The New Mexico Public Employees Retirement Association is considering reducing future retirement benefits for more than 54,000 government workers, mostly because of growing concerns about the solvency of the fund.
It’s about time. The main reason why so many state and local governments are bankrupt, or on the verge of bankruptcy, is the combination of government-run monopolies and government-employee unions.
Government-employee unions have vastly more power than do private-sector unions because the entities they work for are typically monopolies.
As reported, the unfunded liability of the PERA fund has more than doubled in the past two years, from $2.3 billion in mid-2009 to $4.9 billion as of mid-2011. The unfunded liability is the difference between future retirement benefits due and assets on hand.
Carter Bundy, the political director for the American Federation of State, County and Municipal Employees union, is on record as saying, “the union believes the base retirement formula used to determine a worker’s pension should not be altered.” To that I say, the economics of the world have been altered, if Bundy hasn’t noticed.
There is a huge difference between private- and public-sector union employees. For example, when the employees of a grocery story go on strike and shut down the store, consumers can simply shop elsewhere and grocery-store management is perfectly free to hire replacement workers. In contrast, when a city goes on strike, there is no school and no garbage collection as long as the strike goes on. Teacher tenure and civil service regulations make it extremely costly if not virtually impossible to hire replacement workers.
The enormous power of government-employee unions effectively transfers the power to tax from voters to the unions. Because government-employee unions can so easily force elected officials to raise taxes to meet their “demands,” it is they, not the voters, who control the rate of taxation within a political jurisdiction.
Politicians are caught in a political bind by government-employee unions: If they cave in to their wage demands and raise taxes to finance them, then they increase the chances of being kicked out of office themselves in the next election.
The “solution” to this dilemma has been to offer government-employee unions moderate wage increases but spectacular pension promises. This allows politicians to pander to the unions but defer the costs to the future.
As taxpayers in New Mexico are realizing, the future has arrived. The PERA fund has $16.8 billion in future obligations and $11.9 billion on hand as of the most recent calculation. New Mexico must either raise taxes dramatically to fund these liabilities, or drastically cut back or eliminate government-employee pensions.
Government-employee unions are also champions of “featherbedding” – the union practice of forcing employers to hire more than the number of people necessary to do the job. If this occurs in the private sector, the higher wage costs will make the firm less competitive and less profitable.
No such thing happens in government, where there are not profit-and-loss statements in an accounting sense, and most agencies are monopolies anyway.
In 2012, as we have witnessed Scott Walker not being recalled as governor in Wisconsin because of his tough stance on public-employee unions, this pension charade appears to be on its way to being over.
American taxpayers finally seem to be aware that they are the servants, not the masters, of government at all levels.
Government-employee unions have played a key role in causing bankruptcy in most American states. We, in New Mexico, are at a crucial decision-point to decide not to travel that road to financial ruination and say “no more” to the pension demands of destructive public-employee unions.
Tom Molitor is adjunct scholar with New Mexico’s Rio Grande Foundation. The Rio Grande Foundation is an independent, non-partisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.
I remain less optimistic than Mr. Molitor that the NM public sector unions will act reasonably. They certainly have not in California. All that I can say is that if state taxes in NM to pay for public sector employees get too onerous, taxpayers will vote with their feet, as has been happening in California for 20 years.
May I also remind readers of the accounting study done by the Northwestern and U of Chicago accounting professors from about two years ago predicting that ERA and PERA would run out of money by 2023 ASSUMING
I remain less optimistic than Mr. Molitor that the NM public sector unions will act reasonably. They certainly have not in California. All that I can say is that if state taxes in NM to pay for public sector employees get too onerous, taxpayers will vote with their feet, as has been happening in California for 20 years.
May I also remind readers of the accounting study done by the Northwestern and U of Chicago accounting professors from about two years ago predicting that ERA and PERA would run out of money by 2023 ASSUMING an 8% investment return. My recollection is that after running out of money, PERA and ERA benefits would then consume about 50% of the entire state budget!
It’s good that PERA is taking some baby steps, but public employee pension reform will be a tough sell in New Mexico. In the absence of a two-party political system (we basically have one and a half political parties), unions will continue to dominate the legislature.
We are unlikely to see much voter push-back because a disproportionate percentage of New Mexico voters work for the government and have little understanding of private-sector economics.
New Mexico may have to reach a crisis point of cutting services to pay for pensions before voters get serious about the problem.
I am a state retiree…when “Big Bill” opened the door for a union I knew as employees we were doomed…I tried talking to other employees but they were bedeazzled by the promise of higher wages, more benefits, etc. Those of us not wanting to join were threathened by firing….I agrued that the union did not get me a job with the state nor did they assure me that I would keep my job but to no avail…I retired 3 years eariler than I had planned because of having to pay approx. $28.00 a month to keep my job. Unions have no business in state government…..thanks for letting me rant against the black booted criminals…..
John is 100% right. First off let’s vote New Mexico in as one of the now 23 states who have chosen to become Right To Work states – A fast-growing trend. The problem isn’t unions per se; the problem is them having a monopoly. To insist that one must join a club or a guild or a union – or whatever you want to call it – in order to get and hold a job in America is un-American. We are supposed to be a free society. Unions are an anachronism. To say that union members should have priority over folks who refuse to join a union is giving control over others and affects their ability to support their families. Unions argue that union workers are more qualified to do the job than are non-union workers. The catch is that one must be qualified to do the job in order to be accepted by most unions. If one is qualified to join, it just goes to reason that they were qualified before they joined. Hello??? I ask that we all consider to Vote Right to Work and stop union monopolies. They kill companies as well as municipalities. For what? All they do is take. What do they give that non-union workers cannot? Nothing! Then what’s the point?
I did not read optimism that the public employee unions are likely to act “reasonably”, what ever that may mean to Charles. It will be up to the media to effect a change in popular opinion before the ruinous idea of these unions is debunked and halted by the legislature. How likely is that?