How Government Employee Unions Plundered the Public's Money

You might have noticed that there’s been a little turmoil in Madison, Wisconsin, of late.

With the public employee unions making themselves heard in a fight against Governor Scott Walker, we thought this would be a great time to talk to Steven Greenhut.

Steven is the author of Plunder: How Public Employee Unions Are Raiding Treasuries, Controlling Our Lives, and Bankrupting the Nation.

Here’s how our interview went…

Gary Gibson: Are public employees really bankrupting states and local municipalities? Are they getting paid that much and are the pensions that good?

Steven Greenhut: We’ll start with the easy one. Yes, the pensions are amazingly good. In California, there are 50,000 members of the “$100,000 pension club”, cost of living adjusted, and these are guaranteed pensions, often in the six figure region and higher in certain categories, especially for public safety workers, such as police, fire, prison guards, milk inspectors. It’s an ever-growing category of employees that get 3 percent net 50. That’s 3 percent of the final year’s pay times the number of years worked. Which means a 90 percent final year’s pay retirement forever. And that’s before all the many pension spiking gimmicks. For example 82 percent of California Highway Patrol managers retire with disabilities, which further enhances this.

They purchase something called “air time”, where they can buy additional service credits on their pension at 50 cents on the dollar. So we have, in many cases, public employees making $150,000, $200,000 a year in retirement. And it’s not just the managers. These are regular police and firefighters, different sorts of mid-level managers, making enormous pensions. And they get paid quite a bit of money. The old deal used to be that public employees were paid less and they got somewhat better benefits and protection from firing and things that we didn’t get in the private sector. Now they get more money, in many cases, much more money, and they get an enormously higher level of pension benefit.

Nobody I know in the private sector gets these guaranteed defined benefit retirement plans anymore. And they’ve been being increased retroactively, which means going back to the day that the employee started. So to answer your question: yes, pensions are that good. They are getting paid that much.

The union studies, the reports show that public employees are not getting paid as much as their private sector employees. I’ve looked at those. They’re full of holes. They adjust for things like education, and they leave out categories that they don’t want to have included in there. They don’t count the overtime, even though public employees abuse the overtime system through planned overtime and other ways to build in higher salaries.

So are they really bankrupting states and local municipalities? For instance, in the City of San Diego, which has not been the only city that’s struggled throughout California. I mean Los Angeles, they’re talking about bankruptcy, and the City of Vallejo in California went bankrupt, largely because of the pay and benefit packages of public employees. But in the City of San Diego, 70 percent of their payroll budget goes to retired workers for pensions and healthcare benefits. I mean you just do the math on that.

There’s a new report from the Little Hoover Commission, which is a government agency, an oversight agency in California. It’s a nonpartisan, “good government” commission. Here’s its conclusion: “Pension costs will crush government. Government budgets are being cut while pension costs continue to rise and squeeze other government priorities.” So yes, they are going to push the cities and states to the brink, and it is that serious.

Gary: Now before we get to just how serious that is and how we can’t afford it, what about the argument that the things that public employees do are vital? We can’t do without them, right? People have told you, “Pay them whatever they want.”

Steven: It’s a crazy argument. At what point did our country start to value government work, non-entrepreneurial, protected from firing? I mean there are certain jobs that are needed. We need certain public sector jobs. But at what point did we start believing that bureaucracy is so highly valued, that we should pay people who work in the bureaucracies whatever they want? Usually when people make that argument, they’re talking about police and firefighters and teachers sometimes too. But now we’ve created a bureaucratic system that doesn’t always result in having the best teachers, firefighters, or police because this is not a free market.

This is not a market system. Here’s a good example. 72 percent of the firefighters in the country are volunteer firefighters. So there are many people who will do this job for service to the community. When firefighters are hiring for the few positions that are opened, they sometimes will open arenas because of the thousands of applicants. So this idea that we should pay them whatever they want is ridiculous.

This is going to bankrupt us. In the case of the firefighters, it pushes out often people who really want to be firefighters. If you or I really want to be a firefighter, we have to compete with all the many people who want to be a firefighter simply because of the [artificially exorbitant] pay and benefit package, and the work hours are so cushy. So it’s not like in the marketplace.

