Public Employee Unions: The New Face of Budgetary Evil

  1. #1

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    Public Employee Unions: The New Face of Budgetary Evil

    Long story here about NJ Gov. Christie and his battle with public employee unions with a focus on the NJ teachers' union.

    We are seeing it in WI as well and with almost every state having budget issues we'll continue to see it. TX is laying off about 100k workers and closing schools. Some states have revoked COLA for public retirees.

    Fair?

    http://www.nytimes.com/2011/02/27/ma...pagewanted=all
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    Long article but some real nuggets in here...

    ...in the long term, New Jersey doesn’t have nearly enough money on hand to cover its pension obligations to teachers and other state workers. At no time in the last 17 years has New Jersey fully met its annual obligation to the pension fund, and in many of those years, the state paid nothing at all. (That didn’t stop one governor, Donald DiFrancesco, a Republican, from increasing payouts by 9 percent and lowering the retirement age before he left office, which would be kind of like Bernie Madoff writing you a $1 million check before heading off to jail.)
    So you have a real problem. And the problem was made worse by politicians lack of resolve and even being overly coddling to the Union, including Republicans!


    The crux of Christie’s argument is that public-sector contracts have to reflect what has happened in the private sector, where guaranteed pensions and free health care are becoming relics.
    He reminded the teachers that a lot of private-sector workers felt lucky if they could keep their current salaries, and he said a voluntary freeze would enable the union to avoid widespread teacher layoffs in cash-poor school districts. Most local chapters of the union ignored him. Ultimately some 10,000 union members — teachers and support staff — saw their jobs eliminated.
    The statement about private-sector is very true. And it looks like he tried to use some reason. But as the saying goes - pigs get fat, hogs get slaughtered - it looks like around 10,000 were slaughtered so the others could keep their raises.

    Traditional pensions are now relics in most of corporate America. It is now 401Ks and maybe, just maybe a cash pension plan. Even those are getting fewer or they are cut off to new employees.

    The sad reality is that government pension plans all over the country are way underfunded. The managers of these plans assumed nice linear growth of 5 to 10% a year. They did not count on 2008 and they did not count on returns that are half their estimate from 5 years ago. Now - they are in the hole, big time. The thing with cash plans or 401Ks is that its individual accounts and the contribution is known and the liability is known at the time the contribution is made. Its simple and keeps future risk very low compared to defined benifit plans where managers are tying to hit growth targets that may or may not happen. If the 2008 crash never happened and the Dow was at 20,000 now you would not hear of this problem. But reality was different than projections.

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    It seems Kentucky did a decent job dealing with this....

    http://www.kentucky.com/2011/03/01/1...ith-state.html

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    Quote Originally Posted by Bluegrasscard View Post
    Long article but some real nuggets in here...



    So you have a real problem. And the problem was made worse by politicians lack of resolve and even being overly coddling to the Union, including Republicans!






    The statement about private-sector is very true. And it looks like he tried to use some reason. But as the saying goes - pigs get fat, hogs get slaughtered - it looks like around 10,000 were slaughtered so the others could keep their raises.

    Traditional pensions are now relics in most of corporate America. It is now 401Ks and maybe, just maybe a cash pension plan. Even those are getting fewer or they are cut off to new employees.

    The sad reality is that government pension plans all over the country are way underfunded. The managers of these plans assumed nice linear growth of 5 to 10% a year. They did not count on 2008 and they did not count on returns that are half their estimate from 5 years ago. Now - they are in the hole, big time. The thing with cash plans or 401Ks is that its individual accounts and the contribution is known and the liability is known at the time the contribution is made. Its simple and keeps future risk very low compared to defined benifit plans where managers are tying to hit growth targets that may or may not happen. If the 2008 crash never happened and the Dow was at 20,000 now you would not hear of this problem. But reality was different than projections.
    Just curious who the pigs are that are getting fat.

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    Quote Originally Posted by acemona View Post
    Just curious who the pigs are that are getting fat.
    The teachers of NJ.

    Look here...

    http://www.nj.com/news/index.ssf/201...e_salarie.html

    Susan LiBrizzi, a divorced mother of four, earns $61,798 a year as a special-education teacher in the Flemington-Raritan Regional School District

    ...

    Now LiBrizzi, who has taught for 14 years, is due a $4,000 raise — and the governor wants her to give it back.
    So I guess Susan got her 6.5% raise...but to do that 10,000 of her co-workers had to be let go. She got fat, they got slaughtered.

