Wednesday, February 24, 2010

A Hard Rain's Gonna Fall

The Wisconsin Policy Research Institute has issued a study showing that public employee pensions are far more generous than the retirement benefits of private employees. That's not a surprising conclusions. Hitting your "30" or whatever the number is has become a cultural reference for public employment. Government employees can typically retire much earlier at a guaranteed salary with health care benefits. Public employees typically defend these benefits by arguing that they accept lower pay in return for these benefits. We trade income, they say, for security.

Before I get attacked by the usual crowd, I should point out that I was raised by a fire fighter. I understand the arguments in favor of outsized public employee pensions. But, having come from a family where almost everyone worked for the government, I also understand their weaknesses.

It is not clear that the great majority of public employees would make more doing "comparable work" in the private sector. The argument for "enhanced" benefits are most salient for professional employees. Government payrolls are much flatter than private sector payrolls. A lawyer can make a lot more in private practice than in government service - although not all - perhaps not even most - do. An alternative explanation is that the role of public employee unions in electing the officials across the table compromises the bargaining process and providing outsized benefits - which are less visible to the public - is the result.

However you see this, what is becoming increasing clear is that government entities can no longer afford to pay these generous benefits. As Bruce Thompson pointed out in Sunday's Milwaukee Journal Sentinel, the Milwaukee Public Schools are awash in unfunded liabilities to future retirees. Its burden rate is, depending on how you calculate it, three to four time what it is in the private sector. This has - and will continue to - hollow out what can be spent on education.

This is a problem that the city cannot tax its way out of and the state is unlikely to come to the rescue. It's got problems of its own and an often unexamined dynamic of Wisconsin politics is that outstate voters are, at best, indifferent and, at worst, hostile to the City of Milwaukee.

The problem is hardly limited to Milwaukee and Wisconsin. If you want to be depressed, spend some time here.

The problem won't go away by dismissing people like Bruce Thompson as "anti-public education" or Scott Walker as "anti-Milwaukee County" (as if the county was synonymous with its government). Unfunded pension and health care liabilities are a huge threat to effective public education or county government. Ignoring the problem does not solve it.

20 comments:

Anonymous said...

There is no doubt that there is a looming public pension underfunding crisis nationally as well as in the City and County of Milwaukee. Just a few days ago, on February 18, the Pew Center on the States issued a fantastic report noting the trillion dollar shortfall between public pension liabilities and funding. Curiously, you don't cite to it. Could this be some selection bias showing, Prof? That report notes that the Wisconsin Retirement System is one of only four state pension systems in the nation that is 100% funded. Wisconsin retiree health benefits are not fully funded, but here too we are one of the best-ranked states nationally.

Yes, there's a problem, and it's acute in Milwaukee (which has a separate retirement system from the State's). Changes need to be made. But we should give some credit where credit is due. SWIB must have done a decent job, and the State has been responsible enough to tax us enough and budget properly to fund the liabilities it has incurred. The next time a sheriff's deputy gives you a speeding ticket, or you have any interaction with a Department of Revenue agent, or a DNR warden cites you for fishing without a license, just think, their pensions are fully funded. Should give you some warm fuzzies.

Anonymous said...

Scene: The family gathered at the Thanksgiving dinner...

Sis: Yeah, and the professor over there thinks that Dad was paid too much and didn't deserve his pension.

Bro: I read that. He didn't have any big ideas about how the public was supposed to price the wage of a job like firefighting that's rarely found outside of government.

Sis: Did you see his blog post before that? The one where he said the public was too easily tricked by too-simple platitudes and endorsements? This from the guy who made a dog-whistle DVD that was played at business luncheons around the state, to subliminally remind them to vote for Gableman? (Rolls eyes and speaks in an exaggerated voice.) "It wasn't an endorsement, it was an explanation of the process of law."

Rick: Pass the gravy, please.

George Mitchell said...

The fact that the Wisconsin Retirement System does not have unfunded liabilities misses the point. The main issue highlighted by WPRI was the difference in the cost of state employee pensions vs. those for private sector workers. Also, the state carries a multi-billion structural deficit in part because for decades taxpayers have paid the employer AND "employee" share of the pension costs. While my wife and I personally benefit from this, it's a Cadillac system that the state can't afford. A fully funded Cadillac system is still a Cadillac system.

Anonymous said...

Having read the WPRI report and the response of WSEU chief Marty Beil, it's difficult to see this as anything other than the first shot in a campaign to cut public employee salaries. The unions bargain an entire compensation package, both wages and benefits. The public (a group to which the public workers themselves belong) covers the costs of this compensation, but it's not as if the total amount of compensation would have been less were these benefits not in place. Nor should we expect the public workers to happily agree to a cut in benefits without a proportional increase in wages. The worker, after all, is worth his wage.

