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Thursday, June 28, 2012

Political Courage Required to Make Changes to PSRS

Executive Editor - CALL NEWSPAPERS

June 27, 2012 - Mehlville Board of Education member Rich Franz last week called the Public School Retirement System of Missouri, or PSRS, a "Ponzi scheme."

Mehlville Fire Protection District Board of Directors Chairman Aaron Hilmer last August wrote that the state teacher retirement system "is by definition a Ponzi scheme that needs ever-increasing amounts from new entrants to pay existing members far more money than the fraction they invested."

Regardless of whether you agree with Franz and Hilmer that PSRS is a Ponzi scheme, we believe they are right about two things: PSRS needs reform and the blame for that reform not occurring lies squarely on the shoulders of our legislators.

We saw that firsthand in February 2011 during a hearing of the Missouri House Retirement Committee on a bill introduced by Rep. Andrew Koenig, R-Winchester, that sought to establish a defined-contribution plan for any new employee who became a PSRS member beginning July 1, 2013. Such membership would have been automatic unless the employee elected to become a member of the existing defined-benefit plan within 12 months of his or her hire date.

The only person to testify in support of the Koenig's bill was Hilmer. Not surprisingly, those testifying against it were representatives of the retirement system, the Missouri State Teachers Association and the Missouri National Education Association, among others.

Perhaps more disturbing was the fact some members of the House Retirement Committee have strong ties to education as teachers or retired educators.

Needless to say, Koenig's bill never made it out of committee.

We think reform needs to occur. In his comments, Franz noted PSRS is $5 billion underfunded.

PSRS's funding ratio — actuarial value of assets divided by actuarial accrued liability — was 85.5 percent, for 2011. In 2010, the funding ratio was 77.7 percent.

The Pension Protection Act of 2006 requires private-sector pension plans less than 100 percent funded to amortize their unfunded liability over seven years. Pension plans in the private sector less than 80 percent funded are deemed "at-risk," and must make additional contributions to increase their funded ratio.

Political courage will be required to enact the reforms PSRS needs. It's a shame the majority of our local legislators have given their re-election efforts a higher priority than the job voters elected them to do.

Missouri Teacher-Retirement System a 'Ponzi Scheme,' According to Franz

Franz's assertion 'incorrect,' according to head of PSRS
Kari Williams
Staff Reporter - CALL NEWSPAPERS

June 27, 2012 - The Public School Retirement System of Missouri, or PSRS, is a "Ponzi scheme," according to Mehlville Board of Education member Rich Franz.

"The definition of a Ponzi scheme is when you take money from new investors and give it to old investors so the old investors feel like they're still making money," Franz said at the board's June 21 meeting. "The PSRS is currently a Ponzi scheme. That's the only way you can define it."

However, Franz said if someone can come up with a "more realistic definition," he would be "more than happy to listen to it."

"Until the teachers' organizations in this state are willing to admit that fact and to address the problem, nothing will happen,"Franz said.

PSRS and the Public Education Employee Retirement System, or PEERS, are retirement plans for certified and classified public education employees.

Under the system, both PSRS and PEERS members and school districts contribute to the retirement funds. The PSRS contribution rate for the 2012-2013 school year is a combined 29 percent — 14.5 percent from educators and 14.5 percent from school districts — the same rate as last school year.

The PEERS contribution rate for the coming school year also did not increase.

Employees and school districts each will contribute 6.86 percent.

Steve Yoakum, PSRS/PEERS executive director, told the Call Franz's comment is "fairly ridiculous."

"I take broad exception to that. That's simply incorrect," Yoakum said.

PSRS and PEERS, according to Yoakum, are both defined-benefit plans.

Yoakum compared a Ponzi scheme to Social Security, as an example. He said Social Security funds go into a pot for Social Security and are distributed to current retirees.

"Under our plan, it doesn't work that way," Yoakum said. "We have individual accounts for each participant ... The first money that comes to them is their own contributions."

However, Yoakum said assets are pooled for investment purposes, but accounted for individually.

Franz also said PSRS and PEERS are "suffering a funding liability."

