The War on Pensions

Dave Weigel reports in Slate that Republicans are determined to wage a battle in 2011 to slash public employee pensions. And it might work:

What could the pension fund people and the public sector unions be so worried about? Right-leaning Reuters columnist James Pethokoukis laid it out for them. If the states aren’t bailed out, they’re going to have to start cutting budgets. If there’s total transparency about pension funds—and voters are already in the mood to shave the benefits and numbers of public workers—then that’s where you can cut. Republicans might even be able to pass legislation that would allow states to declare bankruptcy, which would move the pension debate from politics to court, zapping all of the unions’ leverage. “From the Republican perspective,” wrote Pethokoukis, “the fiscal crisis on the state level provides a golden opportunity to defund a key Democratic interest group.”

In a nutshell, state pension problems are twofold. First, states haven’t been keeping up the necessary contribution levels over the past decade. Second, the recent financial collapse has hit pension funds hard. Pension funds always look bad during recessions, and they look especially bad now. So if you create forecasts based on the current depressed values of the funds, as pension critics like to do, they look like disaster areas. In reality, if you use more reasonable forecasts, public pension funds are stressed, but not quite the monster black holes that Republicans are making them out to be. Dean Baker has a bit more on that here.

Politically, though, this could work anyway. In the past, taxpayers accepted the tacit tradeoff between low pay for public employees and high pensions. But public employees aren’t low paid anymore. The bulk of the evidence suggests that the upper echelons (doctors, lawyers, managers) are underpaid compared to comparable private sector employees, but the lower echelons (clerks, mechanics, trash collectors) aren’t. And those are the workers that most taxpayers think about. The model public employee for most people isn’t a public defender, it’s a unionized DMV clerk or a unionized public school teacher. Both are pretty unsympathetic figures these days.

(I was talking to a union guy a few weeks ago for a story I’m writing, and he mentioned with a grimace that whenever he talks to white collar types about unions, they always bring up teachers unions. They don’t necessarily hate public sector unions generally, but they loathe teachers unions, which are the ones they actually come into contact with on a regular basis if they have kids in school. That loathing then seeps into their attitude toward every other union as well.)

This promises to become a pretty serious battle. For Republicans it’s got everything: the tea parties will love it, it provides an alternative to raising taxes, and as Pethokoukis says, it helps defund a key Democratic interest group. What’s not to like?

And Democrats are going to have a tough time with it. You can make a pretty good argument that pension funds aren’t as badly off as their worst critics say, but the fact remains that they’re in bad shape. And hitting up recession-weary taxpayers for a tax increase to make them solvent is going to be very, very unpopular. This could very well turn into a latter-day version of the tort reform war, which also (from the GOP point of view) combined an ideological win with a chance to defund a major Democratic donor group. It could get pretty ugly.