The Little Hoover Commission, purportedly a bipartisan commission, issued the recommendation on Thursday that California’s state and local governments roll back pensions for existing employees and shift the pension burden to the workers.
Recognizing that an effort to reduce pensions for current workers would prompt legal challenges, the commission argued that public pension funds’ dire fiscal conditions necessitates themselves reducing benefits for current employees as well as merely reducing benefits for new hires. Creating a second tier is insufficient to address current fiscal problems.
“In another five years, when pension contributions from government are expected to jump 40 to 80 percent and remain at those levels for decades in order to keep retirement plans solvent, there will be no debate about the magnitude of the problem,” the report says.
The key findings include the fact that “pension costs will crush government.” They continue, “Government budgets are being cut while pension costs continue to rise and squeeze other government priorities.”
This is the key problem that the City of Davis is facing – pension costs will add roughly $7 million to the budget in the next two to three years. That is cost that will be added to a largely flat revenue projection and will have to be supplemented by cuts to current city services.
They argue, “Even with the introduction of two-tiered pension plans, barring a miraculous market advance, few government entities – especially at the local level – will be able to absorb the blow without severe cuts to services.”
This is the exact dilemma that the City of Davis is facing.
Furthermore, they argue that the math does not work, and while the investment losses certainly shocked the system, payroll growth combined with lowering of the retirement age, longer life expectancies, and other factors place the state’s largest pension systems into the dangerously underfunded category.
Moreover, they are concerned that the system lacks both discipline as well as oversight and accountability.
They write, “As pension portfolios shrunk and tax revenues plunged, nearly 200 public agencies in CalPERS continued to increase retirement benefits for current workers.”
This lack of uniformity, they argue, clouds transparency, invites mischief and abuse such as pension “spiking,” creates a compensation arms race among communities, and delegates complicated decisions to often inexperienced local officials..
Importantly they remain committed to defined benefit pensions, arguing “With needed reforms, defined-benefit pensions can remain a core component of public employee retirement plans.”
The group presents four basic recommendations.
First, “To reduce growing pension liabilities of current public workers, state and local governments must pursue aggressive strategies on multiple fronts.” These include giving state and local governments more authority, and slowing down costs by controlling payroll growth and staffing levels.
Second, they argue the need for a hybrid model. “To restore the financial health and security in California’s public pension systems, California should move to a ‘hybrid’ retirement model.” They continue, “The Legislature must create pension options for state and local governments that would retain the defined-benefit formula – but at a lower level – combined with an employer-matched 401(k)-style defined-contribution plan.” They argue that the defined contribution component “must be risk-managed to provide retirement security and minimize investment volatility.”
Third, “To build a sustainable pension model that the public can support, the state must take immediate action to realign pension benefits and expectations.”
These includes caps on salary that can be used to determine pension allowances or capping the pension itself to a level that is fair and reasonable, setting more appropriate eligibility agencies, and tightening the definition of final compensation to include a five-year average to prevent and discourage pension spiking, among others.
These include prohibiting “pension holidays” that allow government employers and workers to skip contributions when pension funds are flush, ending retroactive benefit hikes – increases should only apply to the future, splitting the employer and employee shares of contributions equally and limiting pension increases to those that are passed by a public vote.
Fourth, “To improve transparency and accountability, more information about pension costs must be provided regularly to the public.”
This report basically lays out everything that we have been reporting about the City of Davis for the last three years.
Earlier this week, more than one of the Davis Councilmembers recognizing the magnitude of the problems facing the City of Davis within the next three years, and basically said that the state needed to step in to help.
The problem that Davis faces is the exact problem laid out in this report – we face increased burden of paying for pensions based on salary increases and rate hikes, a second tier will not get us out of the problem and we need a way to freeze if not reduce costs for current employees.
Davis does not maximize employee contributes yet, but even when it does, city contribution will out-strip employee contributions by nearly a three to one margin.
I am not thrilled with the idea of the hybrid model, but it might be a way that we have to go. I agree with employee groups that pensions are one of the offsetting factors for generally lower salaries than the private sector.
The problem is that in the last decade, public sector salaries have soared while benefits have gone up, to the point where in some cases public sector employees now fare far better than their private sector counterparts. Shifting the burden more onto employees is a clear direction.
The most difficult part to implement will be rolling back pensions for existing employees. I believe that this can be done legally. There is no vested right to future benefits, only past benefits.
In other words, if you have worked for 20 years as a firefighter, you would still be entitled to 3% of your salary for each of those twenty years, but you are not in my view entitled to 3% of your salary in the next ten years. That is not a vested right and the state should be able to roll back future pension benefits.
The other problem that this fixes, again in the future, is the retroactive benefit hikes. When the City of Davis moved to 3% at 50 for public safety workers, they did that not only for future years of employment, but retroactively, so it impacted every year.
The problem is that those back years were not funded at the higher rate, so in essence the retroactive benefit hike is a gift of public funds because it was not budgeted in the past and there were no contributions. Thus, the benefit hike instantly created an unfunded liability that will come due for cities like Davis down the line.
The reaction to these proposals obviously has been mixed. Republicans like Senate leader Bob Dutton indicated that he was going to lean pretty heavily on taking up their recommendations.
According to Jon Ortiz of the Sacramento Bee, “Public employee unions counter that guaranteed pensions make up for government’s generally lower wages. They say the Little Hoover report and politicians like Dutton overstate the pension problem to pursue an anti-union agenda and undercut collective bargaining.”
“Our members – who are taxpayers, too – bargained in good faith and reached an agreement including key pension changes and concessions,” said Brady Oppenheim, spokeswoman for the California Association of Psychiatric Technicians. “If there is a call for further concessions, it should come through the collective-bargaining process and be taken to the bargaining table.”
On the other hand, reformers like Marcia Fritz, president of the California Foundation for Fiscal Responsibility said “This is amazing. It just validates everything we’ve been saying for years.”
Now the question is whether the Governor and legislature have the political will to act on these recommendations, which would help to save local communities like Davis from possible fiscal calamity.
—David M. Greenwald reporting
“Now the question is whether the Governor and legislature have the political will to act on these recommendations, which would help to save local communities like Davis from possible fiscal calamity.”
No, not a chance.
