For Release Sunday, January 9, 2011
© 2010 Washington Post Writers Group
Will 2011 mark massive Athens- and Paris-like street demonstrations as American state and local government workers protest recession-triggered cuts in their pay and retirement benefits?
Some are making that prediction. I don’t, because I don’t believe the public will be with the workers. For good or ill, we chronically regard government — and its employees — as “somebody else,” not “us.” We exhibit little of the class or cultural solidarity that undergirded the protests in Europe.
But there’s no doubt that a major showdown on public sector wages and benefits is at hand. On the very day of his inauguration, Democratic Gov. Andrew Cuomo of New York agreed to an order by his predecessor to lay off 900 state workers because union leaders had refused to agree to $250 million in concessions.
And in Chicago another Democrat, Mayor Richard M. Daley, lashed out angrily at a union-backed state bill, signed by Democratic Gov. Pat Quinn, that forces cities to move toward 90 percent funding of police and fire pensions by 2040. The state’s authorized to withhold sales and income tax revenue from cities that don’t. Daley warns the legislation will trigger “the highest real estate tax increase in the history of Chicago” — over a half billion dollars a year — raising assessments so much it will be tough to sell a house in the city.
Pensions were a major factor forcing hard-pressed Philadelphia to raise its property taxes 9.9 percent last year. Older towns from Hamtramck, Mich., to Prichard, Ala., are on the verge of pension-benefit driven bankruptcy.
And things are all but assured to get worse. Urban property tax yields will slump this year as recession-impacted reassessments reduce revenues. The National League of Cities reports that overwhelming majorities of cities are far from bankruptcy. But it’s also true that municipal debt (adjusted for recession) has almost doubled since 2000.
And a huge equity issue is rising. Most private sector employees have seen their guaranteed pensions or 401 K plans disappear or decline dramatically in value. Yet “defined benefit” (i.e., guaranteed) retirement plans are enjoyed now by some 7.5 million state and local government retirees, and 15 million coming after them.
Unionization has shifted in character, too. Once public workers were a small minority of the country’s unionized workforce. No longer. The Bureau of Labor Statistics last year reported that government employees now constitute an actual majority of the nation’s union members.
And the public sector workers earn more — their total compensation package averages $40.10 an hour, compared to $27.88 in the private sector. It’s true government hires higher percentages of technical and professional workers. Still, the wage gap is not one to generate public support for government workers’ wage and benefit demands.
And popular critiques of the unions are increasing. Commentator-historian Fred Siegel notes that public sector unions, unlike those in private industry, lack an adversary — profit-motivated management — to counterbalance their strength. In fact, Siegel observes, they’re able to make campaign contributions and “organize get-out-the-vote drives to elect politicians who then control the negotiations over their pay, benefits and work rules.”
Symptomatic of labor’s clout has been the power of public safety unions to secure agreement to work careers as short as 20 years for police officers and firefighters, with retirement as early as 50. With today’s extended life expectancies, that easily translates into more years pensioned than in active work. And again, it is the private sector workers, many facing a bleak future without even a year of retirement benefits, who pay the bill.
There’s a fair comeback — that government unions’ pressures can serve to raise the “pay floor” for the low- and mid-skilled workers, especially at a time of high and climbing income differentials in the U.S. It’s hard not to question the motivation of some commentators who’ve pounced on seemingly excessive retirement benefits to “bash” unions — yet never mention the yawning chasm between our tax code-subsidized rich and ordinary working people.
Still, when mayors like Detroit’s Dave Bing run into substantial union opposition as they try to put limits on what they believe are truly “unsustainable” government wages and benefits, it’s time to listen.
“Who would think that GM and Chrysler, two of our biggest corporations, would ever file for bankruptcy?” Bing asked at a recent CEOs for Cities conference, continuing: “If those changes are occurring in the private sector, how can we expect that government benefits can’t be affected?” If a city’s to be competitive and serve its citizens in today’s global economy, he notes, “we must, from a payroll and benefit scale, be competitive.”
Or Los Angeles Mayor Antonio Villaraigosa: “I was a union organizer. But when so much of your future deficit has to do with pension funds that aren’t sustainable, with benefits you can’t continue over time, you have to ask: ‘How do we share responsibilities?’”
