The Next GOP Assault on Working Americans: State Bankruptcy

by A. Jay Adler on January 24, 2011
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In fact, it has been going on for over thirty years. It has taken the form of nearly stagnant wages, while the accumulation of wealth among the richest Americans has reached proportions beyond all previous measure. It grew in the increased turn to a contingent labor force, steadily shorn of worker protections, benefits, and even full-time employment, a labor force even begrudged its unemployment benefits at time of financial crisis. All of the enhanced conditions of labor with which the American worker entered the second half of the twentieth century were won for it by labor unions and labor rights activists, especially from the 1930s onwards, including those unemployment benefits. In the early 1950’s union membership peaked at somewhere between 28-35%. In 1983, the first year for which comparable union data is available from the U.S. Department of Labor Bureau of Labor Statistics, the percentage was down, but still at over 20%. As of 2010, according the Bureau, the percentage was down to 11.9% – 6.9 percent in the private sector. Where have the numbers maintained and grown? In public sector union membership, currently at 36.2%.

This should be no surprise. In tandem with the effects of structural changes in the economy, conservatives have spent decades persuading American workers through the use of socialist bogeymen and cries of corruption and greed (while there is none, of course, in the corporate world) that the enemies of American workers are, in fact, unions of other American workers whose express purpose it is to enhance the lives and labor conditions of all workers. Now when Americans beweep their “outcast state/ And trouble deaf heaven with … bootless cries,” it is not the top 5 or 2 or 1 percent of the American population (who, by 2002, for every one dollar in increased earnings by the bottom 90% of the population earned an additional $18,000) that many non-unionized and economically fearful citizens bitterly resent, but public sector employees. Rather than believe themselves deserving of the $200 more per week, on average, that a unionized worker earns over a non-unionized worker, lower-paid workers have been led to resent the advantages of their fellows – especially their pensions.

Once more, the wealthy, and the party of the wealthy – the GOP – have set workers upon each other to fight for the scraps, while the superrich stand back and get tax cuts.

The New York Times reported on Friday on the growing talk, first publicly initiated by Newt Gingrich, of legislation that for the first time would permit individual states to declare bankruptcy.

But proponents say some states are so burdened that the only feasible way out may be bankruptcy, giving Illinois, for example, the opportunity to do what General Motors did with the federal government’s aid.

Unlike cities, the states are barred from seeking protection in federal bankruptcy court. Any effort to change that status would have to clear high constitutional hurdles because the states are considered sovereign.

Policymakers are working behind the scenes to come up with a way to let states declare bankruptcy and get out from under crushing debts, including the pensions they have promised to retired public workers.

Beyond their short-term budget gaps, some states have deep structural problems, like insolvent pension funds, that are diverting money from essential public services like education and health care. Some members of Congress fear that it is just a matter of time before a state seeks a bailout, say bankruptcy lawyers who have been consulted by Congressional aides.

This the basic case being laid out. We’ll get back to it in a moment. But while we’re told that work is proceeding on the subject “behind the scenes” – so as not to spook municipal bond markets – talk of it is spreading. Curiously, though, not a single state has expressed interest in pursuing bankruptcy. And even the Wall Street Journal says it’s a bad idea. So what is this all about?

Notice that in its lead about “crushing debt,” the Times mentioned only one specific kind of fiscal burden: “pensions [the states] have promised to retired public workers.” Even the WSJ reveals the truth quite openly in its dissent from the idea.

[T]he threat of bankruptcy would give governors and legislators a powerful new weapon for forcing concessions from recalcitrant public employee unions.

Yet state officials committed to cutting costs already have options for putting the squeeze on their unions. One is the threat of mass layoffs, which most governors can impose unilaterally. Governors and legislators also can prospectively freeze wages or even cut them through involuntary furloughs, as California and several other states did over the past two years.

True, management (i.e., taxpayers) often starts from a weak position in contract talks with government unions. But governors and legislators have the power to change that, too—because the bargaining rights of state and local government unions are primarily a matter of state law.

