Did Public Employee Unions Cause the Collapse of the State?

David Brooks thinks so:

New Jersey can’t afford to build its tunnel, but benefits packages for the state’s employees are 41 percent more expensive than those offered by the average Fortune 500 company. These benefits costs are rising by 16 percent a year.

New York City has to strain to finance its schools but must support 10,000 former cops who have retired before age 50.

California can’t afford new water projects, but state cops often receive 90 percent of their salaries when they retire at 50. The average corrections officer there makes $70,000 a year in base salary and $100,000 with overtime (California spends more on its prison system than on its schools).

One of the easiest ways to be a west coast blogger is to wait until 9 pm Pacific time, look at the dumb thing that Brooks has said today, and blog it.  But here, it’s a little more complicated.

On one level, Brooks’ piece is simply moronic.   For instance: 

1)  He simply claims that California “can’t afford” various projects, conveniently ignoring the fact that the famously dysfunctional California Legislature reached an agreement on building several of these projects.  He never really costs out any of his numbers: if New Jersey workers had pitifully low pensions like private companies, would that mean that the state suddenly would have been flush with cash?  You know the answer to that one.

2)  Nowhere in his argument will you find any discussion of the anti-tax hysteria that has infected the Republican Party: Saint Ronald Reagan’s first proposal upon being elected Governor in 1966 was to raise taxes to close a deficit. 

3)  He notes that California pays more for prisons than schools, but never mentions that a crucial reason for this is the conservative obsession with three-strikes laws. 

4)  Somehow, as a taxpayer I wouldn’t feel comforted to know either that 60-year-old cops are chasing criminals on the streets, or that we can’t recruit younger cops because the work is dangerous and they don’t get a pension. 

5)  And if you are really looking to see where state costs have skyrocketed, the answer is found in the Medicaid program; yet somehow, after hemming and hawing, Brooks could not bring himself to support the Affordable Care Act, the most ambitious attempt to control health care costs in US history, and a law in which states receive a 90% match for new Medicaid expenditures.

Yet I couldn’t bring myself to hate this column, because progressivism does have a problem with public employee unions.  Most famously, of course, are some teachers’ unions, such as the reactionary United Teachers Los Angeles, which has devoted most its energy to resisting the advance of public school accountability.

And that’s not all.  A friend of mine worked on the transition team for then-incoming Mayor Richard Riordan in 1993.  He’s a progressive Democrat.  His brief was the city’s Department of Water and Power.  And he learned that fully 25% of the Department’s budget was devoted to pension expenses.  It is all-too-common for public employees to retire at age 50, get a full pension, and then go into consulting on the same issues in which they previously worked (obviously, this applies to people such as engineers and the like, who work at DWP), essentially drawing two salaries.

At another state agency where I worked, I learned that we could not use hybrid vehicles for the agency’s cars, because the state mechnics’ union members didn’t know how to fix them, and didn’t want to learn.  So we were stuck with cars getting far less mileage, wasting at hundreds of thousands of dollars over the long term.

As the Yiddish proverb goes, “for instance isn’t proof.”  Or to put it another way: the plural of anecdote isn’t data.  But the aging of the population means that governments stand to have huge pension debts, which means less money for programs.  These aren’t idle fears (and of course they aren’t limited to the public sector, either, as Roger Lowenstein’s excellent book shows in both public and private contexts).  As much as I’d like to say that Brooks has once again wasted some of the most precious real estate in American journalism, I can’t.  At least not yet.  It will be interesting to see how observers who actually do know the numbers respond.

Comments

  1. Bruce Ross says

    In the small NorCal city where I live, pension costs for police officers and firefighters cost fully 42 percent of their salaries — on top of their salaries. And that's going up few percentage points next year. And that doesn't include a very generous health plan, for which their cost share is 10 percent. It's a lot of stinking money for benefits — and yes, cities recruited police officers for generations while paying only 2.5 percent at 55 instead of 3 percent at 50.

