Wednesday, November 25 , 2015, 4:53 pm | Fair 59º

Lou Cannon: The Public Pension Time Bomb

Pension obligations are shortchanging states’ future prosperity

By Lou Cannon, State Net Capitol Journal |

Public employees are under the microscope as states struggle for the third consecutive year to balance budgets with below-normal revenues during a weak and slow economic recovery. Wisconsin, it turns out, was a sign of the times. When Wisconsin Gov. Scott Walker and his Republican legislative majority succeeded over noisy protests in trimming the pension benefits and restricting the collective-bargaining rights of public employees, they set the stage for similar battles in a score of other states where Republicans control both the governorships and the legislatures.

The latest eruption, small by Wisconsin standards, occurred March 15 when 1,000 people, mostly seniors, rallied outside Michigan’s state capitol in Lansing to protest a pension tax increase proposed by Gov. Rick Snyder. Republicans are also pushing pension issues into the spotlight in states where Democrats rule the roost. In California, where Democratic Gov. Jerry Brown has put forth an ambitious program of budget cuts and tax extensions, Republican legislators who oppose the package are making pension reform a condition of putting Brown’s plan before the voters.

Pensions owed to 80 percent of the nation’s 27 million state and local government workers and retirees are ticking time bombs. Estimates of the combined shortfall in pension liabilities are too wide-ranging — from $1 trillion to $3 trillion — to be useful, but are worrisome even at the low end. In plain language, state and local governments are shortchanging present public services to meet future pension obligations.

Los Angeles Mayor Antonio Villaraigosa, a liberal Democrat in a nonpartisan office, wants to trim pension benefits and increase the retirement age for civilian city workers. Otherwise, he says, pension and health costs for retirees will consume a third of the city’s budget by 2015.

Villaraigosa, who was elected with union support, believes that pension reform is a matter of common sense rather than partisanship. But in a time of belt-tight budgets and persistent unemployment, the issue has irresistible political appeal for Republicans. Several Republican gubernatorial candidates, Walker and Snyder among them, promised pension reform in last year’s election campaign, which ended in a GOP landslide.

Their campaigns were bolstered by a finding of the Pew Center on the States that unfunded pension liabilities in the states were increasing because of poor management and lack of discipline. According to the Pew report, only four states had fully funded pension plans. One, ironically, was Wisconsin.

Republicans in 2010 campaigned on a panoply of issues, headed by opposition to the Patient Protection and Affordable Care Act passed by a Democratic-controlled Congress and signed into law by President Barack Obama.

At the state level, many Republican candidates also pledged immigration clampdowns patterned after a controversial Arizona law empowering police officers to check the immigration status of those they detain.

But in 2011, with states feeling the impact of continued revenue shortfalls, fiscal concerns have pushed pension and health care costs to the forefront at the expense of other issues. The supposed hot-button issue of immigration, for instance, has proved a dud. Although a number of bills are still pending, no state has yet copied Arizona, and six states have rejected Arizona-style measures outright (although bills have cleared at least one chamber in Georgia and South Carolina). Utah gave police officers additional authority to check the immigration status of those they arrest (HB 497) but also approved a progressive measure providing for “guest workers” and identification cards for them and their families.

In contrast, Republican state legislators have aggressively pushed for pension reform, usually in the form of requiring employees to contribute a greater share of their pension and health costs. Some states and cities are also adopting or exploring a two-tier system in which new employees would obtain their retirement through 401(k) accounts now common in the private sector.

Tim Storey of the National Conference of State Legislatures says Republicans have gained traction on pension reform because of the sweeping nature of the 2010 election, in which the GOP wrested control from the Democrats of both the governorship and the legislature in states such as Michigan, Ohio and Wisconsin.

Governors in these states may have been emboldened by Indiana Gov. Mitch Daniels, a Republican who without fanfare in 2005 issued an executive order eliminating collective bargaining for state employees. The order had a broad impact, doing away with seniority preferences and giving the governor greater freedom to consolidate state operations or outsource them to private companies. State employees had a mixed reaction to the changes: some of them have prospered under a merit-pay system introduced by Daniels while others have had few pay raises. Overall, the policy contributed to a turnaround in Indiana state government that has bolstered Daniels’ status as a potential 2012 candidate for the Republican presidential nomination.

Current battles in the Midwest over collective bargaining for public employees have broken down along party lines, but that was not always the case. President Franklin D. Roosevelt, a Democratic icon, and even labor leader George Meany were skeptical that public employees should be unionized. Later, however, collective bargaining for public employees became widely accepted in large urban states; Gov. Ronald Reagan, a conservative hero in 1968, signed a bipartisan bill permitting collective bargaining for local public employees in California.