First of all I think you do a disservice to your readers by not providing a link to the actual report. Here it is: [url]http://www.lhc.ca.gov/studies/204/report204.html[/url]. Secondly what you left out here is that the “hybrid” model has been standard practice for Federal employees since 1987. And finally (for now), there are over 1500 entities in the CalPERS ‘universe’, an unwieldly situation in the best of circumstances, and just plain stupid when compounding the problem with barely-trained, non-professional negotiators in most jurisdictions.
I recommend everyone read at least the Executive Summary (from where it appears both David and Jon Ortiz got their information) before reacting for or against what appears to be a rational approach.
rusty49: The *rational* legislators, and this most rational of Governors will definitely sign on to overhauling the pension system. This LHC report is just the first shot. There is another coming from the Bureau of State Audits on the same topic. It won’t be rushed – after all, it took us 30+ years to get here – but the overhaul is coming this year. We are definitely out of time.
Good Job Little Hoover.
I am both more optimistic and pessimistic than Rusty. I think we will make some progress (on the heals of events in other states like Wisconsin and the threats of some municipal bankruptcies).
I am also more pessimistic since the best evidence indicates that stock returns will be far lower than CALPERS estimates–even if it lowers its forecast to 7.25%.
PEUs better get on board here. Frankly if we don’t do something now our entire pension scheme will unravel. I particularly like the commission’s suggestion that some sort of caps be placed. Its absurd that the public should subsidize six figure pensions.
No one should be robbed of their pension and if someone wants to opt out into a defined contribution option that would be fine. But the benefits CALPERS and others have guaranteed are far in excess of what employee/employer contributions can sustain. Folks with lower pension deserve some public subsidy; others should be able to fend for themselves.
not far enough… deal with the legal challenge and go after existing benefits…
[i]”The Little Hoover Commission, [b]purportedly a bipartisan commission[/b], issued the recommendation on Thursday …”[/i]
There are exactly 6 Democrats and 6 Republicans ([url]http://www.lhc.ca.gov/about/commis.html[/url]) on the commission right now. One seat is vacant.
Here is some Little Hoover background ([url]http://www.lhc.ca.gov/about/about.html[/url]):
[i]”The Little Hoover Commission, formally known as the Milton Marks “Little Hoover” Commission on California State Government Organization and Economy, is an independent state oversight agency that was created in 1962. The Commission’s mission is to investigate state government operations and – through reports, recommendations and legislative proposals – promote efficiency, economy and improved service. The Commission’s creation and membership, purpose and duties and powers are enumerated in statute.
“By statute, the Commission is [b]a balanced bipartisan board[/b] composed of five citizen members appointed by the Governor, four citizen members appointed by the Legislature, two Senators and two Assembly members.
“The full Commission selects study topics that come to its attention from citizens, legislators and other sources. In addition, it has a statutory obligation to review and make recommendations on proposed government reorganization plans.
“The Commission’s role differs in three distinct ways from other state and private-sector bodies that analyze state programs:
•Unlike fiscal or performance audits, the Commission’s studies look beyond whether programs comply with existing requirements, instead exploring how programs could and should function in today’s world.
•The Commission produces in-depth, well-documented reports that serve as a factual basis for crafting effective reform legislation.
•Based on its reports, the Commission follows through with legislation to implement its recommendations, building coalitions, testifying at hearings and providing technical support to policy makers.
Under the direction of a subcommittee of Commissioners, staff conducts research by bringing key players together for discussions, contacting experts, reviewing academic literature and interviewing those most closely affected by the targeted topic.
“Based on preliminary research, the subcommittee identifies key issues and oversees the creation of public hearings to explore all sides of the issues in an open setting. The public hearings serve to inform the Commissioners and educate the legislators, the public and the media about the problem areas. The subcommittee develops findings and recommendations that focus on the key issues and forwards a draft report to the full Commission for its consideration. The Commission, as a whole, may make changes before adopting and releasing the final report.
“The Commission works to implement its recommendations either through legislation or administrative changes. New hearings are held and progress reports are issued in the years following the initial report until the Commission’s recommendations have been enacted or its concerns have been addressed.”[/i]
dmg: “According to Jon Ortiz of the Sacramento Bee, “Public employee unions counter that guaranteed pensions make up for government’s generally lower wages. They say the Little Hoover report and politicians like Dutton overstate the pension problem to pursue an anti-union agenda and undercut collective bargaining.”
“Our members – who are taxpayers, too – bargained in good faith and reached an agreement including key pension changes and concessions,” said Brady Oppenheim, spokeswoman for the California Association of Psychiatric Technicians. “If there is a call for further concessions, it should come through the collective-bargaining process and be taken to the bargaining table.””
The collective bargaining process employed by many unions is neither fair nor rational. Take a look at Davis as a perfect example. Campaign contributions, incestuous connections, conflicts of interest – made for the perfect storm, which has now arrived. I applaud the LHC’s recommendations; and continue to be disgusted at the unions’ intractability and complete denial of what is going on in this dire economy. In fact, unions normally at each other’s throats are now gathering and spending $30 million to fight state intitiatives like the one in Wisconsin to end collective bargaining rights.
From today’s Wall Street Journal: “Leaders of major public and private sector unions have agreed to set aside longstanding divisions and turf battles and coordinate in a campaign to counter challenges to their political and contract-bargaining power in a growing number
of states.
The plan requires each union to commit a certain amount of money to fund a $30 million campaign. Funds will be dedicated to paid media, lobbying, work-site leaflets, and a range of other campaign items, including opposition research into groups that unions believe could be funding state efforts to restrict union rights, such as the Koch Brothers, and the Scaife and Walton Foundations.
The coordinated effort got is start at a Feb. 14 meeting at the headquarters of the National Education Association, the nation’s biggest union with 3.2 million members.
At the meeting, about a dozen presidents of the nation’s biggest unions formed a group called the “Labor Table,” and signed onto a detailed “unity campaign,” which amounts to a contract among the unions outlining how they will mobilize rallies and other events in coming months.
The meetings involved officials of the Service Employees International Union, American Federation of Teachers, the Communications Workers of America, the United Steelworkers, the International Association of Machinists and the International Brotherhood of Teamsters, among others, according to someone familiar with the meeting.
“Because of the unique nature of this fight—with multiple threats in multiple states—it is imperative that we are agile, focused and aggressive in our efforts. We must go on offense and not just defend as our opponents chip away at workers rights,” says a document that union presidents signed onto.
