Teachers’ Pensions Threatened in California

The California teachers’ pension fund, CalSTRS, has been placed on the state’s high-risk list by State Auditor Elaine Howle, according to a recent article, “State Auditor calls CalSTRS a high risk,” by John Fensterwald - Educated Guess.

The move was largely a capitulation to slash and burn bosses and millionaires who want to preserve their historically low tax rates, business subsidies and lavish lifestyles by imposing austerity on the rest of us. CalSTRS is actually reasonably healthy and able to make payouts to retirees for many years. It is NOT facing an impending catastrophe. In fact, it is not projected to become insolvent until 2042, leaving plenty of time to deal with its unfunded liabilities. Even CalSTRS CEO Jack Ehnes criticized the Little Hoover Commission’s recommendations to slash CalSTRS and called many of its suggestions naïve or impractical. He also pointed out that many of its premises are wrong.

However, this fabricated crisis (or exaggerated problem) is being used to justify benefits cuts for retirees and increased contributions by current employees (equivalent to pay cuts, since they would decrease take-home pay), slashing living standards for both groups. At the same time, these “reforms” would increase income to the state and decrease pressure to increase taxes, something that benefits the wealthy far more than the rest of us.

It is true that there are large unfunded liabilities. However, it is important to understand why and address these fundamental causes, not only to close the gap but to prevent it from growing or returning again later. None of the causes, by the way, has anything to do with teacher greed or luxury. In fact, most teachers receive only $3,000 per month, which is barely enough to live on in most parts of California without other supplemental income.

One major cause was the financial collapse, which resulted in a 30% drop in the value of the CalSTRS portfolio, Fensterwald wrote in his piece. This was an unnatural disaster caused by the greed and, in many cases, criminal behavior of bankers, insurance giants and finance capitalists who, instead of being punished and forced to pay restitution, have received generous taxpayer funded bailouts that have enabled them to grow even wealthier. One obvious solution to any pension woes is to have the rich or, more specifically, bankers and financial giants, pay greater taxes and use the increase revenue to help bail states out of all their financial problems, including their unfunded public employee pensions.

Another major cause of the unfunded liabilities has been states’ refusals to make the required payments on time. Unfortunately, none of the states are in any position right now to pay for their past mistakes (they can’t afford to pay for their current ones). Their biggest mistake was to buy into the anti-tax orgy and allow their own budgets to be decimated through declining corporate and marginal rate personal income taxes.

When we hear pundits demand that the state learn to live within its means, they are implying cuts, and nothing but cuts. However, the metaphor is meant to appeal to working families who must budget according to their incomes. Obviously, when one has a low wage job, one must make many sacrifices at home in order to make ends meet. However, with higher wages or investment income (as is common among the wealthy), one can spend more lavishly and carelessly. The state does not have to slash social programs and job creating spending in order to live within it means. It could (indeed, it must) increase its income, not just to live within its means, but to solve its myriad problems, like funding its pensions, paying decent wages to its employees, improving its schools, caring for its children, elders and infirm.

Pension Reform: A Union-Busting Trojan Horse

Attacking teachers’ pensions is a Trojan horse in the war against teachers unions. Any attack on pensions takes time and energy away from other important battles, of course. However, the attacks also serve to divide and conquer teachers as they generally offer existing and/or veteran teachers a more generous benefit than younger teachers and future hires.

An example of this is SB 27 , which would eliminate spiking – the practice of bolstering employees’ pay in their final year in order to increase their annual pensions. This is generally done by getting a promotion and pay increase or taking on additional work for extra pay. It would also stop double dipping—the practice of coming back to work as a contractor (e.g., substitute teaching) while still collecting a pension.

The bill has passed the Senate, but is being opposed by roughly a dozen public employee groups, including the CalSTRS board and the CTA. They argue that the bill would take away benefits already promised to and earned by existing employees. Proponents say that applying the “reforms” to all employees, current and future, is the only way to get the house back in order. The alternative, which they would probably accept, and CTA would likely concede, would be to apply the new rules only to future employees, effectively creating a two-tiered benefits package in which younger teachers get a much worse stake than their veteran colleagues. This would exacerbate generational tensions that already exist within the union and significantly reduce the chances for effective organizing and mobilization around other important issues.