Twenty-four states currently restrict or deny collective bargaining for public employees. Opponents of such bargaining point out that unions in the private sector organize to obtain better wages and working conditions from a specific employer. They have no say on how the company is run. Public employees, on the other hand, help elect those they bargain with and their support or lack of it at election time can be crucial. So state and especially local officials have an incentive to give employees generous benefits in order to win re-election.

But public officials may demonstrate such unwarranted generosity whether or not their employees are represented by a labor union. A recent study by economist Sylvester J. Schieber, and reported in The New York Times, found no apparent relationship of collective bargaining to the benefits received by public workers. He used a measurement called pension replacement rate, which is the percentage of a worker’s income that he receives in retirement. To take only two examples from this complex study, the pension replacement rate is virtually identical in Ohio and Georgia, where public worker retirees receive two-thirds of their pre-retirement income. Nearly half the public employees in Ohio are covered by collective bargaining agreements; in Georgia fewer than one in six public employees has a union contract.

This study lets public unions off the hook to a degree but provides no comfort to private employees who have seen a steady erosion of pension and health benefits and must work into old age to make ends meet. The sticking point is the early retirement age enjoyed by public employees.

“By the time the typical private-sector worker has retired, the teachers, the highway patrolmen and these (other public employee) folks have already gotten $200,000, $300,000, $400,000 in pensions,” Schieber said. “Plus they’re getting a pretty rich retiree health benefit. That’s why these benefits are so expensive.”

Scott D. Pattison, executive director of the National Association of State Budget Officers, believes that generous retirement and health benefits for public employees were widely tolerated by officeholders and the public alike until the recent Great Recession. Then, he said, workers in the private sector who were struggling economically began to resent the favored treatment of neighbors in the public sector. This has made pension reform a powerful political issue.

In the wake of Walker’s ham-handed effort to jam his reform package through in Wisconsin, public unions rallied and are now viewed in some Democratic circles as a potent counter-force in the 2012 election campaign. Maybe so, but Pattison believes that the math favors the pension reformers. Pension liabilities of the current magnitude for public workers are unsustainable, and state and local officials of both parties are going to have to face up to this reality.

— Summerland resident Lou Cannon is a longtime national political writer and acclaimed presidential biographer. His most recent book — co-authored with his son, Carl — is Reagan’s Disciple: George W. Bush’s Troubled Quest for a Presidential Legacy. Cannon also is an editorial adviser to State Net Capitol Journal, which published this column originally.

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» on 03.20.11 @ 11:13 PM

Government pensions have the same issues as Social Security but worse as they are far more generous and they are “gamed” by the government employees.  There is really no one watching the store—for the most part everyone working for the government are working together to get the best deal for themselves and each other. 
Imagine a candy store with no owner—everyone dipping into the goods and the cash register as they feel fit.
We are missing checks and balance.

» on 03.21.11 @ 03:13 AM

Couldn’t agree more. The only people watching the store are the politicians, who are on the take from public employee unions. It is a rotten and corrupt system.

» on 03.21.11 @ 08:50 PM

So do like Wisconsin.  They were the first to grant collective bargaining to public employees (in 1959) and are now the first to rescind it.  Ohio, Michigan, Indiana, and New Jersey (!) are not far behind.  Break the money connection between govemployeeunions and irresponsible elected pols once and for all.

» on 03.23.11 @ 04:14 PM

Its worth noting that the 3 weeks of historic demonstrations that swelled from 30,000, to 50,000 to 100,000 has been reduced to a mere 1,000 mostly senior citizens by Lou Cannon’s report. And no mention of the week long occupation of the State Capitol by the protestors, which included the Fire and Police Unions whom refused to lock down the Capitol.

Certainly, his report is likely 4th or 5th hand, but by all accounts not fisrt hand reporting of the events. The discussion forum of the week prior provided better coverage of the events.

“The reign of lawlessness continues in Wisconsin.
...The court put a halt to the publication of the bill (an act performed by the Secretary of State), so there could be a hearing on whether or not the Wisconsin Senate violated the state’s strong open meetings law in its rush to ram the bill through.

This week, Wisconsin Attorney General JB Van Hollen charged into court in defense of secret government. He argued that when legislators break the law—the courts can’t do anything about it. Apparently legislators, like Senate Majority Leader Scott Fitzgerald, have “immunity” from the enforcement of their very own laws…Wisconsin’s open meetings law requires 24 hours’ public notice of meetings or two hours in emergencies. The amended collective bargaining bill was given less than two hours. As word spread via Facebook and Twitter that legislators were pulling a fast one, hundreds of citizen’s showed up at the Capitol but could not get in to watch proceedings. Shut out, they were forced to chant “shame, shame, shame,” under Senate windows.

