Greetings from the Left Coast!
To really understand the implications of the failed attempt to recall Gov. Scott Walker, you must first understand the scope and severity of a huge financial time bomb that’s looming on the horizon: unfunded public pension liabilities. By “unfunded public pension liabilities,” I mean retirement benefits, health insurance benefits, etc., that state and local governments have an obligation to pay to current and former workers, but which have no identified source of funding. When the bills come due, it will be a scramble to figure out how to pay for them.
How big is the problem? The Pew Research Center estimated that it was at least $1 trillion at the end of fiscal 2008. Orin Kramer – a Democrat, and the former chairman of New Jersey’s pension fund – said it was $2 trillion at the end of 2009, and
$2.5 trillion at the end of 2010.
How did we get into this mess? Because public sector unions contribute huge sums of money to help elect politicians who will be sympathetic to their contract demands. These politicians then give the unions what they want, thus insuring that the unions will continue to contribute huge sums of money to their next re-election campaign.
In the private sector, there is a built-in limit to what a union can extract from a business, because there is a limit to what the business can afford to pay. Beyond that limit, the business fails, and everybody loses, including the union workers, who no longer have jobs. But in the public sector, “management” is not negotiating with its own money – it is negotiating with other people’s money: specifically, the taxpayers’ money. There is no down side to giving the unions what they want, because, by the time the bills come due, either those politicians will be long gone, or enough time will have passed that they can avoid being associated with the fiscal train wreck that will ensue. So politicians have continued to kick this can down the road, and we’re now looking at as much as $2.5 trillion in unfunded public sector pension liabilities with no idea of how we’re going to pay for them.
For years, even the champions of the labor movement were opposed to the idea of collective bargaining by public sector unions. In August, 1937, FDR wrote the following to Luther Steward, the president of the National Federation of Federal Employees:
“…meticulous attention should be paid to the special relationships and obligations of public servants to the public itself and to the Government.
“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. It is, therefore, with a feeling of gratification that I have noted in the constitution of the National Federation of Federal Employees the provision that ‘under no circumstances shall this Federation engage in or support strikes against the United States Government.’”
In 1955, George Meany, the former president of the A.F.L.-C.I.O., stated, “It is impossible to bargain collectively with the government.”
In 1959, the Executive Council of the A.F.L.-C.I.O. stated, “In terms of accepted collective bargaining procedures, government workers have no right beyond the authority to petition Congress – a right available to every citizen.”
But, over time, greed overcame common sense, as it often does in the political arena, and the vicious circle of union dues -> campaign contributions -> recipients of the contributions give concessions to the unions -> unions collect more dues (often from workers who have no choice about whether they want to be union members, and who have the dues automatically withheld from their paychecks) -> more campaign contributions -> repeat ad infinitum has become commonplace. Both parties are guilty, but it is, in fact, more of an issue with Democrats, because the Democrats have chosen to align themselves closely with the unions, and, in return, 80% - 90% of union's political contributions go to Democrat candidates. In the case of the National Education Association and the American Federation of Teachers, that number is closer to 95%.
As a result, public employees in general often have higher compensation than their private sector counterparts. According to the Bureau of Labor Statistics, as reported in
USA Today in March, 2010, federal workers in 2008 earned an average salary of $67,691 for jobs that existed both in government and in the private sector – the average pay for the same jobs in the private sector was $60,046. According to other BLS reports, government entities spend 1.7 times as much on health care per employee-hour worked, and nearly twice as much on retirement costs. Public sector workers are far more likely to have “defined-benefit” pensions that are guaranteed to pay out for the remainder of a retiree’s life.
What is happening is that, across the country, voters are realizing that this is simply unsustainable, and something must be done to defuse that huge, ticking fiscal time bomb. And, in Wisconsin, that time bomb was about to explode. When Scott Walker took office, the state was looking at a $3.6 billion deficit between 2011 and 2013.
According to another
USA Today article in February, 2011, Wisconsin was one of 41 states where public employees earned higher average pay and benefits than private workers in the same state. The average Wisconsin public school teacher may have only made $50,000 in wages, but s/he also received $45,000 in benefits. The school districts paid the entire cost of their pension plans, the entire premium for their medical and vision benefits, and half of the cost of dental coverage. Family health care coverage for a public school teacher was costing the state an average of $26,844 per year.
What Gov. Walker did, that earned him the eternal hatred of labor unions everywhere, was to
restrict – not eliminate entirely – collective bargaining rights. Public sector unions could no longer bargain for benefits, and wage increases were limited to the rate of inflation. He also eliminated the automatic deduction of union dues from workers’ paychecks and required public unions to re-certify annually. He also asked public school teachers to pay 5.8% of their pension costs and 12.6% of their health care costs. That’s still substantially less than the national average for government workers, as well as substantially less than what private sector workers pay on average – if they have pensions at all.
While all of that made the public sector unions go ballistic, it struck the citizens of Wisconsin as being eminently reasonable. And despite the best efforts of his union opponents, Walker retained his governorship…and it wasn’t even close.
Meanwhile, out in the People’s Republic of California, both San Diego and San Jose passed ballot measures that cut public-sector pensions. San Diego’s passed with roughly two-thirds of the vote, and San Jose’s passed with 70% of the vote – proving that even here on the Left Coast, in the bluest of the blue states, the folks are starting to understand the magnitude of this problem and show their willingness to do something about it. I find that quite encouraging.
Thanks for listening.
UPDATE 6/8/2012: In his syndicated column this morning, Charles Krauthammer addressed this same issue - arguing that this is nothing less than the beginning of the end of public sector unions. As evidence, he reports that, since the Wisconsin government stopped forcibly collecting union dues from employees' paychecks, making membership truly voluntary, membership in the state's largest public-sector union has dropped by more than 50%. And, in neighboring Indiana, where a similar reform was enacted by Gov. Mitch Daniels via executive order seven years ago, government-worker union membership has fallen by 91%! Clearly, even their members don't like what the unions are doing.