Gerald McEntee, president of the American, Federation of State, County and Municipal Employees, and other union presidents have declined to discuss the meeting.
In an interview, James Hoffa, president of the Teamsters, which represents 1.4 million workers including 250,000 in the public sector, said of labor’s approach generally, “This is a coordinated effort to de-unionize the country so we have to fight back in the same way, in a coordinated effort.” Mr. Hoffa spoke to protesters Wednesday at Wisconsin’s capitol in Madison.
Continuation of Wall Street Journal article: A firefighter saluteed as he entered the rotunda of the capitol building in Madison, Wis., Wednesday.Unions spent $400 million in 2008 to help elect President Barack Obama and other Democrats, and they spent more than $200 million in the 2010 midterm elections.
In the fall, despite union efforts, Republicans took or retained control of state houses across the industrial Midwest, and regained control of the U.S. House of Representatives.
The initiatives by union leaders come at a time when their finances and their political power face one of the most substantial challenges in decades. Union membership in the U.S. has sunk to 11.9% of the work force, with more than half of union members working in government jobs.
Union leaders are trying to counter the pressure by arguing that all workers will suffer if unions lose the power to bargain for better wages, benefits or working conditions.
Union officials say it’s essential to work together to block bills in Wisconsin and Ohio that would curtail collective bargaining rights for public workers, and right-to-work legislation introduced in 13 states, including New Hampshire and Missouri. Those bills would allow workers in the private-sector to opt out of paying dues or belonging to a union. Such legislation threatens the unions’ funding and their political clout heading into the 2012 elections.
“If we lose in these states, then they’ll be coming after us for more in the private sector as well,” said Thomas Buffenbarger, president of the machinists union, who has questioned whether public-sector unions appreciated the sacrifices private- sector unions like his have made. “Now, I think the public sector has a better understanding of what we’ve been facing.”
The labor fights are also set to expand to states like Tennessee and Florida, where bills are being considered in Republican-led statehouses to eliminate bargaining rights and job protections for teachers.
“Florida is just going to be Wisconsin with a suntan,” said Karen Aronowitz, president of United Teachers of Dade, which represents 32,000 teachers and support personnel in Miami-Dade County.
The efforts by union leaders to reinforce solidarity are in part a response to signs of divisions between private-sector union officials and their public-sector counterparts.
In New York state, Gary LaBarbera, head of the construction trades council, is backing Gov. Andrew Cuomo’s fiscal-tightening plans to cut spending and cap property taxes.
Continuation of Wall Street Journal article: But for the most part, the coordination of unions has extended from union presidents down to individual members.
Unions on the front lines of the fight in Wisconsin have sought this week to show they are united, even though Mr. Walker’s proposals would affect some unions less than others.
In Madison, Wis., off-duty police and fire fighters exempted from Gov. Scott Walker’s proposal to cut public-employee bargaining rights have been chanting “kill the bill” alongside teachers and other state workers.
Because of the need to coordinate around the fast moving state battles, the AFL-CIO on Tuesday night decided to relocate its winter meeting, which had been planned for the first week in March in Orlando. It will meet during the same week, but the event will be in Washington.
Lawmakers and governors pushing for budget cuts and limits to union power in Wisconsin, Ohio and Indiana showed little inclination to back down Wednesday, although a right-to-work bill in Indiana fell victim to a Democratic boycott that blocked action on the measure.
Indiana Republican state House member Jeff Espich said voters spoke in November in many states by electing Republicans who promised to bring more fiscal discipline to budgets and weren’t afraid to take on unions. “I think the election truly said that people want a return to local control rather than at the national level,” he said.
Write to Kris Maher at kris.maher@wsj.com and Melanie Trottman at
melanie.trottman@wsj.com
Copyright 2011 Dow Jones & Company, Inc. All Rights Reserved
[i]”Frankly if we don’t do something now our entire pension scheme will unravel.”[/i]
CalSTRS is far along the road to insolvency ([url]http://www.mercurynews.com/news/ci_17446295?nclick_check=1[/url]). I have no idea if the teacher pension system will be saved. Unlike CalPERS, which has the authority to raise member employer rates, CalSTRS cannot do that. They can ask the state for more money–but that is money the state does not have. Moreover, because CalSTRS has assumed an 8% ROI, its underfunding is even more dire than CalPERS (which has 7.75%).
If they asked me how to fix that fund, I would suggest (if it is legal) to immediately cut the pension payments to all current retirees by 25% or 30% and to cut back the starting pensions of all current teachers by that same amount. That would get rid of most of the underfunding problem at present. If the fund then started making better returns on its investments, they could increase the pension payments (and starting pension amounts) up to a sustainable level.
If they don’t change course fast, I don’t see how CalSTRS does not go under.
[i]”I am not thrilled with the idea of the hybrid model, but it might be a way that we have to go. I agree with employee groups that pensions are one of the offsetting factors for generally lower salaries than the private sector.”[/i]
You agree with them? Tell me a single job in which the dollars per hour worked in the public sector does not have higher comp than the same basic job in the private* sector?
*Note that by private sector I means jobs in the economy which don’t depend on government funding or government policy. You could take someone who is, say, a lawyer for the government, and shift him over to some sort of lobbyist or consultant in the “private” sector and she would make far more money (generally trading on personal or insider knowledge). But as I see things, those are not “private sector” jobs. Take a administrative position like a department head or a secretary (regardless of title–things like “deputy chief”) and let that person go into the real free market and work real hours with far less vacation time and no things like “management leave” and no pension and so on, and add it all up and divide by actual hours worked and every time you will see that the public sector employee makes far more money in total comp–in most cases at least double.
Musser: disgusted at the unions’ intractability
Let’s be honest here. What you are really advocating is a return to last century wages and benefits. The ‘don’t raise the drawbridge lower the river’ method of economic tyranny.
“Let’s be honest here. What you are really advocating is a return to last century wages and benefits. The ‘don’t raise the drawbridge lower the river’ method of economic tyranny.”
Let’s be honest here, if we don’t get PEU pensions under control we’re going to go broke.
Here is how we would do it in private industry:
Problem: unsustainable high employee compensation and benefits.
Solution(s):
– First, recognize it is a business and not a care facility for working adults.
– Reduce company-paid benefits.
– Do market studies on compensation and make adjustments to optimize salary expense.