The answers are all tough, but Villaraisoga’s question is right-on.
Neal Peirce’s e-mail is npeirce@citistates.com.
For reprints of Neal Peirce’s column, please contact Washington Post Permissions, c/o PARS International Corp., WPPermissions@parsintl.com, fax 212-221-9195. For newspaper syndication sales, Washington Post Writers Group, 202-334-5375, wpwgsales@washpost.com.
7 Comments
One thing to keep in mind is that at least in Ohio, public employers or employees do not make Social Security contributions and even if employees have time in to be eligible for SS benefits they cannot collect both. One or the other. Public employee retirement benefits are my only retirement benefit. No 401Ks or add ons from my public employer.
What, are workers chopped liver – not the public?
I am a boomer, worked for a living, gladly paid my share of taxes and plan to have a long and healthy retirement. In fact I hve been retired from working for wages for 6 years. You couldn’t afford to pay me for all the volunteer work my fellow retirees and I perform. We end up being as essential to society as when we were working for a wage! it is in everyone’s interest to think a bit more critically about retirement and the consequences of so-called pension reform. Otherwise, it looks like we will go backwards,,,
Mr. Pierce,
How much of this pension crisis arises, not from the recession or even the growth in benefits, but from state and local government practices of raiding (err borrowing from) pension funds as a political move to avoid raising taxes?
While I can’t say I’m a supporter of pension benefits per se, these are contractual obligations. To the extent the need for a default arises from the government’s own actions in violation of their fiduciary duty to the employees, the only equitable response is to finally pay up — i.e., raise taxes.
Well articulated Neal. The USA is caught in a massive vise between low-skilled, factory work being done outside our borders and unsustainable wage/benefit packages for public employees.
And still, no one in Washington is ready to talk to us like an adult and tell us the bad news. Glad I am 59 and not 19.
The most interesting point: Americans don’t have the “class consciousness” that Europeans have. The rich will buy on the “free market” the services the rest of us have received from the government. The rich will pay for it with the wages and other benefits they have stolen from the rest of us.
Dear Neal,
As always enjoyed reading your column and agree with much of what you said. There is one fact you cite which I disagree with and that is comparing public to private sector wages and here I refer you to excellent research which has been done under the auspices of the Center for State and Local Government Excellence http://www.slge.org . Independent research funded by the Center has found that state and local government compensation and benefits is actually lower than that in the private sector when you look at comparable education and technical skills.
With regard to public pensions there is a great deal of mis information being bandied about which is not supported by the facts. Without a doubt there a few States which need to significantly improve funding and as you point out the early retirement for police and fire may just not be sustainable over the long term. The Center for State and Local Government Excellence has an excellent pension reform interactive map showing all of the reform efforts underway in the state legislatures.
I strongly recommend the excellent research which is done by the National Association of State Retirement Administrators (NASRA) and can be found at http://www.nasra.org/ . There are certain groups and members of congress who for their own purposes are making some outrageous claims about the financial health of state and local government pension systems.
According to the Public Funds Survey conducted by NASRA of the approximately 100 largest pension systems covering 85% of all public employees the systems are eighty (80) per cent funded on average. Yet if you listen to the sky is falling crowd one can get the impression that the bulk of our public pension systems are poorly funded and that most are on the verge of bankruptcy. In fact, an eighty per cent average after going through the worst recession since the great depression is a very respectable figure. State and local pension systems collectively have pre-funded nearly four-fifths of their future pension liabilities – even when accounting for the steep losses in 2008 and earlier this decade. While every investor was affected by the 2008 financial market disaster, state and local retirement systems have a strong track record in managing their assets and a much greater time period to recover than do other retirement plans. Pension fund asset values have been growing since March 2009, and the most recent data show current assets are approximately $2.9 trillion. The Government Accountability Office has found that public pensions on the whole are financially secure and positioned to meet their long-term pension obligations, and even after the market decline, aggregate public pension funding levels are around 80 percent.
Jeff
Why no mention of the pensions of elected officials? They get GREAT benefits and pensions, with usually minimal years in the system. If we have to cut, start there.