"PSRS is underfunded to the tune of $5 billion. That means only 85 percent funding. PEERS is unfunded to the tune of $500 million," Franz said.

Information provided by PSRS/PEERS states PSRS's funding ratio — actuarial value of assets divided by actuarial accrued liability — was 85.5 percent for 2011. In 2010, the funding ratio was 77.7 percent.

For PEERS, the funding ratio was 85.3 percent in 2011, compared to a 79.1-percent ratio in 2010.

Franz said he faults state legislators, including those who represent districts within the Mehlville School District, for "not having the political will and courage to address this issue."

"They know it has to be fixed and they refuse or they have been unable and unwilling to do it because of the political fallout. And that's wrong," Franz said. "The taxpayers in the state deserve better representation. The taxpayers of this school district in this state deserve that the teachers who are represented by their unions and organizations be honest with them and tell them what's really going on."

Teachers purchasing supplies

Another issue Franz addressed was what he said is a criticism of the Mehlville school board for "the alleged fact that our teachers are spending money out of their own pockets" for necessary classroom supplies.

"I challenge any teacher in this school district to show me where they have not been provided with the supplies they need to teach their curriculum and to provide their students with the basic equipment and supplies they need to get the job done," he said, "Or, if they have taken money out of their own pockets, that they have not been reimbursed by this administration."

Mehlville administrators, according to Franz, bend over backward to provide instructors with supplies to teach their curriculum.

"And this constant harping on this alleged idea that teachers have to take money out of their own pockets just to do their job and teach the basic curriculum, I think, is a lie that's perpetrated on the taxpayers," he said, "and I think it's time that the taxpayers be treated to the truth, and I think it's time that the teachers either put up or shut up."

Franz also said if teachers are taking funds out of their own pockets to provide supplies for curriculum, they should present their "receipts to this school board, and we will be happy to reimburse you."

"If you don't have those receipts and you're not doing that, then have the courage to stand up when teachers say that's happening, have the courage to stand up and say it's not happening because the administration of this school district is providing the educators with the equipment and supplies they need to get it done," Franz said.

Pay raise for teachers

Board member Kathleen Eardley voiced her opinion on the recently approved raises for teachers, a roughly 5-percent increase over a two-year period.

She said she understands there is "a little bit of pushback" from the community for granting the raises.

"But in any household, and any worker who has a job, you don't work without an expectation that you're going to be rewarded for good work," she said. "So, for teachers to not be granted steps when the budget has the funding available doesn't make sense. It doesn't create a good atmosphere for your workplace."

The district's approved 2012-2013 budget includes steps and channel changes for teachers.

In the certified salary schedule, channels denote a teacher's level of education. Each channel also includes steps that represent each year a teacher has worked.

However, Eardley said, as a taxpayer, she does have a problem with "blanket raises."

"I think if you work hard, you deserve to have a pay raise. But I can say that not everyone deserves to be rewarded at the same rate. The teacher of the year probably doesn't deserve the same pay-rate bump as somebody who just did an average job," she said. "So, that is something the board has recognized and the teachers as well, and they're working toward developing a merit-pay system, and that should go into effect in the 2014-2015 school year."