– Reduce budgets across the board and require greater productivity (e.g., layoffs and consolidation of responsibilities)… do this every year for several years. Note that the “doing more with less” management requirement will force function heads to retain the highest value employees.
– Outsource high-cost company functions to lower cost providers.
How we do it in the public-sector is like driving a bus with 100 steering wheels and 10,000 drivers – one-third of them drunk another third high on meth and the last third asleep – to 1,000 destinations that we never get to.
Does anybody know why Vallejo did not touch pensions in their bankruptcy settlements?
Musser: “…disgusted at the unions’ intractability…”
Neutral: “Let’s be honest here. What you are really advocating is a return to last century wages and benefits. The ‘don’t raise the drawbridge lower the river’ method of economic tyranny.”
No, I am advocating for unions to start being reasonable and make some wage/benefit concessions in this dire economy, or else find themselves out of work/without collective bargaining rights. If unions would be more reasonable, they would not be attracting such a vitriolic public backlash… unions are becoming the architects of their own downfall…
[i]”Let’s be honest here. What you are really advocating is a return to last century wages and benefits. The ‘don’t raise the drawbridge lower the river’ method of economic tyranny.”[/i]
Playing off Americans overwhelming ignorance of economics and economic history, the unions have perpetuated a huge myth: that without them, improvements in working conditions and wage increases never would have happened in the United States, and even more arrogantly, the U.S. would not have had a substantial middle class but for trade unionism.
Every one of these claims by the unionists is false. It’s a complete misunderstanding of the relationship between MpL and real income growth. And it of course ignores the truth that in periods of declining union membership median incomes grew fastest, while in periods of increasing union membership incomes grew slowest.
That is not to say that, while the game is on, unions don’t bring about real tangible benefits to their members. They do. All else held equal, a typical worker is far better off with a union contract than no contract or a non-union contract.
The problem is, as the history of every unionized industry has shown, the game cannot last under those conditions. That is why every heavily unionized private industry in the United States has either been in decline for most of the last 50-60 years or has mostly left our shores*. And if allowed by law, non-union competition will come in and make a better product for less money and take away the unionized industry’s market share.
The one unionized sector of our economy which, up to now, has not been in steep decline is the public sector. Yet, due to the avarice of the unions and the cowardice of those in government who were supposedly “bargaining” with the public sector unions, this game appears to be up now. Our governmental institutions which have been highly unionized are all on the verge of collapse. And this can be directly traced to the politics and greed of the unions.
So what Elaine said is obviously true: “unions are becoming the architects of their own downfall.”
*An interesting example of a private sector industry which has largely killed itself with its avaricious unions is the California film industry. According to a friend of mine (and former boss) who grew up in Davis and is now a Hollywood producer and writer, the union work rules and excessive wages have pushed a great percentage of film productions out of Los Angeles and very often overseas. One thing he told me about why filming in L.A. is impossible is that the unions require that specific employees only do very narrowly defined tasks. In other words, someone who is a sound-production assistant cannot help film-production assistants move cameras, because they are not sound equipment. Outside of L.A., especially in Canada, where the productions are non-union, the work rules are flexible and the wages are competitive. Over the course of a few months of shooting, a film production in Vancouver can cost half or a third of what it would cost in Hollywood. The result is not fewer jobs for actors or directors in Hollywood. They simply live a few months of the year in Canada or Spain or Michigan. The job losses are felt by grips and laborers and food-service providers in L.A., and they are marginally felt in the general economy of California.
Boone: Does anybody know why Vallejo did not touch pensions in their bankruptcy settlements?
Looks like it’s illegal. Bloomberg’s coverage looks best so far:
The lesson they’ve taken from the two-year- old case, which has cost Vallejo $9.5 million in legal fees and made it a nationwide symbol for distressed municipal finances, is that out-of-court negotiations yield better results.
[Source: [url]http://www.bloomberg.com/news/2010-12-14/vallejo-s-california-bankruptcy-failure-scares-cities-into-cost-cutting.html[/url]
See Gov’t Code 20487 @ [url]http://leginfo.ca.gov[/url]
“”As pension portfolios shrunk and tax revenues plunged, nearly 200 public agencies in CalPERS continued to increase retirement benefits for current workers.”
This resonates with me as the big-picture root cause. There is no real fiscal accountability. I wish I knew what it felt like to not have to worry about my management decisions causing the organization I work for to become financially insolvent. It must be nice knowing that it is always someone else’s fault and responsibility.
” there are over 1500 entities in the CalPERS ‘universe'”
I worked at VSP for six years… 20,000 docs, 10,000 company/plans and 55 million members/plan users. They have about 2,000 employees. Each company-customer was allowed to customize their plan… it was allowed within the broad framework (no pun intended) or their actual plan products… especially for the larger companies. Usually we did not charge for the work of customization even if we had to modify computer systems and business processes to accommodate. My job at VSP was the project and management interface between sales/marketing and IT. The IT staff used to howl at the changes requested and the timeframes… and then go to work. We made miracles happen every day to please our customers. This focus on giving the customer what they want, efficiently and affordably, is what has made VSP so successful. It is what most companies have to do these days to compete and survive.
When I hear explanations like “there are over 1500 entities in the CalPERS ‘universe'”; or “teachers have too many students in their classroom”… and I think of all the salaried people at VSP working 10 and 12-hour days to complete these system modification projects so we could please the next customer… it cements in my mind that the problems with the public-sector are endemic. They indicate that all government “business” will forever be lacking fundamental and natural motivations that will plague them to always be something less than what we need.
Boone: Does anybody know why Vallejo did not touch pensions in their bankruptcy settlements?
Looks like it’s illegal. Bloomberg’s coverage looks best so far:
If in fact statement is true, it should end any discussion about whether there should be collective bargaining. In private industry, ultimately there is an end to the resources of a corporation. If there is never an end to government resources, other than an overthrow, then I think unions have no place at a bargaining table for those resources.
Adam: In private industry, ultimately there is an end to the resources of a corporation.
On the contrary, at least insofar as a corporation has – or had – a defined benefit pension plan. Or hadn’t you heard about the [url]PBGC[/url]?
Apologies for the circular link to nowhere. Here it is: http://www.pbgc.gov/about/who-we-are.html
On the contrary, at least insofar as a corporation has – or had – a defined benefit pension plan. Or hadn’t you heard about the PBGC?
