Exposing Public Sector Unions

Several years ago a consummate Sacramento insider told me “unions run this town,” and subsequent research and observations have confirmed the truth of this statement. Slowly, very slowly, this reality, and the disastrous fiscal consequences of this reality, are being recognized. Criticizing unions is still something responsible people do with some reservations, after all, in the 19th and through much of the 20th century, unions played a vital role in securing basic worker’s rights. These contributions should not be dismissed. But unions today, especially in the public sector, are a different beast entirely. In our current anti-capitalist political climate, unions are getting far less criticism than they deserve, particularly because in the case of state, city and county governments, the unchecked power of public sector unions are almost the sole reason we have a fiscal crisis. Here are some points to consider:

(1) Compensation to public sector employees is not limited to their wages, but must take into account the value of their increased number of paid days off (AND the “9/80” program which equals another 26 paid holidays per year), as well as the current year funding requirement (less whatever they contribute out of their paychecks which is usually only a fraction of the cost) for their retirement health and pension benefits. This “overhead” can easily double the annual cost for public sector employees, whereas in the private sector, overhead costs of this sort rarely exceed 25%. This overhead must be included when assessing how much public sector employees actually make each year.

(2) The state budget not only includes state employees but also payments to cities and counties. The overall personnel costs as a percentage of the state budget should include any payments that aren’t directly to state worker salaries but also payments to other entities (public sector contractors and other public agencies/governments) that in-turn are used to fund salaries.

(3) The state worker pension funds were NEVER as solvent as they were being represented by their managers. The internet bubble, then the housing bubble, were used as justification to beef up retirement benefits that were already unsustainable to still higher levels (in some cases retroactively!), at the same time as the required annual inflow of payments were actually reduced.

(4) State worker unions don’t have to strike – they control elections. To verify this, simply investigate the amount of money they are spending in statewide, city and county elections to finance campaigns of compliant candidates. California Assemblyman Niello recently told me he met with some fiscal conservatives to evaluate what it would take to successfully pass an initiative that would bring about genuine reform and the minimum campaign funding required was $100 million. As you know, the state worker unions spent a lot more than that in 2005 to crush Schwarzenegger’s initiatives. Why is this legal? Isn’t this the taxpayer’s money? Isn’t there a conflict of interests?

(5) Unions at the state, city and county level don’t just bankrupt public entities by virtue of the bloated salaries and benefits they coerce out of politicians whose survival depends on their campaign funds, they also do so by requiring public sector jobs to be far less efficient than they could be. When negotiating their contracts these unions are able to require higher staffing than necessary and narrowly defined job descriptions in order to create more jobs. Equally significant to these crippling work rules, union contracts also take away the meritocracy – they undermine the incentives for any public employee to take individual initiative. There is staggering additional cost for all this.

(6) One reason most voters are still unaware of the role of unions in bankrupting our government entities is because of the lack of balanced media reporting and commentary on the benefits of capitalism as well as the mounting quantity of credible arguments against global warming alarm. The welfare state creates jobs for government workers by breeding dependence. Global warming fees are the only way to inject significant new taxpayer dollars into government coffers. Media influencers need to take a 2nd look at the virtues of the private sector as well as the fallacies of mainstream environmentalism through the perspective of how government unions benefit financially from liberal politics and environmental alarmism.

(7) Unions were a necessity 100 years ago. But it is obvious that they have created legacy obligations that are totally unsustainable and completely unjustified. It is common for journalists to point the finger of blame at Wall Street, with good reason. It is also easy – and accurate – to blame the politicians who failed to regulate the mortgage lending industry. But why aren’t journalists looking at the collusion between public sector unions, politicians, and Wall Street? Over the past 25 years, one of the reasons the financial sector evolved and attracted the best and brightest entrepreneurs is because the manufacturing sector was taken over by unions. Who wants to work or invest in such an anti-entrepreneurial environment? And then the public sector unions demonized “corporate profits” at the same time as their pension funds took major stakes in these corporations. There is a lot of connectivity here, and very few reporters are trying to expose it. Does anyone really think public sector union bosses don’t get the fact that artificially scarce land, “urban service boundaries” and inflated home prices means more property tax revenue?

