Hannah Arendt Center for Politics and Humanities
17Jan/130

The Pension Crisis in Cities

The Pew Center on the States issued a study this week that sheds further light on our municipal pension problems, a political crisis with strong Arendtian overones. Where most studies have focused on the enormous problems faced by states, this one focuses on cities:

Cities employing nearly half of U.S. municipal workers saw their pension and retiree health-care funding levels fall from 79% in fiscal year 2007 to 74% in fiscal year 2009, using the latest available data, according to the Pew Center on the States. Pension systems are considered healthy if they are 80% funded.

The growing funding gulf, which the study estimated at more than $217 billion for the 61 cities in the study, raises worries about local finances at a time when states are also struggling to recover from the recession. Property-tax revenue dipped during the housing crisis, straining city finances amid a weak national economy.

The reason to pay attention to the problems in cities is that cities have even less ability to solve their pension shortfalls than states. The smaller the population, the more a city would have to tax each citizen in order to help pay for the pensions of its retired public workers. The result is that either cities get bailed out by states and lose their independence (as is happening in Michigan) or the cities file for bankruptcy (as is happening in California).

Also this week the NY Times ran a story about San Bernadino, one of three California cities to file for bankruptcy as a result of their pension obligations. It is a stark reminder of why we should care about public pensions:

Five months after San Bernardino filed for bankruptcy — the third California city to seek Chapter 9 protections in 2012 — residents here are confronting a transformed and more perilous city.  After violent crime had dropped steadily for years, the homicide rate shot up more than 50 percent in 2012 as a shrinking police force struggled to keep order in a city long troubled by street gangs that have migrated from Los Angeles, 60 miles to the west.  … “The parks department is shredded, the libraries similarly,” [the mayor] said. “My office is down to nobody. I’ve got literally no one left.”

A similar fate is befalling other California cities that are in bankruptcy:

Stockton, Calif., which filed for bankruptcy in June, has followed a similarly grim path into insolvency, logging more homicides last year than ever before. In Vallejo, Calif., which filed for bankruptcy in 2008, cuts left the police force a third smaller, and the city became a hub for prostitution.

As I have argued, the pension crisis is not arcane policy or economics. It is a crisis of politics and government. It came about because municipal and state governments offered irresponsible contracts to public employees. There is no way these contractually guaranteed pensions can be paid. By refusing to face up to this fact now, we are making the problem worse. The result will be the hollowing out of local government services across the country. Police forces will be decimated. Public libraries and fire stations will close. Parks will fall into disrepair. All in order to pay full pensions to retirees. This of course won’t happen. Cities will refuse to do it, as they have in California and elsewhere. The result will then be bankruptcy, which comes with its own tragedies.

For anyone who cares about government and wants government to succeed, the pension problem must be addressed, for it threatens not only economic disaster, but political cynicism beyond even today's wildest dreams. Across the country, teachers, policemen and firemen, not to mention civil service employees and others, will see their promised pensions shrink precipitously. Not only will this devastate retirement nest eggs for millions of people, it will fray the social contract—pitting young against old and taxpayers against public employees. This is already happening.

What is more, the pension crisis will likely further erode local control over our lives. As municipalities go bankrupt they turn to states. As states go bankrupt, they turn to the federal government. Bailouts come with strings and ever-increasing levels of bureaucracy. For those who understand that our federal system was designed to thwart the establishment of sovereignty by dispersing power through competing levels of governance, the pension crisis has the potential to radically disempower local governments and further the amassing of federal power already long underway.

There may not be pretty or easy solutions, but ignoring or denying the problem is no longer an option. It is time for those who care about government and freedom to engage the pension issue and insist to our legislators that we act to treat pensioners with respect but also preserve the power of local governments to support rich and vibrant political institutions.

-RB

 

7Jun/1211

The New Class War: Public vs. Private

Occupy Wall Street focused attention on one conception of class conflict-the super wealthy against the 99%.  As successful as OWS was in spreading its message, almost no legislative agenda emerged.