You missed at least part of my point – corporations are generally required to fund pension benefits as they are incurred, subject to lots of assumptions, include rates of expected return on the pension plan. If funding the annual pension burden (along with perhaps other issues) becomes too great, then a corporation can file BK, and could immediately end all of its future pension funding obligations. That is an entirely different situation than you suggested for Vallejo, where you state that it is illegal for Vallejo to curtail its plan.
Now, onto PBGC, the govt insurance fund for pension obligations. It is funded by insurance payments that employers are required to make to cover their plans. Once a company files BK and terminates its plans, PBGC may take over. However, it is hardly an insurance plan that guarantees all earned payments to plan participants. First, PBGC does not provide for ANY health care benefits. Secondly, the monthly payment due to a 65 year old retiring in 2011 is capped at $4500/month. Many folks who end up in a PBGC plan are paid only a part of what they were due under their pension plan.
These facts demonstrate that private industry pensions are significantly different than a government entity which cant end its overly burdensome pension plans.
The facts are very, very difficult for the PEUs and their pension plans. I don’t know if Wisconsin is pursuing the right path, but in the end, there needs to be significant curtailment of PEUs and government pension plans.
I am entering late and might get burned because I am missing something but let me state two things as I understand them about this situation.
1. This report:
http://epi.3cdn.net/8808ae41b085032c0b_8um6bh5ty.pdf
makes it clear that, controlling for education, hours worked and a number of other critical variables, total compensation in the public sector is less than in the private sector. Total compensation includes all benefits.
2. What this report misses (I think) is defined benefit plans that use ROIs that have become unrealistic given the current economic downturn (and about which Dr Wu often comments here). These defined plans are, effectively, raising the wages of public employees but I have not seen anyone estimate by how much.
I write these things because I think we need to stop bashing public employees as somehow overcompensated and pampered. They are not. They simply choose to defer compensation into the future. Are we now blaming them because those to whom we entrusted investment of part of their compensation used overly-optimistic return scenarios to calculate the amount of the benefit paid?
What do I have wrong here?
Finally, I have seen a great deal here about the political influence of unions. True. But how is it different (qualitatively) from the huge amount of political influence of large corporations, the Chamber of Commerce, the entire banking sector, etc? The political process is awash in cash–influence payments pure and simple–whether they come from unions or from others. Singling out unions is not particularly helpful. There is a much bigger problem here.
Regarding Jeff Boone’s comment ” I think of all the salaried people at VSP working 10 and 12 hour days to…”. Are you really suggesting that you think that working 10 to 12 hour days is a good thing for anything other than a company’s bottom line? I would suggest that this kind of work schedule is anything but beneficial to the employee , their spouse, children, and our community as a whole if we value family stability. I feel that your comment (unless I am misunderstanding) is a very eloquent example of why employees still need some kind of collective bargaining capability with employers whether public or private.
Tia Will
“I feel that your comment (unless I am misunderstanding) is a very eloquent example of why employees still need some kind of collective bargaining capability with employers whether public or private.”
No, I’d suggest that what Jeff was saying is that he was willing to spend extra time at work because he, being in the private sector, was motivated to further his career and was willing to put in the extra hard work for future compensation. Unions take that drive out of employees and many end up only doing enough to stay out of trouble and employed.
[i]”1. This report … makes it clear that, controlling for education, hours worked and a number of other critical variables, total compensation in the public sector is less than in the private sector. Total compensation includes all benefits.”[/i]
A few things about that report: First, it is from EPI, a left-wing think tank. So you know the results before the study was done. That does not mean their answer is wrong. It’s just one should know where EPI is coming from. Second, they throw off their own results by “controlling for education.” The comparison needs to be job-for-job. In many cases, such as a cop or firefighter, there is no possible comparison. In private sector jobs like a sales associate, there is no public sector equivalent. Third, they fail in this study because they bit off too much, looking at national labor statistics. There are many places in the United States where public employees are paid reasonably or even less than in the private sector. We just don’t happen to live in one of those places. In California, because of the extremely generous health benefits ($20,000 a year and more) and the pension plans (like 3% at 50), and the huge amount of vacation time, and the fabulous holiday packages, and the union bank hours scams and so on, the total comp for public employees is much greater per hour than it is for private. Just take the example in Davis of landscape maintenance workers. City employees get seven times as much per hour as their private equivalents in Davis. Seven times! Nothing could be better evidence for the fact that having a very strong union put up against a very weak management rebounds to the great benefit of the unionized public sector worker.
[i]”But how is it different (qualitatively) from the huge amount of political influence of large corporations, the Chamber of Commerce, the entire banking sector, etc? The political process is awash in cash–influence payments pure and simple–whether they come from unions or from others. Singling out unions is not particularly helpful.”[/i]
There is not too much difference if you compare say the UFW with the farmer’s lobby. Both of them are trying hard to corrupt the legislative process by purchasing influence.
But there is a serious difference comparing say the firefighters’ unions with a private large corporation like Google or IBM. The CPF makes its profits based on corrupting the elected officials it funds and defeating those it funds against. The fire unions are in the business of “negotiating” with the very people they financed to win elective office. By contrast, even though Google and IBM or other free-market companies try to corrupt the process by buying favors, they don’t sink or swim based on the decisions of elected officials. They are in the business of providing a product that either pleases their free-market customers or it does not. They are not using violence (taxpayer money) to get rich.
[i]”The fire unions are in the business of “negotiating” with the very people they financed to win elective office.”[/i]
Let me add this: the behavior of the public sector unions in buying influence is comparable to the behavior of defense contractors. Those companies rise or fall based on the decisions of the lawmakers they bought off.
Interesting article about Vallejo bankruptcy: http://calpensions.com/2010/03/26/bankrupt-vallejo-cuts-firefighter-pension-costs/
To Rusty 49
I think there is some truth to what you say, but I think you paint with too broad a brush. I have no problem with people who wish to devote extraordinary amounts of time to further their career. I chose that route myself. but, It has been my experience working in both the public and private sectors,both unionized and not, that there are strong performers and others who will do the minimum they can to get by in both settings.
