762.html
Years ago, there was an informal "social contract"—public employees generally received lower wages than private-sector workers, and in return they got earlier retirement and generous pensions, allowing them to catch up. That arrangement has long since gone by the boards. The result is a remarkable trend. State and local government employees for years have received pay increases in excess of inflation, and BLS figures show they now have wages that are 34% higher on average than in the private sector.
To me, it's even more simple. It is foolish to spend lots of money on unproductive people, because each dollar that goes to someone who isn't working is a dollar taken away from someone who wants to work or is currently working. Typically, working and non-retired people contribute more to the economy because they spend more money on purchases such as homes, cars, appliances, and miscellaneous items, including items for their children.
Also, if retired people--whether Joe the Plumber or Joe the Police Officer--continue to make large purchases, they would actually hurt younger, newer couples by raising demand and prices. For example, if a retired person has a large pension and decides to buy a second home, s/he takes the home off the market for a first-time homebuyer who now has to look elsewhere for a home or try to compete with someone who has a stable pension and who has had decades to built up assets.
In a world where products and money are not infinite, each dollar makes a difference, whether positive or negative.
Monday, April 26, 2010
Excessive Government Pay?
The best part is the S.F. deputy police chief saying he's helped reduce the deficit because of the taxes he paid on his half million dollars salary. (Rachel Gordon, April 26, 2010, SF Chronicle)
http://www.sfgate.com/cgi-bin/article/article?f=/c/a/2010/04/25/MNC51CLUBN.DTL
Oh, the arrogance and self-dealing.
http://www.sfgate.com/cgi-bin/article/article?f=/c/a/2010/04/25/MNC51CLUBN.DTL
Oh, the arrogance and self-dealing.
Tuesday, March 16, 2010
Union Influence
Scott Herhold, on San Jose's public safety unions and the financial strain they cause:
[What kind of city is San Jose?] Is it the one that gave police a series of nice little pay boosts after 9/11, bumps that take the average wage to more than $114,000 after five years on the job?
Is it the one that, thanks to an arbitration system it agreed to in the 1980s, is paying cops and firefighters 90 percent of their salary as a pension after 30 years?
In the past nine years, driven by public safety, the city's employee costs — wages and benefits — have increased by 64 percent. That's roughly 7 percent a year. I know I haven't done as well.
Wow. Interesting article.
[What kind of city is San Jose?] Is it the one that gave police a series of nice little pay boosts after 9/11, bumps that take the average wage to more than $114,000 after five years on the job?
Is it the one that, thanks to an arbitration system it agreed to in the 1980s, is paying cops and firefighters 90 percent of their salary as a pension after 30 years?
In the past nine years, driven by public safety, the city's employee costs — wages and benefits — have increased by 64 percent. That's roughly 7 percent a year. I know I haven't done as well.
Wow. Interesting article.
Wednesday, February 17, 2010
Amity Shlaes on Government Employment
From Bloomberg's Amity Shlaes (2/17/10):
From January 2000 to January 2010 -- first under President George W. Bush after Sept. 11, then under Barack Obama -- the number of non-postal employees in the federal government grew 15 percent, to 2.18 million from 1.89 million...[but] over the same period, private-sector employment decreased by 3 percent.
[When including local and state government employees] Federal data show that [over the last decade] the number of total government employees in the U.S. rose to 22.5 million from 20.6 million.
Jobs with Uncle Sam aren’t just more numerous than they used to be. They’re better. Wages and benefits for federal civilian workers were more than double the average total compensation in the private sector: $119,982 versus $59,909. In the treacherous period between December 2007 and mid-2009, the number of federal employees earning more than $100,000 doubled, rising to 66,500 or so.
See here for more. Personally, I'd love to be a federal government attorney. Right now, I regularly receive phone calls where the person calling has a good case based on the facts and the law, but his or her wage losses or damages are too low to file suit.
Many people don't realize that lawsuits are expensive. By the time you file a lawsuit, get the complaint served, file a few motions, and take a deposition, you're looking at about $2,000 in costs--none of which goes to the lawyer. Fast forward six months, and costs can increase to $6,000 easily. In one case I took to trial, the other side's costs exceeded $18,000.
If damages are low, I cannot ordinarily justify spending $5,000 of my own money for a potential $10,000 settlement--and so many hourly or part-time workers have cases where six months of severance would equal about $10,000. Sadly, it's not unreasonable to argue that poor people get run over twice--first, in their job environments, because poor people tend to take tougher or boring jobs, and second, in finding an attorney to negotiate a severance or to file suit.
