June 22, 2009
By Susan Kniep,
President
The Federation of Connecticut Taxpayer Organizations
Website: http://ctact.org/
Email: fctopresident@aol.com
Telephone: 860-841-8032
STATES AND TOWNS IN CRISIS!
BAILOUT OR BANKRUPTCY?
How long
can California and Connecticut taxpayers continue to support
public employee pensions exceeding $200,000 and retiree health and dental
benefits costing in excess of $40 billion?
Could bankruptcy signal the death knell of unions contracts?
Those on the trail to the California
Gold Rush have Washington
in their sights. With the gold having
been chiseled away by public employees,
California is now facing a budget shortfall of $24 billion. The answer is, of course, a Washington
handout as California’s State Treasurer
installs a "TARP O' The Morning
To Ya" ring tone on his cell phone before
making the call to U.S. Treasury Secretary Tim Giethner asking for a guarantee of California’s debts. California’s credit rating is in the tank,
the lowest of the 50 states, so there is little hope that the banks will rush
in to throw money at the feet of the Terminator who proposed borrowing billions
and backing the loans through Tax and Revenue Anticipation Notes. But the banks are a little skittish so what
better way to say show me the money than to have the feds assure the banks that
the Treasury will buy the bank’s debt if California defaults on the notes. However, Washington
is not too anxious to toss out a rescue line because they know a bailout for California would serve
as a catalyst for other states which are drowning in debt.
One other little fly in the
ointment is those pesky pension funds, two of which have lost billions in
value. The California
Public Employees’ Retirement System is the largest pension fund in the US and the
fourth largest in the world. In Oct, 2007 it held $260 billion in assets, which
sank to $186 billion at the end of 2008.
But while California,
with the 5th largest economy in the
world, is on a respirator, its state retirees
are flashing their pearly whites as they are smiling all the way to the
bank. Retiree health and dental benefits
are costing California
taxpayers in excess of $48 billion. More
than 5,000 retirees have struck it rich, collecting pensions well in excess of
$100,000. Some retirees have hit the
jackpot with annual pensions of $499,674; $296,666; $278,055; $265,741;
$255,600; $254,745; $239,636; $232,947; $231,164; $224,812 and so on. The following web link provides access to
thousands of California
pensions which far exceed what many taxpayers will ever make in their
lifetime. http://www.californiapensionreform.com/calpers/
And Connecticut is close
behind, facing a budget deficit which could reach or exceed $10 billion as some
state employees receive pensions well in excess of $100,000, with some reaching
$200,000. Soon these pensions will be
posted on FCTO’s web site.
In January, 2008, the Center for Budget
and Policy Priorities, reported that 29 states “faced an estimated $48 billion
in combined shortfalls in their budgets for fiscal year 2009, with at least
three other states expecting budget problems in fiscal year 2010”. Because the majority of states cannot run a
budget deficit or borrow money to cover their operating costs, they must resort
to accessing reserves, reducing costs, or raising taxes.
Since January, 2008, our economy has been in a free fall,
reducing a family’s net worth by 30% or more as the unemployment rate climbs to
the highest it has been in 50 years.
Compounding the problem for
cash-strapped cities and states, are cash-strapped taxpayers who can no longer
be relied on to keep the candy store open to feed the insatiable appetite of
public employees who continue to drive State and local budgets to the
brink.
Recently, USA Today reported that public employees earned benefits on average
twice as much as private sector workers.
But the disparity between the wages and benefits of the
private sector and public sector worker coupled with the fact that tax
collection rates are down is no deterrent to State California lawmakers who are
going the extra mile to protect their voting block, the public sector
unions. These lawmakers are looking to
pass legislation to make it difficult for California cities and towns to file for
bankruptcy knowing that the end result could be the demise of union
contracts.
The Wall Street Journal quoted
the communications director of the California
Professional Firefighters who said "What we don't want is for cities to
use bankruptcy as a negotiating tactic rather than a legit response to fiscal
issues…. or to work in concert to rid themselves of union contracts by
declaring bankruptcy.”
But bankruptcy
may be the only hope which taxpayers have to end the crippling effects of union
contracts on state and local taxes.
