Tag Archive for: public sector union reform

The Varieties and the Potential Impact of Post-Janus Litigation

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The landmark ruling by the US Supreme Court in the Janus vs AFSCME case has given government workers the right to not only refuse union membership, but to refuse to pay any dues or fees to that union. In the wake of this ruling, new lawsuits have been filed on behalf of plaintiffs who allege the unions are attempting to circumvent the Janus ruling.

Enforcing Provisions of the Janus Ruling

A notable example of such a case is Few vs UTLA, In this case, the plaintiff, Thomas Few, is a special education teacher in Los Angeles. Few was told that he could end his membership in the United Teachers of Los Angeles union. But even as a nonmember, the union told him that he would still have to pay an annual “service fee” equivalent to his union membership dues. Few’s position, which is likely to be upheld, is that he cannot be compelled to pay anything to a union he does not choose to join, regardless of what the payment is called.

This lawsuit and others are likely to ensure that the Janus ruling is enforced. The practical result will be that government unions lose some of their members, and some of their revenue. But how many? After all, there is a valid economic incentive for public employees to belong to their unions. In California, unionized state and local workers earn pay and benefits that average twice what private sector workers earn.

For this reason, most people refusing union membership will be doing so for ideological reasons. They will find their objections to the political agenda of these unions to be more compelling than the economic reasons to support them. But there are additional ways the unions compel public employees to remain members.

For example, in some cases, within the same bargaining unit, unions will negotiate pay and benefit packages for their members that are more favorable than the pay and benefit packages they negotiate for the non-members. In some cases in academia, only union members are permitted to sit on faculty committees that determine curricula and hiring decisions.

Challenging Exclusive Representation

This right to exclusive representation is the next major target of public sector union reformers. They argue that it is unconstitutional for public sector unions – whose activity the Janus ruling verified is inherently political – to advocate on behalf of non-members, or to represent non-members, or to exclude non-members from participating in votes or discussions on policy, or to deny non-members the same negotiated rates of pay and benefits as members, or, possibly, all of the above.

Just filed this week in the US Supreme Court is the case Uradnik vs IFO, which worked its way through the lower courts in under a year. It is possible it will be heard in the 2019 session. This case calls for an immediate end to laws that force public-sector employees to accept a union’s exclusive representation.

Kathleen Uradnik, a professor of political science at St. Cloud State University in Minnesota, alleges that her union (“IFO” or Inter Faculty Organization) “created a system that discriminates against non-union faculty members by barring them from serving on any faculty search, service, or governance committee, and even bars them from joining the Faculty Senate. This second-class treatment of non-union faculty members impairs the ability of non-members to obtain tenure, to advance in their careers, and to participate in the academic life and governance of their institutions.”

There is a strong possibility that within a few years, if not much sooner, this case will be heard and ruled on by the US Supreme Court in favor of the plaintiff. If so, the future of public sector unions will be altered in ways even more significant than Janus. Unions will be prohibited from discriminating in any way against non-members who are part of their bargaining unit. They also will be powerless to stop public employees from withdrawing completely from their bargaining unit to – gasp – represent themselves in salary and benefit negotiations, something that professionals in the private sector have always done.

The Impact of Non-Exclusive Representation

An impact of a favorable Uradnik vs IFO ruling that would have even greater consequences would be if it enabled the emergence of competing unions. What if two or more unions represented a bargaining group? What if a super-union emerged whose membership welcomed government workers from an entire state, or entire profession, or the entire nation. What if these super-unions embraced a political agenda that ran counter to the left-wing agenda that has dominated public sector unions for decades?

The possibilities are tantalizing.

What if faculty members in America’s colleges and universities had the option to join a conservative union with a national membership that advocated a return to pro-Western college instruction, an end to reverse discrimination, a restoration of academic merit as the sole criteria for admission and graduation, and the abolition of divisive courses of study that offer no useful skills? What if conservative faculty members who have been silent all these years had the power of a national union to protect them from the Left?

What if K-12 teachers across America had a national union to protect them when they objected to curricula designed to turn immigrant children against the people and traditions of their host culture? What if police and firefighters across America had a national union that advocated unequivocally for a merit-based system of immigration? What if civil engineers across America had a national union that was implacably opposed to the environmentalist extremism that has doubled the cost of infrastructure projects and quadrupled the time it takes to complete them?

