How Public Employee Unions Are Bankrupting the Nation

Whiskey & Gunpowder By Gary Gibson March 5, 2011
Baltimore, Maryland, U.S.A.

You might have noticed that there’s been a little turmoil in Madison, Wisconsin, of late. With the public employee unions making themselves heard in a fight against Governor Scott Walker, we thought this would be a great time to talk to Steven Greenhut.

Steven is the author of Plunder: How Public Employee Unions Are Raiding Treasuries, Controlling Our Lives, and Bankrupting the Nation.

Here’s how our interview went…

Gary Gibson: Are public employees really bankrupting states and local municipalities? Are they getting paid that much and are the pensions that good?

Steven Greenhut: We’ll start with the easy one. Yes, the pensions are amazingly good. In California, there are 50,000 members of the “$100,000 pension club”, cost of living adjusted, and these are guaranteed pensions, often in the six figure region and higher in certain categories, especially for public safety workers, such as police, fire, prison guards, milk inspectors. It’s an ever-growing category of employees that get 3 percent net 50. That’s 3 percent of the final year’s pay times the number of years worked. Which means a 90 percent final year’s pay retirement forever. And that’s before all the many pension spiking gimmicks. For example 82 percent of California Highway Patrol managers retire with disabilities, which further enhances this.

They purchase something called “air time”, where they can buy additional service credits on their pension at 50 cents on the dollar. So we have, in many cases, public employees making $150,000, $200,000 a year in retirement. And it’s not just the managers. These are regular police and firefighters, different sorts of mid-level managers, making enormous pensions. And they get paid quite a bit of money. The old deal used to be that public employees were paid less and they got somewhat better benefits and protection from firing and things that we didn’t get in the private sector. Now they get more money, in many cases, much more money, and they get an enormously higher level of pension benefit.

Nobody I know in the private sector gets these guaranteed defined benefit retirement plans anymore. And they’ve been being increased retroactively, which means going back to the day that the employee started. So to answer your question: yes, pensions are that good. They are getting paid that much.

The union studies, the reports show that public employees are not getting paid as much as their private sector employees. I’ve looked at those. They’re full of holes. They adjust for things like education, and they leave out categories that they don’t want to have included in there. They don’t count the overtime, even though public employees abuse the overtime system through planned overtime and other ways to build in higher salaries.

So are they really bankrupting states and local municipalities? For instance, in the City of San Diego, which has not been the only city that’s struggled throughout California. I mean Los Angeles, they’re talking about bankruptcy, and the City of Vallejo in California went bankrupt, largely because of the pay and benefit packages of public employees. But in the City of San Diego, 70 percent of their payroll budget goes to retired workers for pensions and healthcare benefits. I mean you just do the math on that.

There’s a new report from the Little Hoover Commission, which is a government agency, an oversight agency in California. It’s a nonpartisan, “good government” commission. Here’s its conclusion: “Pension costs will crush government. Government budgets are being cut while pension costs continue to rise and squeeze other government priorities.” So yes, they are going to push the cities and states to the brink, and it is that serious.

Gary: Now before we get to just how serious that is and how we can’t afford it, what about the argument that the things that public employees do are vital? We can’t do without them, right? People have told you, “Pay them whatever they want.”

Steven: It’s a crazy argument. At what point did our country start to value government work, non-entrepreneurial, protected from firing? I mean there are certain jobs that are needed. We need certain public sector jobs. But at what point did we start believing that bureaucracy is so highly valued, that we should pay people who work in the bureaucracies whatever they want? Usually when people make that argument, they’re talking about police and firefighters and teachers sometimes too. But now we’ve created a bureaucratic system that doesn’t always result in having the best teachers, firefighters, or police because this is not a free market.

This is not a market system. Here’s a good example. 72 percent of the firefighters in the country are volunteer firefighters. So there are many people who will do this job for service to the community. When firefighters are hiring for the few positions that are opened, they sometimes will open arenas because of the thousands of applicants. So this idea that we should pay them whatever they want is ridiculous.