(8) Public sector unions provide the farm team for political office. The depth of the field of political candidates coming from the public sector simply dwarfs anything possible from the private sector. In the private sector we have to work all the time. In the public sector they get 2-5x more days off each year with pay, then retire early. And they have more incentive to get involved, because the politicians directly control the salaries they receive. If you look at the candidates for the entry level political offices; school board, water board, firefighters commission, whatever, the candidates and officeholders are nearly all current or retired public sector employees. When I visited the California State Republican convention last February, my unscientific survey indicated nearly ALL of the party activists are government workers. Three public sector unions were the primary sponsors of the event! There wasn’t a corporation in sight. What does that tell you?

Because of the failure of politicians and voters to adequately confront the crucial differences between unions in the public sector vs. unions in the private sector, government workers have taken over our government. The result is a far less efficient government, a government with a self-serving political agenda that skews towards more self-defeating entitlement spending and more environmental alarmism, and a government that has poured all their financial resources into paying themselves far more than the rest of us earn with comparable skills. Crucial investments in infrastructure are deferred under the pretext of environmental concerns, when in reality, that investment money is being diverted to pay grossly overmarket salaries and pensions for unionized public sector workers.

What needs to happen in Sacramento and at every city hall and county seat in California is the salaries and pensions of government workers need to be cut at least 20% (or more) across the board; in the case of pensions these cuts should be as much as 50%. That is the solution, NOT cutting jobs or services. And it would be nice to see a major newspaper support this editorially, and lay the blame where it belongs – on the decades-long failure of voters, journalists, and politicians to recognize and restrict the political power of public sector unions.

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14 comments to Exposing Public Sector Unions

  • RT Davis

    Nonsense! The problem is insatiable spending by politicians who are NEVER HELD ACCOUNTABLE. Spending other people’s money is not only fun to do, but it easy when no ever wants you to pay it back. If our political leaders would get back to doing the people’s business and end the wasteful and ridiculous they dream up California would be flush with cash and have a sizable surplus. With the average state worker salary at about 60K no one is getting rich. I’ll add average includes thousands of UC and State University academic staff who make substantially more than the Cal-Trans worker who’s working the graveyard shift.

    The author is proposing the curtailment of your first amendment rights to free speech as well as your right to association under the guise of it’s costing us too much. Just think about what you’ll lose if you lose your right to dissent!

  • David

    Unsustainable. There will be a day of reckoning and it is not far off.

  • Ed

    RT: Thank you for your comment. A few reactions:

    (1) Of course you’re right about the profligate spending. If the state had fewer unnecessary programs, it would be much easier to pay state employees.

    (2) You reference an “average” state worker salary of $60K, which, indeed, will not make someone rich. But this $60K is BEFORE taking into account the value of their benefits – more paid days off, early retirement, and retirement health and pension benefits far more valuable than social security or medicare. When you factor in these amounts, the real cost per year – which is compensation – actually averages closer to $100K.

    (3) Consider the impact of these higher than market rates of compensation not only at the state, but also at the city and county level. We have thousands of firefighters in California who make more than Supreme Court Justices, and job openings for firefighters are highly sought after. Is this equitable, when taxpayers fund this?

    (4) Your point about free speech is valid, but this right should be balanced against the potential for collective bargaining units of government employees to take over the government. Now that we have term limits, and strict limits on how much private individuals can donate to candidates, there is really no way to check the power of government employee unions. The right to free speech, in this case, collides with the right of taxpayers to be fairly represented in our state, city and county governments. I believe restricting the political activity of government employee unions is necessary before we can hope to bring government employee salaries back to the levels the private sector taxpayers are earning.