Wake Up Unions: Brown, Democrats, Not Friends of Labor

Despite spending millions of dollars to get him elected, California Governor Jerry Brown has been going after unions and the working class with almost as much gusto as his Republican cohorts. (Brown, like other Democrats, simply has enough sense to leave collective bargaining and automatic payroll dues deductions alone, thus mollifying union leadership sufficiently to get them to agree to enforce ruling class demands). In addition to the $8 billion in cuts he has already signed into law, which will results in thousands of layoffs and furloughs, as well as increased out of pocket payments for union members’ health care, Brown has been actively working to gut public employee pensions.

Public employee pensions are in fact underfunded and this is a potential long-term problem. However, most of the California public employee pensions have plenty of funds to last at least 13 years See Modern School: Relax, Public Pensions Are Fine. Furthermore, the reason that they are underfunded has nothing to do with bogus claims of worker abuse or overly generous dispensations (the average teacher pension is only $3,300 per month. They are underfunded for two reasons: the economic collapse that caused virtually all stocks and investment funds to decline dramatically and the mismanagement of the fund operators. The calls by the ruling elite to “reform” (i.e. gut) public employee pensions has several self-serving goals: (1) reduce all public spending so that their taxes can be further lowered; (2) force public employees to buy into mutual funds, thus increasing profits for fund managers and brokers); (3) weaken and ultimately crush their unions, so that wages decline further (and their profit margins go up).

The following is from the WSWS

At the end of March, the latest round of budget talks between Democrats and Republicans in the US state of California broke down despite general agreement on cuts to social spending. According to state Republicans, pension reform is the sticking point. Although pensions for public employees amount to only four percent of the state budget, both parties are using the budget crisis to demand deep cuts.
To take the initiative against Republicans, Governor Jerry Brown released seven proposals for pension reform. True to form, they overwhelmingly target the working class, and closely mirror the Republicans’ demands. These proposals come on top of $8 billion already signed into law by Brown earlier this year, including sharp cuts in education and health care spending.
Four of the seven points are aimed at supposed “abuses.” He would end “airtime,” where an employee can pay a fee to have benefits calculated as if the worker had worked for up to five additional years. Brown is also targeting “pension spiking,” a term used attack workers whose wages increase in the later years of employment, resulting in a higher calculated pension benefit. Benefits would be calculated on the basis of a three-year instead of one-year average and only include base pay. The governor would also remove benefits for those convicted of felonies relating to their employment.

To read to full article, please go here.

Alabama’s Tough New Anti-Union Laws—A Boon for Organizing?

Several tough new anti-teacher’s union laws were recently passed in Alabama, in the wake of an ethics investigation of education lobbyist Paul Hubbert. One law bans teachers from serving in the Statehouse. Another bans public employee unions that engage in lobbying from collecting dues through paycheck deductions.

While I oppose the use of members’ dues for lobbying, in fact I oppose lobbying and political action by unions, the laws are clearly unfair as they only target specific members of society. My understanding is that unions which do not lobby can still collect dues through payroll deductions. For those that choose to continue lobbying, the process of dues collection will become much more expensive, time-consuming, and difficult, potentially leading to devastating revenue shortfalls that could even bankrupt the unions.

There is a silver lining on this: Perhaps Alabama’s public employee unions will get out of the politics game, which they cannot win anyway (especially against the bottomless pockets of big business), and go back to the more effective and powerful tactics of organizing, educating and agitating their members and the communities that support them. It is important to remember that buying politicians does not necessarily get workers the laws and budgets that they want. But a well-organized union is a militant one and one that can mobilize quickly to take actions that force the bosses (and politicians) to bend.

Teachers—They’re Coming After Your Pensions

The majority of states are facing enormous budget deficits. Approximately half of them also have large unfunded liabilities in their public employee pension plans (due in part to their refusal to make the recommended annual payments), including those covering teachers. Currently, teacher pensions are protected by state constitutions and payments guaranteed to pensioners.  

Retirement for Public Workers? (Image by Clemson)

However, there is now some movement in Congress toward allowing states to declare bankruptcy, which would allow them to nullify existing contracts, including those between states and public employee unions that had protected their pensions. If successful, it could consign the majority of public employees to a lifetime of toil or a retirement living in poverty. 

The wealthy, of course, would continue to enjoy their large tax breaks, miniscule capital gains taxes, record corporate profits and a retirement living in luxury.

Retirement for the Ruling Elite (wikicommons)