A Nation of Moochers (16 page)

As fringe benefit and pension costs balloon, government budgets are eaten from within, sucking up money that is no longer available to fund police officers on the street or teachers in the classrooms; increasingly budgets are hostage to ever more costly fringe and retiree benefits.
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In New York City, for example, the cost of employee pensions is equal to the budgets for the fire and police departments combined.
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In California,
The Sacramento Bee
noted that “this year, the city of Roseville will spend as much to fund its pension plan as it does on parks and recreation. San Luis Obispo will spend six times as much on pensions as it does prosecuting criminals.” The paper quoted one official as saying, “County government is becoming a pension provider that provides government services on the side.”
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David Crane, an aide to former California governor Arnold Schwarzenegger, put that state’s pension tsunami in perspective: “This year [2010] we’re spending 10 percent less on higher education than we did 10 years ago, parks and recreation 40 percent less, environmental protection 80 percent less, while spending on pensions is up 2,500 percent.”
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There are several reasons for this. Government is the most heavily unionized sector in the American economy and the public employee unions have become adept at making their political influence felt at the polls, with the effect of making many of the decision makers actually beholden to the unions with whom they are ostensibly negotiating. Adding to the conflict of interest, many officeholders share in the generous benefits they grant to other public employees. During the 2010 midterm election cycle, for example, the largest public employee union, AFSCME, spent more than $87 million to back Democratic candidates; the union’s expenditures amounted to nearly a third of the pro-Democrat independent spending in that year’s campaign. The ballooning expenditures—up from just $19 million in 1997–98—reflect both the growing number of government jobs and the higher stakes in preserving unions gains.
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“We’re the big dog,” boasted the head of AFSCME’s political operations.
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We’re All Greeks Now

Americans got a glimpse of their fiscal future when European markets, currencies, and politics were roiled over the impending bankruptcy of some of their profligate nations, most notably Greece, which had made a science of the easy life. Greeks who worked in so-called arduous jobs retired at age 50 for women and 55 for men. More than sixty jobs qualified for the early retirements, including musicians, radio personalities, waiters, and hairdressers.
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A Greek was even luckier to land a government job. As Michael Lewis reported in
Vanity Fair
:

In just the past decade the wage bill of the Greek public sector has doubled, in real terms—and that number doesn’t take into account the bribes collected by public officials. The average government job pays almost three times the average private-sector job.… Twenty years ago a successful businessman turned minister of finance named Stefanos Manos pointed out that it would be cheaper to put all Greece’s rail passengers into taxicabs: it’s still true.
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Columnist Mark Steyn described the attitude that helped create the fiscal disaster: “[In Greece] public sector workers have succeeded in redefining time itself.… When they retire, they get 14 monthly pension payments. In other words: Economic reality is not my problem. I want my benefits. And, if it bankrupts the entire state a generation from now, who cares as long as they keep the checks coming until I croak?”
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While the specific practices differ, how is that attitude any different from the American public sector? Despite cratering budgets and the prospect of mass teacher layoffs, teachers’ unions in Buffalo continued to fight for taxpayer-funded cosmetic surgery, while the union in Milwaukee went to court to get coverage of Viagra.
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Exploding class sizes? Kids who can’t read? Budgets careening toward fiscal black holes? Not my problem …
as long as they keep the checks coming until I croak.

Who’s the Public Servant?

And, indeed, government continues to take care of itself quite well:

• Before President Obama announced a two-year freeze on federal pay (which did not freeze actual pay) the number of federal workers making more than $150,000 a year had risen by 1,000 percent in the last decade and, reported
USA Today,
had doubled in the first eighteen months of the Obama presidency.
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Between December 2007 and June 2009, the number of federal employees making more than $100,000 rose by 46 percent; the number making $150,000 or more rose 119 percent; the number making $170,000 or more rose 93 percent.
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• An analysis by
USA Today
found that during a time of stagnating wages and benefits, the total compensation for federal workers—salary plus generous fringe benefits—had grown to twice the average in the private sector. In 2009 the average federal employee’s pay and benefits came to $123,049, compared with private workers, whose average pay and benefits were worth $61,051.
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From 2001 to 2009 average annual private pay grew by 24.9 percent while federal pay grew by 38.4 percent; as a result the gap between the compensation of federal and private-sector workers doubled from $30,415 in 2000 to $61,998 in 2009. Another study found that federal workers were paid more than private-sector workers in more than eight of ten occupational categories.
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• A Freedom of Information Act request by the Asbury Park Press found that in 2010, 1.3 million federal workers were handed $408 million in taxpayer-funded bonuses—up $80 million despite the deepest recession in memory.
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• The private-public gap has also grown at the state and local level. The average hourly compensation for private-industry employees was $27.42 in hourly salary and benefits in December 2009, lagging far behind the $39.60 per hour in total compensation for state and local government.
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The Millionaire Bureaucrat