As a general principle, it would be better to increase wages. Wages would be taxed, bringing more revenue to Wisconsin, the federal government, and the Social Security/Medicare system. But, as Mr. Beil points out, the State saves money by compensating its workers with benefits rather than wages.

At the end of the day, public workers must be paid. Offering decent compensation attracts competent workers willing to do difficult, sometimes dangerous jobs. Or, as my grandfather used to say, "Pay peanuts, attract squirrels."

George Mitchell said...

The state's multi-billion structural deficit, inherited and continued by Doyle, can only be fixed by raising taxes or cutting expenditures. The biggest cost of state-level GPR operations (not counting aid to local governments and schools) is worker salary and benefits. That can't taken off the table without making a tax increase more likely. A job-killing tax increase to protect public employee pensions is a bad idea.

Anonymous said...

Mr. Mitchell's point seems to be that the structural deficit should be erased by reducing public employee compensation. One presumes that Mr. Mitchell will still receive all the police and fire protection he currently receives, all the public health service, all the public education, all the EVERYTHING he currently receives from government at every level. But the people who provide these services will have their compensation reduced. There seems to be a problem with basic fairness here . . .

George Mitchell said...

Employee compensation has to be part of any discussion about addressing the deficit. It's far from the only issue that is on the table, but it has to be on the table. Anonymous apparently thinks that view is at odds with "basic fairness." He/she therefore must favor either (1) other spending cuts or, more likely, (2) very large tax increases on top of the many fee and tax hikes contained in the current budget. Perhaps he/she will specify which spending cuts and tax increases they favor.

Dad29 said...

One presumes that Mr. Mitchell will still receive all the police and fire protection he currently receives, all the public health service, all the public education, all the EVERYTHING he currently receives from government at every level.

That might be a presumption too far.

Turn off street lights, reduce police/fire departments by 10%, privatize snow-removal and street repairs, and park maintenance/management.

Increse class sizes, reduce the number of teachers. Cut school subidies of extracurriculars--totally. Dump the 'counselors.'

Get rid of the State Patrol entirely (except truck-inspection), reduce Capitol Police to 24 people, establish a hard-and-fast budget for the Legislature--for openers, 90% of last session's expenses. Live with it or starve.

That's a start.

3rd Way said...

That's a start on the road toward third world status.

Entitlement reform is inevitable, but it doesn't have come at the expense of the services the citizens of the wealthiest and most powerful country in the world deserve.

Public employees deserve a decent retirement just like every other working American, but they shouldn't be able to start enjoying it in their 50's. Social security and Medicare benefits should be put off into the late 60's for all Americans, and public employees shouldn't be eligible for for pension benefits until they are at the age where private employees can start receiving social security benefits.

I have know idea if that completely solves our serious problem of insolvency, but it is the best solution I can think of.

Anonymous said...

Employee compensation has been a part of closing the state's fiscal deficit.  Between the recission of a 2% raise promised as part of the 07-09 budget and the 16 furlough days in 09-11, state employee pay has been hit by about 5% to help shore up the hole.

But, of course, the WPRI study wasn't about compensation, as it points out in its second paragraph: "This study only examines differences in pensions between public and private sector employers. This is not intended to be a comprehensive comparison of compensation and benefits.  It does not examine salaries or other benefits such as health insurance for workers or retirees.  Only through such a comprehensive evaluation could an assessment be made as to the relative strengths and weaknesses of the public and private sector compensation."

http://www.wpri.org/Reports/Volume23/Vol23No2/Vol23No2.html

Anonymous said...

And like the first commenter, I want to give a roll of the eyes to Rick's attempt at a slight of hand by switching, without any mention of it, from discussing the fully funded state pension to waxing on the troubled pensions in Milwaukee. Do you also do birthday parties, Rick?

Anonymous said...

In the interest of full disclosure, I will state up front that I am a public employee and have been for 20+ years. I'm still 10+ years away from retirement, but I've seen enough comings and goings to have some perspective. The recent attacks on public employee compensation are driving a flight of the best employees from public service.

My unit, a technical unit, has lost 4 long-time specialists with a combined experience of 100+ years to early retirement. They made no bones about it: They were leaving now before their benefits were gutted. As importantly, the best and brightest of our young staff leave after 3 or 4 years because they get better wages (not saying benefits here, wages only), better hours and more respect in the private sector. It takes a full year to bring a new staff member to about 80% efficiency compared to a 3-year veteran. This, of course, presumes that the unit is allowed to fill the vacancy - we're currently 2.4 FTEs below full strength and we have documented a workload increase with hard statistics.

3rd Way and Anon 1:07 are correct. We get the kinds of workers and quality of service we are willing to pay for. It is legitimate to say government should not be doing a particular job, but once the decision to do it has been made, common sense dictates it should be done well and efficiently. This is difficult with a transient workforce.

