Wisconsin Recall Vote Exposes Vulnerability of Public-Sector Unions | National Legal and Policy Center

To his sworn enemies, Wisconsin Republican Governor Scott Walker’s victory last Tuesday over Democratic challenger Tom Barrett by 53 to 46 percent has been as hard to spin as it has been to accept. There’s no getting around it: The unions lost. It was public-sector unions who led the effort to recall Walker following passage by the legislature last spring of a fiscal reform plan that included tough limitations on union bargaining power. Unions and allied groups by this January had gathered nearly a million signatures to put the recall on the ballot. During the entire campaign, some 50,000 volunteers knocked on doors and made phone calls to unseat Walker. It was to no avail. Yet an arguably bigger story already had been underway: Wisconsin state and local government employees are exercising their newfound freedom to opt out of union membership. And other states might see a model here.

The recall vote likely – one only can hope – is the last installment of a saga that began on Election Day, November 2, 2010. Scott Walker, at the time Milwaukee County Supervisor, defeated Milwaukee Mayor Tom Barrett in the Wisconsin governor’s race by a 52 to 47 percent margin; two-term Democratic Governor Jim Doyle had declined to run for re-election. When Walker took office at the start of 2011, he faced a two-year budget deficit estimated at $3.6 billion. Contributing heavily to the shortfall were heavy health insurance, pension and other commitments to state and local government employees brought about by decades of union collective bargaining. Wisconsin affiliates of the American Federation of State, County and Municipal Employees (AFSCME) and the two main teachers unions, the National Education Association (NEA) and the American Federation of Teachers (AFT), had negotiated salary and benefit packages that observers increasingly were coming to see as unsustainable.

Backed by Governor Walker, the Wisconsin General Assembly and Senate, each now with a Republican majority, introduced an omnibus fiscal reform package known as the Budget Repair Bill, or “Act 10.” Part of this legislation contained curbs on public employee compensation. Specifically, the bill would require state and local workers to: 1) contribute 5.8 percent of wages or salary to retirement plans, up from virtually zero percent; 2) pay for 12.6 percent of health care coverage, up from about 6 percent; 3) accept pay hikes tied to Consumer Price Index; 4) forgo collective bargaining over benefits and working conditions, though not base pay; and 5) enter into one-year contracts only. Act 10 also would bar public-sector unions from deducting dues payments from employee paychecks against their will and would require unions to undergo annual recertification. Considering that benefit contributions are a good deal higher in equivalent private-sector jobs, this proposal was reasonable. What’s more, the measure wouldn’t apply to police, firefighters and state troopers. It guarded against layoffs. And it wouldn’t apply to collective bargaining agreements currently in force.  read more…

via Wisconsin Recall Vote Exposes Vulnerability of Public-Sector Unions | National Legal and Policy Center.

Why We Need Pension Reform – TIME

A day after governor scott Walker won his recall election, the New York Times wrote, “The biggest political lesson from Wisconsin may be that the overwhelming dominance of money on the Republican side will continue to haunt Democrats.” Democrats have drawn much the same conclusion. “You’ve got a handful of self-interested billionaires who are trying to leverage their money across the country,” said David Axelrod, Barack Obama’s senior campaign strategist. “Does that concern me? Of course that concerns me.”

But then how to explain the landslide victories in San Jose and San Diego of ballot measures meant to cut public-sector retirees’ benefits? What should concern Axelrod far more is that on the central issue of the recall–the costs of public-sector employees–the Democratic Party is wrong on the substance, clinging to its constituents rather than doing the right thing.

Warren Buffett calls the costs of public-sector retirees a “time bomb.” They are the single biggest threat to the U.S.’s fiscal health. If the U.S. is going to face a Greek-style crisis, it will not be at the federal level but rather with state and local governments. The numbers are staggering. In California, total pension liabilities–the money the state is legally required to pay its public-sector retirees–are 30 times its annual budget deficit. Annual pension costs rose by 2,000% from 1999 to 2009. In Illinois, they are already 15% of general revenue and growing. Ohio’s pension liabilities are now 35% of the state’s entire GDP.

The accounting at the heart of government pension plans is fraudulent, so much so that it should be illegal. Here’s how it works. For a plan to be deemed solvent, employees and the government must finance it with regular monthly contributions. The size of those contributions is determined by assumptions about the investment returns of the plan. The better the investment returns, the less the state has to put in. So states everywhere made magical assumptions about investment returns. David Crane, an economic adviser to former California governor Arnold Schwarzenegger, points out that state pension funds have assumed that the stock market will grow 40% faster in the 21st century than it did in the 20th century. In other words, while the market has grown 175 times during the past 100 years, state governments are assuming that it will grow 1,750 times its size over the next hundred years.