Enforcing Janus will begin to undermine public sector union power, which is deployed almost exclusively in the service of the Left. Enforcing Uradnik may actually create a balance of power between public sector unions that lean Left vs Right, and that, in turn, would represent a seismic shift in the political landscape of America. At the least, it would neutralize the tremendous boost that public sector unions have given the political Left in America. At most, it might create a hitherto unthinkable consensus in America that public sector unions are indeed inherently political, and have far too much political influence, and must be subject to draconian restrictions including losing the right to collectively bargain, if not complete abolition.

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Union Members Should Want Pro-Business Policies

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AUDIO: A discussion of public sector unions, how they are harming ordinary Californians, and how an insurrection within these unions could create a win-win scenario. If public sector union leadership truly embraced pro-business polices to lower California’s punitive cost-of-living, everyone would benefit – 37 minutes on 1380 AM KTKZ Sacramento – Edward Ring on the Phil Cowan Show with Katy Grimes as guest host.

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The Price of Public Safety

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There is nothing wrong with paying a premium to public safety personnel because of the risks they take. And while it is true there are other career choices that are riskier than public safety jobs, and while it is also true that on average, public safety personnel in California – according to CalPERS own actuarial data – have life expectancies that are virtually the same as the rest of us, it is still appropriate to pay public safety personnel a premium. After all, we never know when these people may stand on the front lines when something extraordinary happens – such as what occurred in New York City on Sept. 11th, 2001. People who work in public safety live with this knowledge every day, and they should be compensated appropriately for that.

The question is how much of a premium is appropriate, and how much of a premium can we afford as a society? Should a fire fighter make more than a medical doctor? Should a police officer make more than an engineer?

In order to get an idea of what public safety employees in California actually make, I obtained a roster that showed the total compensation paid to each employee of a Southern California city. Out of respect for the employees noted on this roster, I won’t identify the city, much less reveal the names of these individuals. And it is fair to state this city probably has a median income somewhat higher than the average for California. It would certainly be interesting as follow-up to obtain this sort of information for other California cities. But even taking all of these factors into consideration, the amounts these folks are making is startling – particularly when you adjust for realistic current year funding obligations for future retirement health and pension benefits.

In our example city, using actual data, the fire department has about 100 full time positions. The average annual compensation for these firefighters, if you include current benefits and current funding for future benefits, is $179K per year. But it doesn’t end there, because the pension funding percentage is calculated at 34% of earnings. As argued in “Maintaining Pension Solvency,” if you calculate pension funding requirements for a safety employee in California based on after-inflation returns of 3.0% instead of CalPERS official rate of 4.75%, you need to increase the pension withholding as a percent of payroll by 20%! Making this adjustment yields an average firefighter compensation of $202K per year. And even this figure probably fails to adequately account for current funding requirements for future supplemental retirement health benefits.

For our example city’s police department, using actual data, the police department has about 150 full time positions. The average annual compensation for these police officers, if you include current benefits and current funding for future benefits, is $174K per year. If you increase the pension withholding percentage by 20%, in order to reflect realistic rates of future pension fund returns, you will calculate an average police officer compensation of $197K per year – again, probably not including enough to fund future supplemental retirement health benefits.

It is important to emphasize these amounts – roughly $200K per year each – are not for senior management, or even senior employees. This is the average, taking into account entry level public safety employees as well as senior public safety employees.

It is interesting to note what the rest of the employees, the non-safety personnel, make in our sample city – making the same adjustments, their total compensation averages $118K per year. That is still quite a bit, considering many of these jobs are relatively unskilled. To put this in perspective, the average private sector worker in California averages $40K per year in compensation – one third what the non-safety workers average in our sample city.

Should a non-safety local public employee workforce, one including a large percentage of relatively unskilled positions, have an average compensation per employee of $118K per year? Should safety employees make, on average, $200K per year? Can we afford this?

What is clear over the past several years is that as pay stagnated in the private sector, public sector employees continued to receive regular cost-of-living increases. Over the past 10-15 years, public employees also received dramatic increases to their retirement benefits. And as housing prices soared, millions of Californians borrowed against their home equity, and many of them are now paying dearly for that mistake. There are undoubtedly many public sector employees who were caught up in the borrowing frenzy, and are now on the edge financially – but it is fair to wonder why they should be immune from the same cutbacks that have left so many people in the private sector unemployed, or under-employed, or compensated at rates that are a fraction of what they were during the bubble booms.