But the largest gap between the two Americas can be found in the pension system. Let’s put this in perspective: The vast majority of private-sector workers no longer have so-called defined pension benefits. Fully half of the nation’s private-sector workers have no retirement savings plan and will have to rely on Social Security and whatever savings they manage to set aside after taxes and living expenses. Two-thirds of the remaining 50 percent will rely on 401(k)s to which they must make contributions and possibly also receive a modest employer’s match. The value of those accounts plunged from 2007 to 2009 and many workers now find themselves well short of the amount of money they will need to retire. A 2010 study by the Employee Benefit Research Institute found that 47 percent of baby boomers between the ages of 56 and 62 and nearing retirement age do not have enough in savings to avoid running out of money in retirement.
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In contrast, public employees like those in Wisconsin may contribute little or nothing while reaping pensions that can replace most of their preretirement income. So while the rest of us try to find a way to save to be able to put aside 10 to 15 percent of our pay every year, state employees face no such pressure. Nor do they have to worry about the stock market like their private counterparts: They can benefit from a rising market, but most are generally insulated from losses by their pension guarantees. As Steve Greenhut notes: “If such ‘roll of the dice’ investments pay off, then there’s more money for public employees and less political pressure to reform the pension system, and if they don’t, the taxpayers are on the hook. It’s the ultimate privatization of gain and socialization of risk.”
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Former California governor Schwarzenegger has pointed out the yawning disparities between the two Americas: Between 2007 and 2010, California had lost a million private-sector jobs and retirement accounts of private-sector workers had dropped nearly 20 percent. At the same time, the guaranteed pension benefits of government workers, “for which private sector workers are on the hook,” had risen in value. Very few average Californians had $1 million in savings, he noted, “but that’s effectively the retirement account they guarantee to public employees who opt to retire at age 55 and are entitled to an annual inflation-protected check of $43,000 for the rest of their lives.”
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It’s actually much worse than that.

In many California cities, police officers and firefighters can retire at the age of 50, with a salary equal to 3 percent of their highest salary times their years of service. So a firefighter in a city like Carlsbad, California, who retires at age 55 after twenty-eight years on the job will receive an annual pension of $76,440 from the city.

What would a private-sector employee have to save to equal that sort of pension?

Forbes
publisher Rich Karlgaard crunched the numbers, noting that investment experts suggest drawing no more than 4 percent of retirement savings a year, which is also a reasonable rate of return on conservative investments.

Based on this small but unfortunately realistic 4% return, an $80,000 annual pension payout implies a rather large pot of money behind it—$2 million, to be precise.

That’s a lot. One might guess that a $2 million stash would be in the 95th percentile for the 77 million baby boomers who will soon face retirement.

That $2 million also happens to be the implied booty of your average California policeman who retires at age 55.
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By the same formula, a $100,000 pension would require private savings of $2.5 million, a $200,000 annual pension requires savings of $5 million, and so on.

Scandals

This taxpayer largesse falls on the worthy and the unworthy alike.

A Buffalo police detective, serving forty-five years in prison, is collecting a $40,544 annual pension; so too is disgraced New York State Comptroller Alan G. Hevesi, who collected a $166,000 pension even after pleading guilty to a felony corruption charge. Not even a conviction for sexually abusing five members of a Boy Scout troop he once led can keep another New York teacher from pulling down his $52,073 annual pension while he sits behind bars.
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There are other ways to game the system as well: A retired NYC firefighter who received a tax-exempt disability pension for asthma spent his retirement running marathons—and was able to run a six-minute mile—even though his disability included “reduced lung capacity.”
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The city of Yonkers, New York, has boosted the pensions of police officers by having them work overtime as flagmen on Consolidated Edison construction sites—then reporting the work as city overtime even though the company was picking up the cost. At least one hundred retired Yonkers cops and firefighters were paid more in pensions than they made in salary before retiring. In one notorious case, a city employee who retired at age 44 with a base salary of $74,000 was reportedly pulling down an annual pension of $101,333.
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Perhaps not surprisingly, in a recent study, nineteen of the twenty highest paid city workers in New York State were on Yonkers’s payroll.
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Even though unemployment in the Empire State remained high in 2010, there were ninety-nine thousand state and local workers bringing home six-figure salaries.
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The stories (and scandals) are legion:

• In Bell, California, the police chief worked a single year at a salary of $457,000 before retiring with the government pension that will pay him $448,000 a year. This paled next to the city manager’s potential $890,000 annual pension.
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• In the modest blue-collar suburb of Bellwood, Illinois, a community with a per capita income of $24,000, taxpayers paid city administrator Roy McCampbell $472,000 in 2009, at that time by far the most of any municipal employee in the state. He managed the huge payday despite having a base salary of just $129,000; he was able to pad it by cashing in unused sick and vacation days. Even more creatively, he was paid for performing the duties of ten positions, including comptroller, administrator, public safety CEO, finance director, budget director, human resources director, mayoral assistant, corporation counsel, property commission director, and development corporation officer. When McCampbell retired he became the state’s top pensioner, with an annual payout of $250,000.
     “I didn’t hold a gun to anybody’s head to get this,” he told the
Chicago Tribune.
“I’m not trying to do anything bad.”
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• In another Chicago suburb, taxpayers learned they were funding a parks director who was being paid $435,000 a year. Once again, the director’s base salary was relatively modest at $164,000, but it was enhanced by $270,000 in bonuses granted by the local parks commission. That conveniently boosted the director’s pension to $166,000—which means that he will now make more in retirement than his former base salary. Two other employees also benefited from the commission’s spending splurge. Even after the sweet deals were exposed by the
Chicago Tribune,
officials defended their generosity with taxpayer money. “Parks officials in the northern suburb say it was a good use of taxpayer dollars,” reported the
Tribune,
“even though the off-the-charts spending spree included giving the three executives nearly $700,000 in bonuses while paying one of them $185,120 for no work and signing over an SUV to him as he left town.”
     Ultimately, several parks commissioners were forced to resign, but the retired director will continue to be paid as long as he lives.
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