Why has this happened? It’s democracy at its worst. Public-sector unions, powerful forces in states and localities, ask for regular pay increases. Governors and mayors can dole out only so much in salary hikes because of requirements for balanced budgets or other constraints. So instead, they hand out generous increases to pension benefits, since those costs will hit the budget many years later, when current officials are themselves comfortably in retirement.

The net effect of these retirement benefits is to starve state and local governments of funds for anything else. Last year, California spent $32 billion on employee pay and benefits, which is up 65% over the past 10 years. In that same period, spending on higher education is down 5%. Three-quarters of San Jose’s discretionary spending goes to its public-safety workers alone–police and firefighters. The city has closed libraries, cut back on park services, laid off many civil servants and asked the rest to take pay cuts. By 2014, San Jose, the 10th largest city in the U.S., will be serviced by 1,600 public workers, one-third the number it had 25 years ago.

The system as it is evolving is highly regressive. Current workers will have their salaries cut, their numbers thinned and their benefits slashed, all to maintain relatively comfortable benefits for retirees, who are on average richer than the people who are being asked to make these sacrifices. Current residents will watch their services dwindle, so that retirees–again, who are richer on average than they are–can have guaranteed generous cost-of-living increases year after year.

Public-sector unions are strong supporters of the Democratic Party, so their clout has drowned out the voices of the poor, the young, students and average citizens. That is why real credit for courage should go to those few Democrats who are taking on these issues, even at the cost of losing support from one of their key constituencies. That includes mayors like Rahm Emanuel and Chuck Reed as well as governors like Andrew Cuomo and Pat Quinn. Sadly, they are too few and too isolated. Democrats should take note: the ideals of liberalism are now being sacrificed for the interest groups of liberals.

Read more: http://www.time.com/time/magazine/article/0,9171,2117244,00.html#ixzz1xnJE667G

via Why We Need Pension Reform – TIME.

The Problem with Town Meeting’s Police Union Contract Approval | ActonForum.com

At April’s Town Meeting, we were asked to approve the contract with the police (patrolman’s) union. Town Meeting was told, via a handout and a police-officer speaker, that the police have been working without a contract for several years, that the payscale for Acton’s officers was falling behind other towns, and that Town Meeting needed to approve several contracts, some retroactively, based on the awarding of an arbitration award.

What was not made clear was that the people who fought for taxpayers–the Board of Selectmen and the Town Manager–whose job it is to control these rising costs, were prohibited from speaking against the arbitration award by state law. If they were to publicly oppose the arbitrator’s ruling, that would evidently violate the agreement to accept the ruling as part of “good faith” contract negotiations.

In other words, the deck is stacked against taxpayers and in favor of the unions after the arbitration process. And from what I have heard, the arbitration process itself is also slanted towards the unions. This is a fixed game.

So what are taxpayers and voters supposed to make of this? They go to a Town Meeting, are given one side of the story (one that favors the union workers) and are asked to vote to approve what has already been decided. The quintessential rubber stamp.

You have to know there was another side to this story, but that side was simply not told. The people negotiating for “our side” were forbidden to speak honestly about what had happened and why.

There is one other group in town that could have researched and presented the other side, and that is the town’s Finance Committee. It does not participate in negotiations and is not subject to the muzzle rule.

But the Finance Committee had nothing to say on this subject, even though they had previously voted to recommend that we hold the line on labor costs in this economy. (Good advice that was roundly ignored by others.)

Let me repeat: the only group in town with the knowledge, foresight, and long-range vision to expertly comment on the police union contract had nothing to say against the arbitration award at Town Meeting.

Perhaps the FinCom members felt that the award was fair, even though it was obviously opposed by the Town Manager’s office (hence the need to go to arbitration). More likely, this was one of those things that the FinCom failed to properly monitor and members simply didn’t want to speak out publicly against a group of workers, especially the police.

This lack of information given to Town Meeting is a persistent problem in Acton. Town Meeting often is asked to vote to approve spending without all the facts. But the spenders don’t seem to mind this at all. After all, money is no object and taxes can just continue to go up year after year, can’t they?

via The Problem with Town Meeting’s Police Union Contract Approval | ActonForum.com.

