Guv’mint Work

“… meticulous attention should be paid to the special relationships and obligations of public servants to the public itself and to the Government.

All Government employees should realize that the process of collective bargaining, as usually understood, cannot be transplanted into the public service …

“Particularly, I want to emphasize my conviction that militant tactics have no place in the functions of any organization of Government employees. Upon employees in the Federal service rests the obligation to serve the whole people, whose interests and welfare require orderliness and continuity in the conduct of Government activities. This obligation is paramount. Since their own services have to do with the functioning of the Government, a strike of public employees manifests nothing less than an intent on their part to prevent or obstruct the operations of Government until their demands are satisfied. Such action, looking toward the paralysis of Government by those who have sworn to support it, is unthinkable and intolerable.”

It may surprise you to learn that these words were written by President Franklin D. Roosevelt in a letter dated August 16, 1937. As he states the case, FDR saw crucial differences between collective bargaining in public organizations, which he eschewed, and private organizations, which he encouraged. He was so “pro-union” in the private sector that his New Deal laid the legal and regulatory foundation which unionized 35% of the nation’s private workforce at its mid-1950s peak.

But Roosevelt’s opposition to unions in government services was the Democrat orthodoxy of the time. Unlike private sector ventures whose workers generate the profits, in Roosevelt’s view, the workers in public sector ventures do not produce profits. In fact, they work in government monopolies whose services can’t be “shopped” by their consumers to get the best value for police and fire protection or public education.

When unions engage in collective bargaining on behalf of employees of a private organization, the party across the table is management who represents shareholders and creditors. On their behalf, management has a vested interest in containing payroll expense and maintaining the firm’s competitiveness. The discipline of the market constrains the demands union negotiators can make in private sector ventures.

None of these incentives are at work in public unions. The titular head of a government agency is not the employer; taxpayers are. Nor does the government manager feel the impact of the expense to operate the agency; taxpayers do. Yet taxpayers are conspicuously absent from the public union collective bargaining table. Their interest in keeping expenses low and getting good value for their money isn’t represented at all. Unlike private sector unions, public unions have no market to discipline their appetites. No matter how outrageous their demands, the expense is passed along to the taxpayer because the government manager has no stake in the taxpayer’s interests.

The presidents, state governors, mayors, commissioners, and other public agency heads who create budgets and spend tax revenues are essentially employees themselves, not much different than the fire fighters, police, teachers, and agency bureaucrats they supervise. But they differ from their private sector counterparts in one important way: private sector employees don’t elect their bosses. Public sector employees do. Government workers, or more specifically the unions that represent them, can funnel millions of dollars into election campaigns. They maintain election phone banks, knock on doors, get out the vote. They are part of the candidate’s election staff and they don’t cost the campaign one penny. But they can un-elect candidates that don’t give them what they want.

As budget crises like those in New Jersey, Wisconsin, Ohio, and Indiana sweep the country, FDR has been proved right. The perverse incentives in public sector leadership and public unions is the cause for the mess we are now in – bloated inefficient state and national governments that cost more every year to operate. These problems were unheard of before the late 1950s when the barriers to public unions began to fall.

New York City Mayor Robert Wagner was the first to issue an order in 1958 that allowed public employee unions and collective bargaining. Then Wisconsin became the first state to enact a public sector collective-bargaining law the following year. In 1962, President John F. Kennedy signed Executive Order 10988, which granted bargaining rights to federal employees.

The genie was out of the bottle. Around the country, state and municipal government began enacting public sector collective bargaining laws, virtually inviting union leaders to rob taxpayers, elect their co-conspirators, and expand government. The growth of public unions put an unelected power in charge of the people’s business next to the people’s elected officials. With that came the loss of control over government budgets, and hence over tax rates.

Need proof? Virginia banned collective bargaining in state and local government in 1993. State debt as a percentage of tax receipts is 2% and unfunded pension liability is 17% of state GDP. Wisconsin, where public union members have been protesting their governor’s attempt to restore sanity to the state budget for 10 days, has debt of 5% of tax receipts and unfunded pension liability of 32% of state GDP. Unfunded state pension liabilities are a ticking time bomb nationwide. They are currently under-funded by over $3 trillion and growing by the day.

Since pubic unions gained respectability, federal, state, and local government employment has grown from 8.2 million in 1959 to 22.5 million in 2009, excluding the military. Contrary to conventional wisdom, the leading attraction to government work is the pay, benefits, and job security relative to private sector work.

According to BLS data for 2010, state and local government employees nationally were paid an average wage of $26.25 per hour, which was 33% higher than the average private sector wage. But an even greater mismatch occurs in benefits, such as health and life insurance, paid vacations, sick leave, and contributions to retirement income. State and local governments provided their workers with benefits valued, on average, at $13.85 per hour, a whopping 69% premium over the average benefits package in the private sector.

State and local government benefits are not only more expensive, but are also given to more workers. Life insurance, for example, is a benefit for 80% of government employees but only 59% of private sector workers. Traditional defined benefit pension plans were available to 84% of government workers – but to only 21% of private employees. The cost of the average state and local government defined benefit retirement plan is $2.94 per hour worked, significantly higher than 44 cents for private industry employers.

With salary and benefit compensation as generous as this, would it surprise you to learn that government employees are only one-third as likely to leave their jobs as workers in the private sector?

Yet state and local governments are cheapskates compared with the pay and benefits available from the federal government. Uncle Sam employs about two million of the 23 million government employees in this country and paid them – are you sitting down? – an average annual salary of $79,197, according to the Commerce Department's Bureau of Economic Analysis. The average private employee earned just $49,935 from which is paid the taxes that pay these extraterrestrial government salaries.

The difference between the federal and private salaries has more than doubled since 2000. Reducing federal pay to the same level as the private sector would save taxpayers approximately $47 billion a year!

