The people overwhelmingly voted to reject that legislation in a referendum Tuesday, November 8, 2011.
Thus, Ohio is back to where it was before 2010. Or is it? I think not.
The influence of public employee unions and the cost of public sector "fringe" benefits are now very much on the radar screen for Ohio voters. Previously public employee bargaining and the influence of unions have largely gone unnoticed. That's no longer the case.
Are public employees entitled to more pay and benefits than comparably skilled private sector employees? And if they are, how much more? And if not, why do they receive more? All questions for future public officials and union leaders who negotiate these issues on behalf of taxpayers and the affected public employees.
Let's look more closely at one such private versus public sector issue.
The retirement pay and currently heavily underfunded pension issue is especially relevant to this private-public compensation comparison. In this case, most public employees have defined benefit or pension plans in contrast to the tendency to adopt defined contribution or 401k like retirement vehicles throughout the private sector.
What's the difference, and why does it even matter to those of us who live outside Ohio and/or aren't employed in the public sector? The U.S. taxpayer, in other words.
Well, let's just say that the Ohio problem is everyone's problem. We'll examine why this is the case by quoting from No Pension? You May Owe $30,000 On One. It says this about the overall issue for American taxpayers:
"Pension accounts for state and local government workers are underfunded by $4 trillion, according to one recent analysis. If America's households were to split that tab today, each would have to kick in $34,000.
Don't have that kind of cash on hand? Another option is to chip away at the shortfall over 30 years starting now. That would cost households $1,400 a year beyond what they pay in taxes today.
A pension, for those who aren't familiar with one, is like a 401(k) plan in reverse. With a 401(k), or defined contribution plan, a worker knows how much he socks away, but not how much he will have at retirement. That part depends upon investment returns. With a pension, or defined benefit plan, a worker is told how much he will receive in retirement. It's up to the pension to put aside enough today. To do that, pensions guess about future returns. The higher the returns they assume, they less money they must save today. And therein lies the problem.
Most states assume a yearly return of around 8%, says Kil Huh, who manages fiscal research for the Pew Center On the States, a think tank. "In past decades when investment markets boomed they were able to achieve those returns," he says. "Now they're not even coming close."
Indeed, whether states and local governments have a funding problem under current rules depends on what markets do in coming years. Pensions have two-thirds of their money invested in risky assets like stocks, real estate and hedge fund positions. If the next 20 years could be counted on to resemble the 1980s and 1990s, when stocks returned double their historic yearly average, then states would be flush today.
But plenty of market forecasters expect just the opposite -- for America's burdensome debt, aging population and slowing economic growth to reduce stock returns to a crawl. If they're right, states and cities are vastly understating what they owe."
Ohio Turns Back a Law Limiting Unions' Rights has a simple explanation for why the Ohio legislation dealing with collective bargaining in the public sector was defeated by a large majority of the voters:
"Some analysts cautioned against reading too much into the result as a predictor for 2012. The law has been highly controversial in Ohio, even among groups like firefighters and police officers that traditionally vote Republican, and a vote cast against the law does not translate directly to a vote for President Obama.
“This is not a purely partisan issue,” said Gene Beaupre, a political science professor at Xavier University. “It has merits on its substance.”
The real question, he said, will be how independents voted. In a warning to Democrats, a largely symbolic measure against Mr. Obama’s health care law was among the ballot initiatives that passed.
Republicans who watched the campaign on the union measure said it was doomed from the start. The law was a frontal assault on one of the most sacred principles for Democrats: the right of organized labor to collectively bargain. Defeating the repeal campaign would have required near-universal Republican support, which was not there because some registered Republicans opposed the law.
“This really is a core value, and the bill was out of step with that value,” said one Republican strategist, who asked to remain anonymous because he did not want to be seen as criticizing his party’s position."
Ohio Voters Reject Public-Union Limits said this about the broader impact of the vote:"The vote was closely watched beyond Ohio as other states have debated whether to rein in public unions to help governments cut spending on wages and benefits. Unions have faced bruising battles with newly elected Republican majorities in various states this year. In Wisconsin, lawmakers passed a law restricting union rights, but they failed to do so in Indiana.
The Ohio law was passed by the legislature and signed by Gov. John Kasich, a Republican, earlier this year. But opponents secured enough voter signatures to force a public vote before it could take effect.
"It's clear that the people have spoken," said Mr. Kasich. He said he would continue to work with local governments facing budget challenges but warned there would be "no bailout" because "there's no money."
GOP House Speaker William Batchelder predicted the more palatable elements of the law, such as higher minimum contributions on health insurance and pensions, are likely to be revisited after the dust settles."
So now it's on to what public sector benefits to have and how to pay for them with respect to teachers, police officers, fire fighters and other public sector workers.
If the U.S. economy grows strongly in the future, the pension benefits for public employees may turn out to be affordable. But, of course, that's not the most probable outcome, since the U.S. likely will not grow much during the next several years.
That said, taxpayers can still choose to subsidize public employees to as large extent as they are willing to pay in increased taxes. Taxpayers can even write a blank check for public employee pay and "fringe" benefits if they so elect. Or they can choose not to do so. That's what self governance is all about.
With respect to public sector union officials and their local and state negotiating counterparts, their future bargaining sessions will be conducted in a much more open and transparent environment than has been the case heretofore.
Pension plans versus 401k plans will be one very important bargaining issue. Another big issue will be the funding rates for future promised benefits.
An equally serious matter will be the assumed rate of investment returns for defined benefit plans and how well the assumptions are in fact working out. And if the returns fall short of assumptions, will taxes be raised to make up the shortfall? Or will alternative 401k plans be considered and implemented? For all employees or just future hires? And what are the financial implications of such decisions?
Of course, all this will necessarily depend in large measure on how well the future U.S. economy is performing. And that economic performance will say much about the mood of the voters regarding paying public sector workers at an all-in rate which is considerably higher than that being paid to private sector workers.
An informed electorate is essential to a self governing society. So let the necessary informing begin in earnest.
More government = more taxes = slower economic growth = lower private sector employment = lower tax base = higher taxpayer cost per public employee = higher taxpayer cost per increased dollar of public employee benefits granted.
All of which serves as the underpinning for a most interesting set of dynamics between public sector union officials representing public employees and their counterparts-- the elected or appointed government negotiators who bargain on behalf of the taxpayers.
Let the collective bargaining begin. For all to see. In the open.
Thanks. Bob.
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