Public unions: 2009 Archives

It's time for public employees to join the real world in which there are no guaranties of employment or retirement.

In fiscal year 2011 the Town of Chatham has no money to support fat pay increases for public employees such as they are enjoying in this fiscal year (July 1-June 30) -- 6%, something virtually no one in the private sector has. The overspending in FY10 means there is no choice but a salary freeze in FY11.

But real reform is needed. The days of fat built-in salaries and benefits are over.

The New York pension situation the following article describes is pretty much the same for Chatham.

In New York (as in almost every state), public-employees' pensions are defined-benefit -- meaning that the government guarantees an income stream based on peak salaries and career longevity. By private-sector standards, benefit levels are extraordinary: Our state and local government employees (and employees of public authorities) can retire earlier, with larger pensions, than the vast majority of those who pay their salaries.

In Massachusetts, some reforms seeking to end abuses enhancing pension benefits at the state level became law just a few days ago. Predictably, the public unions sued the state to hold on to these abusive practices.

In Chatham, pay packages for full time public employees provide them more money than what more than half the households live on. And their pensions start earlier and are larger than the [retirement benefits of the] vast majority of those who pay their salaries.

On public employee pensions, real reform is needed "by essentially throwing out the outmoded defined-benefits model for future employees."

Chatham should "follow the lead of a few states, including Michigan, that have shifted nonuniformed government workers to defined-contribution accounts -- like the 401(k) plans that have come to dominate the private sector."

Reform has to start sometime, somewhere in the Cape towns. It can start in Chatham. Other Cape towns are sure to follow Chatham's lead.

With a defined-contribution retirement system, taxpayers would no longer bear all the financial risks associated with providing guaranteed pension benefits. For the first time, public-pension costs would become both predictable and easily understandable -- and the real costs of proposed benefit increases would be transparent.

There are plenty of other areas that need reform that will bring public employee compensation into line with private sector reality. Let the taxpayers' voices be heard.

Read the whole thing.

DEFUSE THE PENSION BOMB
E.J. MacMahon
New York Daily News
July 9, 2009

NEW York's public-pension system has become the epicenter of an in fluence-peddling scandal that has at tracted the attention of the SEC as well as state Attorney General Andrew Cuomo. But the millions in shady "placement fees" pocketed by a few politically connected middlemen are small change compared with the mushrooming cost of lavish pension benefits for state and local government retirees.

Keeping these retirees in clover could require $5.4 billion more from local taxpayers outside New York City over the next five years, if investment returns follow one scenario floated by the state comptroller's office. And the real scandal is that politicians are reluctant to do anything about it.

In New York (as in almost every state), public-employees' pensions are defined-benefit -- meaning that the government guarantees an income stream based on peak salaries and career longevity. By private-sector standards, benefit levels are extraordinary: Our state and local government employees (and employees of public authorities) can retire earlier, with larger pensions, than the vast majority of those who pay their salaries.

Taxpayers must shoulder the risks of covering these promised benefits. The pensions are paid out of gigantic pooled retirement funds, to which government employers contribute varying amounts, depending on actuarial assumptions and market fluctuations.

Since 2000, the combined yearly pension costs for all governments in New York (including New York City), have risen from slightly under $1 billion to nearly $10 billion -- reflecting both market conditions and benefit increases effective at the beginning of that period.

New York City's annual pension contributions alone are up more than $3 billion over the last five years -- and projected to rise by another $1 billion over the next three. Annual pension bills for the state and its local subdivisions could easily double or triple by 2015.
Under the state Constitution, pension benefits can't be "diminished or impaired" for any current member of a public-retirement system in New York. So it will be hard in the short term to stem the tide of mounting pension costs. The reform debate is really about compensation for the next generation of government workers -- and the long-term impact they'll have on state and local finances.

Far-fetched as it may seem, given state lawmakers' shameless pandering to unions in recent years, there is precedent for reform: During the '70s fiscal crisis, the Legislature managed to scale back pension benefits for new public employees. But the unions spent most of the next 25 years successfully clawing back much of what they'd lost.

There's a risk that the same thing will happen again if Gov. Paterson somehow wins approval of his modest reform proposals. Paterson's "Tier 5" pension plan, applying only to future state and local employees, would: raise the retirement age to 62 (same as the Social Security minimum); increase the pension-vesting period; require employees to contribute to the pension fund throughout their careers, and curb the practice of padding pensions with overtime. In the main, all this would simply replicate the Tier 3 and 4 benefits of the mid-'80s.

The governor has proposed more dramatic changes in police and firefighter pensions. He'd change the current "20 and out" plan -- retirement at half pay after 20 years, with no minimum retirement age -- to half pay after 25 years at a minimum age of 50. Mayor Bloomberg projected that this would save the city $200 million a year almost immediately.

Real reform, however, would go much further -- by essentially throwing out the outmoded defined-benefits model for future employees. New York should follow the lead of a few states, including Michigan, that have shifted nonuniformed government workers to defined-contribution accounts -- like the 401(k) plans that have come to dominate the private sector.

With a defined-contribution retirement system, taxpayers would no longer bear all the financial risks associated with providing guaranteed pension benefits. For the first time, public-pension costs would become both predictable and easily understandable -- and the real costs of proposed benefit increases would be transparent. With normal turnover, between a quarter and a third of state and city employees would be in the new system within a decade.

