Public Sector Pensions: Frankenstein’s New Monster

Congress has created a monster. For years the subject of public sector pensions raised the ire of heard, but never seen, conspiracy theorists. As the years have passed, they continued to grow with no oversight and very little public pushback. In the shadows they have grown into a ravaging monstrosity, a Frankenstein’s monster that is threatening the financial wellbeing of our local and state governments. It is pillaging and terrorizing the countryside.

Pensions weren’t created for the purpose of devouring our budgets. Like Frankenstein, government created its pension monster with good intention. They wanted to provide government workers with a comparable retirement to the private sector so they could be more competitive in luring talent from the private sector. But once government workers had a taste, they lobbied for more. Pensions grew, retirement ages shrunk, and the unfunded pension monster began to take shape. Now, it is threatening to tear our budgets apart at the seems, eating away at tax revenues, and bankrupting our cities and states.

While private sector union membership has dropped to 12.3%, public sector unions have grown exponentially.  For the first time ever there are more people in public sector unions than private sector unions.  Thirty-nine percent of state and local government workers now belong to unions.  If you look outside of the South, the percentage skyrockets. For instance, in New York 70% of government workers are in unions.

Public sector unions have been an incredible lobbying force, working from the inside out to push for more lavish pension packages for government workers. One of the biggest public sector unions is the American Federation of State, County, and Municipal Employees (AFSCME) have openly declared that they have the power to determine elections. The AFSCME was the biggest election spender between 1989 and 2004. They spent over $40 million in federal elections, with an astounding 98.5% going to Democrats. Victor Gotbaum, former lead of AFSCME District Council 37, once declared “we have the ability, in a sense, to elect our own boss.” Any efforts measures to curb growth are immediately met with hostility. The California Teachers Association spent $57m to stop a referendum to limit government growth and to reduce union power.

Unfortunately, they have been such successful parasites that they are threatening to kill their hosts. A new report finds that American cities face a $587 billion shortfall in pension funds. Some of our most iconic cities face the largest problems. Chicago has a $44.9 billion shortfall and New York City has a $122 billion deficit. State governments are facing a similarly dire crisis, finding themselves $3 trillion in the hole in terms of pension liabilities. Even tiny states such as Rhode Island are over $6 billion the hole while places such as California face a seemingly insurmountable $75.5 billion in underfunded pensions.

We have already seen the wrangling of private companies by private sector unions. Some private industries now have 3 people receiving full pensions for every person they have actually working. Paying four people for the productivity of one person simply isn’t sustainable, and now we are seeing the government’s system falter under the same logic. But where private sector pensions rely on currently productive works in their industry, when public sector pensions fail, the onus of payment falls on all taxpayers.

One of the primary problems about growing problems are higher base salaries. Since the level of pensions you receive is largely based on your salary at the time of retirement, the government is paying more for the same thing. Public sector unions have the unique ability to increase their wages without regard to their market value since there is, by definition, a monopoly of employers. There is only of government employer – the government.  Since there is no worry about profit margins, wage negotiations are rarely adversarial and bosses are inclined to side with the workers to keep them happy. Higher wages mean higher pensions. For instance, In California, one of the worst pension offenders, state police can receive 90% of their final salaries when they retire as early as age 50. With their salaries going up, they are increasingly receiving 90% of an ever-larger number.

Given that public sector unions are an incredibly powerful lobby, there is little impetus to change the system. Any inkling of severance between politicians and the unions is virtual career suicide. Because of their unique position, public sector unions can threaten the public more directly than any other union, manipulate supply and demand, and essentially elect their own bosses.

Public sector unions also have the ability to threaten the public more directly than private sector unions. What if trash collectors or firemen went on strike? In the private sector a strike means you can still get the goods, they will cost more, but there will still be creating. If firemen or police go on strike there will be destruction. The costs are much higher in a public sector strike.

This lobbying force can be used for some interesting and nefarious social engineering. For an example look at the The California Correctional Peace Officers Association, a union of correctional officers. They successfully lobbied for California to enact a 3 strikes law in 1994, not necessarily with the goal of taking dangerous people off the streets, but because it would dramatically increase the number of inmates. Between 1980 and 2000 they lobbied for the creation of 22 new prisons, necessary to house the increases in inmates. Before 1980 there were only 12 prisons in the state. Today, 11% of the state budget goes to the penal system, more that what goes to education! Through their lobbying efforts the union was able to manipulate the supply of inmates (yes, we’re talking about people here) thus increasing the demand for prisons and correctional officers. More jobs, more union members, and all paid for by higher taxes.

As unions wield their power states are being forced to choose between upsetting unions and paying for imperative state functions like infrastructure or education spending. This is a problem, a monster, that has grown out of control. The public and its political representatives are essentially being extorted by a strong, unified, group exercising its political clout from the inside out. When the economy was humming and budget surpluses were common, we could look the other way. But with the economy in the tank and state revenues unable to meet spending obligations, this is a problem that must be addressed. This is a monster that must be stopped.

by Justin Williams and Brandon Greife of the College Republican National Committee