Government unions and politicians – an unaffordable mix
Yesterday I noted that Massachusetts is faced with figuring out how to handle the Cadillac tax among its government workers. Many of the very expensive plans are found among municipal workers, most negotiated by government unions representing the workers.
There’s another ticking time bomb out there that isn’t getting the press it deserves which too can be laid at the feet of unions which represent government workers and gutless politicians who can’t say no with your money. California provides a good example:
The state of California’s real unfunded pension debt clocks in at more than $500 billion, nearly eight times greater than officially reported.
That’s the finding from a study released Monday by Stanford University’s public policy program, confirming a recent report with similar, stunning findings from Northwestern University and the University of Chicago.
To put that number in perspective, it’s almost seven times greater than all the outstanding voter-approved state general obligation bonds in California.
Those are the facts, stated simply. It provides an example of absurd extravagance within the public sector and now a huge level of debt on those unfunded promises – and that’s what we’re talking about here – of $500 billion. Where will California get the money, since these promises are contractual obligations and it can’t print money?
From, increased debt, cuts in other state services or increased taxes or all three, that’s where. David Crane explains how the state ended up in this condition, using GM as an example:
How did we get here? The answer is simple: For decades — and without voter consent — state leaders have been issuing billions of dollars of debt in the form of unfunded pension and healthcare promises, then gaming accounting rules in order to understate the size of those promises.
As we saw during the recent financial crisis, hiding debt is not a new phenomenon. Indeed, General Motors did something similar to obscure the true cost of its retirement promises. Through aggressive accounting, for a while it, too, got away with making pension contributions that were a fraction of what it really needed to make, thereby reporting better earnings than was truly the case.
But eventually the pension promises come due, and for GM, that meant having to add extra costs to its cars, making its prices less attractive to consumers and contributing to its eventual bankruptcy.
Issue debt, spend the money, game the accounting system, look surprised when the obligations come due and blame your predecessors. The new way in American politics. As we saw with the charade of health care reform, it is alive and well and pumping out more unfunded entitlements as we speak.
But sticking with the case of California, Crane (who, btw, is a special adviser to the Governor on jobs and economic growth) gets to the heart of the matter, something I see more and more of:
Last summer Gov. Arnold Schwarzenegger proposed exactly that. Since then? Silence. State legislators are afraid even to utter the words “pension reform” for fear of alienating what has become — since passage of the Dills Act in 1978, which endowed state public employees with collective bargaining rights on top of their civil service protections — the single most politically influential constituency in our state: government employees.
Because legislators are unwilling to raise issues that might offend that constituency, they have effectively turned the peroration of Abraham Lincoln’s Gettysburg Address on its head: Instead of a government of the people, by the people and for the people, we have become a government of its employees, by its employees and for its employees.
This isn’t at all uncommon among state, local or the federal government. And it is an ever increasing base – the one sector still hiring throughout the recession is government. What Crane points out is a problem everywhere. Pension funds, in many cases are underfunded. Government employees have union negotiated benefits that are unaffordable given the current fiscal climate and are most likely unaffordable even in good economic times. Gutless politicians, especially those who count on those public sector unions for support on election day, refuse to address and act on the problem.
And taxpayers? Again, these are contractual obligations – if the money’s not there, it has to come from somewhere. Any guesses who ends up holding the bag?
If public service is about serving the public, my guess is the public is going to want to know why their servants make more than they do and have better benefits as well? The answer is found under the roof of your state legislature where politicians use your money, as well as obligating you to future debt, to buy the support of the government unions.
Heck of a scam if you can pull it off, huh? And to this point, they have.