This is going to bankrupt us. In the case of the firefighters, it pushes out often people who really want to be firefighters. If you or I really want to be a firefighter, we have to compete with all the many people who want to be a firefighter simply because of the [artificially exorbitant] pay and benefit package, and the work hours are so cushy. So it’s not like in the marketplace.

Obviously, we need police. But often the police often overstate their dangers, and that’s a problem we’ve seen. And they use that to gin up their pay and benefit packages beyond where they need to be to attract good people. And teachers, well you know, I’m sorry, but in a competitive environment, in a private system, you know, then we would see what teachers really are worth.

But this idea that we should just pay them anything you want…other than it bankrupting us all, it’s not resulting in better public services either. And teachers are not even getting the level of pay and benefits that police and fire are. But that’s just not a good argument in my view.

We see in Wisconsin and Ohio, old rust belt states, the heart of the union movement, and now it’s a public sector movement. And there’s disagreement. There are many people in the private sector union people who agree with me on these public sector union issues. You know, the private sector union people have to make sure that their company remains healthy and in business. Where the public sector can — these guys will take the government off the cliff.

Gary: Now your book talks about how this all happened in California. It’s where you focus your attentions. But I’ve got to ask you about Wisconsin now.

Steven: Well, I mean they’re both very progressive states, very liberal states. The same thing that happened in California happened in Wisconsin, the power of the public sector unions, the ability through collective bargaining and through tapping the dues of members without necessarily getting their permission, has enabled the employees to buy their bosses. They elect their bosses. It’s the same thing that’s happened, and the book goes into, not just — it’s California heavy. It’s focused because of my experiences in California, which I draw from. But it does talk about the whole country.

And it’s a similar thing. It’s just California often is at the edge, cutting edge of all trends, good and bad, and we just happen to be further along this route. But Wisconsin’s extremely liberal, heavily union democratic state. So there are a lot of parallels. Both with a parallel progressive history, in fact. So ironically, one of the core tenets of progressivism, the initiative and the process that we have in California that might be the solution to take on these unions who have become the new robber barons.

And it was the progressives who tried to take down the power of the railroads and the robber barons, and now they’ve become what they fought against.

Gary: Now these government employee unions, did you say — you said that they’re turning, they could turn us into a third world nation, or a nation of third world cities.

Steven: Yeah, when I say it, and I’m not talking about the demographics or anything of the cities, I’m just talking about how it’s this group of folks who were just out to enrich themselves, and using their power for raw political gain. The cities are becoming impoverished, as we increasingly have to spend more and more, as the Little Hoover Commission report pointed to, there’s not enough money for other services. Even people in progressive San Francisco, some of the liberals there have been supporting pension reform efforts, recognizing that their city’s becoming increasingly tawdry.

And as you spend more and more money on these pensions, pay and benefit packages for public employees who are really the affluent elite, the parks are becoming decrepit. The streets are not being fixed. The schools are getting worse. So that’s the context of that.

Gary: I see. Is this a partisan issue?

Steven: Well, it’s become one to a degree because the republicans, the new republicans are taking on the unions, and the democrats are the party of unions, of government unions especially. So to a degree republicans certainly helped create the problem. You know, I just wrote about here in California, how three republican assembly members joined an SCIU rally opposing cuts to a particular program. I watched as a writer for local government, watched as republicans increased pensions for government employees, especially for the people in uniforms. Republicans tend to be very law and order in their philosophy, and they’ve caused a lot of the problems.

So the mess was created on a bipartisan basis, but I have seen very, very little effort by democrats to even acknowledge the problems. A handful of exceptions to the ones I pointed to in San Francisco. And they’re a minority of democrats for sure. But it doesn’t need to be a partisan issue, let’s put it that way. It really doesn’t because the right should recognize that these pensions are unfair and they’re going to cause enormous financial problems, and they’re going to lead to massive tax increases.

And the left should realize that this is destroying the progressive agenda because if you’re spending all your money on $150,000 per year police retirees, then you’re not spending money on the programs that you claim to care about. And it’s going to be the programs for the poor that get cut. The pensions are a senior obligation of the state. Programs for the poor are not. So I know progressive democrats who are very concerned about this. And I’m just — I’ve got a copy here of Reason Magazine, the cover story by Tim Cavanaugh called Farewell my Lovely — How Public Pensions Killed Progressive California. I mean these pensions are at war with the whole progressive idea.