Friday, June 22, 2012

Public Sector Workers Digging in to Save Pensions Under Assault

By William McQuillen - Jun 19, 2012

Leaders of the largest U.S. union of public-sector workers are vowing to fight efforts by state and local governments to balance their budgets with cuts to employee benefits even as voters have sided with that strategy.
Delegates to the biannual convention of the 1.6 million- member American Federation of State, County and Municipal Employees meeting this week in Los Angeles, said their members should get what has been promised them.
“When we defend our benefits and retirement security, we’re fighting for the survival of the middle class,” AFSCME’s retiring president, Gerald McEntee, said in remarks prepared for his keynote address at the Los Angeles Convention Center. “And when we stand up for collective bargaining, we are fighting for the future of America.”
States were $1.38 trillion short of the amount they need to meet their obligations for retiree benefits in their 2010 budget year, according to a study by the Pew Center on the States in Washington released yesterday. That figure, up 9 percent from the year before, includes $757 billion in unfunded pension obligations and $627 billion for retiree health.
Two weeks ago, voters in San Diego and San Jose, California, approved ballot measures to restructure benefits for municipal workers after the cities said they couldn’t afford them. A number of states, including Wisconsin, Indiana and Ohio, have taken steps to limit collective bargaining for public employees.
Retirement Benefits
“Public employees should have no better retirement benefits than the taxpayers they serve,” San Diego Mayor Jerry Sanders said in a statement after voters approved a restructuring of benefits.
McEntee, whose successor is scheduled to be selected June 21, reminded the workers that fighting over rights and benefits have gone on for decades, according to the remarks that were distributed after his address, which was closed to reporters.
Threatened cuts to benefits is the subject of workshops at the convention as well as informal discussions among the 5,000 attendees.
“If you paid into it, you should get it,” David Mariasi, a financial aid officer at Eastern Connecticut State University in Willimantic, Connecticut, representing Local 2836 at the convention, said in an interview. Mariasi has gone three out of four years without a pay increase with the promise it was helping fund his pension.
Unions representing nurses, correction officers, child-care workers and trash haulers say they are wrongfully maligned by politicians who claim pension cuts are needed to avoid a default.
‘Whipping Boy’
“We recognize we have to share the sacrifice, but should not be a whipping boy for every politician out there,” said Danny Donohue, who heads AFSCME’s largest local, the Civil Service Employee Association of New York, in an interview.
Donohue, who is running to succeed McEntee, who has overseen the union since 1981, said the unions understand budget concerns and a need to work with lawmakers.
“It’s ironic we’re the ones picked on because we have pensions and health care because we gave up pay increases for that,” Donohue said. “In the endgame, we just want to have a decent retirement.”
To take away what was promised is unfair, said Santos Crespo Jr., the president of Local 372 in New York, which represents board of education employees.
“How is that? Where did the initial money go? Why don’t you have it anymore?” asked Crespo, 62, standing outside the convention hall.
Unfunded Obligations
The unfunded obligations have grown in recent years as prolonged unemployment and demand for services followed the longest recession since the Great Depression. Most states cover such expenses on a pay-as-you-go basis, making such payments increasingly difficult.
The Pew report blamed a combination of investment losses in public pensions and a failure to set aside enough money, because of other priorities or drops in state revenue due to economic downturns.
Workers “have been paying into it; it was the government that was not fulfilling their obligations,” said Francis Ryan, a history professor at Temple University who has written a book about AFSCME.
Workers have little chance of holding onto their entire pensions, he said. Politicians and voters won’t come to their rescue, and concessions will need to be made to ensure there is some retirement, he said.
Further Compromise
Many workers are already resigned to working longer with fewer benefits, and putting off retirement for a few years. Further compromise will be made more difficult by lack of trust among negotiators, as union leaders say they are convinced Republican governors, such asScott Walker of Wisconsin and John Kasich of Ohio, are as interested in breaking the union as they are in balancing their budgets.
Walker survived a union-led effort two weeks ago to recall him. Kasich-backed legislation to limit collective bargaining was thrown out by a referendum.
The governors, both Republicans, target public-sector unions because they are as a source of cash and votes for Democrats, said Ryan.
“They could have made minor changes, but they wanted to wipe us out,” said Michael Bauer of Local 3557 in Ohio, which maintains roads, while walking into the convention hall.
Unions scored a victory last week when California’s Democratic-controlled legislature sent to Governor Jerry Brown a bill without proposed language that would have authorized the governor to furlough workers if unions balked at a proposed one- year, 5 percent payroll reduction.
Changes Needed
Bauer, 56, is resigned to working a few more years than he planned and seeing cuts in his health care. Pensions must be changed to give workers more responsibility for management, like a 401(k), he said. Though the workers deserve the full promised pension, they are willing to compromise.
“It’s not like we didn’t pay into it,” Bauer said. “The workers paid into the plan.”
Some unions have negotiated deals to head off more draconian cuts. Last month, the mayor and union leaders in Providence, Rhode Island, agreed to cut pensions for workers, including police and firefighters, while preventing bankruptcy for the city.
To contact the reporter on this story: William McQuillen in Washington at
To contact the editor responsible for this story: Jon Morgan at

