“Touching the third rail of politics” used to mean any attempt to reform the cost of entitlements, especially Social Security. Despite the fact that all realistic estimates show all levels of government — federal, state and local — barreling toward insolvency, there is still little or no effort to solve that problem.
While one political taboo remains, another — one that may prove equally damaging — has grown. What no legislator dares say outright is that the only pot of money big enough to solve the problem is the one that can be wrung from the waste and inefficiency in America’s public sector at both state and federal levels. And that requires taking on a powerful and expanding special interest group: the public employee unions.
In 2005, a New York Times investigation found that as much as 40% of the Empire State’s $45 billion annual Medicaid budget was frittered away through fraud, mismanagement, abuse and the indifference of Albany lawmakers. Two years earlier, the Yankee Institute for Public Policy did a study for the October/November issue of the American Enterprise that showed that if all 47.6 million U.S. public school children were educated with the same efficiency as private and parochial schools, the cumulative savings annually would be greater than all the state budget deficits combined.
Tantalizing examples of what can be extracted from reorganizing government abound. Public universities, which have already suffered declining taxpayer support over the last two decades, have actually improved their productivity to around 2.5% annually — approximately the same rate as private American industry. Declining government support led to the elimination of needless bureaucratic overhead, the substitution of adjunct and part-time instructors for tenure-track faculty, and the redesign of courses to make better use of online technology.
New Zealand, which in 1984 initiated a sweeping privatization of national and regional services to forestall national bankruptcy, provides endless examples of how streamlining government to bring expenses in line with revenues actually improves the overall quality of services. Employees in transportation were reduced from 5,600 to 53, in forest services from 17,000 to 17, and in the national Ministry of Works from 28,000 to one — all with no loss of service or safety to the public.
The problem, of course, is that importing such savings to America will not go down well with public employee unions, which have grown accustomed to extracting generous benefits from politicians. August 2006 data from the U.S. Bureau of Economic Analysis show that the average federal civilian worker earns $106,579 a year in total compensation — twice the $53,289 in wages and benefits for the typical private employee. Since 2000, federal pay has risen 38% — double the pay increases for workers in manufacturing, retail, finance, private healthcare and construction.
At the state level, according to the Employee Benefit Research Institute, government workers have been collecting nearly 50% more in total compensation than the average private sector employee, with taxpayers subsidizing 128% more than private employers to fund healthcare benefits and 162% more on retirement benefits.
When budget pressures have occasionally forced politicians to make modest demands for increased productivity, the response from public employees has been less than generous — witness the 2005 holiday transit strike in New York City and repeated threats of illegal walkouts by nurses throughout the University of California system.
More worrisome is the ease with which disgruntled union members have resorted to violence, the intimidation of co-workers and life-threatening negligence to get their way. An investigation by the Connecticut attorney general into a strike against state-funded nursing homes found that picketers had removed identification bracelets from Alzheimer’s patients, fed chocolate to diabetics and loosened bolts on lifts used to support elderly patients.
In Washington State, the federation of state employees demanded that Olympia legislators fire 800 government workers who would not join the union. Further South, the National Labor Relations Board actually had to overturn an organizing campaign by the notoriously bellicose California Nurses Association because members threatened health workers who opposed the union, telling one his “little kittens would look good in a frying pan.”
Most politicians have kept their mouths shut about changes they know are needed: more competition in K-12 education, a reliance on cost-conscious insurance companies to manage government-funded healthcare, and a sweeping privatization of many other government services. But by the end of the next President’s first term, lawmakers will have no choice but to extend the productivity revolution, which began in corporate America under Reagan, to the sprawling public sector.
Public employee wages and benefits will also have to be brought in line with private industry. Anticipating these changes, the Government Accounting Standards Board, the national association of public finance officers, has already told states and cities to reserve for any post-employment worker benefits (GASB statement 45) and is developing performance measures for social programs.
Government unions will resist serious reform with demonstrations, radio and television ads funded by member dues and the threat of violence. Already, public employees are engaged in a furious effort to fortify their numbers by organizing a new class of employee: childcare providers, home health aides and others who are not employed directly by government but whose salaries are reimbursed through entitlements.
But as time goes on, union leaders will discover that their leverage is not strong enough to prevent needed streamlining of the public sector. There may once have been a time when low wages and few benefits gave government workers the right to voter sympathy, but today we live in a world where, according to the National Compensation Survey, school teachers make more in wages and benefits than private-sector engineers, architects and computer scientists — at the same time keeping their 10 weeks of summer vacation.
Neither will the public be happy to learn that the price tag for previous concessions to labor will be much higher than even the official estimates. According to a December 2007 study by the PEW Center on the States, the underfunding of public employee retirement benefits is “about $731 billion.” In some states, including Connecticut, Delaware and Hawaii, the per capita liability already exceeds $5,000.
Government employees will also find that the march of technical innovation has greatly reduced their ability to extort concessions by shutting down vital public services.
In America’s seventh largest city, San Diego, Calif., provides an ominous example of what public employees can expect if they fail to provide voters with more value for their tax dollar. When the dark clouds of bankruptcy appeared in 2005, this Democrat-dominated city elected a Republican mayor who refused to impose new taxes. Instead, he immediately pushed laws to require voter approval for any pension benefit increases and to allow landscapers, mechanics and contractors in the private sector to bid for municipal business.
And something else happened, which could further persuade labor leaders to make needed productivity concessions. Discovering evidence for criminal collusion between previous administrations and the public unions, City Attorney Michael Aguirre, a self-described “liberal Democrat,” brought suit in federal court to have worker benefits granted since 1996 rolled back on grounds that they violate conflict-of-interest laws. If successful, this action could create a legal precedent for challenging public employee contracts in every jurisdiction where the dominant political party is unduly influenced by government unions.
Elected officials may not yet be ready to touch the new “third rail” of politics, but the looming fiscal crisis makes a showdown between government workers and other voters inevitable. But if Americans will not suffer the tyranny of an English king, they will certainly not become the economic slaves of their public servants.