In May of 2008, officials in Vallejo,
California, a suburb of San Francisco with a population of 117,000,
took the initial step to file for bankruptcy when it realized it could not pay
its bills due to a plummeting tax collection rate and escalating costs for
police and fire contracts. These
contracts required minimum staffing, drove overtime costs, which, with
benefits, accounted for 80% of Vallejo’s
$89 million budget.
But California
is not alone when locked into unrealistic employee union contracts or paying
for excessive pensions which directly impact the financial stability of a state
or town.
In Pensacola,
Florida, the Police Chief will
join the millionaires club of public officials when he retires at 56. When asked Deal or No Deal, he took the deal
which will pay him in retirement benefits $125,771 which is more than what he
is currently making at $115,112. It
has been reported that over 30 years, the Police Chief’s pension could grow
from $160,000 to $280,000 based on cost of living increases. He will also receive a lump sum payment of
$674,000 from the Deferred Retirement Option Program, which is similar to the
DROP Program in East Hartford,
Connecticut.
In East Hartford, this program allows the employee to keep
working for up to five years prior to retirement, collect his pay check, and
concurrently have 96% of his pension dropped into a savings account which is
managed by the employee. At the end of
that five year period, the employee will collect his full pension which could
exceed $100,000 and receive a lump sum payment of $400,000 or more.
The Center
for Retirement Research at Boston
College reports that
state pension fund losses total $865.1 billion.
The Center reported that to return to 2007 funding levels by 2010, the
109 funds would need annual returns of 52 percent. With a downturn in the stock market impacting
the valuations of pension funds coupled with many public sector employees
allowed to retire at age 52 or younger, the demand on pension funds is growing
requiring States like Rhode Island to make contributions to its pension funds
which will equal 25 percent of their 2010 payroll expense and 30 percent of
2011 payroll expenses.
Of course, the funding source for these
lucrative pensions is the taxpayer, who worked in the private sector and is now
unemployed with his own pension in jeopardy.
In the State of Connecticut, Governor Jodi Rell presented a state budget with no tax increase in
sympathy with her constituents who are suffering in this recession. She pleaded with the Democrat-controlled
state legislature to give her and local elected officials the tools they need
to manage the State and the 169 towns as she sought Binding Arbitration
reform. The legislature has ignored her
requests to suspend binding arbitration
requirements for two years and limit mandatory subjects of binding
arbitration to salaries and
benefits. Facing a state budget deficit of $1 billion in
2009 and $9 billion for 2010-2011, Connecticut’s
Democrat-controlled state legislature instead awarded 5200 state employees an
$86 million contract, with some state employees receiving wage increases of
6%. Some state unions gave concessions
but received a two year no layoff clause in return.
Wanting more, Connecticut
State employee unions launched TV ads
costing them over $100,000 with the message – INCREASE TAXES - even though Connecticut ranks as one
of the highest taxed states in the nation!
As California
and Connecticut
teeter on the edge of the abyss which is quickly filing with uncontrollable
debt, their fate is imminent as are other states and towns throughout the
country. Ultimately public sector union
demands will become a moot issue as anticipated tax collection rates are not
realized, reserve funds are depleted, and government employee costs exceed the
taxpayers’ ability to pay. The end
result will be bankruptcy which will be the death knell to public sector
employee union contracts throughout the country!
But bankruptcy could also provide
opportunities for governments to restructure and to work more cost effectively
and efficiently. Union contracts could
be replaced by a bidding process allowing those in the private sector who have
lost their jobs and have the qualifications to vie for the public sector jobs
which must be retained. The end result
would be a dedicated and qualified work force whose longevity is determined by
the worker’s capabilities and dedication to perfection as opposed to the heavy
handedness of a pack of employees who have an expectation of increased wages
and benefits regardless of performance.
Candidates for police and fire departments could be garnered from our
many heroes who are returning home from fighting abroad who should be given an
opportunity to serve their communities.
The monopoly of the teachers unions could be replaced by a voucher
system serving as a catalyst for private schools to emerge giving all families
an opportunity to have their child educated in a school of their choice, i.e.
public or private.
Yes, bankruptcy could be the death knell to
public sector unions but the end result could be a more efficient and
productive public sector work force leading our country in this global economy.