Public Employees are not to blame for the state and local budget crises that are being used in the effort to gut their pensions — Wall Street is.
The financial and economic crisis generated by speculation on Wall Street is the reason state and local governments are in crisis, not public employee pensions. Balancing those budgets on the backs of public employees by gutting their pensions is wrong headed and will only lead to a further reduction in the living standards of all workers. Public employees should not be singled out for attack while those responsible for the financial crisis receive government bailouts and retain their lavish salaries and bailouts.
The funding problems of public employee pension systems are not the result of overly generous pension benefits.
The average public employee nationally collects $20,000 per year in pension benefits upon retirement. The problem in public employee pensions stems from the combination of underfunding by state and local governments over the last several decades and the financial collapse of Wall Street. Many states have not kept their end of the bargain with public employees. For example, Illinois has contributed only half of the amount required to pay workers benefits statewide, and the states pension funds are $54 billion short.
Growth in pension assets over the years has not been primarily fed by state and local taxes, and closing the gap in pension funding will not be primarily borne by current taxpayers.
First, only 26 cents of every dollar that is paid out in retiree pensions in the public sector can be attributed to taxes, the rest is the result of investment income and, yes, contributions by the employees themselves – employees contribute an average of 40% of the contributions in public pension funds. Second, the most unrealistic estimate of the underfunding of state and local pension benefits – a trillion dollars nationally according to the Pew Center – is meant to scare people not deal with the problem. The “trillion dollar gap amounts to more than $8800 for every household in the U.S,” according to the Pew Center. The problem is that the trillion number is estimated over a thirty-year period, which would be $300 per year. Since public employees already pay for 40% of the investment contributions made to cover their retirement and investment income covers much of the rest, taxpaying households, under the worst scenarios, would be expected to pay roughly 25% of the $300 per year – or $75 to cover the retirement security of essential workers.
The problem of state and local budget crises is not because “unions have a stranglehold” on politicians to fund their lavish pensions.
The truth is that state and local budget crises are pervasive in the nation. Today, 48 out of 50 states are facing a budget deficit, and with the end the federal stimulus it is likely that all 50 states will face a deficit. Those deficits are not the result public employee pensions, but because the financial crisis has destroyed the tax revenue base. Further, there is no correlation between public employee unionization and how well states fund their pension systems. Public employee pensions are the result of legislation and workers in both high union and low union density states have defined benefit pension plans.
The case of the $100,000 a year public employee pensioner is not the norm.
There are cases where a handful of top earners in certain cities and states have gamed the system to get large pension payouts – a practice known as “spiking”—but the solution to that is not to cut the pensions of the average public employee who receives $20,000 per year. The answer is to place restrictions on rules that open pension funds up to abuse. The UWUA wants to protect the pensions of members, not the gaming of the system by some top earners – usually managers – in the public sector.