And that’s because they’re running out of money.

Gary’s Endnote: And if you tune in for Part II on Monday, you’ll see just how out of money our states and cities are. You’ll also learn where the free market fits in. You’ll learn what all the solutions are too. See you then.

Steven Greenhut is director of PRI’s Journalism Center, which provides in-depth news coverage of California government, with a focus on uncovering waste, fraud and misuse of taxpayer dollars. He is author of the 2004 book, “Abuse of Power: How the Government Misuses Eminent Domain.” His columns have been published in newspapers across the country including the Wall Street Journal.

In 2005, Greenhut won the Institute for Justice’s Thomas Paine Award for his writing promoting freedom. He is a senior fellow at the Goldwater Institute in Phoenix. His new book on public employee unions is titled, “Plunder: How Public Employee Unions are Raiding Treasuries, Controlling our Lives and Bankrupting the Nation.”

Both the left and right helped create this problem and it’s going to help bankrupt us all. Get Plunder now and learn…
How public employee unions already turned one place in America into a Third World city (p. 8)

Why the current retirement system for public employees is an absolute scam (p. 9)
What the “Pension Tsunami” is and how it will affect you and your family (p. 71)
Just click here now to get your copy today.

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Top 12 Countries Most Likely To Go Belly Up

Risk analysis firm Maplecroft just released its new fiscal risk index ranking of 163 countries. Europe trumps all other regions with 11 out of twelve courtiers rated as “extreme risk.” However, quite surprisingly, only one PIIGS country–Italy which takes the top spot–is in the top 12.

The others include many big economies in Europe - Belgium (2), France (3), Sweden (4), Germany (5), Hungary (6), Denmark (7), Austria (8), United Kingdom (10), Finland (11) and Greece (12). Japan at No. 9 is the only other country not in Europe within the highest risk category (See map below).
Aging Demographic
While high national debt and public spending are two common denominators, the study finds it is the aging demographic that puts these countries at extreme fiscal risk. An aging population will place increasing pressure on public expenditure such as pension and health care, while a shrinking working-age population means less productivity and less tax revenues to support public spending and debt payments.
High Dependency Ratio
Aging population also leads to high dependency ratio, or the number of people 65 and older to every 100 people of traditional working ages. For example, according to Maplecroft, that ratio in France is 1 to 47 (i.e. 47%), Germany at 59%, Italy with 62% and Japan at the very top with 74%. The ratio in UK is currently 25%, and is forecast to rise to 38% by 2050.

Low Senior Labor Participation Rate

Another problem within Europe is that it has a low labor participation rate in the 65+ age bracket. In fact, the labor market participation of age 65+ amongst the ‘extreme risk’ nations ranges from 1.4% in France, 7.71% in UK, to 11.7% in Sweden, vs. a 28% average across all countries ranked in the index.

U.S. – High Fiscal Risk
Although the United States is not ranked among the “extreme fiscal risk,” the country is nevertheless classified as “high risk”, along with Spain, also a member in PIIGS, Australia, Canada, and Russia.
Let’s take a look at the two metrics mentioned here.
The dependency ration in the U.S. is 22 in 2010, but is projected to climb rapidly to 35 in 2030, according to the U.S. Census Bureau, mainly due to baby boomers moving up into the 65+ age bracket. The ratio then will rise more slowly to 37 in 2050.
The labor participation for age 65 and over in the U.S. is at 17.5 according to data at Bureau of Labor Statistics (BLS). This is better than most of the European countries, but below the overall average of 28%.
Wave II To Include U.S.
Most people typically associate country’s fiscal risk to the government’s monetary and fiscal policies and Lehman Brothers has taught us that banking and housing crisis could push the entire world into the Great Recession. While these are definite risk factors, a highly productive labor force and relatively young population makeup tend to mean sustainable prosperity and better odds at climbing out of a hole.
The Maplecroft study concludes:

“…in high risk countries, it is increasingly likely that the private sector will be called upon to contribute in the form of pensions and private health care…. Without significant adjustments, such as raising taxes or reducing spending, countries risk going bankrupt.”

