The New American Elite

The faces of the Detroit bankruptcy are the thousands of pensioners whose promised benefits are suddenly part of the restructure negotiation. When Motown filed for Chapter 9 last July, the city had $11.5 billion in unsecured liabilities. The vast majority of this was pension and health care benefits owed to retired city employees.

The images of retirees bundled up and protesting in the cold have inspired Michigan’s Gov. Rick Snyder to offer $350 million of state money to “reduce and mitigate the impact on retirees.”

However, the Detroit pensioners are small fries in the grand government pension scheme of things. “Retired general city workers, such as librarians or sanitation workers, received average payments of $18,275 a year in 2011, according to the Detroit General Retirement System,” reports CNNMoney. The general city employee who retired in 2011 making $60,000 a year who worked 40 years for the city could receive around $45,000 a year.

If these kinds of numbers sank Detroit, California cities and places like Las Vegas don’t have a chance. It’s not a matter of if they’ll go bankrupt, but when. That’s where Steven Greenhut comes in. In his new book, Plunder! How Public Employee Unions Are Raiding Treasuries, Controlling Our Lives, and Bankrupting the Nation, he provides chapter and verse as to how public employee unions are bankrupting governments while providing cushy retirements for their members.

Greenhut, writing for The Orange County Register, has been the voice for liberty from the Golden State for years. He has heroically exposed government overreach in California and beyond in the areas of eminent domain, public union greed, and legislative largesse. Plunder! is a masterful exercise in applied public choice economics. For those not versed in public choice theory, it simply posits that government employees and politicians will rationally act in ways for their individual gain.

Once upon a time, going to work for the government meant low pay, low expectations, job security, and a better-than-average retirement plan. Now, as the Plunder! back cover says, “Getting a government job and sticking with it is like winning the lottery.”

You may have heard and read about firemen and cops making six-figure salaries both on the job and in retirement, but, as Greenhut explains, the high salaries are just one thing to hike the average taxpayer’s blood pressure.

California government workers have special license plates that shield their personal information under a confidential records program. One million vehicles in California can run red lights and park illegally with impunity. Greenhut cites his own work in the Register:

“Readers have been shocked to learn that California has about 1 million citizens who are literally above the law… They can drink a six-pack of beer at a bar and then get behind the wheel and weave their way home… Chances are they will never have to pay a fine or get a traffic citation.”

After the Register exposed this outrage, what did legislators in Sacramento do? They “voted to expand the protections to even more classes of government workers.” The People’s Republic of California, indeed. Moscow’s Politburo was never more outrageous. Greenhut chronicles California legislators’ attempts to exempt firefighters and EMTs from criminal prosecution while carrying out their professional responsibilities.

Wouldn’t it be wonderful if we could all look forward to 3% at 50? At the prime of their working lives, California public safety employees can retire at 3% of their final year’s pay times the number of years worked.

An example will make this easier to understand. And the author provides one in the book.

Imagine there’s a cop who joins the force when he’s 20 and retires at 50. He can retire at 90% of final salary until death (30 years of services X 3% = 90% of final salary). And it turns out the retired cop will live, on average, until age 82-85.

But that’s not all. After the pensioner dies, the surviving spouse can collect until his or her death.

And if that’s not enough, Greenhut writes of various other ways public safety employees game the system to milk even more out of the benefits largesse.

CNNMoney reported in November that the average 401(k) balance for a regular American had reached $84,300 in last year’s third quarter, a new record. How much does 84 grand throw off for a retiree to live on? A 4% coupon would generate just over $3,200 a year. Less than $300 a month. That means the average retiree will spend their retirement not being retired. If they can manage to find a job, that is.

Meanwhile, former San Francisco police chief Heather Fong doesn’t have to work or worry about money at all. She retired at age 53 with a pension of $229,500 per year for life. Greenhut does the math and determines that is $5 million if Fong lives until 75. “So how is your 401(k) performing these days?” Greenhut asks the reader. “How close to $5 million is it?”

Liberty lovers who question what cops and firefighters are paid should be ready for pushback from their neighbors in this post-Sept. 11 era of public employee worship. Every cop and firefighter in country assumed hero status after New York public safety workers ran into the burning twin towers.

Firefighters especially are revered, despite fighting very few fires. Greenhut relates a story that is typical. After he criticized firefighter pay packages, a reader called to yell at him. “Pay them anything at all. They are worth any amount.”

Of course, public employee pension funds must depend on overly enthusiastic assumptions to believe the money will be there to fund these long retirements. Nationwide, these funds assume rates of return from 6.75-8.5%, with the average being 7.72%. This is with the 10-year Treasury bond yielding less than 3%.

In 2004, Orange County assumed a return of 8.25% and retroactively increased retirement benefits. The county treasurer compared assuming that return to “betting that the Angels baseball team would win the World Series every year for the next 30 years.”

Of course, with money flowing to retirees, less is available to fund the services local governments maintain a monopoly in providing. While more retired cops take it easy, fewer police can be funded to walk the beat. Protecting and serving has turned into policing for profit. Priority is given to seizing assets (especially cash) thought to be involved in the drug trade to help fund department operations.

If children are the future, their education is the teacher’s union’s present meal ticket. Greenhut leads his chapter on schools with teacher’s union boss Albert Shanker’s famous quote that says it all. “When schoolchildren start paying union dues, that’s when I’ll start representing the interests of school children.”

While voters dutifully go to the polls every couple years believing they can make a difference, they can only switch out the talking heads that are but figureheads. The real power rests in page after page of rules and layer upon layer of bureaucracy that only gets added to and is never stripped away.

For those for whom hope springs eternal, Greenhut provides a host of reforms (paycheck protection and privatization, for instance) and nonprofit organizations working for smaller government. Voting for the right politicians is not mentioned.

It’s time for anger and action before it’s too late.

If you’re not angry yet, Plunder! will wake you up just in time.

Sincerely,

Doug French

Laissez Faire

Written By Laissez Faire