Andy Stern’s credibility deficit

Richard Berman President, Berman and Company
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The president’s debt commission is facing plenty of challenges. Washington’s supercharged partisan atmosphere is going to make it hard to find common ground, and the bruising battle over health care has left both parties wary of another full-on confrontation. But the debt commission may also suffer from an unusual problem for a blue-ribbon panel: a lack of credibility.

Andy Stern, the retiring head of the nation’s largest labor union, is an outspoken member of President Obama’s debt commission and an ardent advocate of reforming the nation’s retirement system. He also left his job running the Service Employees International Union with a mess of financial troubles that will end up costing taxpayers dearly.

The president’s commission is charged with tackling the $13 trillion national debt. It’s a difficult and urgent situation, so you might expect the commission members to have demonstrated their ability to manage money wisely. In Washington, though, competency often takes a back seat to connections.

Andy Stern left his former employer saddled with nearly $85 million in debt, its pensions underfunded by as much as 68 percent. But both of those numbers pale in comparison to this one: $60.7 million. That’s how much the SEIU spent electing Barack Obama. So when Stern was appointed to the prestigious debt commission, no one in Washington was surprised.

Over the past year, Stern has been spending much of his time lobbying the White House to enact policies that would increase the federal budget deficit. Among his ideas is the “High Road Contracting Policy,” which would require many federal agencies to pay above-market wages on contracts, potentially increasing payroll costs by $100 billion per year. How, exactly, is this supposed to fix the debt?

And in case you think Stern’s pro-worker bona fides are more important than his track record of financial bumbling, consider this: Andy Stern has been accused by other union leaders as being “the Darth Vader of the labor movement,” someone with an autocratic penchant for “crushing union democracy.”

Running a union and running a country are two very different things, but the financial problems of the United States and the SEIU are actually somewhat similar. Whereas the US has to fund Social Security and Medicare, the SEIU cuts pension checks to its members. None of these programs are properly funded.

The problem with Medicare isn’t that we’re spending too much money now (though we are certainly spending a lot). The problem is that unless we stop the cost from growing every year, within a decade or so we’ll be spending most of the federal budget on just one entitlement program. That’s why cutting costs is so important – if you take Stern’s advice and rely on raising taxes to fix Medicare, you never address the underlying problem of runaway cost inflation.

Solving the debt crisis through tax hikes alone would require crushing tax levels that would devastate the economy. That’s what makes a spend-and-tax proponent like Stern so dangerous: he claims to have a solution to our problems, but his cure is worse than the disease.

Stern and his pals have had their shot at managing the public’s money: in states like California and New York, where public employees are members of SEIU, unfunded pension liabilities are responsible for skyrocketing taxes, cutbacks in vital government services, and economic stagnation. According to a study by the non-partisan Pew Charitable Foundation, all 50 states are facing a collective pension shortfall of over $1 trillion – and that number is from before the 2008 financial crisis decimated many funds’ balances. The state of California alone has at least $60 billion in unfunded pension debt, which it owes to its countless SEIU-organized public employees and retirees.

When that bill comes due, one of two things will happen. Either taxpayers will shoulder the burden and shell out billions in new taxes, or retirees will see their promised benefits disappear.

It’s unlikely Stern worries much about all that, however. Not only is his own personal pension well funded, he’s already hitting the lecture circuit and charging up to $30,000 per speaking engagement. It’s unclear what exactly Stern talks about for that fee, though presumably it’s along the lines of “How To Get Rich While Running A Union Into The Ground.”

Rick Berman is executive director of Defeat the Debt, a project of the Employment Policies Institute, a nonprofit research group studying public policy issues that affect the U.S. economy.