Free Markets, Free People


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.

~McQ



 

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30 Responses to Government unions and politicians – an unaffordable mix

  • Reading this excellent post, many things were dancing around in my head.  Looking down the road I can see a confrontation between the Tea Partiers (few or none of whom are government employees) (IMHO) and the unions.  Yes, it starts out with them being mad at the politicians, but “follow the money”.  The unions will begin buying the new crop of politicians that will rise up to replace the “bad guys”.  Many of the new politicians will take a page from President Obama’s playbook in his campaign and run as anti-union reformers – only to end up once they are in office as union bag men.  With a lifetime pension assured, one can make enough money in one term to make the exercise very rewarding, even if one gets tossed out for corruption.   Public service?  Integrity?  Good faith?  “Yes, yes, see my campaign manager on those “issues”.  She handles that sort of thing.”
    This is Sarah Palin’s ace in the hole.  After surviving the microscope of the DNC looking for corruption, she has emerged as squeaky (I am not talking about her voice) clean compared to her rivals.  Think about it.  If she had taken a nickel (and I mean that literally) the NYT has a front page just waiting for the story.  Yes, there are the “ethics” complaints, but where did they go?  Believe me, every one of those (trumped up?) ethics charges filed against the Governor has been gone over meticulously by the best experts money can buy (there goes that phrase again – just goes with politics, doesn’t it?).  And?  And?  How many other politicians have run that kind of gauntlet?  Now do you understand why they fear her so much?  If they start saying about the race:  “It’s about integrity, stupid.” …   She doesn’t seem to have any union money in her background.
    See what a great post sets off in the reader’s head?

    • You are being sarcastic, right bob?

      She couldn’t even finish being Governor of the least populated state in America, and there are numerous substantiated ethics violations in her record.

      Just because her lack of ethics is ignored because she says things tea partiers want to hear doesn’t make them go away, and doesn’t make the rest of America ignore her bizarre behavior.

      If I were committed to Democrats, I would be praying for a Sarah Palin candidacy. It would split conservatives so much it would make the PUMA’s seem like peace ambassadors.

      But I am not committed to Democrats, so I would prefer to see a Republican candidate of substance and intellect that has a chance of earning my vote.

      • Uh, yeah, most transparent and ethical administration in history ongoing – and Charlie Rangel, and Timothy Geithner, and Van Jones, and Nancy Pelosi and…….dude…you’ve got cajones grandes to be citing Sarah Palins ‘lack of ethics’.

        On the other hand, I agree with you, if I were the Democrats, I’d be praying for another Palin tilt at the windmill.  Not because she’d do a bad job really (how could she do worse than some other Presidents…) but because it’s so firmly fixed in the minds of the public by the MSM sound machine that she’s, well, everything YOU just described.

      • “numerous substantiated ethics violations in her record”

        Perhaps it is just my bias, but Ican’t seem to remember them all. I am sure you can help me out on this by citing a few. 

        • What?  Pish Tosh sir!  Evidence!  We need no evidence!  The word is on the street, every vendor from Cheapside to Regents Park has it on their lips!  Corrupt sir!  The women is an ethical abomination I tell you!  Don’t speak to me of evidences!

          Needs work maybe?  I was going for something Conan Dolye-ish.

          • Yeah, that was more P.G. Wodehouse.  If you want Doyle, the I suggest channeling Inspectors Lestrade, Gregson, and especially Athelney Jones.

        • Tina Fey said she was dumb. Isn’t that enough proof for you?

  • This sort of thing already has a solution.  It happens everyday in California … people move out.

  • Praetorian Guard – in a nut shell.

    Look how well that always turned out.

  • “Gutless politicians, especially those who count on those public sector unions for support on election day, refuse to address and act on the problem.”

    Yup, that about sums up our problems from the local government up.

    So, do we blame the officials who pretty much do what they promise, very little, or the people that elect them?

    On a different note, it’s easy for a conservative blog to point at California, the left coast liberal bastion, and lay blame, but there are many red states with significant budget shortfalls, and one big difference, California sends so much more to the fed than it gets back, they could actually eliminate their budget shortfall with the difference. States like Mississippi get billions more in federal dollars than it pays in, and they STILL have a half billion dollar shortfall.

    If you equalized this, in the comparison between the reddest state in the union, Oklahoma and put it up against California, those money sucking liberals, Oklahoma would have a $9b deficit and California would have a $35B surplus.

    So how many of those ruggedly independent states live off of the charity of liberals?

