The Challenge of Local Government Pension Reform

The Challenge of Local Government Pension Reform

To get people focused on a public policy issue, it generally is sufficient to talk about money.

Their money.

In large quantities.

This, together with the generally dim view Americans take today of government (especially at “higher” levels), explains why pledges not to increase taxes or, even more appealing, to cut taxes, are so popular.

The tax cut or no tax increase sound bite is easy to deliver. One need not know anything about how the government works to make such a pledge and even, at least theoretically, to carry it out. There are taxes. They can be cut. Nothing else matters.

For specific interest groups, one can add to the power of the monetary argument the power of organizational effort. When your association’s leaders tell you it’s a crucial issue, and can frame that in monetary terms, you and your fellow members are much more likely to mount the barricades, and much more likely to do so effectively, than on many other matters where the effects of a policy decision are less readily measurable in dollars and cents.

This reality, the hold that money has over our minds and motivation, is one critical element of the politics of pension reform. Because the dollars involved, if you are a public employee or public retiree, are the dollars on which you are counting for retirement and in the event that things go badly and you are kept from working.  It’s not about spare change; it’s about quality of life.

When a commission member or legislator is presented with the stories of uniformed service personnel who, having given their working lives to the safety of the community, now can’t afford to live comfortably, can’t secure adequate medical care, and so on, it’s hard not to swing to the side of these associations and their members and vote for whatever they ask.

But elected leaders must remain conscious of their representative function. They aren’t simply representatives of the public employees. They are representatives of taxpayers who, as it turns out, have a very large stake in this conversation as well. Because, after factoring in a reasonable rate of return on investments, pensions achieve adequate funding from a combination of employee contributions and taxpayer-funded contributions.

That’s it.

Just as many Americans don’t like to forgo present opportunities for future security, both public employees and governments often are reluctant to put today’s dollars into a fund that will meet their (or their employees’) needs in the future. Today’s troubles or pleasures often seem more compelling than tomorrow’s needs. And there’s always tomorrow, when things will be better (so we always believe), to catch up the investment in the fund.

This way of thinking reflects certain attributes of human nature, I suspect. But this natural tendency must be overcome somehow to ensure that our public employees are appropriately supported in their retirement.

The problem is compounded by the fact that each party (the employees and the governmental entity) can look at the other and say, “You’re not contributing enough.” We can shift the blame and spend our money on what satisfies for today.

The process by which this blame-passing is resolved is through the process of collective bargaining. The two sides come to the table and push and pull on each other’s evidence and argument until some agreement is reached.

These negotiations vary from community to community. They vary with the size of the public workforce, the financial position of the community, the strength of the employee association, and the philosophy and connections of the elected officials. Each community is left to determine the proper balance of contributions. Each community determines the level of benefit that constitutes adequate care.

The trick to making this process fair is, quite simply, to ensure that each party comes to the table with appropriate strength and information, without undue advantages or disadvantages that are the equivalent of a rigged table. And that’s the challenge of pension reform.

The greatest danger to a fair process, in my opinion, is intervention by third parties who do not have a direct stake in the negotiations themselves. This is especially true when the third parties do not have an equal stake in the interests of the respective parties to the negotiation (that is, in both the public employees and the public agencies). Under these conditions, third parties’ intervention may be strongly tipped in favor of one set of interests at the expense of the other, denying the disadvantaged party the opportunity to strike his/her own deal.

We’ve seen such intervention from the state in times past. The balance may well have been tipped in favor of public employees (especially first responders) because of the very real interest of legislators in their concerns.

In the last legislative session, that became much more complicated, leading to some unprecedented collaboration between municipal employee unions and municipalities. The ground has shifted again, but I’m hoping some of the wisdom that seemed to prevail then will carry forward in the future.

Because we can work together. In the end, while public employee unions and public agencies have some competing interests, they ought to share a common concern for fair processes and just treatment of all parties, both employees and taxpayers.