Stealing You Blind: Plans for Future Theft

One of the themes of Stealing You Blind is how public sector unions have worked with politicians to organize an industrial-scale transfer of wealth from your pockets to their members’ pockets in the shape of exceptionally generous pension schemes. There have been two good examples this week of how this operates.

First up is this absolute-must-read New York Times story about how the racket (or perhaps ratchet would be a better description) was set up in California. This quotation is perhaps the most revealing (and gels with the public sector mindset described by Greg Conko here):

“We had no idea what we were doing,” said Tony Oliveira, who as a supervisor in Kings County, in central California, voted to increase employees’ benefits, and now is on the board of the state’s enormous pension fund. “This was probably the worst public policy decision in the state’s history. But everyone kept saying there was plenty of money. And no one wants to be responsible if all the cops quit to get paid more in the next town.”

The article also describes how  the California state pension scheme, Calpers, was rigged to ensure that it continued to deliver:

Six of Calpers’s 13 board members were elected by government retirees or workers, as required by state law. Another was a union official. Two others were politicians who had sought union endorsements and campaign contributions…

When Calpers’s plan to expand pensions came up in the state Legislature, lawmakers from both parties voted for it. On the Senate floor, it passed after 45 seconds of debate with no dissenting votes. Some legislators from that period, in interviews, said they believed that public workers deserved to share in the economic growth.

Other lawmakers were told if they didn’t vote for the plan, public employee groups would attack them in ads and give their opponents tens of thousands of dollars in contributions, and they could lose endorsements from police, firefighters or other influential groups, according to legislators and lobbyists.

Such threats, politicians knew, were real. Over the next five years, public sector unions would spend more than $77 million on California state elections and ballot initiatives alone.

Finally, the article reveals how the unions pushed for increased benefits at the municipal level by the simple expedient of threatening public safety:

It was informally known among local union leaders as “Operation Domino,” and for years the goal was straightforward: persuade one city to increase salaries and pensions for workers, and then approach neighboring municipalities and argue that if the increases weren’t matched, the city’s police, firefighters or other employees might quit, in large numbers, and go elsewhere.

By the time the dominos made it to Costa Mesa, neighboring areas had already toppled. “The unions would say, ‘Gee, Irvine, Newport, all of these nearby cities, they offer these higher benefits for police and firefighters and it’s a real tight labor market, and if we don’t receive similar benefits, what if we leave and go work there?’ ” said Allan Roeder, Costa Mesa’s city manager for more than two decades, who retired in March with a pension of $190,000 a year.

Then, starting about a decade ago, word began to spread that the Costa Mesa police had more than a dozen vacancies they couldn’t fill. Graffiti became more common. Police representatives warned that gang activity was rising and, without strong benefits, the department couldn’t attract officers.

When Mr. Roeder went to the grocery store, residents asked him why he wasn’t keeping the streets safe.

“When achieving public safety is threatened, law enforcement gets what they want,” he said.

This sort of planned exploitation would be regarded as criminal if undertaken by the mob, so why is it regarded as okay when performed by unions? These unions learned a thing or two from the days of Jimmy Hoffa, it seems.

The second item, alluded to in the Times article, is the publication of a new paper that tells us the true scale of this massive legally-sanctioned theft. Researchers Robert Novy-Marx and Joshua Rauh have calculated exactly how much additional taxpayer money will be needed to meet pension obligations over the next thirty years:

Without policy changes, contributions to these systems would have to immediately increase by a factor of 2.5, reaching 14.2% of the total own-revenue generated by state and local governments (taxes, fees and charges). This represents a tax increase of $1,398 per U.S. household per year, above and beyond revenue generated by expected economic growth. In thirteen states the necessary increases are more than $1,500 per household per year, and in five states they are more than $2,000 per household per year. Shifting all new employees onto defined contribution plans and Social Security still leaves required increases at an average of $1,223 per household. Even with a hard freeze of all benefits at today’s levels, contributions still have to rise by more than $800 per U.S. household to achieve full funding in 30 years

The scale of the theft is staggering. Public sector pensions should be regarded as a fourth entitlement program in need of reform alongside Medicare, Medicaid and Social Security, the only difference being that reform is needed at the local rather than the national level.

Without significant reform, which will necessarily involve cuts in promised pension benefits, the rest of us are going to have to work for years to pay for other people to live in pampered retirement. And there is no other word for that than theft.