In any case, if I worked for the federal government, I could, assuming the approval of my boss, assist anyone who had a good case. Why? The taxpayer would be footing the bill for my time, not the poor or middle class worker. Of course, I would hope the agency would keep costs as low as possible. One way to do that would be to reduce retiree benefits, such as pensions. If taxpayers are paying $80,000/yr to a retired cop or lawyer, that's $80,000 that's not being used to hire a new cop or lawyer. Plus, it's always been unclear to me why taxpayers should be paying money to someone who is not longer helping taxpayers.
These kinds of "golden parachutes" exist in the private sector, too. In fact, taxpayers could be liable for private pension obligations as well as government employees' pensions. As of 2008, the Pension Benefit Guaranty Corporation (PBGC) had a $10.8 billion deficit, estimated to rise to $26.3 billion in 2018; however, total underfunding of all private sector pension plans, on a termination basis, amounts to an astounding $225 billion. Clearly, we have a problem.
America's pension plans need reform. One simple reform would be to require that all new government workers have 401(k)s, not pensions. Such a move would immediately reform public sector pension plans and assist already stretched taxpayers, but it is highly unlikely. Public sector unions have so much clout, it seems they can force politicians to put government employees' interests ahead of taxpayers' interests. That's a shame, because Congress had no qualms about reforming private sector pension plans. According to CNN's Colin Barr, Congress has already enacted a law--the 2006 Pension Protection Act--to force corporations to fully fund their pensions by 2015. See here for more.
Despite the new law, cash-rich companies like Exxon Mobil Corporation (XOM) continue to have underfunded pensions. In Exxon's case, its pension is underfunded by about $6 billion. Shareholders should take notice--over the next five years, some companies may have to reduce their growth or take on more debt to fully fund their pensions.
More here, from Mark Scolforo. He points out that taxpayers are in the hole $1 trillion because of public sector retirement benefits, including pensions: "As of 2008, states had $2.4 trillion to meet $3.4 trillion in promised pension, health care and other post-retirement benefits."
From January 2000 to January 2010 -- first under President George W. Bush after Sept. 11, then under Barack Obama -- the number of non-postal employees in the federal government grew 15 percent, to 2.18 million from 1.89 million...[but] over the same period, private-sector employment decreased by 3 percent.
[When including local and state government employees] Federal data show that [over the last decade] the number of total government employees in the U.S. rose to 22.5 million from 20.6 million.
Jobs with Uncle Sam aren’t just more numerous than they used to be. They’re better. Wages and benefits for federal civilian workers were more than double the average total compensation in the private sector: $119,982 versus $59,909. In the treacherous period between December 2007 and mid-2009, the number of federal employees earning more than $100,000 doubled, rising to 66,500 or so.
See here for more. Personally, I'd love to be a federal government attorney. Right now, I regularly receive phone calls where the person calling has a good case based on the facts and the law, but his or her wage losses or damages are too low to file suit.
Many people don't realize that lawsuits are expensive. By the time you file a lawsuit, get the complaint served, file a few motions, and take a deposition, you're looking at about $2,000 in costs--none of which goes to the lawyer. Fast forward six months, and costs can increase to $6,000 easily. In one case I took to trial, the other side's costs exceeded $18,000.
If damages are low, I cannot ordinarily justify spending $5,000 of my own money for a potential $10,000 settlement--and so many hourly or part-time workers have cases where six months of severance would equal about $10,000. Sadly, it's not unreasonable to argue that poor people get run over twice--first, in their job environments, because poor people tend to take tougher or boring jobs, and second, in finding an attorney to negotiate a severance or to file suit.
In any case, if I worked for the federal government, I could, assuming the approval of my boss, assist anyone who had a good case. Why? The taxpayer would be footing the bill for my time, not the poor or middle class worker. Of course, I would hope the agency would keep costs as low as possible. One way to do that would be to reduce retiree benefits, such as pensions. If taxpayers are paying $80,000/yr to a retired cop or lawyer, that's $80,000 that's not being used to hire a new cop or lawyer. Plus, it's always been unclear to me why taxpayers should be paying money to someone who is not longer helping taxpayers.
These kinds of "golden parachutes" exist in the private sector, too. In fact, taxpayers could be liable for private pension obligations as well as government employees' pensions. As of 2008, the Pension Benefit Guaranty Corporation (PBGC) had a $10.8 billion deficit, estimated to rise to $26.3 billion in 2018; however, total underfunding of all private sector pension plans, on a termination basis, amounts to an astounding $225 billion. Clearly, we have a problem.