By reopening their collective bargaining statutes, state officials can narrow the terms of future negotiations—restricting compulsory arbitration, say, or taking retiree health insurance off the table and making it a management prerogative. They can also pressure unions by revoking privileges such as the employer-collected dues checkoff. They can even eliminate future union contracts.

This Newtonian presidential run idea is not about saving the states. Writes Joe Weisenthal at Business Insider,

What makes it all ghoulish is that states already have a mechanism for solving their budget woes: It’s called cutting spending or raising taxes. Illinois, which everyone loves to harp on, did that last week, when it raised taxes. California has been slashing aggressively, and the new Governor Jerry Brown seems intent to do that more.

No, it isn’t about budgetary health; it’s about destroying public sector unions.

Of course, since we’re all adults here, we can talk about the real motivation behind this cheerleading. First of all, the GOP wouldn’t mind seeing economic turmoil into the run-up of 2012. And the second is that public sector unions (or maybe just workers in general?) are hated right now and there’s a great opportunity to exploit that (as we put it yesterday, states are the new banks).

The point is made in the Times article and elsewhere that in any state bankruptcy, as in all others, legislation would have to fix which debtors get priority. Here the battle would be between the pension systems and municipal bondholders. Major among bondholders are institutional and mutual fund holders, so there is no wonder for whom the GOP would seek priority.

The undeclared civil war between taxpayers and bondholders on one side, and municipal employees on the other, is entering a new phase.

Except it isn’t an undeclared war, and it is even those who wage the war – the enemies of organized labor – who declare, as above, who the sides are in the battle, setting “taxpayers,” and even individual bondholders, against municipal employees, almost all of whom are working people being set against each other by the protectors of the business class.

Unions and workers have been on their heels for three decades, the last bastion of strength the public sector union – because, of course, it is not the private sector that has ever cared about labor conditions and rights. It is, though, the private sector that views (pdf) contingent workforce management (CWM) of “human capital” a center of “hard-dollar savings,” no different from inventory control. The federal government has been the guarantor of every kind of human, civil, and labor right, so the government employee union is that last unbreached redoubt of labor in the U.S.

Not if the GOP has its way, though. While House Majority Leader Eric Cantor has dismissed Gingrich’s bankruptcy idea, the real Republican goal is clear.

“They are readying a massive assault on us,” said Charles M. Loveless, legislative director of the American Federation of State, County and Municipal Employees. “We’re taking this very seriously.”

Whether it through the state bankruptcy ploy or another strategy, the GOP will continue its assault on public sector unions by continuously advancing the meme that is public sector employee pensions and their unfunded liabilities that are the cause of state budgetary woes.

Here, then, just a few facts that might begin to pull back the wool – from here in California.

  • The California State Teachers’ Retirement System (CalSTRS) – the system to which I belong, and the second largest public employee retirement system in the nation –

ended 2010 posting a 12.7-percent return and boosting market values to levels not seen since October 2008.

That is, the system is back, after one good, but not spectacular year of market returns, to its value at the start of the financial crisis, with performance five points above its newly lowered actuarial assumption of 7.75% returns per year.

  • According to a study by The Center for Retirement Research at Boston College, CalSTRS reports,

“The Impact of Public Pensions on State and Local Budgets” puts California’s pension payments at 5.2 percent of local and state budgets in 2008. The study finds that most states, including California, will be able to manage the shortfall with some effort.

The governor’s commission on public employees post employment benefits put pension payments in 2007-08 at 3.9 percent of the state General Fund.

These are hardly the overwhelming fiscal burdens – even for California, the state with the largest budget deficit – that conservatives with an ulterior motive suggest.

  • Among retirees collecting pensions

Of the 12,568 California educators who retired in fiscal year 2007-08, the median number of years on the job was 29 years. The average CalSTRS pension was $48,180 per year, which was about 62 percent of the average highest salary.

An average representative of all CalSTRS members receiving retirement benefits is $3,164 per month ($37,968 per year) at age 62 after a 28-year career.

These are not remotely the fat pensions, floating slothful employees through easy, early retirements, that conservatives lead other American workers to believe. But then the aim of these conservatives is not to inform; it is to set American workers to devouring each other.

AJA

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