(I’ll actually be talking about this on Countdown tonight on MSNBC, with guest host Sam Seder, at 8pm ET.)
A few weeks ago, James Pethokoukis made waves with an article suggesting a “secret GOP plan” that would give states the ability to declare bankruptcy and basically default on their public employee union and pension contracts. Now, before the election, Pethokoukis’ big scoop was that the Obama Administration would order Fannie and Freddie to forgive mortgage debt on underwater borrowers. As it turned out, the Administration gently nudged the GSEs, who promptly resisted the principal reduction program. So the track record is not dead solid.
There’s no question that Republicans have introduced a bill which would require more transparency on state public pensions, and that they hope this would provide a road map in the states for where they can cut budgets; namely, on the backs of public employees. That doesn’t mean it will happen in exactly that way, however. And the idea that the next Congress will overhaul the 30s-era law allowing states to go bankrupt seems fanciful to me.
But I don’t think states or municipalities need much help from the federal government in their desire to rewrite public employee union contracts. There has been a concerted effort for years to demonize and delegitimize public employee unions, from both Republican pols and the media in general. This has left a distorted impression about greedy union contracts and well-paid government functionaries. So the new class of Republican governors would certainly want to capitalize on that by pleasing the public, who now favor things like wage freezes (which Obama just instituted at the federal level) and furloughs and bigger pension contributions, punishing those workers. And they are animated by a general hatred of unions, which have maintained their strength in the public sector while fading away in the private sector.
Alongside that, there are legitimate budget problems in the states. The National Conference of State Legislatures estimates a $118 billion dollar shortfall in state and municipal budgets in 2011. And there are certainly some states and municipalities with currently unfunded pension liabilities. While federal aid could offset some of that, there’s no chance it will happen – expect the House to pass, early next year, a resolution basically forbidding “bailouts” of the states. At that point, state governments will either have to cut spending or raise taxes to balance their budgets, which almost all of them are constitutionally required to do. With public employees – or rather, cops, firefighters, nurses, teachers, the people who prepare your state tax refund, the people who get you your driver’s license, the people who get the roads and bridges fixed and basically secure your safe passage through the commons – seen in a negative light, they will in many states be lined up for cuts.
Dean Baker saw through a lot of this back in August.
We should recognize the attack on public sector workers for what it is: a sleazy case of scapegoating that is intended to divert people’s attention from the real villains in this economy, the Wall Street boys and the inept economic policymakers who took the economy to ruin and seem intent on leaving it there.
The basic facts are straightforward. Adjusting for education and experience public sector workers actually get paid slightly less on average than their counterparts in the private sector. It is likely that the lower pay is largely or fully offset by a better benefit package, but it is likely that the difference in benefit packages between public and private sector workers is not as large as it may seem [...]
This doesn’t mean that there are not some workers who game the system and some categories of workers who may not get too much. (Firefighters and police tend to do best. Of course these people regularly risk their lives on the job during their working years.) In short, the idea that we have a whole class of public employees enjoying plush retirements is nonsense that can be readily dismissed with a quick look at the data.
So let’s get our eye on the ball. Fifteen million people are not out of work because of generous public employee pensions. Nor is this the reason that millions of homeowners are underwater in their mortgages and facing the loss of their home. In fact, if we cut all public employee pensions in half tomorrow it would not create a single job or save anyone’s house.
But the rock has been released from the top of the mountain on this, and it’s moving pretty swiftly downhill. Before Christmas, the New York Times called the failed pensions of Prichard, Alabama a “warning,” not a completely avoidable scenario that has resulted in hundreds getting cut off from their monthly pension benefits guaranteed to them by the law (and they were a whopping $1,000 a month, by the way, in no way resembling the golden parachutes of Wall Street). Today, they profiled Hamtramck, a small city near Detroit desperate to cut their budget, or declare bankruptcy if necessary. Most municipalities can declare bankruptcy, and I’d expect at least some of them next year, if not the nightmare scenario put out there by people like Meredith Whitney. Places like Prichard and Hamtramck are put out there to shock public employee unions into accepting severe cutbacks in benefits – you don’t want to end up with nothing, the story goes.
The point is that the media – with a gentle shove from the conservative noise machine – have presented these bankruptcies and pension cancellations as inevitable, and how the workers who rely on those pensions, and the employees who rely on the positions at those city governments, are just going to have to suffer. More than the Republicans in Congress, it’s this media-driven push which will produce the results they predict.