America's pension plans need reform. One simple reform would be to require that all new government workers have 401(k)s, not pensions. Such a move would immediately reform public sector pension plans and assist already stretched taxpayers, but it is highly unlikely. Public sector unions have so much clout, it seems they can force politicians to put government employees' interests ahead of taxpayers' interests. That's a shame, because Congress had no qualms about reforming private sector pension plans. According to CNN's Colin Barr, Congress has already enacted a law--the 2006 Pension Protection Act--to force corporations to fully fund their pensions by 2015. See here for more.
Despite the new law, cash-rich companies like Exxon Mobil Corporation (XOM) continue to have underfunded pensions. In Exxon's case, its pension is underfunded by about $6 billion. Shareholders should take notice--over the next five years, some companies may have to reduce their growth or take on more debt to fully fund their pensions.
More here, from Mark Scolforo. He points out that taxpayers are in the hole $1 trillion because of public sector retirement benefits, including pensions: "As of 2008, states had $2.4 trillion to meet $3.4 trillion in promised pension, health care and other post-retirement benefits."
Thursday, February 4, 2010
People to Government Unions: Baaaa Baaaa
More on government unions HERE. I've shown this article to some people, and they never address it directly--they just start talking about the increasing prison population, the increasing immigrant population, etc.
In short, people keep trying to justify out-of-control state spending by referring to the specific expense they hate the most; however, the point isn't that some people dislike specific expenditures--everyone dislikes some expenses, whether it's Medi-Cal, prisons, pensions, etc.
The point is that overall state spending is out of control, and a specific segment of the population has made themselves immune to economic fluctuations at the expense of taxpayers, including the middle-class.
In short, people keep trying to justify out-of-control state spending by referring to the specific expense they hate the most; however, the point isn't that some people dislike specific expenditures--everyone dislikes some expenses, whether it's Medi-Cal, prisons, pensions, etc.
The point is that overall state spending is out of control, and a specific segment of the population has made themselves immune to economic fluctuations at the expense of taxpayers, including the middle-class.
Saturday, October 31, 2009
Government Waste
See here for stunning facts about public sector unions:
For every $1-an-hour pay increase, noted Dennis Cauchon in USA Today, public employees have gotten $1.17 in new benefits. Private workers have gotten just .58 cents in benefits for every $1 raise. This gap worries left-liberal labor economist Barry Bluestone. The price of state and local public services increased by 41 percent nationally between 2000 and 2008. Private services only increased by 27 percent. The benefit growth has continued unabated into the Great Recession, and Bluestone says the gap will inevitably produce a backlash.
For every $1-an-hour pay increase, noted Dennis Cauchon in USA Today, public employees have gotten $1.17 in new benefits. Private workers have gotten just .58 cents in benefits for every $1 raise. This gap worries left-liberal labor economist Barry Bluestone. The price of state and local public services increased by 41 percent nationally between 2000 and 2008. Private services only increased by 27 percent. The benefit growth has continued unabated into the Great Recession, and Bluestone says the gap will inevitably produce a backlash.
Like banks, but with even less self-control, state governments make long-term promises in boom times while depending on the short-term flow of revenues. But when the boom ends, the benefits that have been ratcheted up have to be paid for out of a declining private sector economy. Barring a sharp recovery, state and local government tax-funded pension contributions in New York are likely to triple over the next five years in order to pay out the pension benefits guaranteed by the state constitution. (This is equally true in Illinois.) California’s public pension fund liability has already topped $200 billion, and in cities such as Oakland, Vallejo, and Rio Vista bankruptcy looms.
If you want to really scare people on Halloween, dress up as a retired teacher, police officer, county lawyer, or any other public employee eligible for a pension and lifetime medical benefits. (Actually, that's the problem--we're not yet scared of these people, even as California issues IOUs. Maybe we'll pay attention when the sales tax is 20% and the DMV charges $400 to register an old car.)Monday, October 26, 2009
California Legislators Got Drunk on Stock Market Gains
I've been studying California's budget. From 1998 to 2009, California added over 80,000 full time government employees. That means future taxpayers must pay for an additional 80,000+ pensions, lifetime medical benefits, and annual salaries. However, adding 80,000 more government employees is not the major problem, as long as we reform their generous long-term benefits.
