Public Employees Unions Facilitate Corruption

Right From the Start

Right From the Start

At a social gathering recently I was asked why I was so hard on the public employee unions and said hardly a word about the private sector unions. Had I had the May 31 edition of the Wall Street Journal in hand, I would have given them the AP article:

“A federal judge on Tuesday sentenced the former head of the nation’s largest public pension fund to 4 1/2 years in prison in a case in which the pension fund CEO acknowledged accepting more than $200,000 in bribes and trying to steer investments to help an associate.

The very existence of public employee unions with their mandatory dues requirements used primarily for political purposes commands corruption absolutely. (For today we will leave aside the fact that such mandatory dues payments violates a person’s First Amendment rights – including the right to not associate politically with others.) The recent incident involving Federico Buenrostros, the former chairman of CalPERS (Californian Public Employees Retirement System) and the indictment of former board member Alfred Villalobos (now deceased due to suicide) was just the most recent evidence of such corruption. A July 21, 2014 article by Randy Diamond in Pensions & Investments noted:

“Former CalPERS CEO Federico R. Buenrostro’s guilty plea earlier this month revealed new details and disclosures in the corruption scandal that engulfed the nation’s largest defined benefit plan.

“Sources say his admissions could result in expanded criminal charges for his co-defendant, former CalPERS board member Alfred Villalobos, from whom Mr. Buenrostro admitted he accepted $200,000 in cash bribes. Mr. Villalobos became a placement agent once he left the board of the California Public Employees’ Retirement System, Sacramento.

“The federal charges against both men were narrowly focused and did not address the bribes.

“Another possibility, the sources said, is that federal prosecutors could seek indictments against two former CalPERS board members, Kurato Shimada and Charles Valdes. They also could enlist former board members and former clients of Mr. Villalobos to testify against him.

“Mr. Buenrostro in his July 11 statement in federal court said two unnamed board members received valuable casino chips before voting to approve a contract with a pharmacy benefits administrator. Sources said he was referring to Messrs. Shimada and Valdes.”

The corruption investigation resulting in Mr. Buenrostro indictment and conviction spanned over a decade, involved countless officers and employees of CalPERS, and millions of dollars paid in fees to so-called “placement officers” and could not have dragged on this long and with this limited of criminal prosecution without the tacit consent of the public employees unions whose members are the singular beneficiaries of CalPERS and whose political muscle is instrumental in determining the directors managing CalPERS. They are also instrumental in the decidedly political use of CalPERS investments to reward the left and punish the right.

There have been at least five people implicated in this CalPERS scandal – all were directors or past directors of the CalPERS fund – several for well over twenty-five years. They scratched each other’s backs for decades.

So let’s go over this again. In the normal course of private sector business, workers banded together in unions to bargain collectively with management regarding benefits (wages, benefits, and working conditions). There was a perceived balance – withholding of labor vs. withholding of benefit increases. There were other balances; labor leaders needed to satisfy their members to retain their positions. Management needed to satisfy their shareholders to retain their positions. Labor needed to ensure that benefit demands did not destroy the business by creating undue financial burdens. Management needed to ensure that business growth would absorb the benefit demands. These latter two issues became even more relevant when unions (or their pension trusts) became major shareholders in the business through ESOPs and/or union pension plans. On the whole the system worked with the exception of sporadic violence during labor disputes.

But the whole system of balance goes out the window with public employee unions. There is the assembly of workers in a union but there is no management. Rather the unions bargain with elected or appointed public officials. Because the public employee unions spend so much of their mandatory dues on politics in states without a public employees right to work law (e.g. Washington, Oregon, California, etc.) they have become the predominant political funding source for Democrats who command virtually every statewide public office along with the city and county offices in the major urban areas. (A combination of teachers unions, the SEIU and the AFSCME provide the overwhelming majority of political contributions for Democrat candidates and add to that by paying for polling, candidate recruitment, issues research and advocacy, get out the vote programs, voting analysis and a myriad of other programs that assist Democrat candidates. In contrast candidates other than Democrats have to use campaign contribution to fund the same programs and information.) The end result is that the unions are bargaining with the very people whose campaigns they paid for. Management is not responsible to a “shareholder” group – like taxpayers – rather they are responsible to the people who fund their campaigns – the public employees unions.