Benefits make the difference even more striking. Total federal civilian compensation – pay and benefits combined – average $119,982, which is more than twice the $59,908 compensation package earned by the average private sector employee.

Tax-paying private sector employees may fall on hard times, but the good life just keeps on truckin’ for public employees. Since the "Great Recession" started a couple of years ago, the number of federal workers with salaries of $100,000 and up increased 46%. But hold on to your hat. At the Defense Department, the number of civilian employees making $150,000 or more quintupled from 1,868 to 10,100 in the last two years, and at the Justice Department, the number receiving these princely incomes increased nearly sevenfold.

Between January 2008 and June 2010, as the “Great Recession” slogged on, the private sector lost roughly 8 million jobs. But government – the fastest growing enterprise in America – added 590,000 employees to its workforce.

What could explain the difference between private sector and public sector compensation and employment security? Unions. The so-called labor movement in this country has been declining in the private sector but growing in the public sector. From its zenith in the mid-1950s the labor union participation rate has declined from 35% to less than 7% of the private sector workforce. But in the 50 years that unions have been allowed in the public sector, the participation rate has grown from essentially zero to over 39% of the state and local government workforce and 36% when the federal government workforce is added.

The trend to unionize government and hold taxpayers hostage is not likely to abate.

Public unions are the biggest players in national politics. The largest public sector unions are the National Education Association, the American Federation of Teachers, the American Federation of State, County, and Municipal Employees, and the Service Employees International Union. These unions have more than seven million members combined, and they are very well financed. The NEA and AFT teacher unions, for example, collect about $2 billion a year in member dues and fees. While they spend generously to elect their candidates, 95% of their money goes to Democrats because they are more likely to raise taxes and boost spending than Republicans.

The Service Union International Union (SEIU) spent $67 million to elect Obama and other Democrats in 2008. In the first nine months following Obama's inauguration, union president Andrew Stern visited the White House 22 times – more than any other visitor. His successor, Richard Trumka, recently boasted that he talks to the White House about three times a day. Money buys access.

Public unions and elected officials make a powerful tag team when wresting more money out of taxpayers. In 2010, for example, Oregon public unions teamed up with the Democrat governor to raise individual and business taxes by $727 million annually rather than cut public services – and the jobs to provide them. The Oregon Education Association pitched in $2 million and the SEIU added $1.8 million to the $7 million spent to promote ballot measures increasing the taxes. Altogether, public unions contributed 75% of the $7 million. Not a bad ROI: spend $7 million to shake $727 million out of the tree that unions apparently believe grows money.

New Jersey's teachers union fought Gov. Chris Christie's efforts to cut education spending as part of his plan to deal with the state’s $11 billion deficit. The union gets dues of about $100 million annually from its 203,000 members. That’s a big war chest for an organization whose primary purpose is lobbying. The union spent $300,000 every week on radio ads urging tax increases on the “rich” instead of budget cuts. Christie and New Jersey taxpayers won. This time.

When it comes to state workers and teachers salaries and benefits no state tops Wisconsin. The average teacher in the Milwaukee public schools, according to the MacIver Institute, earns $100,000 a year – $56,000 in pay, $44,000 in benefits – and enjoys bullet-proof job security. Yet Wisconsin teachers and various imported goons have been camped out at the state capitol protesting Gov. Scott Walker’s request that teachers begin paying 5.8% of their salaries toward their pensions (they pay almost nothing now) and that they pay 12.6% of their healthcare premiums. (Their share would go up from $79 to $200 per month. The average private sector chump pays $330 per month.) Even when Scott explained that these measures would prevent layoffs, furloughs, and other draconian cuts, the Wisconsin teacher’s union prefers unemployment to benefit reductions.

Walker's bill, which passed the state assembly Thursday evening, would also limit collective bargaining for government employees. Collective bargaining protects bad employees whose seniority forces better employees to be laid off when necessary.

The bill also terminates the government’s role in collecting union dues from member paychecks and paying them over to the union. If approved, workers would have to pay their own dues, which might give them pause to consider what they are getting in return. Dropping out of the union would be the equivalent of a $1,000 annual increase in pay for many. Predictably, the unions hate the idea and are fighting it tooth and claw. However, the direct payment of union dues by the government to the union is the root of all political corruption in America.

The results of the incestuous relationship between unions and government are easy to see. Out of control pay and benefits are obscenely more generous than they are in the private sector. Taxes are higher and so are deficits and debt, especially unfunded debt.

Between now and 2013, the states are facing a total budget shortfall of $175 billion. The checks and balances aren’t there to keep unions out of the taxpayer’s pockets. They never have been. The cycle of expropriating higher and higher taxes from taxpayers so union members can be paid more and pay higher dues that go into political campaigns for pro-union politicians is self-reinforcing. But it has a limit and that limit is being reached in most states and the federal government now.

The way we do government in this country has to change, and it has to change in ways that put the interests of those in the private sector – who pay the lion’s share of taxes – ahead of those who are the beneficiaries of those taxes. Citizens must stop looking to government to solve every problem. The size of government must be reduced and its effectiveness must increase so it can do more with less. The days of defined benefit retirements are vanishing in the private sector and must do likewise in the public sector.

A crucial first step in restoring fiscal sanity to government is the elimination of collective bargaining. It is a practice designed to prevent voters from having the final say in public policy. It boggles the mind that anyone should expect elected representatives in a democracy to negotiate spending and policy decisions with an unelected union leader.

It’s hard to make the case that public sector unions have done this country any good. The cost of government is growing faster than the economy, public education lags that of other industrial countries, the economic clout of unions allows them to buy their way into control of the political process, and states languish under the burden of $3 trillion in unfunded liabilities.

We can do better.