  2. Dennis says

    Bruce,

    In the 1990s, CalPers was busy returning large amounts of money to government entities, because their pension investments were doing so well. Your pension costs are up now (in part) because your City Council and County Commissioners chose to put those rebates into the general fund rather than in some sort of escrow account to use when the investments did not do so well. It might be a fun idea to check the books, find out exactly how large those rebates were for your city and county and ask the Council and Commission some very pointed questions.

  3. Mark Kleiman says

    Of course, Brooks also couldn't be bothered to get basic facts right. California spends more on prisons than on universities; K-12 school spending is almost half the budget.

  4. Benny Lava says

    Brooks is an idiot which sadly obfuscates an important issue. Governor Schwarzenegger wrote a very good editorial for the WSJ that I felt was honest and objective about the looming problem of pensions in California and in the US in general. The fact that conservatives hate him as much as liberals tells me that he is probably correct on this.

  5. dave schutz says

    Here's a letter I sent to the Sacramento Bee, and which they didn't print.

    Dear Editor:

    When I was a lad in California, Jesse Unruh was the colossus of the Legislature. I am that old. And when he met newly elected members, he would say, “Son” (the newbies were generally ‘son’ in those days) “Son, if you can’t eat their steaks, and drink their whiskey, and…” (the Bee is a family newspaper, let’s pretend he said ‘have’) “…have their women, AND VOTE AGAINST THEM IN THE MORNING, you don’t belong here.” Fifty years on, there’s been a lot of steak eaten, whiskey drunk, women had, not so much voting against. A lot of people have been in the legislature who didn’t belong there.

    I live in Virginia now, and have been aghast to read about multi-hundred-thousand dollar pensions paid to Calif. state and municipal employees who have – perfectly legally – worked the system. Generally, the writers have said there is nothing to be done about currently pensioned people – the California Constitution requires it! – but perhaps there could be some adjustment of the terms under which new people would be hired. Some have suggested that there should be a Federal bail-out for the pension systems in California and other irresponsible states. Meanwhile, California and other state systems pay out pensions based on fantasy rates of return, and look to current taxpayers to make up short falls.

    It’s appalling that burger-flippers in Manteca may be asked to pay taxes out of their tiny incomes to top up huge pensions called for in existing Calif. law, and it’s even worse that burger-flippers in Biloxi are being thought of as a source. It’s dreadful that California cities are underprotecting their citizens because they have laid off current public safety personnel so they can continue paying enormous pensions to retired public safety personnel – pensions based not on their final salaries but on their final salaries plus any overtime worked in their last few years. Lincoln said in another context: “Are all the laws, but one, to go unexecuted, and the government itself go to pieces, lest that one be violated?” A zippier formulation by Justice Jackson, in 1949: “…if the court does not temper its doctrinaire logic with a little practical wisdom, it will convert the constitutional Bill of Rights into a suicide pact."

    Another quote, this one from Willie Brown: “The deal used to be that civil servants were paid less than private sector workers in exchange for an understanding that they had job security for life. But we politicians — pushed by our friends in labor — gradually expanded pay and benefits . . . while keeping the job protections and layering on incredibly generous retirement packages. . . This is politically unpopular and potentially even career suicide . . . but at some point, someone is going to have to get honest about the fact.”

    There is an existing model for what to do when a pension fund goes bust: ERISA, the Federal law on pension standards, and the Pension Benefit Guaranty Corporation (PBGC). When a pension fund goes under, PBGC will take over its assets and pay up to $54000 a year to pensioners covered, paying as much as it can from the funds of that plan and making the rest up from the taxpayers. Pensioners who expected more are out of luck.

