Washington Matters


Public Worker Protests Won't Halt Benefit Cuts

Richard Sammon

Unions will be forced to yield on money issues if they want to hang onto any influence at all.



Raging and well-organized protests by public worker unions in Wisconsin, Michigan, Ohio, Indiana and elsewhere over proposed benefit and pension cuts won’t stop anytime soon.

But they won’t be all that successful, either.

Look for plenty of benefit cuts and concessions from public unions, not only this year, but for several years ahead, as many states face sustained budget shortfalls. Even some unions are privately saying givebacks are inevitable.

The bigger fight for public unions goes beyond money to the power and long-term viability of the unions themselves. Wisconsin Gov. Scott Walker, a Republican, isn’t the only state executive who wants to scrap collective bargaining rights for state employees. But he may be one of the few to get away with it. Many Republican lawmakers across the country might like the idea in principle, but in practice, many of them need the backing of some Democrats to win reelection and won’t push hard for it.

On the money issues, though, those who want cuts will prevail. For one thing, protesters overreach when they portray the fights in Madison and other state capitals as an assault on the working class. Unionized government workers represent about 5% of the U.S. workforce, hardly enough to stand for all workers. Also, government workers aren’t going to find many sympathetic ears when they complain about efforts to freeze their pay and make them contribute more toward their pensions and health insurance. Many private sector workers have already been there and done that.

Advertisement

The average hourly public employee who is covered by a union contract is paid $26 an hour, compared with $19 for a comparable worker in the private sector. On top of that is a generous pile of benefits that have been locked in over years of contract negotiations.

There are about 23 million active and retired unionized public employees, and some 80% of them participate in defined benefit plans that deliver often-generous monthly pension checks, regardless of the performance of the funds backing their plans. A typical public sector worker who sticks with the job until retirement receives a pension equal to 75% to 90% of his or her highest-salary years.

These public pension plans are ticking fiscal time bombs. They are underfunded by $2 trillion to $3 trillion (depending on economic assumptions) over 30 years. Nearly half of states have public pension plans that are less than 75% funded, and states have been reluctant to make large annual payments to those plans to free up at least some money for other parts of the stressed budget.

The pension deficit is on top of a combined $150-billion budget shortfall for states this year. A similar amount of red ink flowed last year. Nearly every state has already cut social services, stopped hiring, trimmed money for schools and made other cuts. There is so little left on the bone to trim that public worker benefits have to be in play.

To be fair, many of those benefits and contract enhancements came in years when states were flush, or at least far less strapped than they are now. But if these workers expect to be rewarded when times are good, isn’t it fair to expect them to give something back when they aren’t?

Indeed, if unions resist sharing the burden, don’t be surprised to see GOP governors and GOP-led state legislatures try to make them the villains behind every unpopular decision. Cuts in services to the needy? Property tax increases? Layoffs in law enforcement? More potholes? Less state aid for cities? The public employee union contracts will be blamed.

That won’t tell the full story, of course, but it does give elected officials some political cover.



Get Washington Matters by e-mail for FREE. Registered users on Kiplinger.com can sign up to receive more than 20 valuable updates. Register Now »

Editor's Picks From Kiplinger


More Sponsored Links


DISCUSS

Permission to post your comment is assumed when you submit it. The name you provide will be used to identify your post, and NOT your e-mail address. We reserve the right to excerpt or edit any posted comments for clarity, appropriateness, civility, and relevance to the topic.
View our full privacy policy


Advertisement

Market Update

Advertisement

Featured Videos From Kiplinger