It is also fair to wonder why public sector employees should not be obligated to plan and prepare and save, if they want a comfortable retirement. For non-safety personnel in public service, it is fair to wonder – since they now make more, not less, than private sector workers for similar work requiring similar skills – why in their retirement they shouldn’t simply collect social security and medicare like the rest of us. And even if public safety employees should collect something better than social security in recognition of their role as first responders, it is fair to wonder why their retirement pensions should be literally five times more than the social security payments due retired private sector workers with similar salary histories. As documented in “Funding Social Security vs. Public Sector Pensions,” the fiscal crisis facing social security is trivial and easily solved, whereas the fiscal crisis facing public sector pensions is catastrophic and can only be solved either through massive benefit cuts or crippling new taxes.

It is difficult to dispute the contention that the price of public safety cannot be too high. It is difficult to overstate the appreciation anyone should feel for people who stand between us and chaos – the people who protect us, the people who rescue us, the people who save our property. But those people themselves should understand the price we’re currently paying is elevated because of collective bargaining and overwhelming political clout, and is dangerously out of touch with market realities. It would be helpful for everyone to consider the choices involved – cuts to pay and benefits vs. cuts to services, cuts to pay and benefits vs. crippling taxes and economic decline, cuts to pay and benefits vs. investments to advance our technology, our infrastructure, and our military security. All of these elements must be balanced, yet are currently grossly out of balance, because in one way or another, all of them may quite legitimately be described as issues of safety and security for California and the nation.

The Razor’s Edge – Inflation vs. Deflation

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Deficit spending has been touted as a potential driver of inflation, because only with devalued (inflated) currency can we hope to erode the real value of our mounting levels of government debt. Continuing to print U.S. dollars, it is claimed, can only lead to too many dollars in the system, and hence a devalued dollar. We should be so lucky.

A few years ago, in Sept. 2007, in a post entitled “Inflation vs. Deflation,” I cited a recent (at the time) quote from Paul Kasriel, an economist with The Northern Trust Co. in Chicago. He explained the danger of deflation quite well, describing what happened in Japan:

“Japan experienced a deflation in recent years because the bursting of its asset-price bubble in the early 1990s created huge losses in its banking system. The Japanese banks had financed the asset-price bubble. When it burst, the debtors could not keep current on their loans to the banks and therefore were forced to turn back the collateral to the banks. The market value of the collateral, of course, was less than the amount of the loans outstanding, thereby inflicting huge losses of capital to the Japanese banks. With the decline in bank capital, the Japanese banks could not extend new credit to the private sector even though the Bank of Japan was offering credit to the banks at very low nominal rates of interest.”

Another way to put this is as follows: Liquidity is a function of two factors, money supply and collateral. But the impact of available collateral is far more critical to maintaining liquidity than the money supply. Let’s suppose the entire privately held asset base of the United States is 25 times GDP – it’s probably worth much more than that, but let’s use these multiples – this suggests that the total private collateral in the U.S. is worth nearly 400 trillion dollars. On the other hand, let’s suppose the combined deficit spending – otherwise known as “stimulus” spending – in the U.S. is 10 trillion dollars per year – it’s much less than that, at least so far. Yet this 10 trillion dollars, in terms of liquidity, is a mere trickle compared to the value of the collateral, which is the basis of credit lending. What happens if entire sectors, such as the housing sector, decline in value by 50% or more? What if the entire asset base of the U.S. declined by 50%? Can a ten trillion dollar annual trickle of newly minted dollars make up for a decline in the borrowing base (the asset base) of 200 trillion dollars? No chance. This is what happened in Japan in the 1990s, this is what happened in the United States in the 1930s, and this is the specter we face today. Deflation is the devastating scenario that every fiscal and monetary policymaker in the United States is doing everything they can to avert. Inflation would be a cake-walk by comparison.

