Tag: unions

As Central Falls Falls

The New York Times has an article today on the plight of Central Falls, Rhode Island, a 19,000-population industrial city that may declare bankruptcy under the fiscal weight of $80 million in pension obligations for police and fire officers. Unlike some coverage of municipal fiscal woes, this one does not dance around the way some of the problem originates in misguided labor policy:

The city, just north of Providence, is small and poor, but over the years it has promised police officers and firefighters retirement benefits like those offered in big, rich states like California and New York. These uniformed workers can retire after just 20 years of service, receive free health care in retirement, and qualify for full disability pensions when only partly disabled.

“Promised” is a word of art here, because the city wasn’t really making all of these concessions on a voluntary basis, as its negotiator explains:

state law called for binding arbitration, which for many years was a clubby process that emphasized comparable benefits all across the state more than any city’s ability to pay.

“Binding” arbitration, just to be clear, does not mean that the city agreed beforehand to settle disputes with the unions by way of arbitration; it means that state law imposed an arbitrator’s edict whether city managers ever signed up for the arbitration route or not. It thus differs from the contractually specified arbitration upheld lately in consumer contexts by the U.S. Supreme Court in AT&T v. Concepcion, a decision assailed by many of the same politicos who see no problem with genuine mandatory arbitration in the labor context.

The crisis in municipal finance wrought by binding public-sector arbitration and related laws comes as no surprise to readers who remember Cato’s excellent 2009 study “Vallejo Con Dios: Why Public Sector Unionism Is a Bad Deal for Taxpayers and Representative Government” by Don Bellante, David Denholm, and Ivan Osorio. (The California city of Vallejo declared bankruptcy in 2008 following the failure of negotiations with police and fire unions over unsustainable compensation.)

One point the otherwise thorough Times article omitted: many politicians in Washington have worked for years to impose a Central-Falls-like legal climate on states and localities lucky or farsighted enough to have avoided one in the past. During last fall’s lame duck session, then-Majority Leader Harry Reid (D-Nev.) tried to push through the truly appalling Public Safety Employer–Employee Cooperation Act, which not only would have forced police and fire unionization on reluctant states and localities but also provided that in case of impasse (quoting Heritage) “States would have to provide a dispute resolution mechanism, such as binding arbitration.” And the misnamed Employee Free Choice Act (EFCA), a priority of President Obama during his first years in office, would have imposed binding arbitration on the private sector. Central Falls may now be hurtling toward the waterfall, but how many other communities are just one political shove away from plunging into the same fiscal rapids?

Wisonsin Supreme Court Upholds State Law Curtailing Collective Bargaining Powers

Ruling just a week after hearing oral arguments in the case, the Wisconsin Supreme Court has overturned a lower-court ruling that had struck down the law. Though other challenges are foreseen, the law reining-in collective bargaining powers for public school employees and other state workers is now likely to go into effect – at least for the time being.

Collective bargaining was always a bad idea for workers employed by a state-run monopoly, because it lacks the checks and balances of the private sector. When UPS went on strike, customers could – and did in great numbers – shift their business to FedEx, DHL and others. But taxpayers must keep paying for the public schools despite their rising costs and collapsing productivity.

Still, it is unlikely that this measure will control public school costs as well as many observers hope. I explain why in a feature story I wrote for the current (June) issue of The American Spectator. It’s on newstands now, and should also be up on the Spectator’s website within the next few days. [Hat tip for the breaking news to Bill Evers].

“Let Them [Safety Certified Mexican] Truckers Roll, 10-4”

OK, I took some editorial license on the line from the 1970s song by C.W. McCall about truckers bantering on their CB radios, but the spirit of the song applies to our ongoing dispute with Mexico over access to U.S. highways.

On Friday, the comment period will end in the Federal Register on a pilot program proposed by the Obama administration that would allow qualified Mexican trucks and their Mexican drivers to make long-haul deliveries within the United States. With the exception of a brief interlude from 2007 to 2009, the U.S. has banned Mexican trucks from serving destinations within the United States.

I explain why this is bad for our economy and our reputation as a nation in an op-ed this morning in the Washington Times and in my own comments filed with the Federal Register. As I wrote in the op-ed:

Despite the hundreds of complaints already posted in the Federal Register, the Mexican trucking issue has never been about safety. The proposed pilot program would require Mexican trucks entering the United States to meet all federal regulations on driver qualifications, truck safety, emissions, fuel taxes, immigration and insurance.

