The public employee unions are plundering and bankrupting California and the nation.. That’s the bottom line of Steve Greenhut’s new book, Plunder: How Public Employee Unions are Raiding Treasuries, Controlling Our Lives and Bankrupting the Nation. KFI radio’s Bill Handel interviewed Greenhut, former editor of the Orange County Register, earlier this week to discuss the book. (Bill Handel podcast at 15:00) The book is a necessary primer on why California state government is broken – and how to fix it. Greenhut proves why the Citizen Power Campaign is necessary to fix California state government by stopping the use of taxpayer dollars for politics by the public employee unions.
Steve Greenhut chronicles how the public employee unions have turned state government upside down. “Government employees are supposed to work for the public- not the other way around”, says reviewer Robert W. Loewen, President of the Lincoln Club of Orange County, “Unfortunately, because of the overwhelming political influence of government unions, public employees have gained an unsustainable level of pay and benefits. … The public servants have indeed become the public’s masters.” Jon Coupal, President of the Howard Jarvis Taxpayers Association warns, “If you take high blood pressure medicine, better take a double dose before reading this book. … The good news is that Greenhut gives valuable advice at the end of the book on what we can do to turn the tide on this seemingly unstoppable socialistic encroachment.”
Greenhut proves why the Citizen Power Campaign is necessary to fix California state government by stopping the use of taxpayer dollars for politics by the public employee unions. People forget how the public employee unions spent $148.5 million in 2005 to defeat Governor Schwarzenegger’s reforms that might have have prevented our budget mess or softened the blow . The reforms they defeated included spending limits, a rainy day fund, and “paycheck protection” (requiring unions to get the consent of their members before spending their union dues on politics). The Citizen Power Campaign is a necessary first step in fixing California.
Yeah, its probably misleading. The economy is bad so the right wing will say anything so they can make a buck! What’s bankrupting the country is the private sector.
Spoken like a true union hack! V.I. Lenin couldn’t have said that better!
The State Legislature and various Governors have over time have enacted laws to give government employees the right to organize and bargain collectively, and have mandated that public agencies meet and confer in good faith to bargain the terms and conditions of employment. Perhaps an initiatve to reverse these laws, such as the Myers-Milias-Brown Act, would get the job done. It sure would get to the core of the perceived problem.
No one seems to think that maybe the “war” we just spent billions on had anything to do with bankrupting this nation. Highly expensive war + tax breaks under Bush = bankruptcy, pretty simple but some people want to blame unions?!?
Actually, the war and entitlements are bankrupting the federal government, and unions are bankrupting local and state governments. Trex uses typical union diversion tactics. Just check out the unfunded liabilities.
Ok and your comment isn’t a diversion tactic. Ha…
Steven, Just below is a detailed mathematical workup of Private VS Public Sector pensions for two “similarly situated” workers. Use it as you see fit …. it really helps in understanding the gravity the problem, and the outrageousness of public sector pensions (when compared to pensions of the typical taxpayer that pays for these very rich pensions & benefits):
If you “do the math” ….
The total “value” of benefits at retirement is the present value of all future payments, be they pensions benefits, healthcare premium subsidies, or anything else. Some of these future cash flows are definitively known at the time of retirement (e.g., fixed monthly pensions), and others need to be estimated (e.g., healthcare premiums, the incremental value of future COLA pension increases, etc.). However, all of these future payments can be reasonably estimated (sometimes with several options such as the low, medium, and high liability estimates routinely provided by the Social Security Administration). Once all known and estimated future payments have been determined, they can be discounted to the point of retirement at an assumed interest rate and an assumed mortality rate (for those payments that cease upon death). The interest rate used in this calculation is very important, but actuaries routinely do calculations of this sort and the range of reasonable interest assumptions for this purpose is fairly narrow.
The present value of all retirement pension and benefit payments can be looked at as the answer to the question ….. How much would an insurance company charge in a single payment at the time of retirement to take on the guaranteed responsibility to make all future payments in lieu of the former employer.
If we examine two 30-year service, age 55 workers (one Private Sector & one a Policeman or Fireman) making $100,000 in base pay + $20,000 in overtime at retirement, what would these present values be?
Being somewhat versed in the subject of employee benefits I’ll describe the “likely” pensions & retirement benefits afforded each and then estimate their present values.
Let’s assume the Private Sector worker is one of the few lucky enough to still have the older traditional-style defined benefit pension plan, and does NOT contribute towards its cost (common practice in Private Sector plans). With 30 years of service and with a typical formula that takes into account wages above and below Social Security “covered compensation”, this worker would likely receive about 40% of final 3-year average pay at normal retirement age, and overtime would NOT be included in benefits-bearing compensation.
Here’s how the Present value would be calculated …
Assume $95,000 is the AVERAGE of the last 3 year’s base salary, so 40% x 95,000 = $38,000. But this would be payable only if the employee waited until his plan’s “normal retirement age”. Let’s assume that his plan’s normal retirement age is 60. Since he will start collecting his pension 5 years early, there would be an “actuarial reduction” of 4 to 6% per year (just like Social Security applies when someone starts collecting early at age 62). Let’s assume the yearly reduction is 5%. So … we now have an annual pension of $38,000 x .75 = 28,500.
Now, to convert this to a “present value” we need to apply a life annuity factor (which incorporates the interest and mortality discounts discussed earlier). For someone retiring at age 55 this “factor” would be a multiplier of about 15. So … the present value of this worker’s pension is $28,500 x 15 = $427,500.
We will also assume there are no post-retirement healthcare benefits, as such benefits are VERY rare in the Private Sector.
Now let’s calculate the present value of the Policeman’s pension & benefits.
