I have been predicting for years government budget problems would finally boil over into a crisis. This is starting to play out in states like Wisconsin, Ohio and New Jersey. California, which has severe budget problems, is considering major layoffs of public employees. The scope of these problems is well beyond superficial budget cuts. And, massive tax increases are out of the question. It’s going to take a courageous new direction to get these state budgets under control. The solution being offered is a restructuring of benefits, with public employees contributing a larger share.
A Growing Cause of Budget Problems
The heart of the budget problems, for most states and municipalities, is the exploding cost of pensions and health benefits for public employees. These costs are demanding an ever increasing share of state budgets and this is affecting other critical public services. Cities and counties are also struggling, with many teetering on the edge of bankruptcy. Some have outsourced their public services. Others have simply stopped making their pension payments. This problem is definitely going to get worse, as the population ages and a higher percentage of workers start retiring.
A Sense of Fairness
Most people respect and appreciate teachers, police and firefighters. And, most people want them to make a good living and have decent benefits. However, most people won’t receive a pension. And, most people have to pay for part or all of their health benefits. So, it doesn’t seem fair to some people to have to pay for their own health insurance, save for their own retirement and also be forced to pay for these types of benefits for public employees. It seems only fair public employees should pay a fair share of their benefit package.
It is my personal opinion that every public employee, from the President of the Unites States to the people who pick up trash in the park, should receive the same type of health and retirement benefits as taxpayers. I don’t think Congress or any other government entity should be exempt from any laws or requirements forced upon citizens. I believe the retirement benefits for the President and members of congress are obscene and they should be replaced with a 401K plan. These are the fundamental principles our country was founded upon. Our government is not above the law or the people.
The Decline of Unions in America
The government is always a step behind the private sector, when it comes to efficiency and innovation. And, the fate of unions is a prime example. Unions have been declining in the private sector for decades. But, this is just starting to be felt in the public sector. I believe public sector unions will follow the decline of private sector unions, largely for the same reasons. The confrontational nature of collective bargaining, combined with standardized pay, lowers productivity, reduces incentive and causes disruptions.
Historically, pensions were the power center of a union. The wealth locked in the pensions provided a huge amount of leverage and security for the union. Unfortunately, the aging unionized workforce has turned the pension plan into a liability. Union pensions are now a Ponzi scheme that can’t possibly grow membership to support the snowballing costs of retirement benefits. This arrangement isn’t sustainable and it will soon come to an end. I suspect most younger union workers would be better off with a personal 401K account, than a union pension that will likely become looted or insolvent.
In my second job, I worked as a journeyman retail clerk. I earned good pay, had great benefits and I enjoyed my job. But, when I left that company, I decided I would never work union again. One reason, was that I worked much harder than my coworkers, but received the same pay. And, this didn’t seem fair to me. Another reason, was that I hated the confrontational environment between workers and management. I felt like there should be more of a partnership toward the success of the company. The union’s role created unnecessary stress and friction in the workplace.
The Bottom Line
The bottom line is that change is necessary to address the budget problems at all levels of government. Taxpayers simply can’t afford to fund the massive open-ended liabilities from public pensions and other entitlements.
“Look at how other states are following New Jersey … In Wisconsin and Ohio, they have decided there can no longer be two classes of citizens — one that receives rich health and pension benefits and all the rest who are left to pay.”
Christopher Christie – Governor of New Jersey
Buy Like Buffett – Wisconsin Protests: The SEIU vs. The Wisconsin Governor
The Daily Beast – Wisconsin’s ‘Anti-Union” Hysteria
PBS News Hour – What do Wisconsin Protests Say About Organized Labor
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