I find it too simplistic to say that unions “take that drive out of employees.” I am currently in a position where I work with several unionized groups with many workers who go above and beyond for the simple reason that they take pride in their work. An under lying problem I see with these discussions is the adversarial approach that our society defaults to, not only in our legal system, but throughout our society. while it may be easier to fall back on our emotional responses and ingrained views of how the world works, I think it would be far more constructive to work collaboratvely rather than assuming and ascribing the worst motivations to those who have a different perspective.
To medwoman: Thanks for your thoughtful post. First let me thank rusty49 for understanding my point. Second, let me say that I agree with your point that there are high performing unionized public-sector employees and low performing non-unionized private-sector employees. I am talking about the system here, not the people. There is no fundamental difference, initially, between the humans that work in either system… except maybe for some nominal difference in their respective appetite for risk-taking.
What happens in many public-sector organizations, especially those covered by union employment agreements, is a mindset that the employee is entitled to certain pay and benefits regardless of the actual performance of the employee and more importantly, regardless of the financial health of the employing organization. This then leads to all manner of other ills; one of the most damaging being a significant disconnect between job performance and job security. Because of this, over time, you accumulate a larger percentage of low-to-moderate performers, and fewer high performers. The high performers quit because they cannot tolerate being dragged down by their lower-performing peers making the same and having the same job security. Or, alternatively, they stop being motivated and learn to manage their stress of this situation by doing just enough to get by. When there is no tangible upside to working harder, the average high-performing person will not continue to put in the extra effort just based on principle. There are exceptions, but not that many in my experience.
One of the most de-motivation factors in the workplace is to be surrounded by deadwood employees equally recognized for their contribution. What happens… the good employee starts to feel like she is working her ass off and she bristles at the suggestion that she is not as productive as the employee in the private-sector. However, much of the “hard work” she feels is a big bag of disappointment and discontent she drags along with her. She is not truly happy coming to work and so it takes all the gas in her tank to make it though the day. She still does better work than most of her peers, but she complains about too many kids in her class, and having too many problem kids. She is exhausted at the end of the day. Compare this to the private-sector gig where she would be recognized and rewarded for extra effort; it would actually energize her (provide gas). The public-sector employee feels victimized as an unrecognized hero; the private-sector employee feels like a recognized hero… a big difference.
But it is not all just a requirement for 10 and 12-hour days in the private sector. It is about accomplishment first… the hours are only a byproduct of what is sometimes required to get the job done.
Well-managed teams/companies/organizations know that there is a razor’s edge between negative performance stress and positive performance stress; between work culture hostility and healthy competition. Private-sector employees are trained by their system to first contribute to the company mission and then share in the success with higher performance bonus and profit sharing. Public-sector employees are trained by the system to expect to be paid first for any extra work, and let others be impacted by the success of failure to achieve the mission of their organization.
For more than two decades, I managed high performance project teams in medium-large private-sector companies. The average employee was highly motivated to achieve. Much of my job was looking out for signs of too much employee stress as the system provided plenty of motivation. The culture of the workplace was to constantly accomplish things… to work miracles for our customers. The average energy and enthusiasm was always very high. People worked the extra hours only when the projects required it… they grumbled sometimes, but still did the work because they knew it was their responsibility. My primary job as a manager was to provide the teams and employees what they needed, to eliminate management-level roadblocks, and to prevent job burnout from my most productive and valued employees. The other part of my job was to constantly grow and develop a capable, high-performing workforce… this meant vetting out those that could not keep up.
For about three years I contracted with a few state agencies as a project manager. Most of my time was spent chasing down key employees pleading with them to complete some necessary task. My job as a project manager was to constantly build some enthusiasm and urgency, and to motivate. It was much more difficult at these agencies. There were just as many smart people; but many more risk-averse, lazy, uncaring and unmotivated people. The high-performing people that did work there were either: new and not yet knowledgeable enough to be effective or capable senior employees resigned to the culture of “getting little done”. In fact, the reason I was hired as a contractor was due to their inability to organize and get things done. Most of the managers were hopelessly ineffective bureaucrats waiting for their retirement date. Knowing human resources well, I determined that about 40% of the managers and employees working in these agencies should have been fired, and would not have survived in the private sector.
Now, all these harder-working and more productive private sector employees are seeing the obscene pay and benefits given to their peers in the public sector. They are questioning the level of reward they receive in the private sector; and getting angry that Sue and Joe that went to work for a government agency after leaving a few years ago because they could not keep up, and are now making more and will be able to retire at age 58 with 90&#xof; their pay and full healthcare for the rest of their lives. When they also consider that the taxes they pay are what is funding this largess, and also that valued programs and infrastructure spending is being cut… well you can see why Governor Walker has plenty of support… just like Governor Mitch Daniels has had from the voters in Indiana.
As is often the case, I find myself in the embarrassing position of , as one friend put it ” being so far to the left that I have wrapped around to the right. I truly believe in the concept of individual responsibility. So much so that I do not believe that “the system” either private enterprise, or the public sector makes anyone respond in any
given fashion.
While we are not responsible for all of the external circumstances of our lives,we are entirely responsible for our attitude towards those circumstances. therefore I have little sympathy for any worker who resents the pay or benefits that a coworker or person who has opted for a different career path has achieved.
Clearly Jeff your experience with public vs private employees and staff has been very different from mine. In my experience the numbers of high achievers in the unionized vs non unionized groups has not been appreciably different. Which illustrates the limitations of generalizing from our own experience.
In my field,which happens to be medicine, we tend to attempt to be evidence based. So the question I would pose is, does any one have any actual data , not just anecdotal evidence which is all that I or anyone else has put forward so far, for productivity or public vs private sector
employees or managers ?
“does any one have any actual data , not just anecdotal evidence which is all that I or anyone else has put forward so far, for productivity or public vs private sector”
medwoman: have much experience do you have working in the non-uionized private sector? Lacking this would would tend to limit your ability to contrast experiences.
I don’t think you can win any argument that public-sector employed resources are more productive than private sector employed resources. We both migh have anecdotal evidence supporting our positions, but I am not aware of anyone arguing your position… I think it is accepted conventional wisdom that the private sector… especially US private sector… gets much more done with every dollar of capital than the public sector.
Some evidence (I can provide links if you need them):
The USPS compared to UPS and Fed-Ex.
According to the U.S. Bureau of Labor Statistics (BLS) National Compensation Survey, private-sector employees worked an average of 2,050 hours in 2008, 12 percent more than the 1,825 hours worked by the average public-sector employee.