    Please remember that private sector profits and private wealth are the only way government entities (and all the “nonprofits”) are able to exist at all. The idea that a group of government employees can pool their money – which taxpayers gave them – to control our politicians is undemocratic, in my opinion, and should be against the law.

  • SurfPuppy

    Public employees were able to engage in collective union bargaining under the “Dills Act” in 1977 (??) and since then they have been increasing their compensation at double and triple the cost of inflation.

    Ed is 100% correct, the overall compensation for a public employee is 60% to 100% of their base salary, add in OT and it is scam central.

  • boprn

    You proved what a piece of work you are Ed with the governor’s interview. You are a fool, and it is obvious by the amount of attention your website here gets that nobody even cares about your opinion.

  • Ed

    Boprn: Thank you for your comment, I guess. You have me at a disadvantage here, because I don’t think you are a fool at all. When I sold EcoWorld and started this website, about two weeks ago, I was hoping you would discover it because I enjoyed our dialogue. I also thought our dialogue advanced our mutual understanding of the issues, and helped readers better understand the issues. So if you wish, please tell me what specifically has bothered you so much, and I will respond. And of course there isn’t any significant traffic here, at least not yet – it took 14 years and over 1,000 posts for EcoWorld to earn the traffic it gathered.

  • boprn

    Ed, what I found disgusting about the question you had in the SacBee open forum to the governor was the phrasing of it – and you know exactly what I mean. You compare a firefighter or prison guard to (if I recall) a supreme court justice and a military general in pay. Here is my problem with that; the (guard for example) is paid 70k/year to do a job, if there is a riot, open shifts, whatever, then the guard is hired for that shift. You take exception to what they make in overtime saying it is extreme. What is the state supposed to do? Just not fill the shift? Ignore the riot? Hire more people at what would amount to the same cost? You say that they make too much. Last time I checked HARD WORK IS SUPPOSED TO BE REWARDED. Working 16 hours a day in a prison is not something anyone enjoys – especially when you are foced to do it. Rather than saying these people make too much in OT, you could be saying they earned it because they work 80 hours a week. I just don’t understand your constant bashing of those who are willing to work like dogs in a horrible environment.

    Congrats on selling ecoworld. Will you be still doing articles there?

  • boprn

    http://news.yahoo.com/s/usnews/20090612/ts_usnews/howtheglobalwarmingbillwillaffectyourwallet;_ylt=AhjlZT4YhYw5RvGRyT1SdVYDW7oF

    If your looking for money spent for no reason at all, read the article at the above link. You may want to avoid looking at Pelosi…

  • Ed

    Boprn: You’re right, the question could have been phrased more appropriately. I was trying to come up with something that had, as the journalist stated, some “pizazz,” since otherwise they probably would not have bothered to ask the question. I think the answer the Governor gave was pretty good, he moved beyond the question of whether or not anyone may or may not be overpaid to simply state there is not enough money to go around. We’ve talked about that before, and I think the Governor is absolutely right that there is not enough money for the overall packages we are providing public sector workers. We either need to raise taxes, cut services and/or programs, or reduce the amount of average public sector worker compensation.

    Returning to the question of whether or not public sector workers are paid more than they should be is not easy. If somebody was advocating cutting my pay or my benefits, I would probably be bothered by that. If I was risking my life every day, I’d be even more bothered. I have no trouble empathizing with the position public sector workers are in today, especially those who work in law enforcement or corrections. But this hard question still has to be discussed, in my opinion. If I were to try again to ask the Governor a question on this issue, I suppose I would return to the pensions. If pension benefits were cut, there would be more money for salaries and wages, and this money would continue to flow into today’s economy.

