The Streets of Madison

In power grabs two wrongs usually makes those in power right, those who opposed them wrong and everyone else left out. There’s a power struggle in Wisconsin’s capitol city, Madison, that may set direction for many state and local governments across the nation facing increasing costs, declining revenues and expanding debt trying to make those two ends meet.

Thousands of teachers, firefighters and other public sector workers have marched and chanted in the Mad City all week in protest of Governor Scott Walker and the newly elected majority Wisconsin Republicans’ legislative attempt to curb the collective bargaining powers of public sector unions. The proposed bill would require state workers to contribute more to health insurance and pensions. Walker says if the bill is not passed 10,000 of those state workers might lose their jobs.

This is the fight that union leaders saw coming before the November 2010 elections. They fear that such legislation, if allowed a foothold in Wisconsin, will result in union-busting by governors and legislators emboldened or intimidated by the grassroots tea party movement that was exploited by the GOP in the mid-term elections. The 1.6 million-member American Federation of State, County and Municipal Employees (AFSCME) spent more than $90 million in the mid-term elections. More than any other group outside of the official major political parties.

As the recession grew and the realization that a new normal economy did not support the spending of old took hold public sector employees became the target.  In 2009 Democratic lawmakers sent more than $160 billion in federal stimulus cash to states that combined with furloughs, voluntary wage-freezes and other concessions prevented public-sector layoffs. Meanwhile unemployment climbed to double digits as new housing construction tanked. The “sharp pencil” touted as a reason to sell debt bonds for public construction came not in material costs but in labor costs which put tremendous downward pressure on private sector earnings.

The organization and clout of the public-sector unions helped shield members from the worst of the economic downturn. The private sector, enlightened by increased transparency and information now available at broadband speed, could not help but recognize the growing disparity between them and their public servant counterparts. These contrasting economic conditions were magnified as example after example of gouging the taxpayer-supported-system were discovered and reported.

There are a large number of people between poverty and the average wage of a public sector employee who receive no entitlements and scant if any assistance. They create great value for society and are taxed heavily for that production. Anyone who thinks they’re not suffering is delusional. Those who think their anger is unjustified must not have had their earnings diminished, government services reduced and their tax bill raised from almost every angle.

Public employees unions are an interesting hybrid. Industrial unions are organized against the might and greed of ownership. Public employees unions are organized against the might and greed…of the public? — Joe Klein for Time Magazine

Strong arguments can be made that public sector unions have too much influence in electing their bosses and thus they have too much clout. But those unions are the best organized opposition to education cuts and reduced class size, for example. They actively lobby to increase public service funding thus they serve as balance to conservatives who want to reduce such spending.

The developing story-behind-the-story in Madison is beyond unions trying to protect workers’ rights. Teachers are fed up with attacks on their profession and the demoralizing rhetoric that far too often dominates the national furor about education reform. The immediate future demands an educated work force yet talk of improving schools coincides with cutting funding, cutting scholarships to college and increasing class sizes by reducing teacher staff levels. The Madison marcher numbers are multiplying. A Facebook scan reveals that many DeKalb and NIU teachers have joined the fray.

The basic tenets of hard work, perseverance and dedication required of good teachers are the same acumen required of all productive citizens. All who take pride in what they do often boast that their work is much of their reward. Those words can quickly lose their meaning and can turn bitter for those who have never gotten their shot. In a very short period of time college graduates have gone from a future with lucrative careers to their only reward is their work. Pensions and debt stand in the way of their hiring line and those entering the job market now can never have it as good as those they’re replacing.

That’s just about a 180-degree about face from what the baby boomer parents wanted for their kids. And that’s the between-the-lines story of what’s going on in Madison. The 800lb. gorilla in Wisconsin’s capitol and just about every other governmental unit (and there are many) on multiple continents is public pensions.

The time for reforming that system is now. Merely hoping the economy will recover to a sustained boom time as the solution to pension funding is totally unacceptable.

Efforts must be aimed at fixing the system. There is very little the government can do now about the demographics of those in the retiring baby-boomer generation who entered public service in the 1960s and 70s. But its imperative to manage its fiscal impact on cash-strapped state and local governments and their taxpayers.

The defined benefit plans typically offered in the public sector create an unaffordable financial obligation for citizens already bearing the brunt, typically in the form of higher taxes and fees to support ballooning budget deficits, along with more debt service incurred by the government borrowing more money for short-but-recurring-term operational needs. A defined benefit plan, often backed by the full weight and authority of the State Constitution, requires any pension fund shortfalls to be covered, one way or another; regardless of the economy, the investment portfolio performance or its affordability.

Sooner because later is too late the public pension system must transform to a defined contribution plan or at the least a benefit plan directly defined by the U.S. Treasury Bills rate of return because that’s where the pension funds are exclusively invested.

Bottoms up. True reform comes from the bottom up. Rank and file citizens in both the public and private sector must join forces to maximize strength in numbers to assure that the opportunity to rise above the pains of poverty is shared by all.

According to an AFSCME fact sheet their average member receives a pension of approximately $19,000 per year after a career of public service. Their average employee earns $45,000 per year, according to AFSCME. With a membership of 1.6 million that’s a lot of folks who can’t afford the local taxes and fees just like the rest of us. For the purpose of seniority as it relates to younger employees they can’t afford pension abuse either.

Pension abuse must be identified, adjusted and stopped. Even those who followed the rules to obtain an abusive pension through faulty or loop-holed policy are subject to adjustment.

How to identify abusive pensions? Start with all those among defined benefit plans that exceed six figures. Check to see if the often volunteer or per diem paid local boards underestimated the raises that government workers may earn until they retire and/or overestimated the interest assumptions for funding that somehow escaped the scrutiny of the guarantors of those defined benefit plans – the taxpayers.

Start with those. Put a huge red flag on any early defined benefit plan retirement package that’s within horseshoe distance of six figures. Slap a State Constitution-backed luxury tax (valid in any state) on all pensions above the abusive line and a lot of short-but-recurring operational deficits would disappear.

By the way many of those abusive pensions will be found among elected officials, political appointees and administration far above the average AFSCME member.

Solutions that favor one group yet oppresses another only makes the problem more oppressive — even if the favor was collectively bargained. The lower middle class cannot hope to keep up with the increasing cost of government if their earnings stagnate or decline. Opportunity must be available for everyone.

If collective bargaining is good for the public sector unions it must then be used by the governmental units. Under the guise of local control professional negotiators with state and national unions were at a decided advantage over town halls and school boards isolated by the time constraints of a volunteer board. Adminstrators under cover of internal equity delphi’d their way to some some overly generous perquisites.

But Walker-rooting Republicans might consider their demands for strict adherence to the political capital of democracy, since they won the last election, to be of equal importance as President O’Bama’s health care plan that has never been given time nor chance to succeed. Democratic forces brought the American public that plan. Adjustments upward to public sector employees (or any retiree’s) health care costs should be frozen until the dust settles on a national health care plan.

The good thing and shining ray of hope is with transparency comes accountability. Slowly but surely people are learning to use and filter the information so readily available to them. Dumbing down is working less and less. Better days are ahead.

Inclusive solutions: Win. Win. Exclusive entitlements: Win. Lose.