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In defense of public employees, their salaries, retirees and their pensions...

It seems that public employees, including teachers, are the pundits' new "welfare queens." Everywhere you look, somebody is blaming us for the huge holes in state budgets. Here are just a few examples:

Gingrich Seeks Bill Allowing State Bankruptcy to Renege on Pensions

Public Workers Face Outrage as Budget Crises Grow

Readers comments on the above article

Strained States Turning to Laws to Curb Labor Unions

Committee to Save New York Prepares to Counter Public-Sector Unions

 

Here is a video which, in 7 minutes, does a great job of explaining what is happening, and why:

 

AFSCME has put together a short video for their "Stop the Lies" campaign:

 

OK, let's start to put together the facts--which are not the same thing as the opinions of the talking-heads on TV--concerning this situation. As the late senator Daniel Patrick Moynihan used to say: "Everybody is entitled to their own opinion, but not to their own facts." Let's begin with an article by Robert Reich, Sec. of Labor under President Clinton:

"The Shameful Attack on Public Employees"

Now, let's extract some facts from the article:

1) "They say public employees earn far more than private-sector workers. That’s untrue when you take account of level of education. Matched by education, public sector workers actually earn less than their private-sector counterparts.

The Republican trick [webmaster note: It should be noted that we are not picking only on Republicans. Even New York's Democratic governor is participating in this game.] is to compare apples with oranges — the average wage of public employees with the average wage of all private-sector employees. But only 23 percent of private-sector employees have college degrees; 48 percent of government workers do. Teachers, social workers, public lawyers who bring companies to justice, government accountants who try to make sure money is spent as it should be - all need at least four years of college.

Compare apples to apples and and you’d see that over the last fifteen years the pay of public sector workers has dropped relative to private-sector employees with the same level of education. Public sector workers now earn 11 percent less than comparable workers in the private sector, and local workers 12 percent less. (Even if you include health and retirement benefits, government employees still earn less than their private-sector counterparts with similar educations.)" [Webmaster's note: Using "average pay" can be deceiving. When Bill Gates walks into a restaurant, the average diner in the restaurant becomes a millionaire!]

 

2) "Most public employees don’t have generous pensions. After a career with annual pay averaging less than $45,000, the typical newly-retired public employee receives a pension of $19,000 a year. Few would call that overly generous." [NOTE: The average NY retired teacher receives a pension of about $30,000/year.]

"And most of that $19,000 isn’t even on taxpayers’ shoulders. While they’re working, most public employees contribute a portion of their salaries into their pension plans. Taxpayers are directly responsible for only about 14 percent of public retirement benefits."

 

3) "... bargaining rights for public employees have caused state deficits to explode. In fact there’s no relationship between states whose employees have bargaining rights and states with big deficits. Some states that deny their employees bargaining rights - Nevada, North Carolina, and Arizona, for example, are running giant deficits of over 30 percent of spending. Many that give employees bargaining rights — Massachusetts, New Mexico, and Montana — have small deficits of less than 10 percent."

 

Now, let's look at the issue of unfunded pension liabilities. Many states are seriously behind in their contributions to their public employee pension funds. Not because of the recent recession, but because for years--while economic times were good--they put off contributions as a way to keep taxes low. New Jersey is a typical example.

NJ is 40-50 billion dollars underwater in their system, and Gov. Christie is saying that public pensions need to be "scaled back." Let's put this in easy-to-understand terms. You contract with a painter to paint your house. You agree on the price, and the painter does the job. When the painter asks to be paid, you say, "Gee, while you were painting the house I decided to spend some of the money I was going to use to pay you on a new flat-screen TV. I know we agreed on a price, but I don't have the money to pay you so you'll just have to settle for a lower price." And then you go running around the country complaining that the problem is the fault of the greedy painter!