    In my opinion, most public sector workers endure minimal risk in their jobs, and it wouldn’t bother me if they took pay cuts and, from now on, simply received social security and medicare when they retire, just like the rest of us. With public safety positions, however, an additional question has to be asked: At what point are the risks public sector workers take adequately offset by the higher compensation they receive? And I would suggest the market should give us some indication of where that line is crossed. For example, even during the phony debt-fueled boom, firefighter’s jobs were highly sought after, with dozens of applicants (or more) competing for every opening. This market reality suggests that firefighters are overpaid, despite the risks they take. Jobs in law enforcement or corrections were harder to recruit for, even during the boom. But even then, recruitment would have been easier if base pay were increased, not eventual pension benefits. Very few job seekers in their early 20’s are thinking about their retirement plan – they are thinking about how much they’re going to make next week.

    Returning to my original question, however, can yield a discussion that the Governor wouldn’t touch. Are we really saying that just because someone doesn’t endure daily risk of harm in their jobs, they can’t be entitled to make more than people who do? Because in the public sector, jobs like Senator, General, Supreme Court Justice, even the President (all of them work plenty of overtime), do NOT pay as much as literally thousands of public sector jobs in California. I’m just not sure I can agree with you, or the Governor, that this is appropriate. It suggests that there is no other way to reach a top pay scale other than enduring personal risk. It devalues the accomplishments of all other duties and responsibilities that public sector workers face. And despite propaganda to the contrary, jobs in the private sector, including salaried jobs where overtime is common and never compensated for, almost never pay over $100K per year. These jobs are rare, not common. In the public sector it is now common to make over $100K per year, in fact if you factor in the present value of future retirement benefits (at sustainable rates of interest), virtually ALL public sector jobs now pay over $100K per year. This is simply not fair to private sector taxpayers and needs to change. Change will not be easy.

    These are tough issues, but what continues to give me hope as I wonder how California’s cities and counties and state agencies will balance their books is that your comments, and the comments of others, especially in law enforcement, suggest to me we agree on most other political topics. For example, we agree that environmentalists have gone too far and are hurting our economy, and we agree there are way too many entitlement programs. So there is common ground. As I suggested in one of my earlier comments, maybe if public sector unions are going to continue to be politically active, they might consider taking on the environmentalists, instead of using them to engage in greenmail. Maybe they should fight to reform welfare state policies that enable and breed dependence instead of helping people live independently of state assistance. And maybe they should initiate reform from within their own unions, and support revisions to their contracts that protect poor job performance or inhibit innovative new procedures that could reduce the workforce required. All of this would save money, and make cuts to compensation less necessary.

  • boprn

    A couple of points to make.

    The retirement forumula that officers/fire fighters get is based on two things. First is the fact that you need a young work force to do these jobs. A sixty year old fire fighter is not someone (in general terms) you want to rely on to get your family out of a building that is buring down. There are strength/endurance issues. Same goes for cops too of course. Second – the life expectancy for cops/fire fighters is extremely short. The last table I looked at (it was a few years ago) had the average age of death at 57. Let that sink in for a moment. That means the average cop/ff is retired for all of 7 years based on the new formulas. If these people were dependant on SS for retirement, we would have a very old/non functioning group. I am sure you would agree that when someone responds to your emergency, you want someone who is physically capable of doing the task on hand. Its a ‘safety’ issue, and that’s why its called a ‘safety’ retirement.

    You said ‘during the phony debt-fueled boom, firefighter’s jobs were highly sought after’. I would like to discuss the ‘debt-fuled boom’ part of that. I agree with you completely. First we had the fake dot com bubble, then a real estate bubble based on the fed reserve pushing interest rates down, and encouraging people to borrow for homes they couldn’t afford. Won’t even get into the deregulation of Freddie/Fannie. Lots of people borrowed lots of money they shouldn’t have borrowed. Are we to let these individuals fail, or are we to let the collective fail – in an attempt to save those with bad behavior..? I am for letting those that reached beyond their means fail. If we reward bad behavior we can hardly be called captalists. Would agree with this?

