Public Sector Workers Are the New Privileged Elite Class
Mortimer B. Zuckerman
Outrageous public pay, pensions, and inherent corruption are enraging private sector America
We really are two Americas, but not those captured in the stereotypical populist class warfare speeches that dramatize the gulf between the rich and the poor. Instead there is a new division in America that affronts a sense of fairness. That division is between the workers in the private sector and the workers in the public sectors. No guesses which is the more protected. A new study by the Mayo Research Institute, based in Louisiana, demonstrates that there is a striking differential in the impact of the recession. In 2009, the study found, "private-sector workers were nearly three times more likely to be jobless than public-sector workers."
Political tension is bound to grow when private sector jobs disappear faster but at the same time private sector compensation is being squeezed much more than that of the public sector. The rate of compensation for a generation of public service employees has gone up much faster than the personal income of the people who pay for these workers. The gap has widened dramatically between private sector workers at all levels of remuneration as compared to employees in federal, state, and local governments. Once there was a time when government work offered lower salaries than comparable jobs in the private sector, a difference for which the public sector compensated by providing more security and somewhat better benefits. No longer. These days, government employees are better off in almost every area: pay, benefits, time off, and security, on top of working fewer hours. They can thrive even in a down economy. It is tantamount to a wealth transfer from the citizens to the people who serve in government. Millions of public workers have become a kind of privileged new class--a new elite, who live better than their private sector counterparts. Public servants have become the public's masters. No wonder the public is upset.
Take federal employees.
For nine years in a row, they have been awarded bigger average pay and benefit increases. The result is that the total compensation gap between federal and private workers has doubled in the past decade, according to data from the federal Bureau of Economic Analysis. In 2008, the average wage for 1.9 million federal civilian workers was more than $79,000, versus an average of about $50,000 for the nation's 108 million private sector workers, measured in full-time equivalents, according to federal figures. Comparing the same mix of jobs, the gap was about $8,000 in salaries and $31,000 in benefits. Ninety percent of government employees receive lifetime pension benefits. Only 18 percent of private employees enjoy that protection. Public service employees continue to gain annual salary increases; they are almost impossible to fire; they retire earlier with instant, guaranteed benefits paid for by the taxes of those very same deprived private sector workers.
Of course public service workers should receive a fair level of pay and decent retirement and other benefits. What is galling, though, is when they routinely find ways to beef up their superior pay so as to turbocharge their pensions (typically based on a percentage of salary), while many of those in the private sector lack viable pension programs at all. This will stick future generations of Americans with higher taxes to meet these public service pension obligations and bring about reduced public services. Nice work if you can get it!
More troubling still is the inherent political corruption. Elected officials tend to be accommodating when confronted by powerful constituencies like the public service unions that agitate for plush benefits and often provide (or deny) a steady flow of cash to election campaign funds. You have a dynamic conflict of interest when the self-interest of the legislators is to appease the public service unions with pledges that won't come due until the lawmakers have left office. Their successors will have to cope with the inherited debt burden--and ultimately the nation's taxpayers are stuck with the bill at the federal, state, and local levels. Behold the consequences: less money for social services, libraries, road improvements, education, and other public service programs, i.e., the whole basis of the initial arguments for more public sector pay! States and localities don't have the federal government's ability to print money, and they have a much more limited capacity to borrow. The result, according to the Pew Center on the States, is that they face underfunded benefit and pension obligations that exceed $1 trillion. That estimate was before the stock market drop in the last couple of years. Liabilities for debts for these entities have increased from an estimated 12 percent of GDP in 1980 to an estimated 22 percent this year, approaching $2.5 trillion.