House passes teacher pension reform bill | The Detroit News | detroitnews.com

Lansing- Most public school employees in Michigan will pay more next year to maintain their pension benefits under sweeping retirement changes the state House approved 57-47 Thursday.

Later today, the Senate is expected to pass the revised bill, which maintains a hybrid pension-401K plan for workers hired after 2010.

Lawmakers are pursuing a major overhaul of the Michigan Public School Employees Retirement System to address a looming $45 billion to $50 billion unfunded liability.

Critics said the bill unfairly shifts the burden of public school employee fringe benefits from the state and school districts to workers and retirees.

“We’re not attacking teachers,” said Rep. Chuck Moss, R-Birmingham. “What we’re trying to do is save the system.”

A revised Senate Bill 1040 calls for pension contributions to rise to 7 percent for school employees hired between 1990 and 2010 and 4 percent for workers hired before 1990 who currently contribute nothing to their retirement.

Workers could opt out of paying more but would receive a smaller multiplier used to calculate their pension based on years of service. The bill also lets school employees freeze their current pension benefit and move to a 401K plan with a flat 4 percent employer contribution.

Opponents of the bill contend it’s unconstitutional to change pension benefits for existing employees and predicted the bill will be challenged in court.

“Let’s send this bill back to the drawing board,” said Rep. Mark Meadows, D-East Lansing. “We can do better — way better.”

In a concession to older retirees living on fixed incomes, the revised bill would cap health insurance premiums at 10 percent for retirees who are 65 or older on Jan. 1, 2013. Retirees under 65 would have to shoulder 20 percent of the cost — mirroring new requirements for public sector workers.

The revised bill includes cost-containment measures to cap rates school districts contribute on behalf of employees. For Detroit Public Schools, the bill would save the cash-strapped school district about $15.3 million in the 2013 fiscal year and $13.5 million in 2014.

The Republican-controlled House passed the bill mostly along party lines, with five Democrats who are educators abstaining from voting citing potential conflicts of interest.

The Legislature is trying to get the bill to Gov. Rick Snyder’s desk before they start their summer recess Friday.

via House passes teacher pension reform bill | The Detroit News | detroitnews.com.

Little Falls schools finalizes superintendent contract | BrainerdDispatch.com | Brainerd, Minnesota

It’s official.

The Little Falls School District will have a new superintendent starting July 1. The Little Falls School Board Tuesday approved the contract with Stephen Jones, who currently serves as the superintendent of the Sibley East School District in Arlington. Jones will succeed Curt Tryggestad, who resigned to take a superintendent job in the Eden Prairie School District.

The contract negotiated between the school district and Jones is for three years. In the contract, Jones will receive an annual salary of $141,000 for the 2012-12 school year; $144,500 in 2013-14; and $148,000 in 2014-15.

The school district also will provide Jones with a 403(b) severance package. The school district will make a payment to Jones per contract year of $5,000 in 2012-13, $6,000 for 2013-14 and $7,000 for 2014-15. Jones also will be eligible to participate in a tax sheltered annuity plan through payroll deductions. The school district will match contributions up to $2,000 in each contract year.

Jones will be able to take 40 paid days of professional leave each contract year and any non-used days will be accumulated from year to year at a maximum of 140 days. The Jones will be entitled to 11 paid holidays.

The school district also will pay for Jones’ health and hospitalization insurance coverage, under the school district’s plan. Jones also will receive life insurance with the district covering $200,000 of coverage, long-term disability insurance and liability insurance.

Jones has been the superintendent in Sibley East since 2009. Prior to that, Jones was the superintendent and high school principal at Murray County Central from 2005-09. He also was the high school principal at Maple River High School and taught speech/language arts/media production at Tracy High School.

via Little Falls schools finalizes superintendent contract | BrainerdDispatch.com | Brainerd, Minnesota.

We’re not done with pension reform in S.F. | Melissa Griffin | Local | San Francisco Examiner

With the overwhelming voter endorsement of pension reforms in San Jose and San Diego, folks here in San Francisco might be thinking, “Thank goodness we passed our own reform — Proposition C — last November.” Well, as was pointed out in this column and in public statements by Jeff Adachi and even mayoral candidate Joanna Rees, Prop. C was founded on the fanciful notion that we could continue to assume a 7.75 percent return on pension fund investments.

When New York City considered lowering its expected investment return rate, Mayor Michael Bloomberg said, “The actuary is supposedly going to lower the assumed reinvestment rate from an absolutely hysterical, laughable 8 percent to a totally indefensible 7 or 7.5 percent.” Private companies use an average of 4.8 percent return.