The biggest problem is that starting in 1999, California's legislators assumed revenue/tax numbers based on stock market gains/sales and spent accordingly. From 1998 to 2000, spending jumped dramatically, but from 1999 to 2008, expenditures declined only once--right after the tech bubble popped, in 2003/2004. (Note: the tech bubble's peak was in 2000; hit a low in September 2002; and continued in a tight range until 2007.) Basically, it seems our legislators banked on an ever-increasing stock market to finance spending. Oops.
Public sector unions aren't helping. Even though the stock market money isn't there anymore, public sector unions are still acting like it's 2004. Behind closed doors, various unions have negotiated generous benefit packages, such as lifetime medical benefits and pensions. Unfortunately, it is difficult to project the cost of such benefits because no one knows how long a state employee will survive after retiring. As a result, if taxpayers desire consistently balanced budgets, it makes more sense to pay public sector employees higher salaries while reforming their generous benefits. (CalPERS, the state's public pension/health care fund, already has over $200 billion in assets.) Fiscal reform is possible without threatening state workers' job security, because government workers will continue to be unionized--reform would affect only the hard-to-project costs inherent in pensions and lifetime medical benefits.
As far as education is concerned, I am concerned we are spending too much money on it without seeing results. The state's website indicates that approximately 50% of the General Fund is reserved for K-14 education. In addition, California's Constitution requires that school coffers receive first crack at the largess:
"From all state revenues there shall first be set apart the moneys to be applied by the State for support of the public school system and public institutions of higher education."
Education spending is probably a sacred cow that needs to be slimmed down before we see any real change in California's fiscal health.
See here for a detailed webpage outlining the major issues, with plenty of stat-porn for the political wonks.
Bonus: Meg Whitman promises to cut 40,000 government jobs--back to 2004 levels--if we elect her Governor; however, I am unclear how she will accomplish that goal without incurring massive litigation and settlement costs. Perhaps the 40,000 positions she wants to cut are non-union or part-time? If so, then it doesn't appear that cutting these positions will reform the problem of generous public sector benefits, which are typically reserved for full-time government workers.
Meg Whitman is probably the most successful female CEO in Silicon's Valley's history, but I wish she'd be more specific about how she plans on accomplishing her goals. If she does well in the Governor's race, expect to see her as the GOP's Vice Presidential candidate in 2012.
The biggest problem is that starting in 1999, California's legislators assumed revenue/tax numbers based on stock market gains/sales and spent accordingly. From 1998 to 2000, spending jumped dramatically, but from 1999 to 2008, expenditures declined only once--right after the tech bubble popped, in 2003/2004. (Note: the tech bubble's peak was in 2000; hit a low in September 2002; and continued in a tight range until 2007.) Basically, it seems our legislators banked on an ever-increasing stock market to finance spending. Oops.
Public sector unions aren't helping. Even though the stock market money isn't there anymore, public sector unions are still acting like it's 2004. Behind closed doors, various unions have negotiated generous benefit packages, such as lifetime medical benefits and pensions. Unfortunately, it is difficult to project the cost of such benefits because no one knows how long a state employee will survive after retiring. As a result, if taxpayers desire consistently balanced budgets, it makes more sense to pay public sector employees higher salaries while reforming their generous benefits. (CalPERS, the state's public pension/health care fund, already has over $200 billion in assets.) Fiscal reform is possible without threatening state workers' job security, because government workers will continue to be unionized--reform would affect only the hard-to-project costs inherent in pensions and lifetime medical benefits.
As far as education is concerned, I am concerned we are spending too much money on it without seeing results. The state's website indicates that approximately 50% of the General Fund is reserved for K-14 education. In addition, California's Constitution requires that school coffers receive first crack at the largess:
"From all state revenues there shall first be set apart the moneys to be applied by the State for support of the public school system and public institutions of higher education."
Education spending is probably a sacred cow that needs to be slimmed down before we see any real change in California's fiscal health.
See here for a detailed webpage outlining the major issues, with plenty of stat-porn for the political wonks.
Bonus: Meg Whitman promises to cut 40,000 government jobs--back to 2004 levels--if we elect her Governor; however, I am unclear how she will accomplish that goal without incurring massive litigation and settlement costs. Perhaps the 40,000 positions she wants to cut are non-union or part-time? If so, then it doesn't appear that cutting these positions will reform the problem of generous public sector benefits, which are typically reserved for full-time government workers.
Meg Whitman is probably the most successful female CEO in Silicon's Valley's history, but I wish she'd be more specific about how she plans on accomplishing her goals. If she does well in the Governor's race, expect to see her as the GOP's Vice Presidential candidate in 2012.
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