Yesterday, the Wisconsin Attorney General filed a motion on behalf of the Secretary of State Doug La Follette to void the stay. Bizarrely, his client was never consulted.

To ram the astonishingly unpopular proposal though the Governor and his henchmen had to finagle:
1. A five second roll call vote at 1:30 a.m. The move was so abrupt, over 20 legislators never had a chance to vote in the Assembly.
2. An unprecedented warrant for the arrest of 14 missing Democratic Senators and the deputization of a posse to round them up.
3. A gubernatorial budget address in a locked down Capitol in violation of a standing court order on Capitol access.
4. An unprecedented conference committee, formed by fiat, meeting in violation of the open meetings law in a tiny backroom.
5. A Senate roll call vote on a substitute amendment no one had ever seen.
6. A new Senate rule denying Democrats the right to vote in committee (an insane idea quietly withdrawn.)
7. The ongoing violation of the court order to restore Capitol access to as it was in January of 2011.

These astounding events have many Wisconsinites shaking their heads.”

» on 03.23.11 @ 07:36 PM

Truth, you are fixated on procedure, but fail to respond to the substantive arguments for repealing collective bargaining. By the way, the Democrats used similar if not worse tactics shoving Obamacare down our throats. I don’t believe anyone had any time to even read the legislation, which was entirely written behind closed doors.

Lou Cannon is not a conservative ideologue by any means. He is just pointing out the obvious, unless we reform the public employee pension system, we are on a path to fiscal insolvency. It is in their interest to be reasonable now, because if they are not willing to make necessary concessions today, the final outcome for them will be far worse down the road.

As an aside, I don’t think getting rid of collective bargaining is an answer to all our problems. Because you could repeal it, but if our politicians are too timid to make the necessary reforms, what have we achieved. I would love to see lifetime tenure eliminated. No one should be guaranteed employment if they are performing poorly. I don’t see why that is so controversial.

» on 03.24.11 @ 06:26 PM

Great observation! Procedure is what keeps us civilized. Due process is the safeguard to our democracy. Procedure is what preserves our freedom.

Pandering for the corporate agenda is all very well, but that does not prevent the facts from existing. The masses in Wisconsin that protested the threat to their freedom to collective bargaining exceeded “1,000 mostly seniors” and it took place for 3 weeks, not the one day of March 15th, as Lou Cannon has indicated. Facts Matter.

Perhaps you can highlight the tactics employed by the democrats to put through Obamacare.

A reasonable approach would be to stop funding illegal wars, restructure the banking system, a fair tax structure and economically sound and equitable corporate taxes.

What’s happening in the US is nothing new. These fiscal policies have been implemented by the World Bank and the IMF in Chile, Bolivia, Argentina, Indonesia, Eastern Europe and the last conquest, Russia. Surprising is what took them so long to do it here?

You would prefer to see lifetime tenure eliminated, and no rewards for poor performance. The controversy is your position on rewarding Wall Street with tax dollar bailouts and the indifference to multi-million dollar salary bonuses for those responsible for the financial crisis. This effectively provides for a lifetime tenure, paid in a lump-sum cash payout.

The people are tired of paying with a pound of flesh time and time, again. For every war we are told that the fight is to preserve our freedoms, and the people continue the corporate fight for our “interests” abroad. Now the corporations want to take our freedom to organize.

Frightening is the obvious that the politicians are on the take by the corporations, and the villianizing of the People. What enormous stupidity.

“…there once was a race of humans bestowed with civilization. They struggled with power for thousands of years, and failed to device a fair means to rule themselves, so they created an artificial person, called it a corporation, and empowered it to rule over them…”

The Power remains with the People!

» on 03.24.11 @ 08:21 PM

Truth, you threw a lot at me, so I am not sure I can even begin to answer all of it. On Obamacare, the Senate took the legislation that had been drafted in committee over a period of months and threw it out after they lost their 60th vote when Scott Brown was elected, and then proceeded to write a new bill behind closed doors and passed it a few days later before anyone had a chance to read it. The House also discarded the legislation that had painstakingly been drafted in various committees over a period of months and adopted the Senate legislation, and without any committee hearings, passed it again without anyone having any time to carefully review it. The Democrats calculated that they had to pass something, so they completely sidestepped legislative procedure to enact a law to which the country was very opposed.