    Here’s the top ten states lining up at the federal teat, and then the top ten states sending more of their hard earned dollars to feed those charity cases:

    State and Federal funds received per dollar of federal taxes paid:
    North Dakota ($2.03)
    New Mexico ($1.89)
    Mississippi ($1.84)
    Alaska ($1.82)
    West Virginia ($1.74)
    Montana ($1.64)
    Alabama ($1.61)
    South Dakota ($1.59)
    Arkansas ($1.53)

    And the states paying to keep those other states closer to the black:
    New Jersey ($0.62)
    Connecticut ($0.64)
    New Hampshire ($0.68)
    Nevada ($0.73)
    Illinois ($0.77)
    Minnesota ($0.77)
    Colorado ($0.79)
    Massachusetts ($0.79)
    California ($0.81)
    New York ($0.81)

    There is no doubt that California and other states who pay more in than they get out have their fair share of problematic policies, but it’s ironic that they could virtually all be running surpluses if it were not for the charity they provide to those states who stand on a platform of self reliance.

    Perhaps it might go a long way to solving federal budget issues to call their bluff and let those states secede, but hey, we’ll send some aid money

    • Wow – talk about an attempted thread hijack. A poor one at that. You expect anyone here do defend your point? But hey, it is, afterall the federal tax system Congress has built over the years with the able help and active participation of the libs within, and it is working about as well as we claimed it would.

    • Woah Woah Woah!  Oklahoma?  Indian Territories?  What, you got a racist thing against the Red Man man?

      Kidding, just trying out the racist card to see how it plays.

       

    • “California sends so much more to the fed than it gets back”

      Who’s fault is that!?  Cry me a river.

      • CA is losing people who produce the wealth, and buisness as well. Over regulation, stuck on stupid ideas like fighting AGW, pushing wind and solar, etc., etc. The states’ wealth production is despite, not because of, its leftist political class.

    • Staggering hypocricy.

      States get the federal funding because politicians have to be bought off. Like we just saw, with Obamacare and all the pay offs to buy votes. California politicians like Boxer and Feinstein didn’t require the same pay off to support the stupid bill. If CA voters wanted a payoff, they should have voted smarter and vote in a Blue Dog who would hold off on supporting until he got sufficient pork.

      California pays lots of federal taxes despite, not because of, leftist CA politics. That is changing, as wealth producers leave the state. High taxes, regulation, etc., are killing the economy. Its a nice state, I’ve lieved here all my life, but it is falling apart because of left wing Democrats and the unions.

    • I am confused . What is your point? Are you trying to imply that red states such as NM, ARK, and WVA are freeloading off blue states like CA?

      • Yes, which is why it’s okay for them to owe billions in pensions, because, uh, they sent all the money to Washington, which in turn sent it to RED STATES!  So, it’s the RED STATES fault that these pensions aren’t funded properly (and it’s ALWAYS ALWAYS ALWAYS BEEN THAT WAY!!!!)

         

        • If you don’t recall, Captain Snarc was a big commie health care supporter in the past. Basically saying it was the future, and what people wanted, or something to that effect.

          His support for such an additional entitlement is rank hypocricy if he is worried about costs. Unless, I guess, he believes the Obama lies about “cost curve bending” that really belong in reverse logic world.

    • Most of the states receiving more money from the Feds than they pay are poor agrarian states with very high numbers of minorities.  Why do you hate black people?

  • Is it just me, or is the phrase “ticking time bomb” becoming WAAAAYYYY too common?  And I don’t mean that as in, “I’m tired of hearing it” or “It’s over-used”, but rather “Just how many ticking time bombs do we have????”

    We’ve built a huge house of cards, and people are going to be hurt when it collapses.  Senior citizens?  Sorry; no more money to fund those promised Medicare and Social Security and prescription drug benefits.  Union workers?  Sorry; no more money to fund that pension you counted on.  Yeah, we know: you paid into the system and thought you’d get the money back.  Suckers.

    This is the ultimate end to liberal policies: eventually, the money runs out, and then it becomes a matter of choosing who gets screwed the hardest.

    • At some point one has to wonder how often the general public can be left holding the bag for things like promised union pensions.

      I mean, let’s face it, why should I feel particularly upset some union schmoe didn’t get their pension when mine has already been burned, looted, or lost.   As people were so fond of saying last year, “where’s MY bailout?”.
       

    • Social Security and Medicaid are definitely good to mention here: “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.”
      The very same happened with Social Security and Medicaid, just over a longer period of time. There’s no way that people can retire for 15-20 years on contributions of 12.5% of income for 40 years, so like any good Ponzi scheme, costs are necessarily passed on to the newcomers. Raising payroll taxes now won’t do a thing for those receiving SS/MA today, just like raising union members’ contributions won’t do a thing for all the current retirees. The damage has been done; it’s irreparable.
      But why should we expect anything less from a government-run program? The people who design and operate the scheme will never be culpable. If this were done in the private sector, the victims wouldn’t tolerate it for a second. Those responsible would need to wear bulletproof vests at trial.

