March 12, 2008
The Coming Showdown with Public Labor
By Lewis M. Andrews
“Touching the third rail of politics” used to mean
any attempt to reform the cost of entitlements, especially Social
Security. Despite the fact that all realistic estimates show all levels
of government -- federal, state, and local -- barreling toward
insolvency, there is still little or no effort to solve that problem.
And while that one goes unsolved, another has arisen.
While one political taboo remains, another -- one that may prove equally
damaging -- has grown. What no legislator dares say outright is that the
only pot of money big enough to solve the problem is the one that can be
wrung from the waste and inefficiency in America’s public sector at both
state and federal levels. And that requires taking on a powerful and
expanding special interest group: the public employee unions.
In 2005, a New York Times investigation found that as much as 40 percent
of the Empire state’s $45 billion annual Medicaid budget was frittered
away through fraud, mismanagement, abuse, and the indifference of Albany
lawmakers. Two years earlier the Yankee Institute for Public Policy did
a study for the October/November issue of the American Enterprise, which
showed that if all 47.6 million U.S. public school children were
educated with the same efficiency as private and parochial schools, the
cumulative savings annually would be greater than all the state budget
Tantalizing examples of what can be extracted from reorganizing
government abound. Public universities, which have already suffered
declining taxpayer support over the last two decades, have actually
improved their productivity to around 2.5 percent annually --
approximately the same rate as private American industry. Declining
government support led to the elimination of needless bureaucratic
overhead, the substitution of adjunct and part-time instructors for
tenure-track faculty, and the redesign of courses to make better use of
New Zealand, which in 1984 initiated a sweeping privatization of
national and regional services to forestall national bankruptcy,
provides endless examples of how streamlining government to bring
expenses in line with revenues actually improves the overall quality of
services. Employees in transportation were reduced from 5,600 to 53, in
forest services from 17,000 to 17, and in the national Ministry of Works
from 28,000 to 1 -- all with no loss of service or safety to the public.
The problem, of course, is that importing such savings to America will
not go down well with public employee unions, which have grown
accustomed to extracting generous benefits from politicians. August,
2006, data from the U.S. Bureau of Economic Analysis shows that the
average federal civilian worker earns $106,579 a year in total
compensation, or twice the $53,289 in wages and benefits for the typical
private employee. Since 2000, federal pay has risen 38 percent, or
double the pay increases for workers in manufacturing, retail, finance,
private health care, and construction.
At the state level, according to the Employee Benefit Research
Institute, government workers have been collecting nearly 50 percent
more in total compensation than the average private sector employee,
with taxpayers subsidizing 128 percent more than private employers to
fund health care benefits and 162 percent more on retirement benefits.
When budget pressures have occasionally forced politicians to make
modest demands for increased productivity, the response from public
employees has been less than generous -- witness the 2005 holiday
transit strike in New York City and repeated threats of illegal walkouts
by nurses throughout the University of California system.
More worrisome is the ease with which disgruntled union members have
resorted to violence, the intimidation of co-workers, and
life-threatening negligence to get their way. An investigation by the
Connecticut attorney general into a strike against state-funded nursing
homes found that picketers had removed identification bracelets from
Alzheimer’s patients, fed chocolate to diabetics, and loosened bolts on
lifts used to support elderly patients.
In Washington State, the federation of state employees demanded that
Olympia legislators fire 800 government workers who would not join the
union. Further south, the National Labor Relations Board actually had to
overturn an organizing campaign by the notoriously bellicose California
Nurses Association because members threatened health workers who opposed
the union, telling one his “little kittens would look good in a frying
Most politicians have kept their mouths shut about changes they know are
needed: more competition in K-12 education, a reliance on cost-conscious
insurance companies to manage government-funded health care, and a
sweeping privatization of many other government services. But by the end
of the next president’s first term, lawmakers will have no choice but to
extend the productivity revolution, which began in corporate America
under Reagan, to the sprawling public sector.
Public employee wages and benefits will also have to be brought in line
with private industry. Anticipating these changes, the Government
Accounting Standards Board, the national association of public finance
officers, has already told states and cities to reserve for any
post-employment worker benefits (GASB statement 45) and is developing
performance measures for social programs.
Government unions will resist serious reform with demonstrations, radio
and television ads funded by member dues, and regrettably the threat --
occasionally materializing-- of violence. Already public employees are
engaged in a furious effort to fortify their numbers by organizing a new
class of employee: child care providers, home health aides, and others
who are not employed directly by government, but whose salaries are
reimbursed through entitlements.
But as time goes on, union leaders will discover that their leverage is
not strong enough to prevent needed streamlining of the public sector.
There may once have been a time when low wages and few benefits gave
government workers the right to voter sympathy; but today we live in a
world where, according to the National Compensation Survey, school
teachers make more in wages and benefits than private sector engineers,
architects, and computer scientists -- at the same time keeping their
ten weeks of summer vacation.
Neither will the public be happy to learn that the price tag for
previous concessions to labor will be much higher than even the official
estimates. According to a December, 2007, study by the PEW Center on the
States, the under-funding of public employee retirement benefits is
“about $731 billion.” In some states, including Connecticut, Delaware,
and Hawaii, the per capita liability already exceeds $5,000.
Government employees will also find that the march of technical
innovation has greatly reduced their ability to extort concessions by
shutting down vital public services. Television coverage of the New York
City transit strike naturally focused on the hordes of stranded subway
commuters forced to walk to work across the Brooklyn Bridge or cram
uncomfortably into mandatory car pools, but thousands of others were
able to do their jobs electronically from home with relative ease.
Eventually many public employees will see that they too have a vested
interest in the productivity adjustments necessary to resolve the debt
crisis, especially at the local level where state legislatures have
considerable latitude to restructure failing municipalities. Consider
what happened after the third largest city in Massachusetts,
Springfield, flirted with default and was placed under the autocratic
thumb of the state’s Finance Control Board (FCB) in June of 2004. Almost
immediately more than 500 administrative, teaching, and paraprofessional
positions in the schools were eliminated; there were unilateral cuts in
cost-of-living benefits to retired city employees; salary schedules for
new government hires were reduced; and the school day was lengthened.
Across the country, America’s seventh largest city, San Diego,
California, provides an ominous example of what public employees can
expect if they fail to provide voters with more value for their tax
dollar. When the dark clouds of bankruptcy appeared in 2005, this
Democrat-dominated city elected a Republican mayor, who refused to
impose new taxes. Instead he immediately pushed laws to require voter
approval for any pension benefit increases and to allow landscapers,
mechanics, and contractors in the private sector to bid for municipal
And something else happened, which could further persuade labor leaders
to make needed productivity concessions. Discovering evidence for
criminal collusion between previous administrations and the public
unions, city attorney Michael Aguirre, a self-described “liberal
Democrat,” brought suit in federal court to have worker benefits granted
since 1996 rolled back on grounds that they violate conflict-of-interest
laws. If successful, this action could create a legal precedent for
challenging public employee contracts in every jurisdiction where the
dominant political party is unduly influenced by government unions.
Elected officials may not yet be ready to touch the new “third rail” of
politics, but the looming fiscal crisis makes a showdown between
government workers and other voters inevitable. But if Americans will
not suffer the tyranny of an English king, they will certainly not
become the economic slaves of their public servants.
Lewis M. Andrews, Ph.D., is Executive Director of the Yankee
Institute for Public Policy at Trinity College.
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