Meanwhile, the fact that U.S. dollar actually went down during this crisis in Libya and Egypt is very telling regarding the diminishing safe haven status of the dollar as well as the United States.

So, while widespread protests are still going on in Europe over pension age being raised and many austerity measures, amid the European sovereign debt crisis, the U.S. and other countries in the same “high fiscal risk” seem to be set for the wave II of this global fiscal chain of events.

Profit Opportunity: More Water Through Technology :Desalinization & Genetic Engineered Seeds

Yesterday, I discussed the pressures being put on the global supply of fresh water. Nearly 1 billion people don’t have access to clean drinking water – and as the world’s population grows, the situation will only get worse. A growing population also means more mouths to feed, and the need for more water to grow increasing amounts of food.

It’s downright scary. But there are ways that technology can help. And investing in the companies that provide solutions to the world’s water problems can make you at least 50% over the next few years.

Currently, nearly 70% of global water use is for agriculture. So one solution is to ease the demand for water with the “more crop per drop” approach. In other words, to grow more food with less water.

This will come in the form of genetically modified seeds.

These seeds are showing great promise. Last year, for example, under drought conditions, one company tested seeds with a water optimization trait. And they were able to increase yields by 25%.

It is thought that, with this technology, we could reduce agricultural water use by 30% in the next few decades. That would have a tremendous impact on water demand.

Another solution to the world’s water problems is to “create” more fresh water. Salt water is abundant. Unfortunately, we can’t drink it. But through technology, we can convert salt water to fresh water. The desalination process removes salt and other minerals from salt water and makes the water fit for human consumption.

Desalination plants are usually found in locations that have limited (or no) fresh water resources but access to an abundant amount of salt water. That is why they are so common in the Middle East.

The United Arab Emirates has the world’s largest desalination plant. It provides the country with 300 million cubic meters of water per year.
Israel gets 5%-6% of its daily water needs from a desalination plant.
We have them here in the US too. The largest is in Tampa, Florida. The city gets 25 million gallons of drinking water a day from its desalination plant.

Producing drinkable water in this manner uses a significant amount of energy. So it costs more to produce desalinated water than to pull fresh water out of a lake or stream. But that should change very soon.

For one thing, the cost of fresh water is going up. Last year, for example, Houston raised its water rates 30%. Expect more of the same not only in the US, but across the globe as well. As the cost of fresh water increases, it will get closer to the cost of desalinated water. Meanwhile, the cost of desalination is falling as technology improves.

Both of these solutions to the world’s water crisis – the “more crop per drop” approach and the desalination approach – have benefited readers of my Trend Trader portfolio.

The seed company I mentioned earlier that increased yields 25% is in the portfolio. It has already returned 50.07% for my readers in 8 months.

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Respectfully,
Christian Hill
Managing Editor
Early To Rise - Investor's Edition

Wall Street Is Driving Up Heating Bills?

It's likely that no bankers are sneaking into your house like cobbler’s elves to turn up your thermostat.

But Wall Street still could be driving up your heating bills.

Here’s how: Wall Street banks gamble on what they think future energy costs will be. By dominating the market in these “energy futures,” they actually raise the price of energy for you and me. Without competition in these markets, these prices stay artificially high — and so do big bank profits.

Tell the Commodity Futures Trading Commission to stand up for consumers and to end bank domination of energy markets.

Thankfully, a part of the Wall Street reform law that passed last summer is designed to end bank domination of energy markets. Basically, the law gives a federal agency called the Commodity Futures Trading Commission the authority to make these markets more transparent and competitive.

But, of course, the banks have hired lobbyists to fight the agency’s rules every step of the way.

Wall Street bankers are keeping energy prices artificially high by keeping these energy futures markets secret just so they can make even more profits.

Take action now! Go to: Citizen.org Energy Futures Petition

It’s time to shine some sunlight on bank activities that drive up consumer prices. Tell the Commodity Futures Trading Commission to stand up for consumers.

Thanks for all you do,

Rick Claypool
Public Citizen's Online Action Team
action@citizen.org

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