The Abuses of Collective Bargaining by Public Employee Unions

Right From the Start

In last week’s column I described the difference between traditional collective bargaining and collective bargaining with public employee unions.

“. . . You see, in Wisconsin, the Republicans were able to precisely explain that while collective bargaining in the private sector is a cherished right to be respected, the same is not true in the public sector. In the private sector, the unions – responsible to the members – bargain with an independent management – responsible to their shareholders. There is a natural balance between the wishes of the employees to maximize their compensation and the management’s needs to control cost to remain competitive.
But in the public sector, public employee unions bargain with a management whose campaigns they financed and who are dependent on the union’s financing for re-election. There is no balance.”
Such an imbalance is the prescription for corruption and if you are looking for an organization most likely to corrupt and exploit a system, there are the public employee unions.

Let’s look at just one element of the total compensation plan negotiated by the public employee unions with a governor and/or a legislature beholden to their campaign contributions – the Public Employees Retirement System. In its original form, PERS was a traditional defined benefits plan which, like most defined benefits plans, was supposed to provide employees with about sixty percent of their salary at age 65 and with 30 years of service. Personal savings and Social Security were assumed to cover the remainder of post-retirement compensation so that the public employees would not experience a significant change in their quality of life. (Actually those assumptions permit an enhanced quality of life since, by the time of retirement, most employees have completed the financial obligations attendant to raising children and paying mortgages.)

But with the rise of the public employee unions and their significant financial resources to feed the insatiable beast of politics, the following events, among others, occurred:

1. First the legislature and then the judiciary were included as beneficiaries of PERS. That ended any impartiality. The government managers – the governor and the legislature – were now directly benefited by their decisions in regard to the public employee unions requests for enhanced benefits. When the judges were added it ended impartiality as to any subsequent judicial review – usually the last line of defense for citizens.

2. Second, the administration of PERS under successive Democrat governors began to ignore the administrative requirements of PERS and in each instance the results was to enhance benefits to recipients without legislative acquiescence. The most notorious of these occurred during Gov. Kitzhaber’s first two terms when the PERS administrators refused to update the mortality tables used to determine benefits upon retirement. The impact of that decision is reflected in the following example. According to the United States Bureau of Statistics the life expectancy of sixty year old white men in 1995 was 19.3 years. In 2003, that life expectancy had grown to 20.6 years. That means that if one retired at age 60 in 1995 his annual compensation was determined by dividing ones total benefit by 19.3. A total lifetime benefit of $750,000 would provide an annual benefit of about $38,860 or a monthly benefit of about $3,240. If one retired in 2003, that same amount should have been divided by 20.6 resulting in a monthly benefit of about $3,030 per month. By failing to update the mortality tables the PERS administrators overpaid newer public employee retirees by $210 per month or $2520 per year or $48,636 over the 19.3 years. They also compensated them for 1.3 years more than they were entitled to for an additional $47,880. This administrative corruption of an already overly generous pension plan increased the cost to taxpayers by over $96,516 per retiring employee – 13 percent more than they should have received.

This abusive practice would have continued unabated but for the first PERS crises when it was disclosed that the unfunded future liability of PERS in 2003 was in excess of $13.5 Billion – an amount in excess of the then biennial general fund revenues. With that disclosure, newly elected Gov. Kulongoski was forced to acquiesce in both administrative and legislative reforms designed to reduce the future unfunded liability – including updating the mortality tables.

3. From the inception of PERS, the law contemplated that public employees would make a contribution of six percent to the Plan. Sometime in the 1980’s, during a fiscal downturn, the public employees unions bargained for the state to pick up that contribution in lieu of raises. In succeeding years the unions were able to bargain for salary increases that more than made up for that trade off – so much so that salaries for public employees now exceed private sector salaries for equivalent positions. The end result is that public employees suffered no long-term wage disparity and are now relieved of any contribution towards their overly generous pension plans.

4 In the private sector the federal Employees Retirement Income Security Act (ERISA) provides that an employee is entitled to whatever pension benefits have been earned to the date of change or elimination of benefits. In other words, in the private sector pension plans are changed routinely – those changes can be applied prospectively but not retroactively.

Two legislative attempts were made to reform PERS and both were invalidated by an Oregon Supreme Court whose members were themselves PERS participants and eventual recipients. In doing so the Supreme Court ruled Oregon’s constitution permits the benefits to public employees to be increased without restriction, but benefits cannot be reduced even prospectively. That established a constitutional right in public employees, including the members of the Oregon Supreme Court that is unique to them and is not enjoyed by private section employees are, for that matter, public employees in vitrutally every other state. Actually, Oregon’s constitution is silent on benefits to public employees and the Oregon Supreme Court “divined” the original intent of the framers. This is judicial speak for “we just made it up.” And in this case they not only made it up but they benefited for having made it up. The Supreme Court should have recused themselves and appointed a panel of pro tem judges that would not have benefited from the decision.

5. More than a year ago I published a report from Dan Re, a private attorney in Bend, Oregon, regarding the inequities of the PERS system. His description of one of the most egregious abuses engineered by the public employees unions and their Democrat allies in the legislature is worth repeating.

“Changes to PERS Enforcement Provisions.  In 1989, the Legislature enacted new laws to make sure public employers paid their PERS contributions promptly. Those new laws provided that if a public employer did not pay its PERS assessment, it must pay interest on the delinquent amount and, after the deficiency is certified to the Oregon Department of Administrative Services by the PERS Board, all funds in the State Treasury that the delinquent public employer is legally entitled to must be withheld until the PERS deficiency is paid. That legislation made PERS funding Oregon’s highest financial priority, more important than public safety, public education, or any other service provided by the State. The Legislative Assembly told the People, in no uncertain terms, that a public employer’s PERS assessment must be fully paid before that public employer can spend any money on anything else.”
The net effect of this change means that in a fiscal downturn expenditures for classroom education must be reduced in order to pay PERS, healthcare for children and the elderly must be reduced in order to pay PERS, welfare payments to the poor and unemployed must be reduced in order to pay PERS, assistance to the developmentally disabled must be reduced in order to pay PERS, the number of police and firefighters must be reduced in order to pay PERS, and compensation to nursing homes must be reduced in order to pay PERS.

The abuse of PERS by the public employee unions and the beneficiaries of their political contributions in the Democrat party is remarkable and it will continue because they represent a voting majority. Absent a change in the unlimited supply of campaign contribution by the public employee unions, the question is no longer how to regain control of a corrupted political institution but rather how long you will continue to fund it before throwing in the towel.