To further understand why deflation looms as a greater threat to the U.S. economy than inflation, consider what additional bubbles still remain in the U.S. economy. Two huge sectors come immediately to mind – the municipal bond market, and the commercial real estate market. Municipal bonds are at risk of default because public entities, nearly everywhere in United States, are on the verge of bankruptcy. The reason they teeter on the edge of bankruptcy is because these public entities have negotiated pension and compensation plans for public sector workers that are far more generous than anything available to ordinary workers or professionals in the private sector, and these inordinately expensive personnel costs have now far outstripped the willingness or the capacity of taxpayers to pay through even higher taxes. Barring dramatic and immediate reforms – lowering compensation and benefits in order to eliminate these deficits – municipal entities in much of the United States are on a collision course with bankruptcy. If they default on their bond payments, the value of municipal bonds will collapse. Meanwhile, investment has been pouring into bonds as the returns on equities have corrected. The bond market in general, and the municipal bond market in particular, is a massive asset bubble that is on the verge of bursting.

The commercial real estate market is in similar danger. Currently landlords are enduring high vacancies but are, in general, refraining from releasing space at lower rates. They know that if they lower leasing rates for their space, this will cause the value of their commercial property to be reassessed, reducing the amount of collateral their property will support. This reduction, in turn, will trigger calls for principal reduction payments by banks who service the mortgages on these properties, since lowered property values can put property owners into default on their loan covenants. A similar situation already exists with residential properties, except in this case instead of tolerating vacancies to keep rates high, banks are holding foreclosed properties to avoid flooding the market which would cause the price of residential real estate to drop even further. It is difficult to overstate the threat of deflationary impacts if any these precarious situations snowball, once a breach occurs.

Another potential bubble of staggering magnitude is the public employee pension funds. It is ironic, that public sector unions, who pretty much control the messaging in elections (which they buy, using taxpayer’s money), in our public schools, and through their supporters in the media, have taught the gullible among us to loath capitalism, resent private wealth, and vilify Wall Street, yet their public employee pension funds are now engaging in perhaps the most irresponsible example of casino capitalism yet. Rather than support reducing the bloated pension benefits they are currently obligated to fund, and rather than accept a conservative real rate of return on their investment portfolio of 3.0% per year, the public employee pension funds are engaging in investment activity that is riskier than ever in a desperate attempt to reflate their asset base. Read this from Pension Pulse’s Leo Kolivakis, written on March 9th, 2010, in a post entitled “Public Pension Funds Doubling Up to Catch Up“:

“Private pensions are in no mood to crank up the risk, but public pension funds are back to business as usual, and even looking to leverage up to obtain their magic 8%. Many public plans are still sticking to the motto that more private market assets will lead them out of their troubles. They’re in for a nasty surprise. Last January, I wrote that the alternatives nightmare continues, and I don’t see it getting much better. In fact, as mighty endowment funds like the Harvard Management Company look to unload real estate and other private equity holdings, private markets will likely suffer a long drought, especially since public markets are not going to deliver anything close to what they delivered in the last 30 years. So what are public pension funds doing? Cranking up the risk, investing in failed banks, leveraging up, shoving more money in private equity and hedge funds, whatever it takes to achieve that insane 8% average annual return they’re all still fixated on.”

Bonds, real estate, and pension funds, ultimately, are all collateral – the primary engine of liquidity. Over the long-term, the only way to stabilize the value of collateral is to establish a sustainable positive cash flow. When the financial history of early 21st century America is written, it is interesting to wonder how historians will characterize the behavior of public sector unions, who were indifferent to deficits, who were incestuous with Wall Street, who rode the waves of unsustainable debt and deficit-fueled phony booms to guarantee their members would enjoy magnificent benefits calibrated on bubble values, but contracted to endure even after the bubbles burst. Will the refusal of all-powerful public sector unions to embrace fiscal reform be seen by future historians as contributing to the collapse of the bond markets, the pension funds – and under the burden of new taxes instead of reform, property values, as the nation’s collateral imploded? At the least, it is fair to say that what today’s leadership of public sector unions decide – whether they embrace concessions for the sake of the nation, or not – is one of the biggest opportunities remaining to avert further financial calamities.

The Conspiracy of Cowardice

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One may search for the answer to the Republican riddle across America – how to attract all those suddenly disaffected independents and moderate Democrats. After all, the political pendulum only seems to be impelled by repellent forces, never by attractive ones. And what might attract anyone to the Republicans, simply because the Democrats have become repellent?

