These are troubled times for all levels of government. Federal, state and local leaders are grappling with budget deficits. A significant part of the problem is public pensions whose obligations have not been fully funded. Everyone agrees that this is a problem. What gives me heartburn is the constant chorus telling us that this problem is caused solely by greedy labor unions.
Blaming unions for the current fiscal crisis seems to me a bit like George Steinbrenner, late owner of the New York Yankees, blaming Alex Rodriguez for negotiating the largest contract in baseball history. There was no gun at George's head as he agreed to take on A-Rod's deal. But, to hear some politicians and Tea Partiers these days, the unions were wielding automatic weapons when they negotiated the public sector pension deals. The truth is that these pensions were arrived at fair and square through a series of negotiations between unions representing employees and elected officials representing us, the taxpayers. Both sides had legal representation and knew exactly what they were doing.
The problems arose after the negotiations. These pensions created liabilities on the part of government. Government representatives were supposed to fund these obligations. They simply didn’t do it. It is morally reprehensible for our government officials to now blame the unions for terrible sin of negotiating a deal and then expecting government to live up to it.
It is generally true that public sector pensions are better than those in the private sector. But, again, is A-Rod to blame because he was able to negotiate a better deal than his fellow athletes? Another fact is that private sector pensions used to be better than they are now. But, over the past generation, retirement benefits in the private sector have declined significantly. Many companies have converted their defined benefit pension plans, where the company takes more risk, to defined contribution plans, where the employees take most of the risk. This hasn’t happened as much in the public sector because more public employees are represented by unions who haven’t allowed this.
Financial planners have been advising us for years to prepare for our retirement. That is what the public sector unions did for their members. Unions made sure that their employees had adequate pensions. In many cases, unions agreed to give up larger salary increases in return for better pensions. Now, in the fun house mirror world of today's politics, they are the bad guys. Do I detect a little pension envy here?
Here’s a concrete example. I worked over thirty years in the private sector. My wife worked about the same length of time as a public school employee. We both have graduate degrees. I consistently earned a paycheck of about one third more than her. But now, she enjoys a pension benefit that is about three times more than mine. In my opinion, that is because her pensions were negotiated through a collective bargaining process, and mine were not.
So, who should we blame for the fix we are currently in? I say it is the politicians who agreed to these pensions without adequately funding them. So, hey, President Reagan, President George W. Bush, and Congress – why did you cut taxes on the rich without first funding government pensions and our infrastructure needs? On the state level, hey Gov. Ridge, Gov. Rendell and state legislators – why did you agree to the pensions and early buy-outs for state workers without providing adequate funding for them?
Ultimately though, I think we all need to look in the mirror. We let our politicians get away with the charade of inadequate funding. They told us there was a free lunch, and we were foolish enough to believe it. The most we can accuse the public sector unions of is being good negotiators. We will all need to make sacrifices to fix our budgetary problems. However, it is a mistake to blame the unions.
