State Worker Backlash Spreads Across the Country

The public employee backlash against Wisconsin Republican Gov. Scott Walker’s plan to help balance the state’s budget by imposing higher health care and pension co-pays is spreading across the nation as newly-elected conservative governors seek to roll back benefits granted during better economic times.

A crowd of 3,500 demonstrators converged on the Ohio statehouse Friday to protest legislation introduced by Republican Gov. John Kasich that would limit collective bargaining rights for public employees. Teachers in Indiana, Idaho and Tennessee are planning similar actions, according to National Education Association officials in Washington.

“Where those attacks are occurring you can expect our members to be in the streets protesting,” added Steven Kreisberg, collective bargaining director for the American Federation of State, County and Municipal Employees. “What Governor Walker is learning and what Governor Kasich will soon learn is you can either sit down and we can talk about this and resolve our disagreements across the bargaining table or we can resolve our disagreements in the street.”

The benefits battle is most acute in states where conservative governors, some newly elected with Tea Party support, have sought to focus public anger over continuing hard times on public employee benefits, which are often more generous than those afforded workers in the private sector.

In Wisconsin, Governor Scott Walker’s proposal would disallow collective bargaining for most government benefits, but not for wages. Meanwhile, future wages would be capped at the federal Consumer Price Index, unless a voter referendum determined otherwise. As far as the bill’s particulars, union members are asked to contribute 5.8 percent of their salaries toward their pensions and 12.6 percent toward health insurance premiums. As a point of comparison, the Bureau of Labor Statistics reports an average health-care contribution of 20 percent for private industry employees, and the Employee Benefits Research Institute calculates the average employee contribution from take-home pay for retirement at 7.9 percent in 2009.

“What we're asking for is…still below what most people are paying,” Walker said in television interview on Friday. “Again, what we're asking -- we're not degrading public employees,” he added.

Union officials complain these governors are bypassing collective bargaining agreements to impose the cuts, and argue that many state and local government workers have sacrificed wage increases in recent years to keep health care co-insurance payments low and to maintain defined benefit pension plans, which have been largely replaced in the private sector by defined contribution 401(k) plans. Though union members continue to protest vigorously in Wisconsin, union membership has been on and continues to steadily decline. In fact for the first time in history, government workers accounted for the majority of all union members. 

The growing controversy pits new conservative governors including Walker and Kasich against the last remaining bastion of organized labor in the U.S. in a battle with huge implications for their states’ financial futures and the balance of power in the collective bargaining process.  Undermining public sector unions and their benefits has been a central plank of conservative groups for the past 30 years, led by Americans for Tax Reform, a Washington-based advocacy group headed by Grover Norquist. A decade ago, he told National Public Radio that his goal for government was “to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub.”

“Governors like Walker, Kasich and Christie are taking on the power of public employee unions to bring their compensation in line with economic reality,” said Josh Culling, state affairs manager for ATR. “Defined benefit pension plans are not affordable.”

The widening war over benefits is the latest phase in the ongoing crisis in state and municipal finance, where shortfalls in income and sales tax collections due to lingering effects of the recession have left 44 states projecting an estimated shortfall of $125 billion for the coming fiscal year. Unlike the federal government, states are constitutionally required to balance their budgets every year.

With federal aid from the stimulus package drying up, state and local officials are using a mix of budget cuts and tax increases to get through a year when unemployment is projected to remain above nine  percent. The political affiliations of state leadership, the relative health of the local economy and past management decisions are largely determining the paths they take to get to the balanced budget destination.

President Obama’s home state of Illinois, for instance, is run by Democratic Gov. Patrick Quinn. He is dealing not just with high unemployment but the aftermath of a decade of budget tricks that pushed current expenses into the future. Instead of gutting employee benefits, the state recently raised its income tax to 5 percent, a 66 percent increase. Republican Gov. Chris Christie of New Jersey, on the other hand, last year imposed a laundry list of spending cuts last year to shore up his state’s $10 billion budget deficit.

Pension experts take a very different view of the difficulties facing pension plans, both public and private, which suffered severe losses to their reserves during the 2008 and 2009 stock market collapse and continue to underperform because of ultra-low interest rates, which reduces the returns on their Treasury bill holdings. “One of the biggest culprits in the current situation is the Federal Reserve,” said Dallas Salisbury, president of the Employee Benefits Research Institute. “If rates went up in the bond market, the recalculation of long-term liabilities would magically look better.”

He estimated that all public sector plans face a combined unfunded liability of about $450 billion, not much different than the $300 billion to $500 billion in unfunded liabilities faced by private sector pension plans. The Pension Benefit Guarantee Corporation, which insures private pension plans and requires they maintain adequate reserves for future payouts, does not cover state pension plans.

But the liabilities faced by states is nowhere near the crisis stage, according to state officials. “In most states, the pension plans are doing very well,” said Keith Brainard, research director for the National Association of State Retirement Administrators, which closely tracks pension collections and benefits across the country. “But in other states, costs are rising sharply, typically because the state or city has failed to adequately contribute to the plan over time or benefits were approved without having a plan to pay for them” if investment returns soured during a downturn.

Wisconsin would appear to fall into the latter category. In 2008 the state’s pension fund suffered a $3.7 billion loss, nearly three times the state’s annual contribution. Due to collective bargaining agreements signed between the state and its unions, more than half the payments into the Wisconsin pension fund comes from state employee salaries, which is the second highest level in the nation.

“Wisconsin’s pension benefits are relatively modest,” Brainard said. “Benefits in that system compared to other state and local plans are relatively modest and their costs are fairly low.”

On the other hand, Wisconsin employees pay a fairly low portion of their health insurance premiums – 6.2 percent. Moreover, the average monthly premium for insuring a public employee family in that state was $1,267 in 2009, ranking Wisconsin as the nation’s tenth most expensive to insure. Public employees’ share of total health care premiums ranged from zero in states like Iowa, Oklahoma and Oregon to more than 40 percent in Arizona, North Carolina and Mississippi, overall insurance premiums ranged from a low of $636 in South Dakota to a high of $1,831 in neighboring Nebraska.

“Government employees are not rich people,” said Kim Anderson, head of government relations for the National Education Association, which is helping to coordinate protests against budget cuts aimed at pensions and health care plans. “The average public employee salary in Wisconsin is $48,000. We’re not talking about Wall Street tycoons here.”

Related Links
Athens in Mad Town (The Wall Street Journal)
Obama joins Wisconsin’s budget battle, opposing Republican anti-union bill (The Washington Post)
Wisconsin Protests: Polls Find Mixed Results On Public Employee Unions (Huffington Post)