Tuesday, June 19, 2012

Morgan’s Big Secret

Last Updated: 12:25 AM, June 18, 2012

While the Senate Banking Committee last week spun its wheels trying to get JP Morgan chief Jamie Dimon to admit to something nefarious during testimony about his “London Whale” trading loss, executives at the big bank were concealing a far bigger scandal.
OK, it’s no secret that nation’s public pension funds are in big trouble, holding large “unfunded” liabilities owed to public workers once they retire. But most politicians (New Jersey Gov. Chris Christie is an exception) will tell you the problem is fairly containable, that there are simple fixes — such as raising taxes on the rich or pruning benefits.
Not so, warns a “strictly confidential” report JP Morgan issued last year. It describes in straightforward, frightening detail how underfunded pensions are huge ticking timebombs for many of the nation’s big cities and states.
The scandal isn’t simply that most public officials are misleading the public about the enormity of the problem and what steps must be taken to address the matter. As the Morgan report notes, many of the real liabilities are located “off balance sheet,” hidden from the public’s eye, and lax accounting standards let cities and states minimize their enormity.
It’s also that JP Morgan itself kept the report’s findings a secret except for a few big clients, mostly hedge funds and large institutional investors, who got the inside tip on which states and cities are most likely to default on their debt as their pension liabilities fester.
Yes: Default is a very real possibility, because the solutions are far from easy.
Nationwide, the actual size of unfunded public pension liabilities is four times larger than the $900-plus billion that officials are ’fessing up to. That’s right, the bank sees a $3.9 trillion hole; to plug that, states and cities will need large tax hikes, massive budget cuts or both. Plus, public-sector unions will have to accept smaller retirement packages, and later retirement ages, to keep the pension systems going.
Without these steps, states and cities with the biggest holes face possible insolvency and default, though the bank believes the risk of default “is greater for municipalities than for states.”
Many of the places facing the biggest pension liabilities are right here in the Northeast, where big government rules and public unions are such a potent political force that officeholders dish out gold-plated benefits.
But the classic big-government answer, taxing the rich, won’t solve this problem. Nor can these municipalites simply count on high returns on investments bailing them out, the report warned, since markets don’t always go up.
In New York, for example, JP Morgan said state officials would have to immediately cut spending by 12.3 percent or raise taxes on everyone by 7.4 percent. And they’d need to make these tax hikes and budget cuts permanent for the next two decades to fully fund public-employee pensions.
New Jersey faces an even bigger hole. Even after Christie’s reforms, it would still have to cut spending 30.8 percent or raise taxes another 17.2 percent, keeping them in place for two decades, to solve the problem.
I got my hands on the report not from an disgruntled employee looking to even up the score with his old firm, but from someone who believed the reason JP Morgan kept it a secret stinks to high heaven: Bankers there are afraid of upsetting state and city officials who hand them large fees to underwrite municipal bonds.
Keep in mind, JP Morgan is Wall Street’s leading underwriter of municipal debt. A public release of the report might anger big Morgan muni clients such as Massachusetts, which has a large pension liability.
And why draw attention to an issue that might spook investors, cut off funding for municipal governments and for the fees the bank collects on that funding? A muni-market panic could land the bank in far hotter water than its current London Whale travails.
But Morgan’s discretion may have broken the law: The report’s dire predictions didn’t make it into investor-disclosure documents on at least some bond deals that Morgan underwrote for states with the biggest liabilities. Legal experts say that could violate federal anti-fraud statutes.
All of which sounds like far more onerous than anything the Senate Banking Committee could come up with last week: It grilled Dimon over $2 billion trading loss at his London office, while his firm was hiding evidence of a $4 trillion pension disaster.
Charles Gasparino is a Fox Business Network senior correspondent.

Friday, June 15, 2012

This is What FREEDOM is All About!

