The Democrats’ pension dilemma
By Editorial Board,
PUBLIC-SECTOR UNION activists will be well represented among the delegates at this week’s Democratic National Convention. National teachers unions are helping to fund the convention. Relations between the Obama administration and organized labor have been strained at times — the AFL-CIO was none too pleased that the 2012 convention is taking place in North Carolina, a right-to-work state. Still, the alliance between the Democratic Party and the labor movement carries on, and the relationship between public-employee unions and Democratic elected officials at the state and local levels is especially symbiotic.
Therein lies a dilemma. Public-sector employees have been able to negotiate pensions and health-care benefits that often exceed those available to private-sector workers whose tax dollars finance state and local governments. And where budgets are tight, dollars to fund employee retirement benefits must come either from higher taxes or cuts in other programs — parks, libraries, health care for the poor. In short, without reducing benefits for pro-Democratic union employees, Democratic officials who are in power may have to choose between never-popular tax hikes and cuts to the public services Democrats hold especially dear.
In some places, personnel costs portend long-term insolvency. Bond-rating agency Standard & Poor’s recently cut Illinois’ credit rating, citing “weak pension funding levels and lack of action on reform measures.” State pension funds face an $83 billion deficit; though the state recently raised taxes, pension costs still eat up 22 percent of general revenue, according to the Illinois Civic Federation. Only California ranks lower than Illinois in creditworthiness, according to S&P.
Both Illinois and California have Democratic-controlled legislatures; their Democratic governors, Pat Quinn in Springfield and Jerry Brown in Sacramento, have called for pension reform but repeatedly failed to get it passed, largely on account of opposition from public unions.
In this regard, there is promising news from Sacramento, where Mr. Brown and leaders of the legislature have announced a plan that would raise retirement ages and pension contribution rates for new California state employees. Still, the plan leaves reduction in current employee benefits up to collective bargaining and omits Mr. Brown’s previous proposal to convert part of the retirement package to a 401(k)-style plan. It’s a step in the right direction but a small one.
For the party of activist government, the competing interests of their public-sector union backers and their other constituents spell trouble, in both political and policy terms. It’s a conflict that Democrats may be uniquely well positioned to resolve, given their close ties to unions — or uniquely incapable of resolving, for the same reason. As the experience of California and Illinois shows, it’s an issue that Democrats need to tackle with some urgency, if not in Charlotte this week then soon thereafter. For as the experience of Republican Gov. Scott Walker’s Wisconsin shows, if Democrats can’t manage the trade-offs to voters’ satisfaction, eventually the people will give the job to someone else.