    What should California do? Declare CALPERS bankrupt. Establish a new fund – call it CALPBGC. Give it all of CALPERS’ assets. CALPBGC is allowed to assume a rate of return which is no greater than the smaller of the average which it made on all of its assets in each of the last ten years or the then-current rate on 30-year fixed rate mortgages. Redefine all CALPERS pensions to exclude overtime in calculating the base, and base pensions only on the most remunerative single job held by the pension recipient. Pay any CALPERS pension not exceeding $50,000 a year in full, pay $50,000 plus 25% of the excess up to $100,000 to people now receiving pensions between $50,000 and $100,000, pay another 10% of any CALPERS pension amount between $100,000 and $130,000. The retired school janitor from Lodi goes from a $40,000 pension to a $40,000 pension, the retired city manager, finance director, city clerk, redevelopment director, treasurer and chief of light and power of Vernon (all at the same time!) goes from a $449,675 pension to $65,500. Retirement age goes up. Formula for computing pensions excludes overtime, and you don’t max out til 35 years of service.

    Only after making changes like these should California taxpayers be asked to make up a shortfall. I am not eager to pay for a fiscal disaster brought on by term-limited schlubs in the California legislature who could not, or would not, comprehend the fifteen-years-down-the-road consequences of their actions. Only after a California tax surcharge (on, yes, California tax payers, including the burger flipper in Manteca) should Federal assistance be considered – on the same basis as it might be made available to Illinois, New Jersey, and other states in the same boat.

  6. Brett says

    I can sort of understand why cities can have such enormous pension expenses, and it`s not just because the public sector unions are good at lobbying for them. I remember reading somewhere that a lot of cities offered good pension benefits in exchange for lower pay, so that they could push the expenses off into the future.

    As for the California pay figures , that always struck me as meaningless without some context on living expenses.

  7. says

    Pay attention: nearly anybody with basic math skills understands that the combination of entitlement spending combined with the ever-climbing interest on the national debt means that all those swell things you call "government" will disappear in 40-50 years. Now pile on top of federal entitlements the burden of state and municipal pensions. The United States is approaching the danger zone of 100% debt-to-GDP where it becomes extremely difficult to service debt (see: Greece, Ireland).

    Also, your counterpoints are a mixed bag of straw men and arguing points that are not raised. There's no money, from California to New Jersey, and wishing it were otherwise doesn't make it so.

  8. Warren Terra says

    Seems to me that your post conflates several different issues: public employee pensions, rules on early retirement, and logrolling and jobsworthing. The first two are linked, of course, but could be less so, and the latter pair, however noxious, is not necessarily linked to the first two at all, except in terms of the political muscle that protects it. Traditionally, people have worked as civil servants as part of a bargain: their pay will be mediocre, their work will likely be boring, and there's a limit on their eventual promotion and salary – but they get job security and good benefits, including a good pension. Doesn't mean they should be free to retire at 50 on good benefits, while still able to do their job, and certainly doesn't mean they should use work rules to obstruct the purpose of their department – but as a bargain, it's one that can make sense from both sides.

    It's worth noting that the same bargain, with rather more selection but also rather fewer sacrifices, also applies to academics, as compared to investing a similar amount of education and effort on a career in the private sector.

  9. Bruce Ross says

    Dennis,

    Yes, around 10 years ago, CalPERS was overfunded thanks to the dot-com bubble. Rather than inform cities, counties and the state that it was vital to look at long-term averages and not expect the fun to last forever, CalPERS told the Legislature that it could retroactively increase pension benefits for public employees at no cost. Some pension formulas were increased by 50 percent — retroactively.

    So remind me, where'd the money go again?

  10. Foster Boondoggle says

    Other than the fact that the unions generally are part of the Democratic "big tent" (though often not the union membership), I don't see how this is a progressive vs. conservative issue. Is it written somewhere in the progressives' handbook that we have to be against good governance? On the contrary (and as others have pointed out elsewhere), the diversion of so much common resource into featherbedded contracts hugely constrains our ability to move the progressive agenda forward, as well as contributing to the miasma of resentment against taxes.

    Richard Riordan's candidacy for governor back in 2002 almost gave me a chance to vote Republican for the first time in my life, as I simply could not vote to reelect Gray Davis, governor from CCPOA. As usual, though, the primary voters selected a right wing nut instead, so I just didn't vote that line in the general election.

  11. Dennis says

    Bruce,

    My brother was on several firefighters union negotiating committees during that period. CalPERS told the legislature that they could change formulas, but (according to him) they also were rebating (or abating) government contributions to the fund. The firefighters asked that the rebates be escrowed, the City Manager (backed the Council) said, f*** off.

