Now that these unfunded liabilities are under close scrutiny, many believe we should reduce or jettison these plans altogether; plans that were part of state employee pay packages 20 or more years ago and right up to the present. Reducing the benefits of these people, mostly after they've retired, is cruel and arbitrary. It also risks breaking labor law. One could argue, possibly, they'd suffer no more than private sector 401K plans, which were hit hard during the housing collapse. These have mostly recovered their value.The subtext here, the only bargaining chip held by pro-bankruptcy stalwarts is the inevitability of the loss of the unfunded pensions.
Well, apparently Ms. Walsh isn't the only person thinking about this, because today in the L.A. times, Jeb Bush and Newt Gingrich have co-written an opinion piece which touts the possibility of reducing
$100,000+ pensions to more than 12,000 state and municipal retirees this year. A Stanford study puts the state's unfunded pension obligations at more than half a trillion dollars.
Watch for this to blow up in a big way in the next year. Watch your wallet.Some call it the GM way-- reflecting that company's use of bankruptcy to rid itself of mountains of unfunded employment related and pension debt. Gingrich and Bush are even asserting state bondholders need protection as well as pensioners.
At issue isn't fairness or even actual dollars, this sudden aversion to funding employment related costs, even contractual obligations, is presented as a union vs. the state taxpayer issue, tapping into recent voter dismay at having to pay people who seem not much worse off than the taxpayer herself. But this is deeper, this is looking for bad guys, and the bad guys are being set up for a fall.
Second, as with municipal bankruptcy, a new bankruptcy law would allow states in default or in danger of default to reorganize their finances free from their union contractual obligations. In such a reorganization, a state could propose to terminate some, all or none of its government employee union contracts and establish new compensation rates, work rules, etc. The new law could also allow states an opportunity to reform their bloated, broken and underfunded pension systems for current and future workers. The lucrative pay and benefits packages that government employee unions have received from obliging politicians over the years are perhaps the most significant hurdles for many states trying to restore fiscal health.[Ed. Emphasis mine]
It's a convenient explanation, but it's classist and it's wrong. The labor unions made the mistake of allowing the funding of their retirement plans to stay in state treasuries. Now their retirement and health care funds are exposed to politicizing.
But think of this-- do we think it's wise, as a society to cut the benefits of teachers, kitchen workers, prison guards, truck drivers, and police and fire personnel?
It might be enlightening to remember 2 1/2 years ago when AIG was obligated to pay the bonuses to their sales and executive staffs even after a $180 billion bailout. "It's all in an air tight contract" the government overseers shrugged. I believe the public employee unions will also find they've got strong contracts. What I don't like is the smell of class war going on here-- money grabs, balancing the budget on the backs of the elderly and retired. Taxpayer against union employee. In fairness here, the taxpayers were not in favor of paying the AIG bonuses either. The insurance salesmen just got better legal work done. I hope the union contracts are at least legally protective.
The Bush/Gingrich piece is written to look like an outline of the bare legal mechanics involved in a state bankruptcy. A close reading reveals depths of animosity and greed. They're targeting unions and union employee contracts.
If Californians were given the opportunity to do an end run around the politicians in Sacramento and vote to reform their state government under the U.S. Bankruptcy Code, it would almost certainly trigger a proposition fight. In such a circumstance, the proposition could provide that a yes vote would trigger the cancellation of all state government employee union contracts. Even if the proposition were defeated, the debate surrounding it would make abundantly clear to the people of California and the rest of the country just how much of a stranglehold government employee unions have on state and federal budgets.Add to this the way the recent tax cut compromise cut a significant portion of the funding of Social Security (that's the 1-2% raise you got this year if you're lucky enough to be employed), such that we are now about to spend it faster than it comes in, and it will gut any efforts to prop up Social Security later. What was cut was part of the individual taxpayers contribution to Social Security. I believe it used to be called FICA. If you file a Schedule C, you may pay self-employment tax. That's what they cut. That forms perhaps 12% of the funding for Social Security. That funding has not been "replaced" it has been terminated.
And please note that no one has bothered to bring this relatively large alteration in a 75 year old system to anyone's attention.No one is naming this, what is perhaps the biggest victory in the smaller government movement, and surely a weight off the chests of many who oppose massive government entitlements. I believe Social Security was shown in 2009 to be solvent well past mid-century. It will no longer be that resilient. I believe this was the most cynical part of the tax cut compromise (which is saying a lot!), and will be the one with the most undesirable effects in the shortest term.