But that is just the beginning. The government is not a “profit” driven enterprise. It is not even a sales or service driven enterprise. It is an enterprise that is funded annually by compulsory taxes levied at the point of confiscation and backed by the reality of criminal prosecution and imprisonment. The amounts collected have nothing to do with the number or quality of services consumed – in fact, quite the opposite – those who consume the most services are likely to be the same people who pay the least in taxes while those who consume the least services are likely to be those who pay the most in taxes. As a result there is no incentive to limit or reduce costs – i.e. public employee wages and benefits. If the increase in benefits exceeds the amount of available revenue, the government simply increases taxes and fees to the level necessary to fund the increases.

As an added bonus increases in wages and benefits for public employees result in increased dues for the public employees unions and, therefore, increased funds available for campaign activities for Democrats.

It is not a difficult trick to increase taxes on the minority of people who pay the majority of taxes. In doing so government avoids the unpleasant task of asking those who receive the benefits to contribute more in taxes. Oregon’s distinctively uber left demonstrated that in 2010 with Measures 66 and 67 and they are working on it again with the new Initiative 28 – all were/are backed by the public employee unions. It is this warped view of responsibility coupled with the fact that they are using other people’s money that promote the spectacular growth in the number of and benefits for public employees over the past several decades.

Which brings us back to the corruption inherent in the administration of such things as the public employees retirement systems. You might think that of any activity to be guarded by the public employees unions and the elected and appointed Democrat officials it would be the retirement funds for public employees. Well you would be wrong and nowhere more so than in Oregon. Virtually all states with public employees pension plans utilize a “defined benefit” rather than a “defined contribution” plan. A defined benefit plan obligates the government to pay a fixed formula pension (usually based on longevity and pay grade) regardless of how much is contributed or the investment earnings of those contributions. (A defined contribution plan obligates the entity to pay a fixed amount into a fund and the payments from that fund to employees are based on the performance of the investments of those payments – much like an Individual Retirement Account.) The point being that regardless of the performance of the public employee retirement system pension funds and regardless of the performance of the individuals charged with administering the fund, the government remains obligated to pay a minimum fixed amount.

So, if as in the CalPERS scandal somewhere between $14M and $50M in “fees” were paid to the miscreants by the other miscreants, no problem. The state remains obligated to pay defined benefits and the taxpayers will foot the bill. Likewise, if CalPERS decides to invest in some politically correct entity (green energy, solar energy, the home for one-legged chorus girls, etc.) which provides less than a market return, no problem. The state remains obligated to pay. If CalPERS decides to hire 2,000 people when only 1,000 are needed, no problem. The state remains obligated to pay. If the public employees unions are instrumental in determining who is appointed to the board because they have funded the campaigns of the Democrats who make those decisions, and those appointees fail in the fiduciary duties, no problem. The state remains obligated to pay.

Without a system of checks and balances, accountability is impossible. Without accountability incompetence and waste permeate a system. Without accountability, greed and corruption permeate a system.

Welcome to government dominated by the public employee unions.

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Posted by at 05:00 | Posted in Corruption, Crony capitalism, Government corruption, PERS, Public Employee Unions | 24 Comments |Email This Post Email This Post |Print This Post Print This Post
  • Bob Clark

    This article needs to be printed and filed away for future reference, because it spells out the monopoly like economic rent-taking of state governments like Oregon. Eventually when the state economy goes flat when there’s like a lull in immigration to the state from other crazy blue states (i.e. California), Oregon will likely run into the limits of insolvency similar to what Illinois is now battling. If the Federal government ever runs into the limits of printing up gobs of new money and throwing it to the states for money-losing endeavors, this would be a very heavy day of reckoning for those in blue states like Oregon.

    It looks like the “Pay-to-play” Clinton foundation will be taking over the White House this next year. Mr. T is getting mugged by the Clinton machine, even as he tries to point out the need for impartial judges (the judge he is calling out is a member of La Rasa). The economy may actually do better than under President O with the Pay-to-play format (also called crony capitalism); but long term it suffers relative to that of Mr. T because Pay-to-play favors big firms and would continue the stunting of small business creation.

    Then too if you are well off, having substantial means, you probably should look at ways of lessening yourself as a readily accessible public takings target; as the Clinton Supreme court nominees will ultimately wipe out the bill of rights and generally individual liberty and freedom, private property rights reduced. These individual liberty and freedoms are also helpful to Schumpeter’s creative economic growth process.

    • Eric Blair

      Trump is getting mugged by himself. Please, don’t take away from the fine work that the Donald has done so far.