    If my brother's correct (and he would know, he was in the room), then those rebates appear in the books somewhere. It would be fun to find them, and ask the powers some pointed questions about their decision making.

  12. Bruce says

    Dennis,

    It's possible some cities got rebates, but I've never heard of it. What you might be thinking of is that CalPERS' "employer contribution" (think the employers' half of FICA, only the percentage floats from year-to-year) dropped to zero. Should decision-makers have forecast conservatively and saved that money anyway? Sure, but the state Legislature increased pension formulas for many state workers, which led many cities to follow suit to stay competitive — and all the while CalPERS actively sold richer plans while lowballing the costs. Many officers on the verge of retirement received dramatic retroactive pension boosts.

    Anyway, a lot of bubble nuttiness happens. Can't really single out any particular city manager for that fault.

  13. Dennis says

    Bruce,

    What you suggest is plausible (CalPERS dropped the employer contribution to 0 for some period). Governments have to budget for those pension contributions, and yeah, I think they should have banked what they should have contributed but didn't have to contribute. Everyone knew we were sitting on a tech bubble and all balloons (and bubbles) go flat eventually.

  14. melaw says

    Brooks points are well taken, despite the invective. A Stanford University study released in April stated that California's unfunded pension debt is $500 billion. David Crane, California Governor Arnold Schwarzenegger's economic adviser has noted that $5.5 billion was diverted this year from higher education, transit, parks, and other programs to pay just a tiny bit toward current unfunded pension and healthcare promises. That figure will triple within 10 years.

  15. Benny Lava says

    And it's not just California! It is all levels of government. Look, here is Oak Park Illinois drowning under pensions and benefits: http://www.pioneerlocal.com/oakpark/news/2796798,…

    Population of 50,000!

    And let's not start with the pension for the state of Illinois: http://www.npr.org/templates/story/story.php?stor

    Medicare + Social Security = 40% of the budget and growing!

    This is a huge problem and neither party has the political capital to fix it.

  16. Bruce says

    Dennis,

    We wise philosophers with our hindsight goggles agree. But I'll make you a bet — $100 to your favorite charity. You win if can find a single public agency in all of California with CalPERS pensions that chose to continue contributing during the early oughts to its pension fund at, say, an employer contribution that matched the "member contribution." (That's 9 percent for cops and firefighters, 7 percent for everyone else.)

    California doesn't do the worst job in managing its pensions, in that at least CalPERS demands the cash to keep them close to actuarially sound. But there's not a politician in America who will keep saving even when the green-eyeshades tell him he doesn't need to. At least, not one who gets re-elected. The money always gets spent. Always.

  17. Bruce says

    Oh, and incidentally, given the company we're keeping, it's worth pointing out that UC's amazing pension fund went roughly 20 years without needing supplemental contributions, though it's running and short and needs them now. Should it have been overfunding all those years? Even prudence has limits.

  18. says

    There needs to be some way to manage the wastefulness of pensions (the person that retires early and then hires back to do the same job is just greedy). We also need to remember that solutions to the pension issues needs to deal with the reality of old people when they can't work.

    I'm in my fifties and find it increasingly difficult to find work. Between being "over qualified" on some days, "inflexible" about my willingness to trade my work for less than my (quite modest) life costs, or being just plain old, gray and increasingly homely, I see a time when I am reduced to being a 'burger flipper' IF a burger joint will have me – and my millions of baby boom cohorts.

    I do not see how the market will solve the problem of feeding all of us as we age. I know that the current economy is not putting my kids on a trajectory that will allow them to feed me in my dotage. I also know that it will be damn unpleasant for the people in twenty years to see me and the rest living on the streets, death carts hauling us away like it is Calcutta.

    Pensions are not a luxury. They are needed to prevent the unpleasant sight of aged street people and are needed to stop us from using our superior experience to keep young people from entering the job market. That is, we need a way to cycle people out of the economy gracefully.