"Even bankruptcy may not be enough to break the grip unions have on the public purse"

So says Steven Greenhut, author of our February 2010 cover story, in a Wall Street Journal op-ed about the (literally) bankrupt California city of Vallejo. Excerpt:

To permanently bring its spending in line with its tax base, however, at some point Vallejo will have to do something about its pensions. U.S. bankruptcy judge Michael McManus, as the National law Journal reported last March, "held the city of Vallejo, Calif., has the authority to void its existing union contracts in its effort to reorganize."

But when it came to voiding those contracts on pensions—a major driver of public expenses—the city blinked. The "workout plan" the city approved in December calls for cuts in services, staff and even some benefits, such as health benefits for retirees. However, it does not touch public-employee pensions. Indeed, it increases the pension contributions the city pays.

This week, the city did approve a new firefighter contract that trims pension benefits for new hires and requires existing firefighters to pay more into their pensions. But that contract doesn't touch existing pensions. Nor does it affect police officers or other city workers. It also leaves the city with a $1.2 million shortfall. "The majority [of council members] did not have the political will to touch the pink elephant in the room—public safety influence, benefits and pay," Vice Mayor Stephanie Gomes told me. [...]

[B]ankruptcy [is] probably the most effective tool in the drawer for lowering pension obligations. But if officials are unwilling to demand pension concessions in bankruptcy, there will be few choices left to balance their budgets other than support from the state that itself is facing steep budget deficits, or local tax hikes that could undermine local economies and thereby drive down tax revenues over the long term. That's a sobering thought in what is an already struggling economy, and an argument for government officials to be much more stingy in granting pension increases in the first place.

Greenhut's timely book is called Plunder: How Public Employee Unions are Raiding Treasuries, Controlling Our Lives and Bankrupting the Nation.

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  • Scotch Hamilton||

    "Even bankruptcy may not be enough to break the grip unions have on the public purse"

    Now which of the Reason Foundation's corporate donors demanded this headline? It fails the laugh test...

  • Jordan||

    Nervous laughter: a sure sign that you've got nothing.

  • ||

    Thankfully you're always there to say something impossibly stupid and make us all laugh.

  • ||

    I take it you didn't pay much attention to the GM bankruptcy proceedings where investors got raped while the UAW came out even stronger than it went in. Of course, you could just be intentionally ignorant...

  • The Libertarian Guy||

    Who knows how much money GM lost on the jobs-bank program. Paying people to come to work, yet NOT work. What a concept!

  • ||

    Great work if you cn't get it!

  • ||

    Sad isnt it? The only thing Unions are good for is sucking the life blood out of a company. Thats it.

    Lou
    www.anon-web-surfing.it.tc

  • Scotch Hamilton||

    Also they make a nice scapegoat it appears.

  • ||

    Scotch, when a thing is the cause of the problem, it's not a "scapegoat", it's the cause.
    Just trying to help out, here.

  • Scotch Hamilton||

    But to suggest that unions are the "cause" of the problem is to say that workers should not be allowed to organize to negotiate terms with the government...and I always thought libertarians were in favor of the people organizing to demand fair treatment from the government...

  • The Libertarian Guy||

    If I were to apply to Company X, and they wanted to hire me only on the condition that I join a union... where is MY freedom of choice, or that of the company to hire whom they choose?

  • The Libertarian Guy||

    Or, to amend it a little finer:

    If I decided to join a union, but demanded that my dues go to NO political parties or causes... would the union abide by my wishes, or spend my hard-earned money on political bribery anyway?

  • Jersey Patriot||

    If you did the same thing with your insurance premiums, would Blue Cross Blue Shield listen? If not, how is the union any different?

  • Jersey Patriot||

    If the company signs an agreement with the union agreeing to hire only union workers, well, you either join the union or you work somewhere else. It's called a "closed shop", and it's perfectly consistent with the right to contract.

  • ||

    A "closed shop" is simply an exclusivity agreement between the seller (union) and buyer (employer).

    Absolutely nothing improper about that.

  • ||

    "But to suggest that unions are the "cause" of the problem is to say that workers should not be allowed to organize to negotiate terms with the government..."

    Non-sequitur. Saying so implies no such thing.

    "and I always thought libertarians were in favor of the people organizing to demand fair treatment from the government..."