The American Federation of State, COunty and Municipal Employees (AFSCME) addresses this problem in their "Stop the Lies" campaign:

"State and Local government pensions are, for the most part, well managed and are not the source of budget problems for most states and local governments. There has been considerable distortion of the size of the unfunded liabilities of public pension funds. Although the aggregate number may have some academic interest, it’s not very relevant because all pension funding is local or state based, not national. Nevertheless, the aggregate number, which most impartial observers set at $500 billion to $1 trillion, while seeming large, is not particularly onerous when the following facts are considered:

1) The unfunded pension liabilities may be paid over a period of 30 years under generally accepted accounting rules issued by the Governmental Accounting Standards Board (GASB);

2) During this thirty year period, state and local government revenues will be approximately $40 to $50 trillion, so the unfunded liabilities are approximately 2% of governmental revenues over the payback period;

3) Because of the recession, a substantial majority of state and local governments have lost between 10% and 20% of their revenues over the past two to three years. As revenues recover, governments will be able to set aside appropriate money to cover their pension obligations.

In 2008, state and local government pension expense amounted to just 3.8% of all (non-capital) spending. Contributions are expected to increase in the future to cover for investment loses and many public employers’ failures to adequately contribute in the past. However, the increase in the contribution rates will result in pension costs, in aggregate, approximating a still manageable 5% of all state and local government spending by 2014 and beyond. The 5% figure includes both paying off unfunded liabilities and paying for new benefit accruals.

Prior to the market crash in 2008 and 2009, public pensions had, on average, 86% of the assets they needed to pay for accrued benefits. (Anything over 80% is considered healthy.) Despite the market downturn, pension funds are not at imminent risk of default and they have years to recover investment loses. The history of public pension fund management demonstrates that pensions have not been a long term burden to governments. Most pension funds have been existence for over sixty years.

Pension benefits are not the cause of unfunded pension liabilities which are making the headlines. Where the problems are very deep, the cause is the failure of employers to consistently fund pension plans and recent investment losses. In any case, unfunded liabilities do not disappear if pension benefits are cut or the pension fund is closed. The pension liability debt remains. The ongoing cost of providing employees with additional pension benefit accruals each year is usually quite modest and paid for, in part, by employees themselves."

New York teachers should be aware that those who wish to reduce or eliminate public pensions are trying to equate the problems of New Jersey or California with New York. The following letter to the editor was a response to such an attempted conflation by the publisher of the Dunkirk Evening Observer:

September 4, 2010

Editor, Observer,

In his recent “Publisher’s Notebook,” John D’Agostino doesn’t let verifiable facts get in the way of a good rant.

He states that California is in serious trouble because they have seriously underfunded their public pension obligations. No argument here. Some reports have this underfunding at several hundred billion dollars. Mr. D’Agostino then states: “Without question, Schwarzneggers's crisis is similar to the one in our state.” That is where he and the facts diverge.

By law, New York State’s public pension systems, unlike those in many states such as California, are fully funded. Some say that being “fully funded” is based on an unrealistic assumption of an 8% rate of return on investments. According to the National Association of State Retirement Administrators, since 1985, a period including three economic recessions and four years when median public pension fund investment returns were negative (including 2008), the median public pension plan rate of return was 9.25% – or 1.25% greater than the 8% rate labeled as "unrealistic" by critics.

Critics complain that retirement costs to localities and school districts are skyrocketing, and will bankrupt them. Employer contribution rates for the New York State Teachers’ Retirement System, one of the two largest public retirement systems in our state, are a matter of public record. In the 1980’s school districts paid an average 21% of salaries as a retirement cost. In the 1990’s that figure dropped to 5.7%, and in the first decade of this century school districts contributed an average of 4.4%.

No one will argue that New York State has not managed its fiscal affairs in a boneheaded manner. New York taxpayers should know, however, that there are no “underfunding” monsters hiding in the public pension system to cause them alarm."

Richard W. Steinfeldt
Fredonia

For more information specific to NY teachers' pensions, click here to go to our Pension information page.