    That is how it is in real world economics.

    The driver to this was not that mean ol' governor. It was the reality that NJ tax receipts in 2010 were still well below 2008 levels and even below 2006 levels. So 6.5% raises in this environment is simply insane.

    But I do not put all this blame on the Unions. They have a role and they have done it - get more for their membership. It is the political leaders who do not act as a control function that are mainly to blame. They want to keep those working in government happy. Reasonable, it also gets you a large, large block of votes. But they have done either ignoring reality or hoping the promised turnaround would kick-in. Either way, the dollars simply do not work - and states have 'must balance' laws and the federal government is out of 'stimulus monies' that were used to stave this scenario off for a a year or so.

    As I have said, this is on the tip of the iceberg. It get worse as the year goes on - for many states. Wisconsin will be replayed over and over again in the new few months. And that is not me saying that - its Adam Smith. And it is hard to argue with him.

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    Related article about New York City teachers paid a full salary even though they spend some of their time doing union work. Cost is $9 million for replacement teachers. Figure at least that amount, probably more, for the original teacher who is not teaching. Loved the teacher pulling down $150,000 between the two and leading the protests.

    Sounds like sound fiscal policy to me.

    http://www.nypost.com/p/news/local/u...jWQbMAtzqHASxI

    Pigs or Hogs?

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    Quote Originally Posted by Bluegrasscard View Post
    The teachers of NJ.

    Look here...

    http://www.nj.com/news/index.ssf/201...e_salarie.html



    So I guess Susan got her 6.5% raise...but to do that 10,000 of her co-workers had to be let go. She got fat, they got slaughtered.

    That is how it is in real world economics.

    The driver to this was not that mean ol' governor. It was the reality that NJ tax receipts in 2010 were still well below 2008 levels and even below 2006 levels. So 6.5% raises in this environment is simply insane.

    But I do not put all this blame on the Unions. They have a role and they have done it - get more for their membership. It is the political leaders who do not act as a control function that are mainly to blame. They want to keep those working in government happy. Reasonable, it also gets you a large, large block of votes. But they have done either ignoring reality or hoping the promised turnaround would kick-in. Either way, the dollars simply do not work - and states have 'must balance' laws and the federal government is out of 'stimulus monies' that were used to stave this scenario off for a a year or so.

    As I have said, this is on the tip of the iceberg. It get worse as the year goes on - for many states. Wisconsin will be replayed over and over again in the new few months. And that is not me saying that - its Adam Smith. And it is hard to argue with him.
    Just so I'm clear a special education teacher working in a state with a fairly high cost of living is "getting fat" on a $62,000.00 a year salary and should have to give back thier annual increase but a 3% income tax on the wealthiest 1 percent is soaking the rich? Why are conservatives waging class warfare on the middle class, the folks who's buying power actually drives the economy?

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    Quote Originally Posted by 2 Humped Camel View Post
    Just so I'm clear a special education teacher working in a state with a fairly high cost of living is "getting fat" on a $62,000.00 a year salary and should have to give back thier annual increase but a 3% income tax on the wealthiest 1 percent is soaking the rich? Why are conservatives waging class warfare on the middle class, the folks who's buying power actually drives the economy?
    I am uncertain of the relationship. I am not sure what the 3% is.

    What is certain is that NJ (and most, if not all states) are collecting less in taxes (revenue) than before 2008. A lot less. I am not judging the worthiness of a 6.5% salary increase, nor a 3% tax cut. But the numbers are the numbers and in a situation were a balanced budget must be met you can either give out overly generous raises or you can avoid layoffs. It is not possible to both. States have to live by balanced rules. So they are under the same forces a business that must make a financial plan. It is the federal government that is not bound to these rules of economics since it can a) run deficits and b) print money - something we, nor states can do.

    "Pigs get fat, hogs get slaughtered" is a common investment term. It is about overreaching. It is not a put down to say the unions role is to be piggish and help get their members fat or fatter. It is when they get hoggish and politicians let them be hoggish is where there are problems. And if the tax revenues are flowing and going - have at it - eat at the trough. It is not class warfare. It is just basic economics when you have to actually manage a budget. 6.5% raises are unaffordable if there is no revenue (or federal stimulus money) coming in.

  9. #9

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    Why is it so hard for teachers and other public union members to see the obvious?

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