    I'm all in favour of people organizing to negotiate. It's simple freedom of association and freedom of contract.

    What I'm opposed to is the requirement that the employer (public or private sector) must continue to negotiate with a union, even in the absence of a contract, rather than being permitted to hire other non-union workers (a.k.a. scabs).

    In any other voluntary exchange, if one party demands too much, the other party is free to seek out other providers with more reasonable demands.

  • Scotch Hamilton||

    The problem is that there is an imbalance of power between the employers and the employees. All unions do is create balance.

  • ||

    "The problem is that there is an imbalance of power between the employers and the employees. All unions do is create balance."

    You didn't address my point.

    I've already said that unions are all well and good. Collective bargaining is fine.

    What's not fine is the duty to negotiate placed upon employers.

    Example. I'm an employer and you're a union rep. Our collective bargaining agreement is about to expire. You say your worker want X, I'm only prepared to offer Y.

    When the CBA expires, your union goes on strike.

    Why am I not allowed to hire other replacement workers even though I have no further contractual obligations to you or your workers?

  • $||

    If one is broke due to a crack addiction, and I say "it is the fault of your addiction that you are broke", that in no way means that I favor the illegality of crack. It is just a fact.

  • ||

    But to suggest that unions are the "cause" of the problem is to say that workers should not be allowed to organize to negotiate terms with the government

    OK, I'll say it: Workers should not be allowed to organize to negotiate terms with the government.

  • $||

    I do not have an issue with it, so long as the government is permitted to fire all of them on the spot, a la the airline "union".

  • ||

    Most libertarians I'm familiar with are *not* in favor of negotiations involving conflict of interest.
    When the 'management' relies on the votes of 'labor' to keep their jobs, any supposed negotiations between them involves conflict of interest.

  • ||

    "When the 'management' relies on the votes of 'labor' to keep their jobs, any supposed negotiations between them involves conflict of interest."

    I've devised a simple solution to this problem, which is particularly applicable to municipal elections.

    Simply multiply each person's vote by the dollar value of taxes paid since the last election.

    Taxation = Representation. Problem solved.

  • ||

    Bankrupting your employer is "fair treatment"?

  • cynical||

    I actually agree. If everyone lives in fear because our justice system is unable to successfully prove the guilt of the murders and rapists brought before it, it's easy to blame clever defense attorneys, but probably not accurate. Unions tend to fulfill the same one-sided advocacy role. When they've won so thoroughly that society is threatened, it's just as accurate to say that the other aspects of the system that are supposed to hold them in check have failed. Granted, to the extent that they have been trying to undermine those checks, they do deserve some of the blame.

  • DRM||

    But to suggest that unions are the "cause" of the problem is to say that workers should not be allowed to organize to negotiate terms with the government

    To a progressive, certainly. But it's statist logic, not libertarian, to conclude that everything undesirable to the public as a collective should be illegal.

    The taxpayer should fully understand that just as in the private sector the unions are organized against the owners/stockholders, in the public sector, unions are organized against the taxpayers. Accordingly, AFSCME should be looked upon by the taxpayer with the same hostility a major stockholder in Walmart views the United Food and Commercial Workers.

    That doesn't, from a libertarian perspective, actually require any change in the libertarian view on what rights a union should have at all. It does, however, require a change in the "progressive" view, since the special rights of collective bargaining agents they advocate are actively designed to give the unions advantages over employers that would not apply in a libertarian right-of-contract system.

    While these special rights do logically serve "progressive" ends when dealing with private enterprise (where the union can serve as an instrument of the transfer of wealth from the "few"/owners to the "many"/laborers), it acts directly against "progressive" goals in the case of public employees (where the transfer is from the "many"/taxpayers/people to the "few"/government employees).

    A "progressive" who backs public employee unions, accordingly, is contradicting his avowed principles.

  • ||

    There are perverse incentives when unions negotiate with the government, because the government is also formed by a political process that is influence by unions as voters. if you have a large public sector, you've basically created an interest group that will vote themselves money from the treasury. Which is essentially what the public-sector unions have done in regards to pensions. It is no an antagonistic relationship between the employer (the state) and the unions. It is a politically incestuous one. The unions elect the people who will be willing to pay them more, and manipulate the terms of contract in their favor.