Experience from the previous pilot program in 2007-09 demonstrated that Mexican trucks and their drivers are fully capable of complying with all U.S. safety requirements.

An August 2009 report from the Department of Transportation’s Inspector General found that only 1.2 percent of Mexican drivers that were inspected were placed out of service for violations, compared with nearly 7 percent of U.S. drivers who were inspected. In February 2010, the Congressional Research Service reported that recent data provided by the Federal Motor Carrier Safety Administration found that “Mexican trucks are as safe as U.S. trucks and that the drivers are generally safer than U.S. drivers.” What the Teamsters and their congressional allies really object to is that these trucks will be driven by Mexicans.

The Obama administration deserves credit for its effort to end this dispute in the face of pressure from its union base. The sooner we allow more freedom and competition in the cross-border trucking sector, the better.

Wednesday Links

Bailout Coming for the Postal Service?

The U.S. Postal Service is in financial trouble. Undermined by advances in electronic communication, weighed down by excessive labor costs and operationally straitjacketed by Congress, the government’s mail monopoly is running on fumes and faces large unfunded liabilities. Socialism apparently has its limits.

While the Europeans continue to shift away from government-run postal monopolies toward market liberalization, policymakers in the United States still have their heads stuck in the twentieth century. That means looking for an easy way out, which in Washington usually means a bailout.

Self-interested parties – including the postal unions, mailers, and postal management – have coalesced around the notion that the U.S. Treasury owes the USPS somewhere around $50-$75 billion. (Of course, “U.S. Treasury” is just another word for “taxpayers.”)  Policymakers with responsibility for overseeing the USPS have introduced legislation that would require the Treasury to credit it with the money.

Explaining the background and validity of this claim is very complicated. Fortunately, Michael Schuyler, a seasoned expert on the USPS for the Institute for Research on the Economics of Taxation, has produced such a paper.

At issue is whether the USPS “unfairly” overpaid on pension obligations for particular employees under the long defunct Civil Service Retirement System. The USPS’s inspector-general has concluded that the USPS is owed the money. The Office of Personnel Management, which administers the pensions of federal government employees, and its inspector-general have concluded otherwise. Again, it’s complicated and Schuyler’s paper should be read to understand the ins and outs.

Therefore, I’ll simply conclude with Schuyler’s take on what the transfer would mean for taxpayers:

Given the frighteningly large federal deficit and the mushrooming federal debt, a $50-$75 billion credit to the Postal Service and debit to the U.S. Treasury will be a difficult sell, politically and economically. Although some advocates of a $50-$70 billion transfer assert it would be “an internal transfer of surplus pension funds” that would allow the Postal Service to fund promised retiree health benefits “at no cost to taxpayers,” the reality is that the transfer would shift more obligations to Treasury, which would increase the already heavy burden on taxpayers, who ultimately pay Treasury’s bills. (The Congressional Budget Office (CBO) prepares the official cost estimates for bills before Congress. Judging by how it has scored some earlier postal bills, CBO would undoubtedly report that the transfer would increase the federal budget deficit.) For those attempting to reduce the federal deficit, the transfer would be a $50-$70 billion setback.

Sounds like a bailout to me.

See this Cato essay for more on the U.S. Postal Service and why policymakers should be moving toward privatization.

Wisconsin: Post-Mortem & Predictions

Last night’s vote by the Wisconsin-based portion of the Wisconsin Senate has received enormous attention. The scope of collective bargaining by school district and other government employees has been narrowed, and the state will no longer automatically garnish workers’ wages to pay union dues.

This was the right thing to do. But how much of a difference will these changes actually make to the state’s bottom line? As I’ve noted, the presence or absence of collective bargaining is not strongly correlated with school district spending. Instead, unions have won their massively (42%) above- market compensation through well-funded political action; which brings us to the question of automatic paycheck deduction of union dues.

Without automatic dues withdrawals, will public school unions still be able to afford their fantastically successful political activities? There’s no reason to doubt it. Given the huge compensation premium public school employees enjoy over their private sector counterparts, they have a powerful incentive to voluntarily keep funding the political action that helped win it.

Indeed, we can see this already in right-to-work states like South Carolina. Public school employees there have no collective bargaining rights and there is no automatic union dues withdrawal, but the Palmetto State nevertheless has a teachers’ union and an administrators’ association that have spent large sums of money on political action. It’s worked. Despite not being the wealthiest of states, South Carolina still spends roughly $12,000  per pupil on its public schools, and its public school teachers earn more than the state’s median household income. The teacher and administrator groups have also successfully defeated every legislative effort thus far to open up the state’s education system to private sector competition and parental choice.

