Bloated Union Contracts Have Busted State Budgets
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The Fiscal Times
January 18, 2012


Is it possible that the real divide in the United States today is between unions and… everybody else? Consider the issues making headlines: education reform, busted state budgets, the battle to recall Wisconsin Governor Scott Walker, free trade agreements, Occupy Wall Street,  the fight to make Indiana a right-to-work state. What these stories have in common is the waning influence of organized labor and the all-out battle by union leaders to hold on.

Take the Obama Administration’s Race to the Top initiative. Education Secretary Duncan recently warned that several states, including New York, might not receive monies earlier awarded through that program because they have not followed through on required reforms. The stumbling block? Teacher evaluations. In New York, the opposition to proposed reforms by unions – unions that constantly complain about inadequate funding -- could cost the state hundreds of millions of dollars.

New York City Mayor Michael Bloomberg laid out new education initiatives in his recent State of the City address, among them a proposal to give $20,000 raises to the best teachers, in return for changing the way educators are evaluated. Today, teachers are rated either satisfactory or unsatisfactory; 97 percent fall in the former category. UFT President Michael Mulgrew immediately denounced the plan, describing Mr. Bloomberg as “lost in his own fantasy world of education.”

Mr. Mulgrew may be the one living in a fantasy world. Pressure to boost our country’s public schools is one of the rare priorities on both Republicans’ and Democrats’ to-do lists. Americans are appalled by our plummeting world education rankings, and by our graduates’ lack of preparedness for today’s job market. While the decline in our schools stems from a number of sources, most reformers – including Secretary Duncan – see the intransigence of unions on the “job for life” rules that perpetuate mediocre teaching as a major roadblock to progress. 

Likewise, the recession has forced politicians to confront bloated public employee contracts that have torpedoed many states’ budgets. Estimated at over $3 trillion, the underfunding of state and local pension plans has been described as one of our most serious fiscal problems.  Voters now understand that unless elected officials overhaul pay and benefits packages they will face soaring taxes or reduced services.

This, too, is a bipartisan effort. In Rhode Island, Treasurer Gina Raimondo, who is a Democrat, has made headway (and headlines) in overhauling the state’s burdensome pension agreements. Speaking recently at a Manhattan Institute gathering, Raimondo noted that when she took office a year ago, ten cents of every dollar spent by the state supported employee pension funds. Within five years, absent any changes, that share would rise to 20 cents. The $14.8 billion pension system assumed investment returns of 8 percent; actual returns had recently averaged 2 percent, putting the state’s defined benefit program in dire straits. Raimondo described the state’s underfunded pension liability as the highest in the country on a per capita basis.

Remarkably, Raimondo was able to tackle this problem by selling voters on the need for reform. She impressed upon the citizens of Rhode Island that if nothing changed, monies for public schools, transportation and other services would face deep cuts. She put together a report summarizing the state’s problem but did not lay out a solution. She wanted “the enormity of the problem to sink in. We focused on math, not politics. There was no finger-pointing, we didn’t blame anyone. We said it was the fault of a poorly designed system.”

Her approach worked. The state passed legislation revising the assumed returns on pension funds, raising the retirement age, and suspending the plans’ cost of living adjustment. She sold voters on the idea that everyone needed to contribute to solving a shared problem. As a result, the system is 60 percent funded now, up from less than 50 percent, and the ratios are moving in the right direction.  

Progress like that is taking place elsewhere, but not always so civilly. Governor Walker’s efforts to rein in unsustainable public employee costs in Wisconsin (and to reduce a sizeable budget deficit) became the rallying point for terrified union leaders who see their only growth opportunity – public employees – under attack. Though Walker proposed terms that were still more generous than the national averages, his attempts to limit collective-bargaining rights (like 24 other states) aroused labor’s fury. Union leaders struck back, rallying workers from across the country to their cause; they are now trying to force the governor from office.

Another battle pitching organized labor vs. the public interest is the effort to join our competitors in expanding trade deals with other countries. President Obama finally signed trade agreements with South Korea, Colombia and Panama which had languished in Congress for years, held up by unions. Even the labor-friendly Obama administration had targeted such pacts as essential to boosting exports and jobs.

These confrontations have left Big Labor bruised but unbowed, and eager to turn public anger elsewhere. They have nurtured and funded the Occupy Wall Street protests for just that reason, ginning up resentment against the “one percent” and especially against banks and bankers.  Better to raise taxes on the wealthy than to cut government payrolls. The Service Employees International Union (SEIU), which has over one million members and much to lose from widespread government reform efforts, has been especially eager to support the protests. Stephen Lerner, a highly regarded union organizer and former SEIU official, spoke to students at Pace University last March about his plan to “destabilize” the country through civil disobedience, strikes and large-scale protests. Acknowledging that labor was under pressure and needed to stay out of the spotlight, he insisted that students and community groups take the lead. Welcome to OWS.

Happily, the public is not so gullible. On many fronts, Americans see unions as part of the problem, not part of the solution. Our leaders need to follow Raimondo’s lead, and educate the public about changes essential to our progress. Voters can connect the dots, between the interests of the nation…..and defeating the interests of organized labor.
 

After more than two decades on Wall Street as a top-ranked research analyst, Liz Peek became a columnist and political analyst. Aside from The Fiscal Times, she writes for FoxNews.com, The New York Sun and Women on the Web.