Saturday, February 2, 2013

Public Sector Unions, Politicians and Taxpayers

The close and partnership like relationship between public sector unions and Democratic politicians is weakening.

The joined at the hip alliance between public sector unions and the Democratic party is being threatened by what could easily become a throw the bums out citizen taxpayer revolt if the policies, pay levels and benefits of public sector union represented employees don't begin to more closely resemble those of private sector workers and taxpayers.

Over the past few decades, public sector unions have become prominent players in our society, essentially displacing their private sector counterparts in influence.

Private sector union influence has weakened dramatically due to the fact that companies employing members of the private sector unions have been faced with global competition. The UAW and the  auto industry are the prime examples of this result. Non-union transplant factories owned by Toyota, Honda and Volkswagen have established themselves in right-to-work southern states while their northern U.S. competition of GM, Ford and Chrysler have struggled to survive.

Union dominance in America's private sector is a thing of the past because of globalization. Globalization in the U.S. monopolistic public sector is by definition a non-starter. There is no competition.

But the union's impact isn't a non-starter in the public sector. It's very real and having a huge influence on jobs, income, competitiveness and therefore the taxes available to the various state and local governments. It's all about global competition and public sector unions are clueless and counterproductive about the impact of globalization on their public sector jobs, pay and benefits. At least that's the way they act. Until now, that is.

So now 'What's the future going to be for unions in the public sector?' becomes the relevant question for America and many of its individual states.

Illinois is an interesting case as the state can't pay its bills, has almost $100 billion in unfunded public sector pension liabilities for its public employees, and the state has long been run by Democrats. And that very much includes Chicago, too.

Some questions that need answering are the following.

Will the longstanding and counterproductive relationship between the pols and the unions remain intact and continue to be harmful to the financial well being of Illinois and its taxpayers? Of course, it will. But that's not the important question. How harmful is the question.

But will things begin to change for the better in Illinois? Of course, they will because they must. Illinois is broke.

Will Illinois become a right-to-work state and attract industry? That's highly doubtful.

Will the citizens cause the state to change its constitution guaranteeing payments of benefits to its public employees even though all the money to pay those promised benefits hasn't and in all likelihood can't be raised from taxpayers? That's highly doubtful as well.

And if faced with the question, how will the Illinois courts interpret those state constitutional guarantees? Who knows?

Or will the unions and the politicians compromise before betting the taxpayer owned ranch on winning the constitutional court fight and risking incurring the wrath of those same owner taxpayers, regardless of which side "wins" the case? That's my bet.

Springfield Crackup provides the details of the developing tension between the unions and the Democratic politicians:

"Illinois Democratic Party chairman Michael Madigan, who's served as House Speaker for 15 years, may be the most powerful pol in Springfield. However, even he must answer to the bond vigilantes. Or at least that's the subtext of his snappy reply to a letter from state AFL-CIO President Michael Carrigan asking to meet with legislative leaders to negotiate pension reforms.

"A summit on this topic could have been called several years ago when we first started to grapple with this complex and controversial topic," Mr. Madigan writes. "Your letter implies pension reforms faltered because the concerns of labor were not considered. . . .[but] I recall no fewer than eight high-level meetings that took place with labor, legislative leaders and the governor. At that time, I felt there was little willingness from representatives of labor to draft a comprehensive, common-sense solution."

"The residents of Illinois have been asked to shoulder a higher tax burden in recent years," he adds. "To date, we have received no cooperation from the labor unions representing state employees on addressing these challenges. In fact, these unions often have been strongly opposed to any attempt to solve the problem."

It's important to note that this letter comes on the heels of last week's credit downgrade by Standard & Poor's for the state's failure to pass pension reforms. Retirement benefits consume nearly a quarter of the state's general fund budget and have forced the state to delay $8 billion in payments to vendors.

Another word for delay—which the state is loath to use but investors understand all too well—is default. As Mr. Madigan notes in his letter, the state has already slashed education and Medicaid and raised taxes by the revenue equivalent of 25%. It may only be a matter of time before lawmakers seek to force a haircut on investors as well.

Meanwhile, the state this week cancelled a $500 million bond sale after investors got cold feet. The premium that investors will soon charge could severely hamper the state's ability to borrow. Then again, maybe Illinois needs a mini-bond crisis to force reform."

Summing Up

Could it be that the the interests of the taxpayers are finally going to be given due consideration by the Illinois politicians? Absolutely, at least to the extent taxpayers wish to be heard.

The fact is that Illinois either has to seriously address its enormous fiscal problems or face certain financial catastrophe.

If the Democratic politicians choose to fix the state's financial problems by tax increases, the union approach, the vast majority of Illinois taxpayers will revolt, including both individuals and corporations.

On the other hand, if they choose to try to solve the state's problems by introducing common sense productivity and cost reducing measures into the way public employee staffing, salaries and health and retirement benefits are granted, the unions may not declare themselves to be in open revolt, but they sure won't like it very much. That said, what choice do they have?

So my bet is that's what is going to happen. Although public sector union officials will hate it, things are going to change for the better for the citizens and taxpayers of Illinois and other states as well. America as a whole, too. How much better is the only question.

So watch the "spin" as the circus begins, my fellow taxpayers.

It will be both entertaining and illuminating. And beneficial to our future well being and prosperity as the political power of public sector unions dwindles and Democratic politicians begin to consider the interests of taxpayers when making decisions concerning their union partners.

That's my take.

Thanks. Bob.

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