State and local politicians are listening, and some are proposing reforms to curb extremely generous public employee compensation packages that are beyond anything available in the private sector. In short, they are trying to deal with the mess left behind by their predecessors. During the 1990s boom years, many state and local governments, buoyed by increased revenues, spent those new tax dollars as soon as they came in, without much forethought of possible future downturns.
Moreover, states and localities have been paying out even beyond what they negotiated with the unions. Labor contracts have allowed many public employees to game the system through such tricks as double dipping and pension spiking. Double dipping is the phenomenon whereby a government employee “retires” from one job and then takes on a different government job, while collecting the pension from the first job. Pension spiking occurs when a government employee who is about to retire boosts his income during his last year of employment — either by putting in a huge amount of overtime or temporarily taking a higher paying job — thus freezing that final year’s income into pension benefit amounts that are based on an employee’s final year salary.
Even worse, a lot of the benefits came in the form of pensions. While the possibility of taxpayer backlash may have put some sort of check on how much union-supported politicians can pay their union supporters in the present, it provided little incentive for any caution well into the future. When the bill for those pensions would come due, the politicians who approved those benefits would be out of office, and figuring out how to pay for those benefits would be somebody else’s problem.
Such reckless spending made today’s state and local government budget crises inevitable in an economic downturn. Now that a downturn has come to pass, many state and local policy makers have no choice but to try to get their states and municipalities off the road to financial catastrophe. That’s commendable, however belated, and it will be difficult. Yet the time to act is now. The consequences of doing nothing are now apparent, which underscores the urgency of the situation.
And it is fitting that both Republicans and Democrats are coming around to addressing it — because they both helped create it. As Politico reporters Maggie Haberman and Ben Smith note, “local Republicans from coast to coast have often accepted the support of unions and defended their perks.” However, “That day appears to be over, at least for now.”
State and local politicians who want to establish themselves as fiscally responsible stewards of their constituents’ tax dollars now need to show results. There are already some encouraging signs. Recently, the California State Senate approved a bill to address the problems known as double dipping and pension spiking, and the Illinois General Assembly approved a bill to address double dipping and cap pension benefits.
That’s a good start, but much more needs to be done.
Ivan G. Osorio is editorial director at the Competitive Enterprise Institute. His writings focus on labor issues and the new economy.