Earlier this year, CalPERS, the nation’s largest public-pension fund, reduced its expected return rate from 7.75 percent to 7.5 percent, although the agency’s staff had recommended lowering the rate to 7.25 percent.

In December of last year, just a month after Prop. C passed, the San Francisco Employees’ Retirement System lowered its expected investment return rate from 7.75 percent to 7.5 percent.

According to retirement board member Victor Makras, lowering the return rate to 7.5 percent results in a $25 million increase in pension obligations in fiscal year 2012-13. With Prop. C in place, employee contributions are projected to increase by $40 million, which is nothing to sneeze at. But the massive savings predicted by Prop. C’s proponents — $40 million to $50 million in 2012-13 — appears to have been undercut by the recent reality check.

The percentage of total employee payroll that The City will have to contribute to the pension fund actually went up this year (!!!) from 18.1 percent to 20.7 percent. And we’ll still be paying $405 million in pension costs and $173 million in retiree health care costs in 2012-13, for a total of about $40 million more than last year.

Before you know it, San Francisco may have to take pension reform back to the ballot box.

via We’re not done with pension reform in S.F. | Melissa Griffin | Local | San Francisco Examiner.

King: Public employee unions should take lead on pension reform – Houston Chronicle

Several years ago, I helped form the Fire Fighter’s Foundation of Houston. Since its organization, the foundation has raised more than $1 million to fund the purchase of specialized equipment and training facilities for the Houston Fire Department.

Because of my support for the department through the foundation, many firefighters were dismayed when I began to call attention to the problems with the city’s pension plans. I had breakfast last year with a group of firefighters to try and explain what they saw as a contradiction between my support for their foundation and my concerns about the city’s pension plans.

What I shared with them that morning was this simple fact: Financially unsustainable pensions are a bad deal for public employees. This is true because eventually, as it becomes apparent to the public that the pensions are unsustainable, it will ultimately lead to a fight between taxpayers and public employees. And the public employees are going to lose that fight every time.

There was a great deal of skepticism regarding my views that morning, but I believe the election results in Wisconsin and California last week have shown I was correct.

In Wisconsin, of course, Gov. Scott Walker handily held off a recall effort organized by public employee unions angry over his moves to limit their power. In San Jose and San Diego, the issue was put even more sharply in focus. In both cities, voters were asked to approve substantial cuts in public employee pensions. In both cases, the ballot initiatives were approved by more than a 2-to-1 margin.

Polling shows similar attitudes across the country. One poll showed that 64 percent of Americans were altogether opposed to unions for public employees. Surprisingly, in that poll more than 42 percent of Democrats agreed with the majority.

We had a harbinger of this trend in Houston in 2004. The 2003 Texas Legislature approved a constitutional amendment prohibiting cities from changing pension benefits for current employees. However, the amendment contained a provision that allowed cities to opt out of the amendment if voters approved. Then newly elected Mayor Bill White called just such an election in May 2004. Houston voters approved opting out with more than 70 percent of the vote.

Many factors are working against public employees on this issue. First, most private sector employees no longer have defined benefit pension plans. According to the Department of Labor, as of 2009, there were only 18 million Americans who were active participants in a defined benefit plan in the private sector, and that number is dropping rapidly.

Second, state and local governments have felt a severe fiscal pinch in the recession. As a result, they have been forced to choose between funding their pensions or shortchanging other services. Increasingly, the public is beginning to connect the dots between ballooning pension costs and shorter library hours, fewer police officers and a variety other cutbacks.

Finally, there was a time when higher public sector pensions could be justified because public sector wages were so much lower than in the private sector. But over the last 20 years, private sector wages have stagnated while public sector compensation has been pushed steadily higher, mostly due to automatic cost of living increases. The most recent data from the Bureau of Labor Statistics shows that the total cost (including wages and benefits) of the average private sector employee at about $29 per hour, which is well below the average for state and local employees at $41 per hour.

The actuarial reports for the city of Houston’s pension plans show that by 2020, it will take nearly 50 percent of property tax receipts to fund the required pension contributions. One can only imagine the kinds of service cuts and/or tax increases it will require to sustain the plans at that point.