The pension formula for the policeman is often 3% of the last year’s salary (including overtime) per year of service and with no “actuarial reduction” for collecting benefits at age 55 (unlike for the private Sector worker). So … we have ($100,000+$20,000)x.03×30 =$108,000. But, we’re not done …
The policeman’s pension includes a provision for post-retirement COLA increases (while essentially NO Private Sector plans do so). Although this may surprise the reader, the “value” of this added benefit is VERY significant. Even with a modest long-term inflation assumption of 3%/yr, the addition of a COLA benefit for life increases the value of the pension by at least 50%. Hence, the levelized annual pension (with the COLA) is now $108,000×1.5=$162,000.
Using the same annuity factor of 15 (as used in the Private Sector workup above), we have a present value of 15x$162,000=$2,430,000.
But wait, we’re still not done (2 more items to adjust for) …
First, in fairness, the policeman contributes a percentage of his pay toward his pension (unlike the Private Sector worker), and the accumulated value (at interest) of these payments at retirement should be subtracted from the above $2,430,000 for a fair comparison. For this policeman whose final total pay was $120,000, I have calculated the accumulated value at retirement date of his contributions to be roughly $400,000. Hence the present value of this officer’s pension (offset by the accumulated vale of his contributions) is $2,430,000-$400,000=$2,030,000
Second, this officer gets free or heavily subsidized retiree healthcare for himself AND his family. Since he is not eligible for Medicare until age 65, his healthcare premiums are very expensive and are expected to increase annually at 8-12%, triple the rate of regular (non-medical care) inflation. The present value of this benefit and the post Medicare age healthcare subsidy is roughly $500,000.
Hence, the present value of this officer’s pension AND retiree healthcare benefit is $2,030,000+$500,000=$2,530,000.
Now, let compare the present value for these 2 workers making the SAME pay, working for the SAME number of years, and retiring at the SAME age.
The Private Sector worker’s EMPLOYER-PROVIDED retirement benefits are worth (as a present value on the date of retirement) $427,500.
The Policeman’s TAXPAYER-PROVIDED retirement benefits are worth (as a present value on the date of retirement) $2,530,000.
The crisis associated with funding Civil Servant Pensions and benefits is NOT a revenue shortfall issue. It is CLEARLY one of EXCESSIVELY GENEROUS pensions and benefits as the above calculations demonstrate.
For 2 similarly situated workers (in pay, years of service, and retirement age) the Policeman’s package of retirement benefits costs the TAXPAYERS almost SIX TIMES what the typical Private Sector employer is willing to pay.
Clearly, if the Private Sector employer provided the same benefits to his workers that the policeman receives, his company would likely go bankrupt in short order.
These unreasonable benefits have been provided due to a political structure that rewards politicians for “giving-away-the-store” of not their own, but TAXPAYERS’ money, for personal gain. This “gain” may simply be to feed their ego, garner the union support needed to get re-elected, or perhaps worse … for current or future personal financial gain.
In any event, the current situation is without doubt unsustainable and without MAJOR REDUCTIONS to the benefits provided CURRENT (not just NEW) public employees, towns, cities, and states will be filing bankruptcy with increasing frequency.
Unfortunately, since difficult change is delayed and delayed and delayed to avoid the confrontation (with very aggressive unions), important public services will suffer tremendously until action is FINALLY taken.
I’m sure there will be Civil Servants (with vested interest in the status quo) that will say my figures are wrong. Estimates are necessary, and small variations in assumptions will change the figures to a minor degree, but the final relationship is quite accurate …. TAXPAYERS are forced (via their taxes) to pay almost SIX times as much as the Private Sector employer is willing to pay.
By-the-way … any qualified actuary can verify the reasonableness of my figures and conclusions, …. and I would welcome the actuary who offers to do so ……
Bye-the-way ……… I didn’t mention it above, but it’s worth a comment …… Civil Servants often take advantage of what’s commonly called “spiking” to unfairly boost one’s pension just before retirement. This takes many forms: large last minute promotions and/or raises, excessive/unusual overtime, cashout of sick and/or vacation days with the payout included in “compensation” for pension calculation purposes, or inclusion in “compensation” of miscellaneous “allowances” (housing, vehicle, parking, uniform, etc.).
None of this is EVER allowed in Private Sector employer-sponsored plans (employers are spending THEIR OWN money, not TAXPAYER’S, and would never be so foolish). For every $10,000 of “spiking” that works its way into the above Policeman’s “compensation”, it costs the TAXPAYERS an additional $10,000x.03x30x1.5×15=$202,500 !
The above analysis is intriguing, but somewhat flawed. I didn’t have time to check it in detail, but two things quickly jumped out:
1. Almost all COL increases are limited to 2% annually. So the 3% inflation rate suggested is capped at 2%.
2. Most cops and firefighters, and too many other govt employees don’t pay for their pensions — or only pay part of their normal expected contribution. The shortfall is covered by taxpayers.
That being said, this projection is a valid effort to show the magnitude of the public vs. private compensation differential — and certainly is in the ballpark — or closer. I’d love to talk with the person who did this workup.
A note from a northern california liberal. The SF Civil Grand Jury issued a report in July, 2009 on the topic of pension cost and pension spiking in particular. It is a comprehensive analysis of the pension cost for police and firefighters over the period 1998 to 2008. The civil grand jury found pension spiking in the safety ranks was pervasive and “institionalized”. The report got alot of media coverage and was very timely as SF taxpayers are facing a $522 million budget shortfall for fiscal 2010-2011. I would recommend that if anyone would like to see the report, go to http://www.sfsuperorcourt.org. Alternatively, you can email me at cpatax@sbcglobal.net and I will send you a pdf file. If possible, i would like the individual who “did the math” comment on Nov 24, 2009 to contact me. I would like to discuss the methodology used.
Thanks
Craig Weber