Occasionally the public wakes up to the consequences of the double-dealing and self-interest when they become dramatized, as in the egregious case of Bell, Calif. The Los Angeles Times exposed the scandal: The city manager of Bell, a town of 37,000, received not only a base salary of $787,000 but an unusually large package of benefits that increased his annual compensation to more than $1.5 million. His contract was going up every year, once by 49 percent, and more recently by 12 percent every July, resulting in a $600,000-plus annual pension obligation. Similarly disproportionate raises went to the assistant manager, whose pay and benefits totaled $845,960, and to the police chief, who got over $700,000 in salary and benefits. Meanwhile, the city council members were receiving total compensation of about $100,000 a year for part-time work. What made the Bell blowout infuriating is that these city officials secretly paid themselves such bounties at a time when the city had to cut spending on police, social services, parks, recreation, and programs for children. The three top officials were forced to resign and the salaries of the city council members were reduced by 90 percent.
This crazy stuff is not unusual in California.
The Golden State, which once boasted the world's best highway system and the country's finest public school system, including tuition-free higher education for residents, today can't afford to build decent highways, educate its children, or even protect its citizens from crime. As Governor Schwarzenegger has pointed out, spending on retirement benefits for California's state employees is growing at triple the rate of state revenues. Now exceeding $6 billion annually and growing at the rate of 15 percent a year, they are crowding out higher education, environmental protection, parks, and more. In a single generation, the profligate state has gone from golden icon to bankrupt bum. Brother, can you spare a zillion dimes?
The politics of public pensions appear to be changing in other states. In Michigan, Gov. Jennifer Granholm, a Democrat, recently enacted a teacher pension reform that should save about $3 billion over 10 years by increasing the amount workers must contribute. Illinois raised its retirement age for newly hired public workers from as low as 55 all the way up to 67. Republican Gov. Chris Christie of New Jersey decided that even if it took bruising clashes with public worker unions, public service compensation reform was essential for the fiscal health of the state. His stance surprised many, but it turned him into the state's most popular politician and made him a national figure. In New York, the leading candidate for the governorship, Andrew Cuomo, a Democrat, has made curbing some of these public costs an essential plank in his campaign.
These leaders understand that it is the taxpayers and public services that suffer if public sector managers overcommit and overspend on salaries and benefits for their employees. State and local governments are not subject to the kind of profit-and-loss restraints that dominate the private sector. They obtain their revenues by the coercion of the public through taxes; essentially they cannot go out of business. The public will always foot the bill.
No wonder the public is enraged by the whole performance. This is especially so when they can witness the multiplier effect: Generous pensions encourage more public service workers to retire at an early age, raising the cost to the taxpayer who has to pay not only for the retired employees but for the full-time replacements as well.
There is no quick fix to deal with the billions of dollars in unfunded liabilities. You can't reduce the number of public service employees because it is almost impossible to fire government workers except after a long process and only for the most grievous offenses. What's more, the courts have ruled in many states that pension increases granted by elected bodies are vested benefits that must be paid no matter what, precluding politicians from going back and changing past agreements.
The only fair solution is to take the pols out of the equation and have fully independent commissions in charge. These commissions should fix the scale of salaries and benefits for public service workers and establish an affordable second retirement tier for new employees, who would be subject to defined contribution plans or far more modest defined benefit plans. Pensions should not be allowed to exceed a final year's pay. More reasonable retirement ages should also be in order, such as 65 for general employees and 55 for public safety employees. This would take nothing away from current employees; they would continue under their existing benefit plans. Similarly, public workers should not be allowed to receive a pension from one public employee retirement system, then work for another government entity and collect a second public pension from a different retirement system. We would say an unregretted goodbye to the practice of elected public servants providing government workers with unaffordable compensation and pension levels that result in future generations being stuck with higher taxes, unsustainable debt loads, and reduced public services.
A fundamental rethinking of the public workforce is necessary. Americans will not continue to tolerate public employee pay and benefit levels that dwarf those of the private sector.
Americans cannot maintain their essential faith in government if there are two Americas, in which the private sector's work subsidizes the disproportionate benefits of this new public sector elite.
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Public Sector Workers Are the New Privileged Elite Class
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