Published on National Right to Work Legal Defense Foundation (

Now, the Union Pushback

Following big victories for public-pension reform in California, the union empire takes to the courts.


12 June 2012 -

The nation’s public-sector unions have become so emboldened by years of political victories, and so insulated from voter concerns, that they apparently never considered the possibility that voters, given a clear choice, would turn against them. Last Tuesday was as close as the nation gets to a clarifying election, the result of union overreach in Wisconsin and union intransigence in California. “Election results in California and Wisconsin this week are being viewed as a turning point for organized labor—to its detriment,” reported the Los Angeles Times, echoing a story line repeated nationwide.
The biggest news, of course, came from Wisconsin, where angry and increasingly militant public-sector unions tried to recall the governor, lieutenant governor, and three state senators (one incumbent resigned, thus leaving a seat to fill, but no actual recall). Governor Scott Walker pulled out a strong seven-point victory, and the unions appear likely to gain only one senate seat by the slimmest of margins. The California results were almost as impressive, as San Jose voters approved a pension-reform measure with 70 percent of the vote.
Immediately after San Jose’s Measure B passed last week, the unions filed a court challenge against the initiative. Measure B reduces benefits for current public employees; they will have a choice between a new, lower-benefit retirement package or keeping their current benefit plan but contributing more to pay for it. In the private sector, employers can reduce employee-pension benefits going forward, but in California, anyway, the courts have prohibited benefit reductions for public employees.
San Jose officials argue that they’re legally in the right because of specific city ordinances and because of the municipality’s status in California as a “charter city.” Mayor Chuck Reed explained in response to the union lawsuit: “Measure B was carefully crafted to follow California law. San Jose is a charter city and the California Constitution gives charter cities ‘plenary authority’ to provide in their charters for the compensation of their employees. San Jose’s City Charter reserves the right of the City Council and the voters to make changes to employees’ retirement benefits: ‘. . . the Council may at any time, or from time to time, amend or otherwise change any retirement plan or plans or adopt or establish a new or different plan or plans for all or any officers or employees.’”
“San Jose’s Municipal Code,” Reed added, “allows the city to require employees to pay more for retirement benefits. In fact, two years ago, a number of city-employee unions agreed that the city could make employees pay more for retirement benefits.” Reed explained that “more than 200 other California cities have required employees to pay for a larger share of their retirement costs.” Finally, the mayor argues, “the courts have upheld the rights of local government to determine compensation, and according to the Ninth Circuit Court of Appeals, ‘it is well established that public employees have no vested rights to particular levels of compensation and salaries may be modified or reduced by the proper statutory authority.’”
Meantime, San Diego voters also overwhelmingly approved serious pension reform, as well as a measure banning union-exclusive “project-labor agreements” that inflate public-sector contracting costs by keeping out non-union competition. The top vote-winner in the city’s mayoral primary was pension-reform advocate Carl DeMaio. His prospects for winning the mayoralty in November seem promising, given that he will face off against union Democrat Bob Filner. Up the road in Orange County, voters approved a modest pension-limitation measure. A pension-hiking, police-union ally, Todd Spitzer, won back a seat on the board of supervisors—but only after promising that he was a born-again pension reformer.
So the results in deep-blue California are clear. Even in Democratic Party bastions, such as San Jose, voters said “yes” to pension reform and “no” to union priorities by an overwhelming majority. As I wrote previously for City Journal, San Jose’s Reed made the progressive case for pension reform: he argued that the government programs liberal Democrats care about are endangered by a pension burden that now consumes 20 percent of the city’s general-fund budget. He distinguished between union Democrats and progressives, a distinction that will serve pension reformers well as proposals go forward in blue states.
The unions essentially gave up on San Diego’s Proposition B and San Jose’s Measure B long before the election, offering little more than token opposition. They knew they would lose, so they concentrated on a legal and regulatory approach to derail reform. In San Diego, the unions appealed to the Public Employment Relations Board—a state board of appointed union sympathizers—to invalidate the pension-reform measure preemptively. The unions asked the board to evaluate whether even asking voters about reforming the system constituted an “unfair labor practice.” When that failed, and the voters rendered their verdict, the unions shifted to litigation. In San Diego, city attorneys “asked the state’s 4th District Court of Appeal Thursday to hear all five pending court cases involving Proposition B, the pension-system-overhaul measure overwhelmingly passed by voters this week,” according to San Diego News Room. The city wants to resolve quickly the many ongoing and expected legal challenges to a measure written specifically to conform to existing legal precedent.
Given the state supreme court’s recent decision declaring that some “non-vested rights,” such as medical care, may actually be “vested rights” if a county board of supervisors or a city council “implies” as much in an ordinance of resolution, it’s easy to be pessimistic. But this much is certain: the unions can no longer count on winning in the court of public opinion.
Steven Greenhut is vice president of journalism at the Franklin Center for Government and Public Integrity. Write to him at

