Arizona PSPRS Part 1: Public Unions Cloud Pension Future

http://www.eastvalleytribune.com/opinion/article_b1aa6082-16b9-11e5-90c2-4b6b7d49d435.html

Public-sector unions, left unchecked, cloud our financial future

East Valley Tribune – June 20, 2015

Story Highlights:

  • An unsustainable pension and benefits system is cracking.
  • Today government unions, with their enhanced bargaining power, have aggressively leveraged superior compensation along with lavish health and pension benefits onto the traditional advantages of government employment.
  • Public-sector unions get to participate in the selection of the bosses with whom they negotiate. Which they do, heavily. Government unions have become a go-to funder of the Democratic Party. Labor “negotiations” commonly have the same interests on both sides of the table.
  • While private sector unions have steadily declined since the ’50s to less than 7 percent participation, public-sector unions have flourished. Compensation for government employees grew 21 percent since 2000, according to the Bureau of Economic Analysis, only 9 percent in the private economy.
  • Skyrocketing costs of salaries, pensions and health care are making basic services like public safety and education unaffordable for many local governments. Several cities and states are facing bankruptcy, owing $2.5 trillion (not a typo) to their own pension systems alone. An unsustainable system is cracking.

Even Americans traditionally sympathetic with labor unions are beginning to realize that, left unchecked, public-sector unions are clouding our financial future.

Unlike private sector unions, government unions don’t have to deal with the hazard of pushing their employers too far. Government is not profit-oriented and has theoretically limitless ability to tax.

Even better, public-sector unions get to participate in the selection of the bosses with whom they negotiate. Which they do, heavily. Government unions have become a go-to funder of the Democratic Party. Labor “negotiations” commonly have the same interests on both sides of the table.

As a consequence, while private sector unions have steadily declined since the ’50s to less than 7 percent participation, public-sector unions have flourished. Compensation for government employees grew 21 percent since 2000, according to the Bureau of Economic Analysis, only 9 percent in the private economy.

Government employment traditionally was compensated somewhat less for similar jobs, but this was offset by less demanding employment, good benefits and ironclad job security. Today government unions, with their enhanced bargaining power, have aggressively leveraged superior compensation along with lavish health and pension benefits onto the traditional advantages of government employment. Workers, especially the educated, are beginning to prefer government work rather than the private sector, which creates the wealth and drives the economy.

But there’s a more immediate problem. Skyrocketing costs of salaries, pensions and health care are making basic services like public safety and education unaffordable for many local governments. Several cities and states are facing bankruptcy, owing $2.5 trillion (not a typo) to their own pension systems alone. An unsustainable system is cracking.

Illinois, the state in deepest trouble, should serve as a warning for other governments on the same course. For example, 5,000 education retirees pulldown over $100,000 per year in benefits. Half of government employees retire before age 60.

Illinois pension funding rose 12 percent last year alone. Yet these contribution levels don’t begin to keep up with the actual cost of the programs, which are far more generous than those available to most taxpayers. Illinois is $110 billion behind on pension funding and that number inexorably grows.

Unfortunately, Illinois has used up most of its options. Taxes are already so high that raising them further has only hastened the exodus of businesses from the state. Borrowing likewise isn’t a practical option for a state already deeply in debt, with a credit rating near junk-bond status.

Worse, just this month, the Illinois Supreme Court overturned a much-needed pension reform on the basis that benefits are constitutionally protected. The court even threw out provisions that affected only newly entering workers! Under the court’s dictates, Illinois is faced with cutting $6 billion from other stressed services to maintain pensions.

States like Illinois would obviously like a federal bailout but that’s another wretched idea. The line would be long of states who would rather get (another) handout from Washington rather than go through the pain of real reform at home.

One hopeful sign is the several states are now shining light on what have always been secret negotiations between union and government officials. Pennsylvania recently joined a list of 12 states that provide some transparency like open meeting laws and public access to agreements before they are finalized.

“It’s simply anti-labor, anti-worker legislation” a labor leader in Pennsylvania charged. It sounds like secrecy must really be important to those negotiations, right? It’s outrageous that taxpayers should have to beg for information when their money is being spent on a powerful interest group.

In Arizona, if we’re not as bad off as Illinois, we’re headed that direction. As recently as 2002, state retirement plans ran a surplus. No longer. By 2011, pension plans were $13 billion underfunded. Today the public safety retirement system is just 49 percent funded.

Yet even Arizona’s fiscally conservative government has not moved on such important reforms like weaning state workers off of defined benefit plans. Arizona actually has a law requiring secrecy in contract negotiations.

We would be wise to learn from states like Illinois. Why keep doing the same thing when the eventual consequences are bound to be dreadful?

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