  • Enyap||

    This has to be the longest anon bot started comment nest i've ever seen.

  • ||

    No kidding. For once the anonymity bot manages a sucessful troll.

  • Stretchy||

    It's time for the fed to start demanding Greek-style austerity measures before any kind of bailout.

  • ||

    Careful Stretchy, talking about Greek-style is going to get Chad and MNG all hot and bothered.

  • ||

    I think his point is that public pensions won't be trimmed in bankruptcy unless the city/state has the political will to ask for public pensions to be trimmed in bankruptcy.

    Which seems right, to me.

    I am curious about the authority of a bankruptcy court to rewrite, or approve the rewriting of, a defined benefit pension plan.

  • robc||

    Unless specifically protected by law, I think the bankruptcy court can reorganize any debt.

    And, of course, the city could go full on bankruptcy and cease existing instead of doing a reorganization. That handles that pesky pension problem.

    If later, a new city formed with the same name, that means nothing legally.

  • hammeredHead||

    A Texas town did just that after creditors rejected the Bankruptcy.

    http://en.wikipedia.org/wiki/Westminster,_TX

  • sage||

    Is there any way you guys could "excerpt" the whole article?

  • ||

    Great SITE for Documentaries check it out,

    http://freeviewdocumentaries.com

  • ||

    When an employer goes bankrupt, why shouldn't the claims of employees for back pay, including accrued benefits, get priority over other debts? I'm for changing the way public employee pensions are funded in the future, but I am against depriving public employees of benefits that they have already earned. The best way to do that is to start a new retirement plan for new hires, and let those who have earned their pensions keep receiving them.

    To put it another way, I'm an unrepresented (i.e., non-union) public sector lawyer with over 30 years experience, and I am paid less than a new hire at a big firm, fresh out of law school. The benefits are that I only have to work 40 hours per week, and I have accrued a generous retirement package. If that were taken from me after I've earned it but before I start collecting, wouldn't the government be taking my property without due process?

  • Jordan||

    The money isn't there, and it will never be without gargantuan tax increases. When you contract for deferred compensation, one of the risks is that the other party won't be able to pay in the future. If the public refuses to vote for those tax increases, what are you going to do? Have union contracts overrule votes? That truly would be taxation without representation.

  • Stormy Dragon||

    How is that any different than, say, Obama's mortgage cramdowns? Just because the money isn't there doesn't mean you get to just start ignoring whichever debts you don't particularly feel like paying. If they're bankrupt, then let them declare bankruptcy and liquidate their assets according to the law.

  • ||

    You know what's going to happen already.

    Currency Devaluation.
    Those pensions won't be worth so much when the dollar trades on par with the Mexican Peso.

  • ||

    It's already trading on par with the Canadian Peso.

  • ||

    If that were taken from me after I've earned it but before I start collecting, wouldn't the government be taking my property without due process?

    Bankruptcy proceedings are due process, so if your pension gets written down in bankruptcy, its all good.

    I'm not sure if any legislative/administrative changes to bloated pensions would satisfy the takings problem.

  • juris imprudent||

    but I am against depriving public employees of benefits that they have already earned.

    That might be reasonable if it weren't for the public employee unions getting sweetener after sweetener on their 'existing' deals. Once upon a time they accepted sub-private sector pay and bennies for the stability of public sector employment. But, with the ability to elect/intimidate the representative govt, they decided that wasn't enough. Too fuckin' bad.

  • S. Wagner||

    This is a most amusing set of comments. The answer is that politics doesn't figure into this at all, when the bottom line is calculated. You either have money to fund something, can get credit or "go fish." The "have money" moment for cities, counties, states and the federal government is long over. This reality includes lots of those union pension funds, so seriously underfunded. That leaves "get credit" and "go fish." The "get credit" time is waning, and the "go fish" time is just around the corner. Bankruptcty -- simple collapse -- is just around the numerical corner, and all the political stances mean nothing to the numbers. For one, I have moved assets away from risk, out of the reach of government as is possible, and will hunker down until the collapse clears the field for capital to live again. As to the socialists and moderates looking for my help, "go fish." The only place I remain "social" is in the bosom of my family, whose debts I am also erasing so they may be spared. To all else and to the governments, "go fish."

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