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Public Pension Scam Update March 4, 2009

Posted by David Bookstaber in Pensions, Unions.

I’ve previously explained how unions and politicians conspire to surreptitiously rob taxpayers using the obfuscation of pension costs. Indeed, as one blogger said, “Government employees live in a different world,” something that becomes more evident during an economic downtorun.  Richard Epstein rehearses the intricate details of this ongoing scam:

So what happens in bad times? First, no public employee loses either a job or a dollar in pension benefits. Ordinary citizens lose two ways: jobs are cut–unemployment in California just hit 10%–and taxes are raised. What makes this pill all the more bitter is that unions happily wave the libertarian banner of freedom of contract to lock in the status quo. Public unions point to court cases that require the state to honor its employment contracts just like other agreements. Translation: The downturn is everyone else’s problem.

This seductive plea of contractual probity ignores the dubious mechanisms that put these obligations into place. State collective bargaining agreements give unions monopoly power; state legislative maneuvers, often backed by pro-union legislators, sweeten the deals already made. These pension deals are never negotiated at arm’s length in competitive markets between parties who are free to go elsewhere. Instead, a monopoly union extracts its compensation packages from government officials, many of whom depend on union support to hold public office. These contracts are the kind of self-dealing arrangements that would never be tolerated between a corporation and its key officials. And the subsequent sweeteners simply take property from the majority of citizens who can neither block the transaction nor withhold their tax dollars.

Unfortunately, there is today no mechanism in place that allows frustrated citizens to challenge the validity of these agreements either before or after they are put into effect.


1. federalist - March 22, 2009

And here’s the latest big case of “pay-to-play” — which may be surprisingly hard to prove given the absurd custom of pension investment management companies paying 2% “finder fees” to intermediaries who convince pensions to invest with them!

2. federalist - March 29, 2009

And here’s the latest update on just how much these pension scams are going to hurt:

In Pennsylvania, the state employees and public teachers pension funds both have warned that employer contribution rates could surge seven-fold from about 4% of payroll to 28%, starting in 2012. The Detroit police and fire pension plan might have to double employer contribution rates to 50% of payroll by 2011, according to the fund’s outside actuary.

The specter of higher pension bills comes as many states and cities are struggling to balance their budgets or, in some cases, avoid drastic measures, such as filing for bankruptcy protection, amid falling tax revenue, foreclosures and rising unemployment costs.

In most states, retirement benefits for public employees are guaranteed by law, so governments have little choice but to pay them in full.

3. federalist - April 10, 2009

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