Charles Chieppo

Unions must adjust to the new economic realities

By Charles Chieppo
February 25, 2011

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WISCONSIN GOVERNOR Scott Walker’s attempt to limit public sector collective bargaining rights has gone viral, spreading to Ohio, Indiana, and Tennessee. Whether it marks the beginning of a nationwide revolt against labor depends on whether state officials and union leaders can develop tools for keeping the political power of public employee unions under control and avoiding the often-unchecked clout they wield in Massachusetts and other states.

Some of Walker’s proposals seem more like bargaining chips than serious propositions, but others, including eliminating benefits as a topic for collective bargaining, are essential.

Employee benefit costs have pushed state and local governments across America to the breaking point. Vallejo, Calif., has declared bankruptcy and other municipalities are likely to follow. Even with massive unfunded liabilities of $20 billion for pensions and $13 billion for other post-employment costs like health care, Massachusetts is in better shape than many other states.

There is no better cautionary tale about the dangers of benefits as a subject of collective bargaining than the financially devastated MBTA. Until a 2009 transportation reform law was enacted, its employees paid only about 4 percent of salary toward their pensions. Workers could retire after 23 years — often while still in their 40s — and get free health insurance for life.

In recent years, the T has paid as much for retiree health care as it has to cover active employees, even though pre-reform, the MBTA paid twice as much per employee for health insurance as New York’s Metropolitan Transit Authority.

In Massachusetts, public employee union power results in politicians using taxpayer money to bargain with their benefactors. According to the Office of Campaign and Political Finance, 17 of the 20 political action committees that gave the most to candidates for state and county offices during the 2007-2008 election cycle (the last for which numbers are available) were labor organizations. More than 93 percent of the money went to Democrats.

Massachusetts has already achieved some of what Walker is proposing. He wants to raise the portion of health insurance premiums workers pay from 6 to 12.6 percent and increase public employee pension contributions from less than 1 percent to about 6 percent of salary.

Here, state employees pay 15 to 25 percent of their health insurance premiums. Many municipal employees pay far less, which is why cities and towns want the option to join the state system without public employee union approval.

Most public employees in Massachusetts (where, unlike in Wisconsin, state and local workers aren’t part of the Social Security system) already pay about 10 percent of their salary to fund pension benefits.

But the strength of Bay State public-employee unions has brought other perks. According to the US Bureau of Labor Statistics, hourly wages for state and municipal workers in eastern Massachusetts are about 7 percent higher than for their private-sector counterparts who do comparable jobs. The premium is exclusive of rich public sector benefits.

State workers also have perks that would be unimaginable elsewhere. For example, thanks to the so-called Pacheco law, it’s nearly impossible to privatize any work currently performed by Massachusetts employees.

Until recently, few had ever heard President Franklin D. Roosevelt’s statement that “collective bargaining, as usually understood, cannot be translated in the public service.’’

Whether FDR is ultimately proven right will depend on the ability of state and local officials to put taxpayer interests before those of people who often fuel their careers. It will also depend on whether public-sector union leaders can adjust to the new realities of chronic budget shortfalls and enormous long-term liabilities.

Charles Chieppo is the principal of Chieppo Strategies.