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Monday, December 26, 2005

New York Transit Strike a Glimpse of Coming Public Employee Pension Crises in State, Local Govts

Among the least-reported stories of recent decades has been the rise to power of public employee unions, particularly in the big cities, but also in the federal civil service and in state government workforces.

Bruce Kesler at Democracy Project has an excellent discussion of how last week's New York transit strike highlights the excessive pension benefits won by the public employee unions in recent decades.

As the Baby Boomers retire in huge numbers in coming years, the issue will be forced front and center in every major urban area in the country. And it's not simply retirement pensions at stake, as healthcare benefits are typically tied in as well. See Kesler's discussion of that aspect of the coming debate here.

Since there is no way to pay for those benefits - to say nothing of the unfairness of they represent - forcing the unions to accept reasonable cut backs is becoming the central battleground in urban politics and will be for the next several decades.

The same scenario is or soon will be played out in the academic world where the Children of the 1960s have held sway in teaching and administrative positions during the same period as the public employee unions and have often acted in concert with them.

What Kesler doesn't discuss is how the excessive pensions granted by Congress to itself and the federal workforce via the Civil Service Retirement System in the early 1970s set the pattern for the public sector unions elsewhere.

The conflicts now being addressed in places like New York City with the transit strike came to a head during the Reagan administration when Congress agreed to create a new system, the Federal Employee Retirement System, that became mandatory for all new hires in the mid-1980s. I was in the middle of this debate as a Reagan political appointee at the U.S. Office of Personnel Management in my pre-journalism career days.

Where the CSRS was a defined benefit program that guaranteed retiring career bureaucrats 56 percent of their high-three year average salary and full retirement at age 55 with 30 years service, the FERS system was a change to the defined contribution model and allowed employees some 401(K)-like investment options.

But that was 20 years ago and the unfunded liabilities of the many public sector pensions modelled after CSRS have growing immensely, plus many more workers have compiled additional years of employeement and believe they are "owed" the generous benefits because they are guaranteed by contract.

These problems on the urban front, however, pale by comparison to those created by the Social Security and Medicare programs where the same underlying concept of guaranteed benefits have been magnified many multiple times.

To appreciate how little time is left to fix these problems, check this out.