Obviously, we need police. But often the police often overstate their dangers, and that’s a problem we’ve seen. And they use that to gin up their pay and benefit packages beyond where they need to be to attract good people. And teachers, well you know, I’m sorry, but in a competitive environment, in a private system, you know, then we would see what teachers really are worth.

But this idea that we should just pay them anything you want…other than it bankrupting us all, it’s not resulting in better public services either. And teachers are not even getting the level of pay and benefits that police and fire are. But that’s just not a good argument in my view.

We see in Wisconsin and Ohio, old rust belt states, the heart of the union movement, and now it’s a public sector movement. And there’s disagreement. There are many people in the private sector union people who agree with me on these public sector union issues. You know, the private sector union people have to make sure that their company remains healthy and in business. Where the public sector can — these guys will take the government off the cliff.

Gary: Now your book talks about how this all happened in California. It’s where you focus your attentions. But I’ve got to ask you about Wisconsin now.

Steven: Well, I mean they’re both very progressive states, very liberal states. The same thing that happened in California happened in Wisconsin, the power of the public sector unions, the ability through collective bargaining and through tapping the dues of members without necessarily getting their permission, has enabled the employees to buy their bosses. They elect their bosses. It’s the same thing that’s happened, and the book goes into, not just — it’s California heavy. It’s focused because of my experiences in California, which I draw from. But it does talk about the whole country.

And it’s a similar thing. It’s just California often is at the edge, cutting edge of all trends, good and bad, and we just happen to be further along this route. But Wisconsin’s extremely liberal, heavily union democratic state. So there are a lot of parallels. Both with a parallel progressive history, in fact. So ironically, one of the core tenets of progressivism, the initiative and the process that we have in California that might be the solution to take on these unions who have become the new robber barons.

And it was the progressives who tried to take down the power of the railroads and the robber barons, and now they’ve become what they fought against.

Gary: Now these government employee unions, did you say — you said that they’re turning, they could turn us into a third world nation, or a nation of third world cities.

Steven: Yeah, when I say it, and I’m not talking about the demographics or anything of the cities, I’m just talking about how it’s this group of folks who were just out to enrich themselves, and using their power for raw political gain. The cities are becoming impoverished, as we increasingly have to spend more and more, as the Little Hoover Commission report pointed to, there’s not enough money for other services. Even people in progressive San Francisco, some of the liberals there have been supporting pension reform efforts, recognizing that their city’s becoming increasingly tawdry.

And as you spend more and more money on these pensions, pay and benefit packages for public employees who are really the affluent elite, the parks are becoming decrepit. The streets are not being fixed. The schools are getting worse. So that’s the context of that.

Gary: I see. Is this a partisan issue?

Steven: Well, it’s become one to a degree because the republicans, the new republicans are taking on the unions, and the democrats are the party of unions, of government unions especially. So to a degree republicans certainly helped create the problem. You know, I just wrote about here in California, how three republican assembly members joined an SCIU rally opposing cuts to a particular program. I watched as a writer for local government, watched as republicans increased pensions for government employees, especially for the people in uniforms. Republicans tend to be very law and order in their philosophy, and they’ve caused a lot of the problems.

So the mess was created on a bipartisan basis, but I have seen very, very little effort by democrats to even acknowledge the problems. A handful of exceptions to the ones I pointed to in San Francisco. And they’re a minority of democrats for sure. But it doesn’t need to be a partisan issue, let’s put it that way. It really doesn’t because the right should recognize that these pensions are unfair and they’re going to cause enormous financial problems, and they’re going to lead to massive tax increases.

And the left should realize that this is destroying the progressive agenda because if you’re spending all your money on $150,000 per year police retirees, then you’re not spending money on the programs that you claim to care about. And it’s going to be the programs for the poor that get cut. The pensions are a senior obligation of the state. Programs for the poor are not. So I know progressive democrats who are very concerned about this. And I’m just — I’ve got a copy here of Reason Magazine, the cover story by Tim Cavanaugh called Farewell my Lovely — How Public Pensions Killed Progressive California. I mean these pensions are at war with the whole progressive idea.

And that’s because they’re running out of money.

March 5, 2011

The Daily Reckoning