According to BLS data, the quit rate is significantly lower in the public sector than in the private sector. Between 2001 and 2009, the public sector layoff and discharge rate is only about one-third of the private-sector rate.
According to the most recent Employer Costs for Employee Compensation survey from the U.S. Bureau of Labor Statistics, as of December 2009, state and local government employees earned total compensation of $39.60 an hour, compared to $27.42 an hour for private industry workers-a difference of over 44 percent. This includes 35 percent higher wages and nearly 69 percent greater benefits.
According to another BLS report, compensation for private industry workers has increased by 6.9% between December 2006 and December 2009, compared to a 9.8% increase for government workers (state and local) over the same period.
Data from the Bureau of Economic Analysis illustrate that average state and local government compensation has been increasing at a faster rate than average private sector compensation over the past 30 years.
According to an analysis by USAToday, “The number of federal workers earning six-figure salaries has exploded during the recession, according to an analysis of federal salary data.” For example, the number of federal employees making $100,000 or more has increased by 120,595, from 262,163 employees in December 2007 to 382,758 in June 2009, for a 46% increase. The number of federal workers making $150,000 or more has more than doubled since the recession started, from about 30,000 to more than 66,000.
Jeff,
First in answer to your very valid question about my experience: four years of experience in the private, non unionized sector in office work ,sales, private educational and rehabilitation facilities prior to medical school. Two years in the non arms bearing military as a general medical officer. 25 years as a doctor with Kaiser dealing with both unionized and non unionized groups.
I really appreciate the data that you provided. I also noted that none of it deals directly with productivity which was my question.
I would like to address some of these statistics from a view point which I suspect may differ from yours.
1) The BLS information on number of hours worked. To make a judgement with regard to this issue,one would first have to first decide what is the optimal number of hours to work. This may be quite variable depending on the type of work performed. For example , as we have learned to the detriment of many patients, more hours worked is not necessarily better if the worker happens to be a nurse, scrub tech or doctor who is exhausted.
2).” The quit rate …. ” I do not see this as necessarily being an indication of superiority of the private sector. there is much to be said for experience and a stable work force. I think the assumption here is that with a lower turnover rate, there is necessarily “deadwood”in the
System.
I Find it quite ironic that the idea of “deadwood” sometimes goes hand in hand with the idea that retirement ages should be raised.
3) relative increase in compensation rates. Again, I think that the first step in judging this comparison would need to be the decision of what increase would be optimal for any given job description. Perhaps it is not that public employee rates are too high, but that private rates are not high enough for the value of the job being performed. Impossible to know without a bench mark.
4) The USA today data. A bit one sided since you did not include data about the rate of increase in private sector employees whose compensation has increased into the six digits over the same time period.
With regard to “winning an argument” or whether anyone is “arguing”my position ….I think that you misunderstand me. I was not making an argument that public sector workers are more productive. This was an inquiry and perhaps an attempt to balance what I agree with you is the current “common wisdom” about public sector vs private sector workers. I always have a fair amount of skepticism about ” common wisdom”
Given how often iit has lead our society into unjust and indefensible decisions ( lack of child labor laws, slavery, and the internment of Japanese Americans to name three examples). And no, I am not equating the current debate to any of these. Just pointing out that failing to view a situation from any point of view other than our own bias and personal experience can have devastating consequences.
I’m not quite sure how
Interesting interview with governors Schweitzer (D Montana) and Daniels (R Indiana) on the PBS News Hour last night:
[url]http://www.pbs.org/newshour/bb/politics/jan-june11/governors_02-25.html[/url]
medwoman: good post. I misread that you were arguing that public sector employees were as productive or more productive than private sector employees.
I’m sure you know that exact apples to apples productivity statistics are not possible. For example, even the USPS and UPS do not match up in terms of services provided. However, you can use revenue per employee to get a general measure or productivity. For example, in 2009 USPS had 714,128 employees (623,128 “career” employees, and 91,000 “non-career staff”) and annual revenue of $69 billion.., for revenue per employee of $96,621.33). UPS had 400,600 employee and revenue of $45.3 billion for $113,080.38 per employee. So, UPS workers were about 17% more productive than USPS workers in 2009.
This is not some slam against USPS employees. However, watch a UPS drive do his/her business and then watch a USPS drive do the same. Note the difference in urgency and friendly customer service apparent in thier two work styles. I bet most USPS employees would say they work as hard.
UPS Workers.. GO TEamsters!!
Jeff,
It is precisely because we do not have direct comparisons that I feel it is not constructive to generalize about relative productivity. I actually haven’t noticed a difference between the work styles of the two groups that you mentioned. My interactions with both have been universally positive. And as a business man, I am sure you are aware that annual revenue has many more compoment factors than just employee productivity.
Tia
Coming in a bit late but have read with interest the commenters on this list.
First the disclaimers (or, if you will, biases): 10-year state employee + 3 in UC medical setting + 2 in VA; Dept. of Corrections, psychologist policy maker; etc. etc.
I find the general bias against public-sector workers to be uninformed and not helpful to the discussion about the need for pension reform. The general comparisons between public-sector workers and private-sector workers are ill-informed and off-base.
For instance, in a NY Times article this week it was pointed out that broad generalizations about public sector salaries and benefits, if they do not take into account education levels are misleading. In California college-educated workers make, on average, less than their private-sector comparison groups.
One of the best example I can think of are attorneys. The DPA website lists starting salaries for an Assistant General Counsel for the Ag Labor Relations Board at around $67K (see for instance: http://www.dpa.ca.gov/pv_obj_cache/pv_obj_id_94D2DC2340CEFC7D5D755D2FE7711F2DC7300F00/filename/section-15.pdf). The National Association of Legal Professionals salary survey for 2010 notes that the median first year salary for an associate in a private firm is around $115K (see: http://www.nalp.org/assoc_pi_sal2010). How about paralegals (who don’t have a law degree). The BLS notes that paralegals (who do not have a law degree) make about the same in the private as in the public sector (see http://www.bls.gov/oes/current/oes232011.htm).
So, the arguments made by some commenters need (in my humble opinion) to be more nuanced and better informed.
medwoman: Actually, revenue per employee is a common measurement used to determine worker productivity. Nothing is ever apples to apples… but this is as close as we need to confirm productivity. Note that UPS is strong and viable and growing, and the USPS has been shrinking and at risk of needing government subsidies to continue to exist. Also note that UPS and Fed-Ex have revolutionalized the shipping industry… the USPS is struggling to keep up with the new service levels.
