March 26, 2010

Razzle Dazzle

Pensions a Beachhead For Class Warfare


Richard SteierThe cover of Barron’s last week featured a cop and a firefighter lounging on beach chairs and holding cocktails at some island resort beneath the headline, “Investors, Beware.” Smaller type said, “States and cities are going broke. One reason: gold-plated pensions for police, firemen, teachers and bureaucrats.”

The story by senior editor Jonathan Laing began, “Like a California wildfire, populist rage burns over bloated executive compensation and unrepentant avarice on Wall Street. Deserving as these targets may or may not be, most Americans have ignored at their own peril a far bigger pocket of privilege—the lush pensions that the 23 million active and retired state and local public employees, from cops and garbage collectors to city managers and teachers, have wangled from taxpayers.”

Several cute concepts are test-driven in the passage. One is the attempt to equivocate about whether rage over “bloated executive compensation and unrepentant avarice on Wall Street” is justified; another is the move to downplay the drain on the economy by the greedy boys who created a national financial crisis by arguing that “a far bigger pocket of privilege” can be found in pensions that public workers “wangled,” presumably by using something even more insidious than derivative swaps: the collective-bargaining process.

‘Leave Seniors Eating Dog Food’

Mr. Laing builds momentum as he goes, arguing that while the defined-benefit pensions are not affected by economic turbulence, defined contribution plans that offer retirement income for others are, and so “maybe some seniors will have to switch from filet mignon to dog food.”

And grandpa battling Fido for the daily meal isn’t the only dire consequence of what the article headlines as “The $2 Trillion Hole.” Cuts in public services are sure to bedevil local governments, Mr. Laing writes, some of which “don’t even have the courage to switch new teachers, bureaucrats and police to a defined-contribution system, to prevent the funding problems from worsening as time rolls on.”

He goes on to say, “Stories are rife around the country of various pension hijinks by public employees,” citing a fire chief in California “who boosted his annual pension from $221,000 a year to $284,000 by getting credit in his final earnings for unused vacation and sick leave.”

The unusually large pension allowance is supposed to leave readers so stunned that they don’t ask why putting the unused leave time to an employee’s advantage amounts to “hijinks,” rather than a product of the bargaining process that acknowledges that an employer benefits by having workers

whose attendance is so good that they retire with significant leave balances that can buttress the size of their monthly checks.

It would be easy to dismiss the piece as a screed against public workers disguised as a straightforward news report from a publication known for its hard-right ideology even before it came under the talons of Rupert Murdoch’s media empire. But a day after it appeared, New Jersey Gov. Chris Christie used his budget speech to offer a ringing denunciation of public-employee unions for having played a lead role in creating his state’s $10.7-billion budget deficit.

He vowed to veto any proposal to increase taxes to cover that hole, instead proposing a 9-percent cut in state spending that would include 1,300 layoffs—from a state workforce of 65,000—next January, and pension system reductions that would include the repeal of “an unwarranted 9-percent pension increase” that his fellow Republicans approved in 2001.

“Is it fair to have any public employees getting 4-5-percent salary increases every year, even when inflation is zero percent, paid for by citizens struggling to survive?” Mr. Christie demanded. “Is it fair to have New Jersey taxpayers foot the bill for 100 percent of the health insurance costs of Teachers and their families from the day they are hired until the day they die?”

Praise the Workers, Damn Union ‘Bosses’

He tried to draw a distinction between “rank-and-file Teachers [who] know this is not fair” and their “union bosses,” as if those Teachers were imploring their union to give up hard-won benefits and forsake pay raises in the best interests of the state, only to be rebuffed by their greedy leaders. Governor Christie went on to demand changes to limit contract arbitration awards and to allow local governments “the option of opting out of civil service.”

Given that he campaigned against incumbent Jon Corzine’s past coziness with labor, including a Communications Workers of America local whose president at one point was romantically involved with the former Governor, last week’s diatribe was not shocking. But taken together with the Barron’s piece and the attempt by Republicans in Washington to hammer President Obama for his ties to labor, a trend begins to emerge of a bare-knuckle assault on working people.

Sometimes it’s cloaked in arguments like those in the Barron’s piece that public-employee pensioners are the real fat cats who are gaming the system. State Attorney General Andrew Cuomo March 18 joined the pileon by using precisely that term in announcing that his office would investigate cases of excessive overtime meant to pad pensions of employees at the end of their careers. He at least acknowledged that lack of management oversight rather than employee cupidity might be the root of the problem.

Whacking the City

A variation on Mr. Christie’s claim that the “union bosses” are the cause of this milking of the public by their members occurred last week where the straw man taking the whacks was the city in which they worked. Indiana Congressman Steve Buyer derided a bill to aid workers who became seriously ill as a result of their work at the World Trade Center site on and after 9/11 as “Congress only acting for the benefit of New York City.” Yes, New York, home of all those undeserving cops and firefighters and construction workers who irretrievably compromised their health by looking for survivors and then trying to recover bodies at the site and now have the gall to ask that their own medical problems be covered by the nation that was symbolically attacked when the terrorists drove their planes into the Twin Towers.

