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Private sector can't afford public sector employees

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JOHN REINIERS

More Than Words

Published: July 4, 2009

Updated: 07/04/2009 05:11 pm

Everyone by now has heard of the crippling burden of legacy costs that contributed to the demise of General Motors: An incredible 4.6 UAW retirees and surviving spouses for every active worker.

Social Security is going broke with "only" one retiree for every three workers. GM should have been so lucky. General Motors had become a health care and retirement benefits management firm that sold cars as a sideline - and at a loss. So many of us are so busy tweeting and texting that we don't read newspapers to learn also about the enormity of the underfunding of legacy costs in the public sector.

If there is any good news, the Government Accounting Standards Board instituted what is known as GASB 45, a reporting system requiring cities, towns, states and other political entities to disclose liabilities associated with other than pension post-employment benefits (OPEB). This should be fully implemented by the end of the 2009 fiscal year.

This increased transparency will disclose an unbelievable $1.5 trillion in just unfunded health care obligations!

And that's not all. USA Today reports that "The federal government has unfunded obligations of $1.2 trillion to pay for retired health care for retired federal workers ... and Medicare and Social Security obligations pushing the total to more than $5 trillion."

What happened to the good old days when a billion dollars was a lot of money? Sooner or later taxpayers are going to wake up and things will get nasty.

This taxpayer backlash will not be entirely politically motivated. Not all Democrats have government jobs. An overwhelming majority of state, local and federal employees are Democrats, who, if legally permitted, belong to public sector unions - a massive voting bloc of 22.5 million, including retirees. The federal government is the nation's largest single employer, even excluding the Postal Service. And state and local governments employ more people than any other sector of our economy.

It is no mystery the Center on Budget and Policy Priorities reports 74 percent of budget gaps are in blue states! And Florida is counted as red, which is debatable after Obama's ascension in 2008. New York has a $13 billion budget deficit, a mere bagatelle compared to California at $42 billion. The similarities between General Motors, New York and California are striking: None can afford its employees.

Let's start with just one blue state city to make the point. And keep in mind the distinction between pension and OPEB underfunding. Credit Suisse estimates New York Cities OPEB underfunding at $50.5 billion. Mayor Michael Bloomberg of New York City is alarmed because even New York City's pension system is "out of control." These costs are threatening to bankrupt the city. He says "municipal unions and lawmakers in Albany created this mess, and now the city is left with this mess."

The mayor may be part of the problem because since he took office, contributions to the municipal union pensions alone increased from $1.4 billion to $6.3 billion. That's how you get elected as a Republican in a blue state. This accounts for one out of every $10 in the city's budget. Just pensions! And the city's pension actuary reports a gap in pension funding at a mind boggling $49 billion. But wait a minute. Now add in the OPEB $55.5 billion shortfall to the pension funding gap and you have a surreal number. So Bloomberg is now talking about firing 14,274 teachers and another 9,000 city employees if the union doesn't agree to pay more for health care and reduce pension benefits for new employees.

It will never happen.

Democrat John Edwards was correct when he said, "There are two Americas, not one" in his rousing campaign speeches. The 22.5 million public sector, including retirees who also vote - is growing even larger with wages and benefits often guaranteed by state constitutions. This largess could result in ugly social problems down the road when the voters finally get it. To give you some understanding of this challenge, Florida's population is "only" 18,328,340, and we are the fourth largest state.

The moral of this story is: If the private sector were forced to pay these same salaries and benefits, we would have exported all our jobs by now - along with all the companies that provide these jobs. A good starting point to cure retirement benefit underfunding would be to slowly shrink the size of our governments by taking attrition.

"Discover the networks" describes it best, saying, "Government unions have become major players in the nation's political process ... Their money - along with that of their fellow public-sector unions - constitutes the lifeblood of the Democratic Party ... Today more Americans are employed by government than work in manufacturing. The wealth, power and future of these unions depend on the election of advocates of government expansion."

And we haven't even discussed Obama's vision of change, which sweeps away any remaining recommendations of fiscal responsibility.

That's another story.

John Reiniers, a regular columnist for Hernando Today, lives in Spring Hill.

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