The Tea Party focused its attention on the tax burdens faced by the middle classes and the upper middle classes.  The villain for the Tea Party is not the .5% who earn over $3 Million every year, but the firefighters and policemen and teachers who protect us and educate our children. The battle the Tea Party is fighting is against a vision of big government that is part reality and part fantasy.

The Tea Party's battle goes to the heart of who we are as a nation and it is less a battle between rich and poor than between progressives and conservatives. The Tea Party has given laser-like focus to what will now be a defining battle of the decade: Is the government going to continue to play a leading role in providing our health care, protecting the environment, and supporting our industries.

After Tuesday, one must face the facts that the Tea Party is winning in the democratic forum. Four votes Tuesday make this clear.

•Scott Walker's victory in the recall election in Wisconsin proves that even in democratic states with a historically pro-union electorate, the anger against public unions is palpable.

•Voters in San Diego and San Jose approved referendum that not only cut future pension benefits for public workers but more radically cut pensions for current workers as well.

•The City Council in Stockton, California granted the City Manager authority to declare bankruptcy—Stockton would be the largest city ever in the US to have done so.

It is important to note that the battle is not over welfare or even over healthcare.  Scratch beneath the surface and the Tea Party is not anti-welfare. In The Tea Party and the Remaking of Republican Conservatism, Theda Skocpol and Vanessa Williamson, Harvard scholars who have interviewed adherents of the new insurgency in different regions of the country, report that:

83% of South Dakota Tea Party supporters said they would prefer to “leave alone” or “increase” Social Security benefits, while 78% opposed cuts to Medicare prescription drug coverage, and 79% opposed cuts in Medicare payments to physicians and hospitals…. 56% of the Tea Party supporters surveyed did express support for “raising income taxes by 5% for everyone whose income is over a million dollars a year.

While the Tea Party activists are eager to shrink government, they do not seem to welcome a decimation of the welfare state. If the battle is not over a minimal welfare state, it is a battle over public sector unions.

Why are public sector unions so important?

My colleague and Arendt Center friend, Walter Russell Mead, articulates an answer. At the core of the democratic left for decades has been the "belief in a strong, well-funded state."  The many diverse environmentalists, egalitarians, and progressives have various agendas, but all depend on a vibrant bureaucracy to guide and rationalize public and private life. Some want government to fund schools and universities; other want government to save the environment; another group wants government to guarantee racial, sexual, gender, and religious equality; many want government to provide universal healthcare or guarantee a college education to anyone who wants it. In all these cases, what progressives want, in Mead's words:

Is control of the progressive, bureaucratic government machinery of the 21st century [which] is both the prize for whose control they struggle and the agent they hope will make their dreams real.

Mead encapsulates why the battle over public sector unions is so crucial at this juncture:

A Democratic Party dominated by its public sector unions is a party married to government and to bureaucracy. To the degree that the public unions shape its agenda, the Democrats become a lobby for the servants of the state. For the unions who represent its employees, the bureaucratic, civil service state is a solution permanently in search of new problems to solve and new worlds to conquer. The power of the public unions within the party pulls Democrats much farther to the left than they would otherwise go.

This is one reason the Wisconsin reforms stimulated such a powerful and united emotional wave of push back from virtually every section of the left. The threat to the public unions isn’t just a threat to a powerful source of funding for left-liberal candidates and to strong organizations with political experience and muscle; it’s a threat to the heart of the left coalition and to the structures that give the left much of its power in Democratic and therefore in national politics.

But the dominance of the public unions in the left had consequences for the left itself — bad ones. In contemporary America, the public sector unions are essentially a conservative constituency. That is, their core goal is to get more resources in order to fight all but superficial change in the structures their members inhabit. They want ever growing subsidies to the postal service, the public school system, the colleges and universities, even to health care — but they do not want the kind of reforms that could make these institutions more efficient, more productive, more serviceable.

Illustration by Sean Delonas

Mead offers wise counsel. One can of course believe that the reason for the victories in Wisconsin, San Jose, Stockton, and San Diego is simply the deep pockets of the Koch brothers. And those pockets are deep and deceptive. But money alone does not explain the voters' abandonment of public unions and the progressive model. The nation is seriously rethinking the role of the state and the public in our lives. We should be thinking with them. You can read more of Mead's post here.