Thursday, June 14, 2012

Collective Bargaining Should Not Apply to Public Service

Posted by Martin H Block, Ph.D.June 15, 2012 

 As cities, counties, and states across the country continue to face mounting budget deficits, disputes between government unions and the populations they serve are becoming a significant issue, as local and state governments are forced to face the realities that are the outgrowth of unionization of government employees.  Work stoppages and slowdowns by teachers and other non-public safety government employees are an indication of what some cities and counties have faced, or may be facing among their union and non-union employees.  The recent recall election results in the State of Wisconsin, as well as the results of the votes in San Diego and San Jose, California, the 8th and 10th largest cities in the United States, certainly point to a strong public sentiment to reign in some of the costs associated with unionized public employees.   

No less a Progressive icon than President Franklin Delano Roosevelt foresaw the inherent problem with letting government employees unionize, writing in 1937: “All government employees should realize that the process of collective bargaining, as usually understood, cannot be transplanted into the public service. … The employer is the whole people, who speak by means of laws enacted by their representatives in Congress.”  This warning applies at all levels of government.

Unlike the private sector, governments have no competitors.  When a union reaches a contract with a private firm that grossly increases costs, that firm loses out to competitors. When a union extracts a generous contract from government, there is no check on that spending.   Instead of being disciplined by more efficient competitors, the government most often pays for higher spending with service cutbacks, higher taxes, or borrowing. 

Government unions gained the upper hand through generous political donations and collective bargaining backed up with the threat of work stoppages and strikes; but states, counties, and municipalities across the USA are now facing $2.8 trillion worth of deficits in pension and benefits liabilities.  The City of Punta Gorda is included within that group.

Despite these liabilities, Moody’s recently improved the credit ratings of a number of local governments.  Why?  For the same reason that Moody’s gave their highest ratings to Fannie Mae and Freddie Mac, anticipated Federal Government bailouts.  But the Federal Government, having an existing massive deficit, is not in the position to be able to bail out all of the states and municipalities in this instance, at least not without risking itself falling into default.  Further, those states who are able to recover from their situation, or avoided it altogether, oppose bailing out those who are about to default.   

Without significant changes to the laws governing municipal and state employees, and a willingness by the state and local governments to roll back benefits and pensions and reduce their bloated payrolls, the only solutions are to further tax an already overtaxed population in order to raise the revenues to underpin their current and continuing obligations, and/or to reduce services.  Floridians, including the citizens of Punta Gorda, need to be aware that additional taxation at state, county, and municipality levels is likely if these entities do not cut employee expenses, and particularly employee pension expenses. What will be the long-term implication on the growth of Florida and its counties and cities in the face of this constantly growing tax burden?  Warm weather can only go so far in a competitive environment. 

The Sword of Damocles hanging above the heads of a number of states, innumerable counties and municipalities, in Florida, is also hanging over the City of Punta Gorda, which to date has done little more than put a band-aid on its employee pension expenses.  The critical step that it has yet to take is to move all of its existing general employees from a defined benefits pension plan to a defined contributions plan, a step which has long been recommended by the Punta Gorda Concerned Citizens Committee following our conducting a study of the city’s pension situation.

While the City Council has taken the step of placing new employees and those who are not already on the defined benefits plan on a defined contribution plan, that number is very small and will not have a significant impact for many years into the future.  It will do little to remove the sword hanging over the heads of the citizens of Punta Gorda.  Additionally, the city has yet to come up with a solution for the large unfunded ratios that exist in the firefighters’ and general employees’ pension plans. 

There are limitations imposed by State of Florida Law on what actions cities and counties may take regarding pensions and benefits for public safety employees, such as firemen, sheriffs, and police.  Efforts to reform these laws to increase local control have been thwarted in the Florida Legislature, though hopefully groups such as the Florida League of Cities can eventually move the legislature to take steps to reform the existing laws. 

On top of this, there is the issue of school taxes, which outpaced the growth of the economies of states and counties across the nation, as teachers and administrative personnel threatened walkouts and strikes if higher salaries, benefits, and pension demands were not met.  Pressures are continually brought down upon the citizens to provide the schools with ever-greater funds, even as the quality of education falls in many parts of Florida.   

President Roosevelt was absolutely correct; collective bargaining is unsustainable when applied to public employees, including police, firefighters, and teachers.  Charlotte County and Punta Gorda elected officials should be expected to promptly take steps to correct whatever imbalances currently exist, as they already have elsewhere in the nation and state, thereby placing the interests of the citizens above the unrealistic demands of public employees. 

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