If pension reform were subject to regular contract negotiations, public-employee unions would never accept a shift to defined-contribution plans. But this is a rare case in which elected officials can alter a fringe benefit without the unions' consent -- because the state's Taylor Law, which governs public-sector labor issues, specifically prohibits collective bargaining on pensions.

Thus, retirement benefits could be changed legislatively, ensuring that future generations of New Yorkers aren't stuck with the same pension problem. Unfortunately, leading politicians like Paterson and Bloomberg continue to seek union permission to make any changes.

It's time for these officials to reassert their managerial prerogatives -- and to understand that government unions will never voluntarily relinquish the gold-standard pensions that taxpayers can no longer afford.

--E.J. McMahon is a Manhattan Institute senior fellow and -RD>directs the Empire Center for New York State Policy. ejm@empirecenter.org.

Chatham's rich flow of property tax revenues from second home owners -- who impose little in the way of extra costs on the town -- has enabled Town government to maintain a expensive lifestyle much more than it has kept property taxes low for resident taxpayers.

The fruits of this expensive lifestyle of Town government show up principally in two ways: extravagant building projects and unsustainable compensation arrangements with public unions.

The 22,000 square foot underutilized $10 million community center and the $17 million 40,000 square foot Town Hall annex to house a handful of town employees during working hours are current examples.

The most extravagant of all is just being launched now: a 100% townwide sewer system costing hundreds of millions of dollars. Everyone agrees that the chemical pollution of our ponds and embayments should be halted, but not everyone agrees such a massive undertaking is the only answer.

A review of the Comprehensive Wastewater Management Plan does not yield convincing evidence that cost-effective alternatives, particularly those employing newer technologies, were -- or are being -- seriously considered.

Our neighboring town of Orleans, also considering a large sewer system, has engaged a third-party consultant to conduct a cost-effective analysis of its sewer plan and has already learned that a major part of the proposed system may not be needed at all. This process is ongoing under the auspices of a special citizen Wastewater Management Validation & Design Committee.

This peer review is being conducted by the Woods Hole Group, an environmental organization respected worldwide, that Chatham has employed in the past. Orleans is also monitoring the kinds of alternatives under review at the Waquoit Bay National Estuarine Research Reserve to save water and lessen the need for wastewater infrastructure.

Chatham should do the same. Spending on this project will stretch out over at least 20 years, so there will be plenty of opportunity to adopt new possibilities and save many millions of taxpayer dollars in doing so. Even Democratic Cape legislator Representative Matt Patrick thinks this can be done and it would be irresponsible not to explore every option.

The other area in which the Town government displays its extravagance is in staffing and compensation of personnel. In this regard, Chatham is not alone. Chatham, like many other cities and towns, is in the grip of public service unions whose contract demands relentlessly push up costs beyond what would be reasonable in the private sector. Iron-clad contracts are signed with unions promising compensation and benefits come hell or high water, regardless of economics or revenues or the interests of those who pay the bills.

These outmoded arrangements are finally getting national and state attention and need to be addressed at the local level as well. Chatham has several collective bargaining agreements, the principal ones being for school teachers, the police department and the fire department. The police contract has expired and is in negotiation, the fire department contract is in the second year (FY10) of a three-year contract and the schools contract ends in FY11.

The time to seek dramatic change at the town level has arrived. New union contracts cannot continue the rich promises of increases and benefits of the past. Cities and towns across the nation are looking for multi-year freezes in union contracts, merit increases based on performance instead of automatic income step increases, elimination of various benefits and shifting from pension plans to defined contribution plans.

This unacceptable situation was addressed by David Luberoff of Harvard's Rappaport Center recently:

[H]ealth insurance [cost] is just the tip of the iceberg. The high cost of fully funding pensions and other postretirement benefits will continue to stress local budgets. Local officials’ ability to make needed changes are greatly limited by an outdated civil service system that bases promotions on test-taking and collective bargaining agreements that make it easy to challenge any changes to existing routines. Why, for example, does every town need its own emergency dispatch system? Why do many localities have separate systems for police, fire, and emergency services? Yet any effort to change these practices runs into a host of seemingly insurmountable obstacles.

Local officials are not blameless. State law, for example, gives them the power to greatly lower health insurance costs by requiring retirees to enroll in Medicare, a federally funded program. But many localities have not yet taken advantage of this option, not least because of resistance from retirees.

Such changes are hard to achieve because relatively small groups of individuals strongly oppose them. But the status quo may not be an option.

Costs are going to keep rising, revenues will remain flat, and the demand for services will not decline. Local policy makers, therefore, will have no choice but to reexamine longstanding practices and assumptions.

The Town of Chatham did not come to grips with this unsustainable situation in its FY10 spending plan, granting salary increases of approximately 6% across the board when local taxpayers were experiencing devastating losses in their life saving and reductions in their incomes. There is a severe disconnect from reality when public employees are receiving such large pay increases when on average they already earn more than half the households in Chatham live on.

Chatham taxpayers area facing sharp increases in property taxes because of the debt service costs of extravagant infrastructure projects. It is therefore all the more urgent to hold the line on property taxes for all other Town spending. No increases in the property tax levy for FY11.