      • Aggressive accounting might have kept SS and Medicare afloat for years, but ultimately they were counting on favorable demographics: when you have programs intended to to pay benefits to people who die right about the time they are eligible to start getting those benefits (if not before), you can run the programs profitably forever.  But if people start living too long, you’ve got trouble.

        Had the programs been adjusted for the increased lifespan* of Americans they might still be solvent, but nobody (certainly not in DC) wanted to tell people who’d counted on retiring at 60 that, sorry! the age just went up to 64.  Oops!  Make that 65.  Oh, did we say 65?  We meant 75.  Etc, etc.

        Now we’ve got a couple of generations of Americans who (rightly) feel that they’ve paid into the system and it’s time for the system to pay them back.  But where to find the money?  Or, more honestly, who to f*ck over to get it?

        —-

        (*) Strange how Americans keep living longer and longer despite our crappy semi-capitalist health care system, greedy insurance companies, doctors who’ll whip off a leg just to make a BMW payment, and all the trans fats we eat, eh?

  • You know, I have better things to do than correct the mis-statements, lies and bullsh*t of fact-challenged Progressives.  However, I try to observe a rule that, when challenged by name, I will respond as best that I can.
    Captain Sarcastic is a typical Progressive.  If it supports the narrative that he has been fed by the liberal press, he not only believes things that are not true and cannot be proven, he repeats them as truth to other, wiser people.  When challenged to prove these scurrilous charges, he has a date elsewhere for a latte and cannot be bothered with the truth.  “Progressives don’t need no damn’ truth. “ [“Treasure of the Sierra Madre”]
    With regard to his above comment directed to me:

    What is the least populated state? Answer Wyoming. Wyoming is the least populated,
    In 2000 Alaska ranked the 48th state by population, ahead of Vermont and Wyoming (and Washington D.C.). Alaska is the least densely populated state, …
    en.wikipedia.org/wiki/Alaska

    In her resignation statement (has ever a statement been vetted for absolute truth as this one has?  No need for a cite here; prove me wrong if you can.)

     

    PALIN: “The ethics law I championed became their [stupid Progressives] weapon of choice. Over the past nine months I’ve been accused of all sorts of frivolous ethics violations — such as holding a fish in a photograph, wearing a jacket with a logo on it, and answering reporters’ questions…Every one — all 15 of the ethics complaints have been dismissed. We’ve won! But it hasn’t been cheap — the State has wasted thousands of hours of your time and shelled out some two million of your dollars to respond to “opposition research” — that’s money not going to fund teachers or troopers — or safer roads. And this political absurdity, the “politics of personal destruction” — Todd and I are looking at more than half a million dollars in legal bills in order to set the record straight. And what about the people who offer up these silly accusations? It doesn’t cost them a dime so they’re not going to stop draining public resources — spending other peoples’ money in their game.”

  • Oh, and Captain, since you have proven yourself to be such a tool of the Liberal Narrative (which will be bent in favor of the Democratic candidate at election time) the chances that you will ever vote for a Republican rank next to zero.  The claim that you just might is just a feint (as Professor Erb so often elects) toward fair-mindedness to curry favor in a hostile (at least if you count me) environment.

  • Does anyone else feel that the tea parties, etc., are just a forlorn hope of getting some of this stuff fixed before the Big Bill arrives at the Table ala Greece?
    Seriously, the Dems can pass a VAT, they can scramble to increase income taxes, fees, carbon taxes, but will it be enough without any spending cuts? I guess they can gut the military, too – but even then, I suspect generous welfare-state government is going down the tubes due to demographics, the rise of competing low-welfare Asian countries, and growth of government.
    If the Dems do this, they can keep it going for a while. They might lose politically though – I suspect a VAT would put them out of majority in all branches of elected government. The problem is who is going to be the GOP leader that mans up to say “yeah, I will cut spending. I will be the heartless, cruel, responsible one who cuts up the credit card.” Currently, the GOP is too scared to really do this, frankly because the MSM is still powerful enough to sell the “They will take away your X” card. Until the public realizes that “There is no money for your X” that will work.

    • It just takes leadership. “Without a vision, the people perish” is a true statement. We have to hope, and in the case of those who are believers, pray, for a leader, or more than one leader to emerge who will be brave and do the right things, the hard things.

      If it happens, we can survive, if not, then we will slowly fall apart.

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