      Believe it or not, Bob, you have to prove that a judge is partial, not simply note his heritage. That is what makes Trump a racist.

      Yes, and lets put conservative judges on the Supreme Court. They’ll be happy to support individual liberty and freedom.. as long as you’re rich, white and male.

    • DavidAppell

      Bob Clark can’t even spell “La Raza.”

      Bob Clark has given away all his conservative principles for a madman. The danger in this world is, as as someone once said, the doings of the heedless ones among us.

      Bob Clark is now one of those heedless ones, devoid of principle.

      Trump is a real and immediate danger to the world. He is so thin-skinned he cannot abide any negative comment about him. He still, at this stage in his campaign, cannot focus on his ideas for the country but needs to address what he sees as personal insults. Imagine he has the nuclear codes at his disposal, and some minister from some very minor country criticizes him. Trump is exactly the kind of lunatic who will send missiles his way.

      Bob Clark will be culpable for this catastrophe.

      • Rx

        La Raza, MEChA, Latino Warriors en’ michael moore; Holy havin’ a cow, dAppell, deport yourself aback remedially to Methico, monsewer peso manure..

  • thevillageidiot

    Larry I must add one other item to the list of corruption regarding PERS, the elected officials are also part of the PERS and as the union benefits go so does their own pensions. and they get to double dip if they were managers of various departments and if they get elected for office they get to claim from both pools. the fox guarding the henhouse. the elected officials have a vested interest in maintaining the status quo and that includes the Republicans. this also explains why every attempt to modify the PERS contract that goes to trial loses. the judges are on the take as well. The negotiating board is made up of the majority from the party in the majority in this case Dems so the Republicans have cover to vote as a block against any raises or changes to benefits during “contract negations” thus gaining the benefit while claiming they just can’t do anything to change it. Your are dead on with your analysis. one way to reduce government and union influence is to start dumping whole departments. if the service is necessary some enterprising person will provide it more efficiently and more cost effectively. look at UBER. and we can start by dumping Cherriots. If there is a viable need some private company will make it work more efficiently and cost effectively without robbing the taxpayers. The best thing that voters did with the last request for increased taxes from businesses to fund Cherriots was to vote it down.

  • Eric Blair

    Just to, perhaps, add some perspective. CalPERs is not associated with any of the public employee unions. It is, in fact, an agency in the California executive branch of state government. Throwing in CalPERs, while talking about public unions is simply smoke and mirrors. An attempt to taint public employee unions by mentioning them at the same time as CalPERs. Nice try. Sad, but nice.

    If I understand your logic, because of the illegal actions of various CEOs and managers at CalPERs, we can deduce that public employee unions are corrupt. Leaving aside the fact that CalPERS is not a public employee unions, can we assume that this methodology applies outside of government? So, for instance, the actions of various large banks in the last depression means that Wall Street, all of Wall Street, is corrupt? In fact, doesn’t that mean that Capitalism stands condemned by the actions of a minority of capitalists?

    • CalPERS is run by and for the CA public employee labor unions. To pretend it’s an independent government agency is absurd. It does the unions’ bidding — not the taxpayers.

      • Eric Blair

        It is not run by the employee labor unions. It is a unit of the executive branch. You are wrong on the facts.

        If you look at the board, you’ll see only one member who is also a union official. There are also 3 employees who are most likely represented by public employee unions. The majority of the board is made up of governmental officials and appointees. People who are not most likely covered by a union contract.

        I seriously doubt any of the unions would be in favor of embezzlement since that takes money away from union members.

        But, if you have information that is not readily available on just how CalPERS is run by and for the unions, I’d like to see it.

        • Oh PLEEAAASSSSEEEEE! The CalPERS board is controlled by public employees. Most of the representatives profit directly from the underfunded, overly generous government CalPERS pensions. All members were selected by Democrat politicians — except the Democrat State Treasurer, who is an automatic member.

          I doubt there’s a single Republican (or even an independent) on the board. For SURE there are zero taxpayer advocates.

          Here’s the list of board members:
          https://www.calpers.ca.gov/page/about/board/board-members

          • Eric Blair

            LOL.. yes.. I already know who the board members are. That’s why I could detail their affiliations for you.

            Most of the board members are not paid union employees, or members of one of the unions. So I’m going to ask you for some sort of proof that the board is controlled by the public employees (which is a change from being controlled by the public employee unions).

            Being selected by Democratic office holders is, again, very different than being run by public employees. And, again, I will ask for some sort of proof – otherwise it kinda sounds like a conspiracy theory devoid of facts.