Dad29 said...

Between the recission of a 2% raise promised as part of the 07-09 budget and the 16 furlough days in 09-11, state employee pay has been hit by about 5% to help shore up the hole.

Wrong.

They're taking a THREE PERCENT hit to salary (or wage) income.

The other 2% is not "a hit." They didn't get it in the first place--just like tens of thousands of private-sector employees, assuming that they are still actually employed.

Dad29 said...

As to 3Way's complaint that "we DESERVE" streetlights, (etc.), perhaps that's what his mommy told him--but "deserving" comes AFTER "affording," not before.

OTOH, 3Way has good suggestions about retirement-ages.

Anonymous said...

I think this is the first time I've ever agreed with Dad29 about anything. Like Dad, I live in the western 'burbs. We could lay off 10% of our police force in my village without any decline in security -- just less hassling from traffic cops. Heck, we could probably lay off 50% of our police force and still be secure.

I don't think we should reduce class sizes, not support extracurrics, fire counselors, etc. But at least on this one issue, Dad has a point.

Even a stopped clock is right twice a day.

Anonymous said...

Unless I missed something, the original WPRI report was about the Wisconsin Retirement System, not local schools, police patrols or streetlights. By all accounts the WRS is well funded and effectively managed by the State of Wisconsin Investment Board. There is no looming pension crisis at the State level.

The funds feeding into the WRS are paid by the State on behalf of state employees, who, through collective bargaining agreements, have chosen to take their compensation in this way rather than through wages.

The WPRI suggests that the State should cease paying its employees in this fashion, making the WRS contributions a line-item deduction on an employee's pay statement and effectively cutting the employees pay by the amount of the deduction. The justification for this is that while state residents "need" all the State services they currently receive, they simply cannot pay for them. Cutting the pay of the service providers allows residents to receive the same service at lower rates, and the structural deficit is reduced.

The flaw in this argument is that employee compensation is determined by the collective bargaining process. The unions will not agree to this sort of pay cut without other compensation, nor should they. Demand for state employee services continues to increase, and to a great extent that demand is being met despite understaffing issues and furloughs. This increase in employee productivity should not be answered with pay cuts; however, short-sighted politicians may take that route. As others have pointed out, that way leads to employee burn-out and loss of the best state workers. Surely we can do better than this.

Anonymous said...

They're taking a THREE PERCENT hit to salary (or wage) income.

It's actually a little more complicated than that. The 2% raise was withdrawn for non-unionized state employees b/c unionized (at least some) refused to reopen their contract and accept it.

In that same vein, one of the biggest pushes you can make on encouraging UW faculty and academic staff to take advantage of the collective bargaining rights granted w/ the 09-11 budget is to put diverting 5% of their wages to retirement on the table.

And the point was, Dad29, resources already have been pulled from state employee compensation to help fill the budget hole. And that 2% raise, for those who didn't get it, was explicitly rescinded to help shore up the hole; it was taken out of the compensation increase that was allocated for employees, regardless of whether they already got it. Yes, it's happened to private employees, too; and, when it has, it was taking compensation allocated to them and diverting it to shore up fiscal shortfalls.

Dad29 said...

not support extracurrics

Have you any idea what your HS football team costs/year?

Any idea at ALL?

Dad29 said...

Demand for state employee services continues to increase

Largely because the State has insinuated itself into everything imaginable.

Only 8 years ago, Doyle said he'd eliminate 10,000 State employees. As it turned out, he liked his fiefdom.

John Foust said...

Slow down, Dad29. Any governor tries not to screw up. Any elected official, if they want to be re-elected, tries even harder. They're all trying to solidify their base. Have you found one who keeps all their promises? Who meets your requirements? You say Doyle's fiefdom is somehow better for him personally when there's more State employees? They all mindlessly vote for him? His shoes are more shiny? His wife loves him more? His day's load is lighter? Or are you just imagining he feels better when there's more employees? (And thank you for not saying "Doyleone" or "boyzzzz".)

As for high school football, I look forward to your new campaign to ban it. I bet you'll get bigger crowds (with pitchforks and torches) than people do when they oppose religion in public schools. Doesn't each school have its own unique situation for how extracurriculars are funded? Might Elm Grove spend more or spend differently than other districts? Wasn't that a reflection of local control, a common enthusiasm for the glorification of male-dominated sports? Do you really have any idea how much other school districts spend on this, and where the money comes from? I would've thought, as a Chestertonian, you'd adore muscular Christianity. What about art classes? I think my district has too many of those. Drama? Too fruity? Swing choir? Wow. Take it a step beyond... we can ban the Badgers and the Packers, too. Think of the cost savings! The jobs created!