You obviously know how to use all the catchwords of the left, but I really haven’t heard in any substantive fashion a way to address the severe fiscal problems of the USA before we go off the rails. As much as you would like to exact your pound of flesh from the evil corporations (I imagine you use and enjoy many of their products) and other successful people, I don’t think there is enough there to pay beck the debt and reduce the humongous deficits we are incurring every year. Actually, I agree that we need to reform our tax system, such as eliminating loopholes and special interest deductions and to lower tax rates for everyone. I don’t favor using the tax code to redistribute wealth according to the whims of our politicians, who are for the most part gorging themselves with special interest money and lucrative lobbying jobs after they leave govt. Well, I could go on but I will leave it there.

» on 03.25.11 @ 12:28 PM

lou, you’re wasting energy on truthie.  He’s all knee-jerk lefty buzzwords and no ability to debate logically or on point.

» on 03.25.11 @ 01:26 PM

The passing of the federal health care policy was a political charade. It dominated media content for more than a year. The opposition used fear tactics like “death panels” and threats to our freedoms. These freedom fighters allegedly were fighting to protect our freedom. Our freedom to choose a doctor. Funny how ridicules this argument appears now.

Could use those freedom fighters today to protect our freedom to organize and remain democratic.

It was an enormous disappointment how the White House conducted those backroom dealings held exclusively for the Corporate executives of the pharmaceutical and healthcare industry. The public was virtually locked-out from the debate.

Your tone impresses that the deficit is so enormous that the pension is minuscule in comparison: the pension amounts in debate wouldn’t scratch the surface. In this context the rational is not apparent why the focus is on the pensions.

Apparently, the public outcry is not being translated as a disapproval of corporate greed. The benefits derived from corporate consumer products do not exceed the costs to the people. These products do not bring forth endless joy so grand that we’re willing to surrender. This interpretation warrants reconsideration.

Its hard not to appreceite the timeliness of the New York Times report for today:
The company reported worldwide profits of $14.2 billion, and said $5.1 billion of the total came from its operations in the United States.

Its American tax bill? None. In fact, G.E. claimed a tax benefit of $3.2 billion.

If GE is not making these enormous amounts of money off the people, then who are they making it off of? A popular expression used in these forums is to “follow the money”. Clearly this illustrates that the wealth of the earth’s resources are being concentrated on a relative few people. This model can not be sustained for very much longer.

It begs to ask, why are we focused on pension funds?

» on 03.25.11 @ 04:18 PM

Such tactics were thought to be only attributed to mobsters and thugs: making an offer that has dire consequences if there’s any refusal.

Buried Provision in House GOP Bill Would Cut Off Food Stamps to Entire Families if One Member Strikes

All around the country, right-wing legislators are asking middle class Americans to pay for budget deficits caused mainly by a recession caused by Wall Street; they are attacking workers’ collective bargaining rights, which has provoked a huge Main Street Movement to fight back.

Now, a group of House Republicans is launching a new stealth attack against union workers. GOP Reps. Jim Jordan (OH), Tim Scott (SC), Scott Garrett (NJ), Dan Burton (IN), and Louie Gohmert (TX) have introduced H.R. 1135, which states that it is designed to “provide information on total spending on means-tested welfare programs, to provide additional work requirements, and to provide an overall spending limit on means-tested welfare programs.”

Much of the bill is based upon verifying that those who receive food stamps benefits are meeting the federal requirements for doing so. However, one section buried deep within the bill adds a startling new requirement. The bill, if passed, would actually cut off all food stamp benefits to any family where one adult member is engaging in a strike against an employer:

(3) Striking Workers Ineligible - Not withstanding any other provision of the law, no member of a family unit shall participate in the food stamp program at any time any able-bodied work eligible adult member of such household is on strike as defined in the Labor Management Relations Act, 1947 (29 U.S.C. 142(2), because of a labor dispute…

The plan to starve the public into compliance.

» on 03.25.11 @ 11:23 PM

If the striking worker is a taxpayer-funded individual, then he or she should receive no taxpayer-funded benefits while striking.

» on 03.27.11 @ 03:33 PM

Any farmer will tell you Pigs always squeal when you chase them away from the trough. It doesn’t concern the farmer much though; because he has a business to run. If the pigs are allowed to eat up the entire yearly allotment of food in one month the farmer will go broke trying to feed them. And that is what is happening in Wisconsin, and other places around our country. The fact of the matter is that the people of Wisconsin elected this Governor, and the Republican Congressmen because they promised to chase the pigs away from the trough, and keep the farm from going bankrupt. Judging from the amount of “Squealing” going on it looks to me like they are keeping their promise, and doing a darned good job. And it’s about time. As for the cowardly Democratic legislators involved. I say let’s have Pork Chops for dinner, and a heaping helping of Bacon for breakfast.

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