Public Unions: The 'Big Dog'

Public employee unions are spending hundreds of millions of dollars on political campaigns while estimates of underfunded rank-and-file public employee pension plans reach a staggering $3 trillion dollars.

The American Federation of State, County and Municipal Employees (AFSCME) has to date spent $87.5 million this election cycle, according a Wall Street Journal report, and has spent a total of nearly $360 million since the 1997-98 election cycle. 

“We’re the big dog,” said Larry Scanlon, the head of AFSCME’s political operations. “But we don’t like to brag.”

Scanlon has run AFSCME election programs for nearly 15 years and readily admits the connection between the number of government jobs and the union’s political clout. 

“The more members coming in, the more dues coming in, the more money we have for politics,” Scanlon told the Journal.

When Democrats in Congress sent more than $160 billion in bailouts to states over the past 20 months, as much as $100 million went to union dues from public sector employees, according to Brett McMahon, spokesman for Associated Builders and Contractors, a trade organization.

“We borrowed money from the Chinese again in order to give Democrats extra campaign help,” McMahon told Human Events.  

McMahon believes this sort of “hand-in-glove interest” would result in a bribery prosecution in the private sector.

“It’s a really a unique situation where you have these contractual obligations that state officials negotiate with people who have supported them directly,” McMahon said. “In business, for example, if I sent a big contribution to one of my customers and said, ‘Hey, you think I’m going to get that job I just bid on?’ I’d actually probably have to talk to a prosecutor pretty quickly after that because that would be considered bribery.”

The non-partisan taxpayer watchdog group, Americans for Tax Reform (ATR), noted that state and local government pensions are underfunded by a staggering $3.04 trillion when applying private-sector accounting practices to state pension funds.

“With state and local spending overruns having prompted officials to take a second look at current spending levels and future obligations, what has become apparent is that the current Ponzi-style, defined benefit pension system employed by many states poses the greatest threat to state austerity,” ATR cautions. “Looking to avoid politically difficult but necessary pension reform, states have been borrowing money, issuing bonds, estimating unreasonable returns, and cooking the books to hide their pension liabilities. Applying private-sector accounting practices to state pension funds reveals an enormous discrepancy between states’ publicized and actual liabilities.”

Fortune Magazine offers an interactive map providing per capita totals for each state’s unfunded public employee pension obligations. Their January 2010 report calculated the value of a state’s portfolio of Treasury bonds sufficient to pay accrued pension liabilities, minus pension assets.

According to the Fortune calculations, the state holding the least public pension debt obligation per capita is Utah. Every man, woman and child in Utah is $7,272 in debt to Utah’s public employee pension programs. That was the lowest in the country as of last January.

The highest? Illinois. Every person drawing breath in Illinois owed a staggering $17,230 in unfunded debt to public pensions. 

The looming disaster is taking on Greek proportions.

McMahon warns unions are seeking to extend that public debt through a transfer of liability to taxpayers of underwater private union pensions.  

As previously reported on Human Events, the Casey bill from Sen. Bob Casey (D.-Pa.) is a new entitlement program that would set up a permanent bailout of the union multi-employer pension plans that are desperately underwater through a new “fifth fund” at the government Pension Benefit Guaranty Corporation (PBGC).  

“The Casey bill would take these private obligations and essentially give them the same status as public employee obligations, as if we can add safely to $3 trillion,” McMahon said.

Casey’s bill would create a line item on the federal budget through the PBGC to fund these union pension bailouts annually—union pensions that are underwater as a result of mismanagement that pre-dates the 2008 financial upheaval.

The clock is ticking.

New Financial Accounting Standards Board (FASB) rules currently set to take effect December 15 would force private companies to account for the cost of penalties to extract themselves from union pension plans against their bottom line. 

“The pension bailouts are something they need desperately and they need quickly because as everyone involved with the forthcoming new FASB rule acknowledges, you cannot stop the accounting board from a new transparency requirement,” McMahon said. “It’s going to hurt.”

Democrats could push the Casey bill in the lame duck session slated for Nov. 15—after the Nov. 2 elections yet before the new Congress is sworn in Jan. 3.

Special U.S. Senate elections in Illinois, West Virginia and Delaware (filling the remainder of the Obama, Byrd and Biden terms) could add as many as three Republicans to the Senate for the lame duck session diminishing the likelihood Democrats could pick off a few liberal Republicans to overcome a filibuster of the Casey bill.

New York state law dictates the winner of the Joe DioGuardi (R.) vs. incumbent Sen. Kirsten Gillibrand (D.) race to serve the remainder of Secretary of State Hillary Clinton’s term would be sworn in with the rest of the new Congress in January, having no effect on lame duck session.

McMahon provided some alternative proposals to the Casey bill under consideration that include:

• Automatic triggers for remedies for plans reaching critical underfunding thresholds including new rules for authorization of mass withdrawal. Unions would be required to meet certain disclosure standards and subsequently the company would be required to pay the withdrawal penalty.

• Liquidation of plan assets to fund current retirees and those about to retire, with an equitable allocation to participants of the fund’s remaining assets should mass withdrawal occur.

• Increased transparency from the multi-employer pension plans. 

• Yearly written notices issued to all participants and beneficiaries when the ratio of the number of retirees, beneficiaries of deceased participants, and terminated vested participants in a multiemployer plan reaches 3:1 or less to the number of the active participants in the plan.

• U.S. Department of Labor requirement to publish on the Internet and index in a searchable format all Form 5500 pension filings.

• Any mention of benefits in collective bargaining negotiations include the funding status of the benefits and the degree to which they are insured by the PBGC (currently $12,870 per year maximum). 

McMahon advises dealing with the massive unfunded liabilities from public employee union contracts will be a stickier proposition.

“We’re going to have to pass some kind of specialized bankruptcy law for states. Unions are standing pat, giving no ground whatsoever,” McMahon said.