The only way to rein-in out-of-control public school spending is thus to give both families and taxpayers an alternative to the government monopoly status quo. Cut taxes on folks who pay for their own children’s education, or who donate to non-profit scholarship organizations that subsidize private school tuition for the poor. Many states are doing this already on a small scale. By so doing so on a larger scale, families will have much greater choices and taxpayers will reap enormous savings.

Ditching Collective Bargaining Won’t Control Public School Costs. Here’s What Will…

Lawmakers in Wisconsin and elsewhere are seeking to eliminate collective bargaining rights for public school employees as a means of controlling runaway spending (it has tripled in real terms since 1970, despite stagnation or decline in student achievement at the end of high school–see the last chart in this post). But even if collective bargaining is forbidden to state school employees, the savings will likely be negligible.

Surprising as it may seem, that conclusion follows directly from the research on school employee unions, which I reviewed last year for the Cato Journal. Differences in spending between school districts with and without collective bargaining are modest to non-existent. Does this mean that the unions are impotent and that their members have been wasting their $600 annual dues payments? Not quite.

Though employee compensation varies little from one school district to the next, based on the presence or absence of collective bargaining, public school employees enjoy far better compensation than their private sector counterparts. The combined salary and retirement benefits of public school teachers are 42 percent larger than those of private school teachers (see link above).

Public school employees win this generous compensation premium through political action backed by monumental campaign contributions. Democrats receive the overwhelming share of these contributions (93% from the NEA; 99% from the AFT, see Cato Journal link), but many Republican lawmakers are also swayed, fearful that the unions will finance their primary opponents the next time they face voters.

To further increase their clout, union leaders have sought to grow their membership. More members mean more dues revenue with which to influence legislators. In this regard, too, they have been enormously successful: the number of public school employees has grown ten times faster than the number of students for two generations—a major factor in the system’s exploding cost and collapsing productivity (see figure below).

Public school employees clearly understand that union membership has benefitted them handsomely in both compensation and job security. Over the past forty years, union membership as a share of the public school workforce has increased from 42 percent to 70 percent. Even if collective bargaining were eliminated tomorrow, school employees would have every reason to continue funding the self-interested political action that has served them so well in the past.

So what would provide a counterbalance to unsustainable union demands?

To find the answer, it helps to know that while union membership was rising in the public sector it was falling steadily in the private sector—to just 6.9 percent of the workforce in 2010 (see figure below). The reason is simple: when a business makes excessive concessions to a union and is thereby forced to raise prices above those of its competitors, it loses customers. As it loses customers, it lays off workers. If this situation continues, the business fails. Private sector unionization is thus self-regulating to a significant degree.

Public school employee unions, by contrast, have no direct competitors. They cannot drive their employer out of business because there is only one employer in the sector and its existence is mandated by law. The only real solution to the spiraling cost of our state school monopolies is thus to open them up to private sector competition, so that both parents and taxpayers have an alternative to the no-longer-affordable status quo.

There are several ways of doing this, of which education tax credits seem the most promising. In Florida, Arizona and other states, taxpayers can claim a dollar-for-dollar credit for donations to non-profit scholarship organizations. These organizations, in turn, subsidize private school tuition for low-income families. In Illinois and Iowa, families who pay for their own children’s education are eligible for tax credits to directly offset part of the cost.

Though most of these programs currently impose tight caps on the total value of credits available, they are already generating substantial savings to taxpayers while simultaneously expanding the choices available to families. Florida’s k-12 scholarship donation credit saves taxpayers $1.49 for every dollar it reduces state revenue, and the new private sector competition has improved achievement in public schools.

So while curtailing collective bargaining won’t rein in out-of-control spending, introducing real private sector competition will. And as the final figure reveals, we have got to get spending under control….


Update: I should add that, as NRO’s Rich Lowry notes, the plan for the state to stop garnishing public school employees’ wages and sending the money to the union is highly commendable. If employees want to pay union dues, they should be free to do so, but the choice should be theirs.  Of course, since public school employees benefit very handsomely from the status quo monopoly (see below), it’s likely that most will continue to pay voluntarily for the lobbying and political contributions that will preserve their above-market compensation. So it’s still the case that introducing private sector competition is the best way to control education costs.