Don: Great interview. Two different approaches. Two different states. Of course I am much more impressed with governor Daniels. Maybe a future GOP presidential candidate.
rdcanning: Welcome to the debate. Yes, level of education is a common defense of higher public-sector compensation. The public sector tends to be better educated.
There are two recognized problems with this logic:
One – the level of education attainment has limited impact on the level of pay in the private sector. Pay is generally only based on the role and the market compensation for the role. For example, two CPAs doing the same job at the same company – one with a Masters degree and the other with a Bachelors – both would more likely make the same or similar compensation.
Two – In the public-sector a large percentage of employees attain a higher degree than they require for the job. For example, many grade school teachers attain a Masters degree since this helps them advance in pay grade steps… even though they don’t actually require the higher degree.
racvet: “UPS Workers.. GO TEamsters!!
I used UPS instead of Fed-Ex for the reason of a closer comparison… Private-sector unionized labor versus public-sector unionized labor.
It is interesting how the Teamsters are paranoid about Fed-Ex’s non-union status and are doing everything they can to try and force Fed-Ex employees to unionize. It will be interesting how the two compete over the years… especially when UPS employees are up for a contract renewal and they decide to strike. Fed-Ex will certainly grab market share at that point.
medwoman/Tia: Read Rich Rifkin’s Davis Enterprise column on the compensation of Yolo County government employees. It should blow your mind.
“In the public-sector a large percentage of employees attain a higher degree than they require for the job. For example, many grade school teachers attain a Masters degree since this helps them advance in pay grade steps… even though they don’t actually require the higher degree. “
Show us the data to back up your assertion.
Don Shor: “Interesting interview with governors Schweitzer (D Montana) and Daniels (R Indiana) on the PBS News Hour last night:
http://www.pbs.org/newshour/bb…02-25.html”
Great interview. Each had their own way of doing things, and both seemed to be successful at it, assuming they are telling the truth. Just goes to show “one size does not fit all”. There is more than one way to “skin a cat” as the saying goes. The bottom line is public unions MUST BE MORE REASONABLE IN THEIR DEMANDS…
rdcanning: “Show us the data to back up your assertion.” [that too many grade school teachers acquire a Masters degree
No problem. However you should note that this information is very easy to research yourself.
Here is a good article with reference links to help you educate yourself on this topic: [url]http://californiawatch.org/dailyreport/1b-teacher-compensation-under-attack-6958[/url]
Note the following:
[quote]At least four out of 10 of California’s 305,000 teachers have a master’s degree or higher, according to a 2003-04 survey by the National Center of Education Statistics. The proportion is almost certainly higher today. (Nationally the proportion of teachers with more than a bachelor’s degree has risen from 40 percent in 1987 [PDF], to 43 percent in 1999-2000 and 49 percent in 2007-08, but no recent breakdowns are available by state.)
California spends an average of $8,977 in extra compensation to teachers with a master’s degree, according to a 2009 report [PDF] from the Center for Reinventing Public Education. The total cost to the state is nearly $1.2 billion dollars, which comes to about $187 for every public school child in the state.[/quote]
Jeff,
Thanks for the data. I wish you had gone on and quoted the California Watch comments about how higher education increases compensation in other fields. For instance:
“Business people with MBA’s typically earn more than those with just a bachelor’s degree…just as cardiologists who have completely intensive medical residences earn more than regular doctors.”
There is fairly good research that suggests that in medicine, specialization can lead to lower mortality (this is also “very easy to research yourself”).
I like the article you cited, because it goes beyond dollars and cents and looks at some of the nuances involved. It talks about the fact that we often don’t go beyond time served and education to determine salary, when we should try to figure out what makes for effective teaching. Which is a very difficult task.
I’m not sure if $187 per student is a good deal or not – as noted, the $1.2 billion is only 2% of what we spend on K-12 education in California. I would be interested to see what private sector folks like yourself say about the relative benefit of attaining an MBA. Does it increase effectiveness of workers in the private sector?
I would be interested to see what private sector folks like yourself say about the relative benefit of attaining an MBA. Does it increase effectiveness of workers in the private sector?
I worked for a company in the private sector for 20 years, and have an MBA. My experience is that the MBA helped me get a job in an industry in which I had little experience, because the degree implied some level of native intelligence, commitment and capability. Once in the job, it had nothing to do with my performance review or pay. In my particular industry, bonus accounted for 50 – 90% of total compensation, and bonus was based on my accomplishments for the year. Once I was in a management position, we used a “blind” process for allocating bonuses, and making employment termination decisions, so that we didn’t let “pedigree, gender or race” have undue influence
You state it had nothing to do with your performance review or pay. Did you mean to have a comma between “performance” and “review,” or not? Did the MBA make any difference in your efficiency or your work product?
The answers are no and no. Performance review is the annual written review by a supervisor. Bonuses were determined by work product, and only work product was evaluated. We had folks with MBAs and folks with high school education in similar jobs. Only skill and capability impacted performance and pay. Level of education did not determine productivity, as long as lower level educated folks acquired or had the same skills and productivity.
rccanning: “I wish you had gone on and quoted the California Watch comments about how higher education increases compensation in other fields.”
I am aware of the BLS statistics for people with a Masters degree, on average, making marginally more than people with a Bachelors degree. My point was that this was/is and an unnecessary need for grade school teachers, other than those teaching middle school and high school science and math. Like Adam Smith’s experience, I think most in the private sector use their education attainment to help them acquire jobs, and then it does not have any bearing on compensation. In fact, education-discrimination, like other types of discrimination, in the private-sector tends to be frowned upon.
You can certainly make the case that anyone attaining a Masters increases their potential to be a better performer. I support that view. If teachers were paid for performance, I would applaud a high percentage of them having higher degrees.
However, think about how ludicrous it is that we pay teachers only to attain a higher degree. Do I pay my CPA more to do my taxes because he acquired his MBA? If his performance was no better that his competition lacking a MBA, and his rates were higher, then I would take my business to his competition.
“$1.2 billion is only 2% of what we spend on K-12 education in California”
$1.2 Billion would make a nice performance bonus pool that would allow us to pay the top-performing teachers more.