As I shared with my friends in the fire department at breakfast last year, if I were in a leadership position in a public employee union, I would be trying to get out ahead of this issue and propose some reasonable reforms. Simply sticking one’s head in the sand and hoping that a soaring stock market will save these plans is a recipe for disaster. And it will be disaster for both taxpayers and public employees. As last week’s elections prove, the taxpayers will have the last word.

via King: Public employee unions should take lead on pension reform – Houston Chronicle.

Activist calls for pension reform ballot measure in Torrance – The Daily Breeze

When voters in San Diego and San Jose backed measures last week cutting public employee pension benefits, many wondered whether the movement would spread to other cities.

In Torrance, it already has.

Well-known government watchdog G. Rick Marshall asked the City Council on Tuesday to discuss at a future meeting placing a pension reform measure on the November ballot.

He noted that the council has demonstrated a “reluctance to address the issue,” other than to require some new hires to pay their own retirement contributions.

Until August 2010, when the change was made, taxpayers were on the hook for city workers’ retirement contributions at a cost of $8.7 million.

Torrance’s unfunded pension liability stood at about $130 million in August 2010, city officials said.

Marshall said more reform is needed.

“If given an opportunity, I have confidence that my fellow Torrance residents are ready, willing and able to help resolve this looming debt burden and avoid the looming catastrophe that has the potential to diminish our city services and increase our taxes if not dealt with prudently like the cities of San Jose and San Diego,” he told the council.

Marshall, one of a group of residents who have repeatedly complained in recent months about what they see as excessive municipal pay and benefits, didn’t exactly get an enthusiastic response.

First he was told his request was out of order. But then

officials reversed themselves later in the meeting.

But it seems unlikely the council will even discuss the issue, Mayor Frank Scotto conceded.

“There’s nothing to put on the ballot,” he said. “We don’t have control of the benefits, we have control of the contributions.”

And the mayor has repeatedly said in public that the city is not prepared to discuss changing pension guidelines for existing employees, something that likely would be challenged in court by public employee unions.

Which is exactly what is happening in San Diego and San Jose.

However, those two cities also are among a half-dozen or so in the state with their own independent pension systems.

Torrance, like most other cities, is part of the California Public Employees’ Retirement System (the city also is one of the few to participate in Social Security as well). However, by state law the terms of that system can be changed only at the state level, not locally.

But Marshall said that’s not what he’s asking Torrance officials to do.

“I believe we as a charter city can allow the voters to take negotiations for pensions out of the hands of the City Council and put it in the hands of the voters,” he said. “The problem is the taxpayer, the people paying the bill, are not in on these negotiations.

“There’s things that can be done if they’re willing to look at it,” Marshall added. “My concern with the City Council is they’re not willing to look at it.”

At least one city official has said privately Marshall’s request is unlikely to receive a response and expects a resident-led ballot measure is likely in 2014.

via Activist calls for pension reform ballot measure in Torrance – The Daily Breeze.

House GOP offers its own state pension reform bills – witf.org

House Republicans have come up with their own proposals to change state worker pensions, weeks after Senate legislation to do the same.   Newly introduced House plans just have a little something extra.

Top Senate Republicans were quick to acknowledge their proposal to enroll future state and school district employees in a 401K-style retirement plan wouldn’t address the huge burden of current employees.

“What we do with the legacy cost is an open question, something we need to address, we will address, but it’s not addressed in that bill,” said Senate Majority Leader Dominic Pileggi in May about his own proposal for state pension reform.   Though it would create a defined-contribution plan for future state workers, it wouldn’t change the fact that the state would be on the hook for the billions of dollars needed to pay for current employees’ defined-benefit plans.

But Rep. Warren Kampf (R-Chester) said under his proposals, current employees would have an incentive to switch to the new defined-contribution plans: their employer’s contribution to the plan would be seven percent, while they would be able to contribute just four percent.

New hires, though, would only receive a four percent contribution from their state and school district employers, and the employees themselves would have to match that contribution.

A long list of House Republicans have signed on as cosponsors of the bills.

“The budget deficit for pensions is bigger than our entire budget,” said Kate Harper (R-Montgomery), referring to the $40 billion unfunded pension liability the state faces.  “We just can’t afford these benefits going forward,” she said.

“This is a big deal,” said Rep. Stephen Bloom (R-Cumberland).  “It fits into the big context of getting Pennsylvania right on – back on the right track fiscally and making us a solvent state that can go into the future without an excessive burden on the taxpayers.”

Gov. Corbett has singled out pension reform as a top priority of his administration once the budget’s finished.

via House GOP offers its own state pension reform bills – witf.org.