Mr. Buyer suffers from a pernicious strain of the malady that afflicts other government officials and editorial writers who put a more civil tone on their arguments: they love waving the flag on behalf of first-responders who die in the line of duty but have a tougher time reconciling themselves to the fact that generous health-care and pension provisions for those who survive the risks they face might be part of the reason those employees take dangerous jobs.

Mayor’s War on VSFs

Mayor Bloomberg, aided more than a bit by Mr. Murdoch’s New York Post, has been making the case for more than a year that those fringe benefits have become unaffordable, particularly for cops and firefighters, and must be scaled back. Last year, they collaborated in a campaign to stir public fury against the Variable Supplements Funds for cops and firefighters that give retirees $12,000 annually beyond their basic pension allowances, and given the worsening economies of both the city and the state and the fact that the VSF is unique to the city forces, it is likely another legislative push against them —certainly for future members of the NYPD and FDNY—will begin later this spring.

The Mayor two weeks ago presented a list of 14 demands to the Municipal Labor Committee aimed at reducing the city’s health-benefits costs. They include eliminating the HIPHMO rate as the benchmark for all health-plan reimbursements and imposing co-payments and deductibles for all members of that plan, as well as cutting city welfare-fund contributions. Mr. Bloomberg wants to eliminate the annual $35 million the city provides to the Health Insurance Stabilization Fund, require employees to work for at least 15 years to qualify for health benefits once they retire, and cut Medicare Part B reimbursement in two key areas.

However unpalatable most of these changes are to the MLC, there will be growing public pressure for concessions once the media campaign is cranked up that such givebacks are preferable to the kind of service cuts that might be forced by city and state budget problems.

Another Wall Street Con?

But State AFL-CIO President Denis Hughes argued that the building frenzy is the result of clever manipulation not unlike what the Wall Street wheeler-dealers exercised first for their massive rip-offs and then to return to old routines with their bonus compensation not only intact but fervently defended by Mr. Bloomberg and Governor Paterson.

“We’re in a fiscal situation that was based on the inability of investment bankers and other financial experts to properly manage risk,” Mr. Hughes said in a March 18 phone interview. “But the people who are responsible for this economic downturn walk away unscathed. And the only real tangible effect is the assault on the economic security of working men and women. To go after the pensions of people who in many cases have risked their lives and are in high-stress public jobs is really outrageous.”

Uniformed Firefighters Association President Steve Cassidy strongly concurred with that sentiment. “I don’t have to make an excuse for the pension system we have—not at all,” he said. “It is a backstop for the families of firefighters who are seriously injured or killed. I don’t think a system that would have firefighters standing outside a burning building wondering whether their families will be taken care of if they’re killed or seriously injured would serve the public’s interest.”

He acknowledged concern, however, that a climate could develop in which the demand for reduced benefits placed intense pressure on the unions to resist. “I think there’s clearly a movement afoot to try to take the fiscal crisis and use it to demonize public employees,” he said.

Patrolmen’s Benevolent Association President Pat Lynch, who noted that the city’s pension systems—in contrast to New Jersey’s, where Mr. Corzine held back nearly $1 billion of a scheduled contribution last year —are more than adequately funded, called the Barron’s piece “just one more volley in a misinformation campaign designed to deflect attention away from Wall Street’s role in our recent financial collapse. The fact is that the pension benefit for New York City police officers is part of an overall compensation package that is modest in comparison to other police officers, locally and nationally.”

‘Blaming the Victim’

Mr. Hughes said that while it is difficult for labor to get its side heard by the media in such situations, “We have to make that case. It’s a classic example of blaming the victim.”

One longtime government official with a healthy respect for both capitalism and the pension system said the campaign against public-employee benefits was freighted with irony, as the barons of the business world practiced a kind of class warfare that turned private-sector workers against their public-sector counterparts.

“A very real problem that civil servants have these days is pension envy,” said this official, who spoke conditioned on anonymity. “To give the monied class credit, they have succeeded in getting many people angry that civil servants have these pensions, rather than that they don’t.”

Uniformed Sanitationmen’s Association President Harry Nespoli sees a hypocrisy in the demand to reduce the cost of public-employee benefits at a time when Wall Street firms which created the problem are back to doling out seven-figure bonuses as if they hadn’t been kept afloat with Federal bailout money.

Referring to the sentiments voiced by the Barron’s piece and Governor Christie, he said, “Isn’t that the reaction all the time? Let’s turn around and kill Main Street and the middle-class.”

Don’t Punish Unions’ Foresight

Public workers shouldn’t be punished, he continued, because they and their leaders had the foresight to recognize the importance of good pensions and health benefits long before they popped up as national issues because of an extended Wall Street slump that required local governments to spend more to cover those benefits.

“We gave up [portions of] raises for benefits many years ago,” Mr. Nespoli said. “Now they’re complaining about the benefits being too good. But I don’t see how you can compare a civil service pension to what people like Rupert Murdoch get. All we have is a piece of the American dream that we got for saying we’re going to dedicate our lives to the city. I don’t think that’s asking much.”