Thursday, June 14, 2012

Institute for Truth in Accounting Report Says States Have $900 Billion Off-Balance Sheet Debt

June 13, 2012 07:10 AM Eastern Daylight Time 

CHICAGO--(BUSINESS WIRE)--The Institute for Truth in Accounting (IFTA) today released its second annual study of all 50 states’ assets and liabilities, including pension and retirement health care obligations. All the states together have more than $900 billion in off-balance sheet liabilities, and the taxpayer burdens in most states continue to grow due to poor budgeting rules and outdated accounting principles.
“States pay only what is due during the current budget year which does not take in account true long-term obligations on their balance sheets. Hundreds of billions of dollars of retirement liabilities are not reported, which pushes these costs onto future taxpayers.”

The report reviews each state's financial condition and identifies the top five "sinkhole" states, or the states in the worst financial condition, as well as the top five "sunshine" states, so named since they have adequate assets available to pay their obligations.
The five “sinkhole states” and the amount each taxpayer would have to send to its state treasury are: Connecticut ($49,000), New Jersey ($35,800), Hawaii ($32,700), Illinois ($31,600), and Kentucky ($23,500). The top five "sunshine states” and per-taxpayer surpluses are: Alaska ($21,200), Wyoming ($20,200), North Dakota ($9,500), Utah ($2,600), and Nebraska ($2,400). The study showed that one state, Hawaii, saw its unfunded health care obligations increase by $3 billion in just one year. A download of the full report is available at
Four of the five “sinkhole states” now have larger per-taxpayer burdens compared to last year’s report. Similarly, four of the five “sunshine states” now have larger per-taxpayer surpluses. The “sunshine states” are becoming financially stronger while the “sinkhole states” are becoming more insolvent.
“Antiquated government budgeting rules and accounting standards are to blame,” said Sheila Weinberg, founder and CEO of the Institute. “States pay only what is due during the current budget year which does not take in account true long-term obligations on their balance sheets. Hundreds of billions of dollars of retirement liabilities are not reported, which pushes these costs onto future taxpayers.”
About the Institute for Truth in Accounting
IFTA is dedicated to promoting honest, accurate, and transparent accounting at all levels of government and business. As a non-partisan, non-profit organization, IFTA works to expose accounting deficiencies while promoting better, more accessible delivery of accurate government financial data—and, in turn, providing a foundation for more informed public policy. IFTA provides its expertise to develop more effective accounting standards and deliver accurate government financial information to policymakers, opinion leaders, and citizens, so they can all work for a more secure financial future.

