Unions Push To Protect Themselves In Government Bankruptcy

Kevin Glass | Director of Policy and Outreach, Franklin Center for Government and Public Integrity

A report released this week from a commission established by the government of Puerto Rico is arguing that a portion of the debt involved in Puerto Rico’s crisis was issued illegally, and a full audit is needed before any resolution to the debt crisis arrives. In fact, this is exactly what Democratic presidential candidate Bernie Sanders argued when he discussed his objections to Congress’ attempts to resolve the crisis.

Unfortunately, Sanders’ support, and the presence and influence of public employee unions on the Puerto Rico commission, cast doubt on the slow-rolling motives behind these arguments. 

Roberto Pagan, the head of the “independent” commission established by the government of Puerto Rico, is also the president of the Puerto Rico chapter of the Service Employees International Union, a group that has a huge stake in the outcome of the debt crisis. The best outcome for unions, here, is for the government to prioritize debt obligations to government union pension funds. 

Puerto Rico has over $43 billion in unfunded pension liabilities, with only $1.8 billion in assets. In any resolution to the debt crisis, unions will want to see every single dime of their own debt obligations to be saved, while finding ways to discount or invalidate other components of the island’s debt. Obviously, having a union leader heading up the government’s “independent” commission certainly looks like a conflict of interest.

Pagan gives the game away with the commission’s findings: the case of Detroit’s bankruptcy and debt crisis are cited as an example of how other debt has been ruled to be illegally issued and invalidated. In the resolution to Detroit’s bankruptcy, the powerful union interests in the city actually were able to see their debt obligations prioritized over others. 

Unions fought hard to dispute any and all math surrounding the pension obligations in Detroit and any successful challenge to other debt obligations obviously means the pensions may face less of a haircut. Unions have a strong incentive here.

Indeed, union interests in Washington, D.C. are already pressuring Democratic lawmakers to try to get them to kill the legislative resolution making its way through Congress. The national head of the SEIU met with Democratic leaders Nancy Pelosi, Steny Hoyer, and Raul Grijalva in a maneuver to try to kill certain provisions of the legislative solution to the Puerto Rico debt crisis. Their demands, as one Republican lawmaker said, would “blow everything up.”

Massive pension obligations are shaping up to be a massive battleground for state policy moving forward. Puerto Rico is merely one of the opening gambits for the unions in trying to protect their turf. Detroit, similarly, had massive pension obligations play a huge role in its bankruptcy proceedings. States have continued to offer lucrative benefits to their unionized government employees even as the private sector struggled through the 2008 recession and recovery. As the Pew Charitable Trusts reported last year, the pension shortfall across the United States now stands at almost $1 trillion. Many cities and states have struggled to balance their budgets through the 2008 recession, and it’s clear that economic slowdowns can have significant effects on these budgets. Anything could strain the states’ abilities to pay their obligations, and these lucrative pension funds are going to increasingly drive some of these budgetary issues as the population ages.

Having union heads leading investigations of territory and state budget crises is clearly going to produce conflicts of interest. While the SEIU head is arguing that Puerto Rico illegally issued some of its debt, the effect of his allegation is that SEIU interests would be preserved. Union shops are trying to obstruct and gum up the works for any potential solution to Puerto Rico’s crisis; what’s needed is an honest accounting by those who do not have such obvious conflicts of interest.

Kevin Glass is the Director of Policy and Outreach at the Franklin Center for Government and Public Integrity, a nonprofit that publishes public-interest journalism at Watchdog.org.

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