Closer to home, in lovely California, a state so beautiful that even native sons who ought to know better can’t seem to leave, the Republican failure is easy to grasp. Republicans, nationally and in California, never fought more than half the war – they did, at the least, a defensible job fighting taxes, but never effectively fought spending. The result is deficits – and borrowing is spending, as underwater homeowners along with bankrupt municipal governments are painfully discovering.

A tragic example of just how far from leadership, legitimate populism, or genuine convictions the conservative leadership in California has sunk is the plight of the public sector union reform initiative that still needs signatures to qualify for California’s November 2010 ballot.

There is not one conservative political insider who doesn’t believe the “Voluntary Political Contribution Initiative” is a long overdue reform to California’s political system. Nobody. This initiative will dramatically curtail the ability of California’s public sector unions to use member dues to engage in political activity. Currently California’s public sector unions collect nearly 1.0 billion dollars per year in member dues, and they use a significant percentage of these funds to back the politicians and initiatives they favor. And what do they favor? Higher wages for public employees, better benefits for public employees, bigger government, no matter what the cost, so the public employee payroll continues to grow. To fight government spending is to fight government unions. Period. There is no way around this fact.

You could spend hundreds of paragraphs and thousands of words describing the despicable abuse that union control of California’s government has spawned. Firefighters who make more than brain surgeons, yet barely work full-time. Former police officers in their early 50’s who make more in retirement than successful working businessmen who put in 70 hour weeks and have bet their fortunes and their lives on creating and maintaining jobs for hundreds of workers. City managers who make more than the President of the United States. As quoted in an earlier post, one of the kings of big government, Willie Brown, is now saying “The deal used to be that civil servants were paid less than private sector workers in exchange for an understanding that they had job security for life… but we politicians — pushed by our friends in labor — gradually expanded pay and benefits . . . while keeping the job protections and layering on incredibly generous retirement packages.”

You don’t have to rely on Willie Brown, or the anecdotes here. Go to the best source for information on public sector union abuse available online today, www.pensiontsunami.com, and read the links to the many stories they post every day on this topic. Make sure you bring a cast-iron stomach, because if you don’t, you’re going to puke.

The conspiracy of cowardice doesn’t begin with the failure of Republican leadership to fight (union) spending along with fighting taxes, however, it only begins there. Today’s pending ballot initiative that would begin to fix this obscene mess has a slim-to-zero chance of getting onto the ballot in November – because it is being sabotaged by the conservative leadership who ought to be supporting it.

The leadership representing California’s associations of business interests, who already play an impossible game of appeasement with union interests, are urging wealthy conservative individuals and organizations to refrain from supporting this public sector union reform initiative. It doesn’t end there – people who claim to speak for Republican aspirants for high office in California are doing the same thing – apparently they are afraid having a genuine union reform initiative on the ballot will bring out more union voters, and diminish their chances.

This reasoning is not only sacrificing what is right for what is pragmatic – which is reason enough to write off California’s Republican leadership – it also reflects an inaccurate assessment of where California’s voters really are today. Because California’s voters get it. Not just TEA party activists or hard-core conservative activists, but everyone. It is now obvious to everyone that our civic entities are bankrupt because we are paying unionized public employees roughly (when you include the annual costs of funding their current and future benefits) two to three times what the rest of us make for work requiring similar skills. But the professionals don’t understand this – or choose not to.

What fiscal conservative voters in California need to bring them to the voting booth in November is an opportunity to vote for genuine statewide reforms. The public sector union voters will already be turned out. Those who weren’t “assisted” by their union operatives into casting absentee ballots will show up on election day, because there are countless grassroots local reform initiatives that they will be urgently and relentlessly enjoined to vote against. But conservative voters still need a reason to show up on the first Tuesday.

A sure thing that will bring out fiscal conservative voters is the Voluntary Political Contribution Initiative, because it will save California’s failed finances by standing up to our insatiable public sector unions. While there, conservative voters would also vote for those candidates who displayed the courage and conviction to back this initiative with their reputation and their treasure. What we are seeing instead from California’s supposed fiscal conservative leadership is political opportunism, careerism, political calculation, and appeasement; yet another betrayal of everything they supposedly believe in. Is this failure a conspiracy of cowards? Perhaps not. But it might as well be.