Tuesday, June 12, 2012

The Real Lesson from the Wisconsin Recall

When the issues were clear, voters were rational.
Steven Greenhut | June 8, 2012 -
“The art of government is to make two-thirds of the voters pay all it possibly can for the benefit of the other third,” wrote Voltaire, in one of the most counterintuitive yet accurate quotations about modern governance. Why are voters so willing to pay more of their hard-earned money to support the demands of a minority of their fellow citizens?
That’s not the question most of us are asking now, after public-sector unions were dealt devastating blows in Tuesday's elections in two of the most progressive states, Wisconsin and California.
Liberals are asking whether Wisconsin Gov. Scott Walker’s overwhelming victory in a failed recall will spur similar “anti-worker” reforms across the country. Republicans are asking whether the Wisconsin vote—including the victory by three out of four Republicans in Wisconsin Senate seats targeted by the unions—spells doom for President Obama’s re-election.
Instead of wondering about short-term political implications, we should be asking why it took so long for voters to behave so rationally. Even in Democratic bastions such as San Jose, the public supported serious efforts to roll back benefit levels even for current employees. San Diego voters not only backed pension reform, but they OK’d a ban on union-only project labor agreements in the city and the reformist mayoral candidate took top place, although he will face a November run-off with a union Democrat.
Tuesday’s vote, however encouraging, is just the beginning of the broad-based reform movement that’s necessary to save states and municipalities from insolvency, to improve the nation’s increasingly decrepit public services, and to restore the proper balance between the citizen and the government official. But it is just the beginning.
Over the past decade, California governments have dramatically increased the pay and especially the benefit packages of public-sector workers. We have firefighters earning average total compensation packages of $175,000 a year in many jurisdictions, and majorities of police officers in some agencies retiring on questionable disabilities. The standard retirement package for the ever-expanding class of “public safety” officials allows them to retire at age 50 with 90 percent of their final year’s pay—and that’s before all the add-ons and scams. Miscellaneous members—the rest of public employees—aren’t far behind, and we’ve seen absurd enrichment schemes and salaries in one scandal after another.
I’ve watched a sea of proposals pass that give government employees special privileges that would never be allowed for mere private citizens, such as a recently passed California bill that allows many officials to shield their personal information from public property databases. These privileges encourage arrogance and misuses of power. Pensions are now consuming 16 percent of California’s discretionary budget, and in cities such as San Jose, pension costs escalated an eye-opening 350 percent in a decade.
Collective bargaining has made it nearly impossible for agencies to fire bad workers or pursue cost-saving alternatives. Although California leads the way in most absurd trends, the vast expansion of government compensation and special privileges is a nationwide problem, and in Tuesday’s election voters across the nation said they have had enough.
How did it get this bad?
The technical answer is the economic notion of “dispersed costs and concentrated benefits.” If we imposed a one-cent annual tax on every American to benefit the Greenhut family, no one would get mad and few people would notice, but I would have a great incentive to keep that tiny tax alive and plenty of money to hire the best lobbyists. All special interest groups work that way—they push for small concentrated benefits, and figure that the rest of us don’t have the time or incentive to fight back given the costs are spread out.
The public-sector unions have mastered this art, and indeed are far more ravenous than even Voltaire would have imagined. He figured two-thirds of us would work for the other third, but only about 16 percent of American workers are in government employment.
Unions have particular advantages, including the ability to automatically deduct their dues from employees’ paychecks, something that Walker has stopped in Wisconsin. They also have strength in numbers—many workers who can head to the polls and participate in political efforts to prop up their special status.
But mostly union prerogatives have moved forward so rapidly because unions have bought support from both sides of the political spectrum. For instance, Orange County, Calif., where I used to work, remains the most Republican large county in the nation, yet the same pension-spiking schemes moved forward there as in more liberal jurisdictions. Pro-union candidates would dress up their union votes in law-and-order garb. In liberal areas, union legislators would depict their support for the wealthy class of government employees as support for the poor and the downtrodden, given the stated intent of the programs these people administer.
Despite loud union protests we see at capitol buildings, most union power has advanced quietly and behind the scenes. Debates over spending rarely come down to the public vs. the unions, so voters continue to elect politicians who advance union interests. But something shockingly different took place on Tuesday: clarity.
There was a clear choice, from Madison to San Diego. Do we side with a small special interest that has rigged the game in its favor or do we stand up for ourselves and say “no”? We saw what happened. Unions are busy launching their court challenges, knowing that they can't win in the court of public opinion. They have much power and will surely win many more battles. But the gig is up.
When put to the test, to the simple choice of the unions vs. the rest of us, the public—even in the most liberal places in the country—does the right thing.
That’s the real heartening news from Tuesday’s election.
Steven Greenhut is vice president of journalism at the Franklin Center for Government and Public Integrity.