          • Sean

            Sure isn’t hard to tell who the takers are, always trying to smooth over the racketeering. Won’t matter anyway. Their future is the same as any other beneficiary of all bubbles, past, present, and future. They’ll deny and laugh at all the “haters” all the way until the end. Then, we’ll have to listen to the whining and crying and all the “it’s not fair, we paid our fair share, we were promised” bs. If you think you are not in a bubble, keep dreaming. But ALL bubbles burst. There are no exceptions. Ever.

          • Eric Blair

            I’m not at all sure of what you’re trying to say. Or what that has to do with CalPERS being run by the employee unions.

          • Shave him Dano

            E-rrant Blair (see down), albeit a hairy beast follicle twit on steroids,

      • SAWZ

        What ridiculous BS! CalPERS has existed since the early 30’s. The public employee unions did not enter the public sector in CA until 1968. There is no need to pretend anything–the highest paid beneficiaries in CalPERS are former managers–most never belonged to a union! Union membership, or not, is irrelevant when it comes to being a member of CalPERS!

  • Connie Kosuda

    if you want to expose public corruption, please do so by documenting that facilitated and orchestrated by the Koch Bros. and their cabal / to them 200,000 is chump change / not worth noting / they do billions at a time. let’s bring THEM into the open.

    • She bares coccyx shingles

      Commie Sutra, go chafe your domain morass waif-ever in hell that lyres.

  • DavidAppell

    Larry thinks only businesses should be allowed to influence government.

    You’re a line worker? Buzz off and do as you’re told.

    • Smokey the Bare

      You’re reality naive Mr left middle finger dis-player. Toke another smokin’ lode of mj and funnel it up your morass.

  • DavidAppell

    “Goldman Sachs Agrees to $5 Billion Mortgage Settlement,” Fortune 1/14/16
    https://fortune.com/2016/01/14/goldman-sachs-mortgage-bonds-settlement/

  • DavidAppell

    “In 2004 Goldman was one of four firms each fined $5 million by NASD for rule violations relating to trading in high-yield corporate bonds; Goldman also had to make restitution payments of about $344,000.”

    https://www.corp-research.org/goldman-sachs
    https://www.finra.org/Newsroom/NewsReleases/2004/P010892

  • DavidAppell

    “In 2006 Goldman was one of 15 financial services companies that were fined a total of $13 million in connection with SEC charges that they violated rules relating to auction-rate securities. In another case relating to auction-rate securities brought by the New York State Attorney General, Goldman was fined $22.5 million in 2008.”

    https://www.corp-research.org/goldman-sachs

  • This corruption, coupled with the overall “pyramid scheme” nature of defined benefits, is why in California the PUBLIC should vote to end future defined benefit participation via a proposition. The state and local DB plans should be banned, freezing current benefits owed. Such a reform will never happen through the union-owned state legislature. And sadly, the CA electorate won’t support such a reform either.

    As I like to say — Karma. But sadly that Karma hits ALL of us, including those who actively oppose this pension Ponzi scheme madness.

    • TreeofLiberty

      Although, a reasonable transition to defined contribution could easily be crafted.

      Here is one possible scenario…..effective January 1:
      – Every defined benefit pension will be automatically converted to defined contribution
      – All benefits earned under the current system would be retained
      – Future contributions would all come the employee’s earnings
      – Employer matching payments would be optional

      This would result in public sector employees funding their own retirements, just as we in the private sector already do. Plus, once employee earnings and any optional matching amounts are paid out, there is zero residual future obligation on the part of the employer.

      And every taxpayer will breath a HUGE sigh of relief!

  • TreeofLiberty

    But the whole system of balance goes out the window with public employee unions. . . . Management is not responsible to a “shareholder” group – like taxpayers – rather they are responsible to the people who fund their campaigns – the public employees unions.

    …..Larry Huss….Thank you for such a cogent, and clearly stated exposition of the many and varied problems with public employee unions.

    An analogy would be if the workers in a private sector company directly elected the management of the company. Naturally, they would elect management who would pay them more, and let them work less.
    In the private sector that would be OK, because the company would soon be out of business.
    Unfortunately, the government never goes out of business, no matter how reckless the policies.

    Virtually all states with public employees pension plans utilize a “defined benefit” rather than a “defined contribution” plan.

    …..’Defined benefit’ pensions are now virtually extinct in the private sector, precisely because they are so insanely expensive.

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