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The need for Public Sector Pay & Pension Reform
Posted at: Aug/08/2010 : Posted by: mel
Related Category: Politics & Gov,
Let me set the table. It is the summer of 2010 and we have been in a recession for 20-24 months. Our financial system is rebuilding itself slowly after 15-20 years of unregulated greed at the expense of declining “financial service”. Anytime the tide is really low you get to see all the trash that has accumulated just beyond the beach. In a similar manner, that is where we are now. During the times when there seemed to be no end to the growth in money, many public sector benefits were agreed to that cannot be sustained, and in some cases are almost criminal. Last week California Governor Arnold Schwarzenegger declared a fiscal emergency and ordered three days a month off without pay for state workers. These same state workers and their unions are strong allies of Democrats who control the state legislature and oppose his plan to slash spending as a projected $19 billion deficit looms for the state's books which are required by law to balance. Surprisingly, the cries for sympathy from state workers are now garnering very little audience as opposed to last year. Yet, maybe this should not be a surprise. There is a growing public outrage over the pay, and most of all the benefits and pensions stuffociated with state workers and their unions. California State Employees would normally be screaming bloody murder as they did when the mandatory furloughs were imposed in 2009, but public resentment at their compensation, including what one analyst describing as "pension envy," has resigned them to only issuing very muted protests. 40-50 years ago most of the manufacturing industry in America received good salaries along with medical benefits and pensions. I want to also clearly state that most of this was achieved by hard fought negotiations from their union leadership. At that time the American manufacturing dominated the world automotive, heavy equipment, aviation and appliance sectors to name but a few. With the passage of time these unions continued to garner more and more benefits and pension funding for their members while not paying attention to the big picture. International manufacturers grew to produce products that where competitive in quality to our own. Eventually our labor costs reached the point where the American consumer could no long afford to buy goods built with American labor. I know that sounds terrible, but ultimately most consumers including myself buy with their wallets and not their hearts. The result of all this has been a steady decline in the rank-n-file of union membership and their proportional strength. One of the few remaining union strongholds in America is the public or government sector. With the recession depressing revenue, states are struggling to keep up with pension costs, with New Jersey and Illinois opting to skip fiscal 2011 payments or issue bonds to raise cash for their retirement systems. In California, funding current pension obligations for state employees is coming more and more under scrutiny. Based on surveys I have recently read most Americans believe that federal employees and other government employees are paid at more than comparable levels to private-sector employees. There also seems to be increasing support for a 10 percent pay cut for public employees. In the public sector many workers are already accepting 3-10% pay cuts and reduced benefit funding to maintain their jobs. With private sector employees facing more and more pessimism about their own personal finances and job security the public sector is coming under a hardening review. The new debates qualify as “Pension Politics”. States across the country collectively face an apparent shortfall of at least $1 trillion in funding for employee pensions and retirement benefits. Local government pensions also face financial stress, and even in liberal San Francisco some say there are limits to how much the city can afford to spend on its retired employees. A measure on San Francisco's November ballot aims to reduce the city's public pension costs. They currently account for 20% of the city budget and that will only grow over time due to generous contracts. The city of San Diego is facing a similar crisis where employee pension now represent the single largest item in the budget. While technically legal, you could argue that it is a long way from ethical to vote yourself increased benefits which is what took place in San Diego. The old idea of the public employee earning a paltry amount to do a public service is no longer true. Many public sector jobs pay comparable to or better than the private sector and include pensions which just don’t exist anywhere else anymore. Adding fuel to this fire is the recent scandal in Los Angeles County where the Bell City Manager reportedly earned $787,637 a year, or nearly twice U.S. President Barack Obama's salary, along with a pension that could top $30 million if he lives to age 83. The scandal, which has attracted national attention and has become the "poster child of what's wrong with public-sector compensation." The good news is that the California Public Employees' Retirement System which is the nation's biggest pension fund joined the state Attorney General to launch a probe into Bell's compensation practices. Most of Bell’s part-time city council members were receiving $100,000 a year, while roughly a quarter of its residents live in poverty. With a current California jobless rate exceeding 12 percent; this would have been the wrong group for the union to defend. California is not unique, it was recently reported that a Chicago suburban park district official took home over $435K in salary and bonuses in 2008. With a little research I am sure I could grow this list to hundreds if not thousands of examples. The bottom line is that these public sector salaries and pensions are being paid for by people who are struggling to make ends meet. Private-sector workers also are worried that the 401(k) retirement plans they have been “self-funding” are getting slammed in this crisis and may never recover leaving them to feel envy and frustration at public-sector workers with their job security and guaranteed retirement benefits. There is a growing national movement of disapproval for public workers, their unions and the elected officials that approve their contracts. The result of all of this is a push for pension and public employee compensation reform. Lots of possibilities exist here including: • raising retirement ages • longer vesting periods for benefits • putting new workers into 401(k)-style retirement plans • privatizing public services to reduce cost • more oversight over last minute promotions that increase pension benefits • tying pensions directly to salaries When you start looking at how these pension funds work and the promises that have been made it begins to appear that for many cities and counties the only option may be bankruptcy to break the pension contracts. At the state level, Governor Schwarzenegger is trying to coerce reforms by threatening to withhold his signature on any state budget unless it includes money-saving changes to California' pension system. He has called the system the single biggest threat to California's fiscal health. Whatever the response, the current level of pension funding is unsustainable in its current form and will only go from bad to worse without serious reform. The days of big union are gone from virtually everywhere except the government sector. The bottom line is non-government workers are increasingly worried on a day to day basis about job security and self-funding their retirements that are continuing to be pushed back. These same people are now legitimately looking for comparable pay, benefits, retirement options and concessions from the people whose jobs they are paying for out of their hard stretched paychecks.
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