    You mentioned balancing the budget, and how there simply isn’t enough money to go around. I agree with you, however my take on what needs to be cut is different – I will explain why. Our tax coffers are being sucked dry by a variety of things. The amount of money spent on illegal aliens in prison, schools, hospitals, and so on is staggering. From what I have seen, about 30% of our budget is going to providing services for illegals. The problem is that illegals use vastly more services (taxes) than they contribute. What is an even big problem is that the fed is pushing California to ‘bankruptcy’ with its policies. Examples:

    1- The fed does not enforce the border policy, resulting in the mass illegal population, and problems that come with it.
    2- The fed requires schools to provide special classes for non english speakers, resulting in redundant classes/services.
    3- The fed is now ‘special court master’ over the Calif prison system (which is about 30% illegals), and has caused the budget to balloon.
    4- The fed witholds 16% of Calif fed level taxes, diverting them to other states – I would like to expand on this…
    —People say, Texas for example doesn’t have state income tax. Reason? They get back more than 1$ for every 1$ paid into fed taxes. Calif is losing 16%. So what is happening is that Californians are paying Texans state income tax. Follow me? I know that could be explained better.

    The combination of what the fed has done to Calif results in 10s of billions of dollars in lost tax revenue to the state, but you see it as a state employee compensation problem. As I’m sure you know, we could lay off every single state employee and we would still be in the red. State employees are only 8.33% of the budget. Any company would dream of only having 8% of the budget going to salary/benefits.

    So where can the cuts be made/where can revenues be increased?
    -Our governor could start by standing up to the fed on the prison system. Savings 2 bil/year (at least)
    -Our legislator could make a case for getting 1/2 of the 16% loss to the fed back (that alone would solve the budget)
    -We could stop providing services for illegals.
    -No more welfare state. As I’m sure you know, Calif has the longest welfare benefits. We now have 1/3 of all welfare cases in the U.S.

    My point is to protect those that work for a living, and deny benefits to those that live off the system via welfare, and other ‘public assistance’ sources. To bring back a work ethic, a traditional approach that says that people who contribute are valued, while those that do not contribute are not welcome.

    Another topic. Today congress passed law regarding the environment. It would requre power companies to buy ‘credits’ because they are polluting – buying credits from windmill elec producers and such. The expected cost per household came out to about 160$/year. Are you going to do an article on this. Would be curious as to your take. Seems like a tax scam to me.

  • Ed

    Boprn: Once again all these areas of agreement I find very encouraging. Do you know where, by the way, one can access a copy – preferably online – of California’s state budget? It would be quite interesting to have something to analyse closely – I’m not sure what the expeditures for labor are as a percentage of the total budget, but your figure of 8% seems pretty low. Speaking of low figures, the latest post here “Real Rates of Return” speaks to what I think are two of the primary underlying issues affecting government deficits, what long-term, after-inflation rate of interest a pension fund can earn, and the causes and cures for the problems we are having sustaining growth in the broader economy.

  • boprn

    Trying to find a ‘California state budget’ is a bit like trying to find a needle in a pile of needles. Which needle is it exactly…? The funding at various agencies, and various govt levels, as I’m sure you know, come from NOT ONLY the Calif state tax payer. Will try to find something, just not sure what you want exactly. Put up a rather boring post to your ROR article. Thought that was one of your best articles BTW.

  • Norm Rogers

    Ed speaks clearly to the major California problems. I cleared out of the state which is on a suicide course due to the influence of liberal politics that includes disastrous spending and taxation. I have the experience of living in Chicago, a place also controlled by democratic politicians, even corrupt ones, but incredibly enlightened compared to California. The politicians control the employees, not vice versa. The IL motor vehicle employees are incredibly efficient compared to the could-care-less drones manning the California offices. One of the biggest ratholes in California is the public education system, from K-12 to the University of California -huge overspending and too much political influence. The system of artificial housing shortage is unknown in the midwest and as a result housing prices are reasonable. The process in California is that the productive segment of the population is shrinking and the parasitic segment is expanding. Sooner or later, perhaps now, there will be a serious crisis.

  • Pete

    Unions were necessary to protect worker’s rights… 100 years ago. Today, all they do is enrich the union leadership at the expense of employees and the employer.