A New Federal Urban Agenda?

A Pittsburgh newspaper whose op-ed writers are hopelessly enamored of Federal government programs to solve any and all problems now think it would be just grand if the Federal government would launch a new urban agenda. One has to wonder where the writers have been.

Does anyone need a reminder of all the efforts the Federal government has launched over the decades to help cities? Public housing funding, block grants, all sorts of welfare programs, dollars for education programs, major financial assistance for mass transit infrastructure, and so on and so on.

Did all those programs stop Detroit or Philadelphia or Stockton, California and countless other cities from developing very serious or crisis proportion financial problems and massive loss of population? No. The cause of the problems can largely be laid at the feet of horrendously counterproductive policies by the local, state, and national governments. Public sector unions, a breakdown of law and order (in many cities), a collapse in public education quality as a result of educational folly masquerading as reforms (including a refusal to allow publicly funded voucher programs) and political correctness run amok.

The argument that people moved out of cities for greener pastures because they were induced to by Federal policies is getting stale. People left because living in the suburbs was more attractive than staying in the cities. Lower crime, better schools and all the reasons people want to be safe and comfortable.

Perhaps the original exodus was initiated by demographic and social phenomena, but there can be little doubt that the headlong rush toward public sector unionization, the attendant sharp rise in expenditures and tax burdens, runaway crime problems and rapidly decreasing academic performance in public schools encouraged more people to leave. Many cities became increasingly dominated by one party rule-the party being one of statist and government growth inclination and a party with practically no patience with free market capitalism. An almost guaranteed slow downward spiral began in many of the currently worse off cities. The worse they became the more Federal and state financial assistance was forthcoming in some form or other. Economic development, redevelopment, infrastructure, housing, education, social welfare payments, early childhood education, learning programs, jobs programs-the mind boggles.

And still, Detroit bankruptcy happened, Philadelphia is scrambling to open schools this fall because of a lack of money, Pittsburgh is under state oversight and is likely to remain so for a long time, Chicago is closing schools at a breakneck pace because students have abandoned city schools and it has gigantic pension problems looming.

These wounds have been self-inflicted by politicians and policies that can only be described as progressive, liberal, statist, and politically correct. Politically correct is a polite term for trying to force adherence to certain acceptable behaviors and thoughts through intimidation, ostracizing, or attempting to shame or embarrass anyone not subscribing to the latest fad in liberal dogma-dogma that gets more bizarre by the month. Little wonder thinking people want no part in it.

The worst part: calling for a new Urban Agenda is just a dreamed up politically correct scheme to avoid dealing with disasters created by earlier statist schemes.

Will ACA Bail Out Unfunded Municipal Retiree Health Benefits?

Detroit and Chicago have announced plans to offload their unfunded retiree health plans onto the Affordable Care Act exchanges. The Detroit announcement predated the July 18th filing for bankruptcy protection. These cities believe they will save tens if not hundreds of millions in expenditures annually if they are successful in their intentions.



For the 61 largest cities in the nation, Pew Research has found that retiree health obligations under current contract or policies are only 6 percent funded.  In Detroit that number is close to zero.


While the Affordable Care Act requires employers with 50 or more employees to offer health insurance to employees or pay a fine (presumably municipalities are covered, but it does not matter, they almost all provide insurance anyway), the Act does not cover retirees. So cities-and perhaps states-might look at what Detroit is planning and decide to follow suit. Many private companies and some governments stopped paying for retiree health care years ago.


There are two levels of the issue.  Retirees and employees who have worked under contracts promising the health benefits in their retirement presumably cannot willy-nilly be deprived of those benefits by a unilateral cancelation by the employer. Folks already retired would have little incentive to make large concessions since they cannot lose their jobs if they refuse.  Eliminating future retiree health benefits for current employees would require contract renegotiation.  Therefore, for these groups, it would appear bankruptcy of the city might be the only way to have the promised benefits nullified.  Health benefits for retirees and current employees who have no protection of a contract might be offloaded with or without filing bankruptcy.


For new employees who will be on labor contracts, the city could negotiate to eliminate retiree health benefits. And for non-contract employees it could simply adopt a no retiree health benefit policy. There are local Pennsylvania examples.  In the City of Pittsburgh, police and fire personnel hired after 2005 do not get retiree health care the way employees working in those departments and employed prior to 2005 do.  The Port Authority’s largest union (its 2008 contract called for the union and the Authority to “jointly issue a statement with regard to their support for national health care”) has language in its 2012 contract stating that employees hired on or after July 1, 2012 would be eligible for three years of retiree medical coverage, as opposed to previous stipulations that allowed coverage until Medicare eligibility if the employee had 25 years of service or had reached age 55 and had ten years of service.


Government employee pension benefits are sacrosanct in many states to the point of being constitutionally protected.  That is certainly the case in Pennsylvania and Michigan.  Whether Federal bankruptcy judges will use Federal law to set aside state constitutions in the pension issue remains to be seen. At the same time, health benefits for retirees could be more easily dealt with in bankruptcy.  But, for cities looking to dump retiree health benefits for employees and retirees working under contracts containing such provisions, get ready for lawsuits and labor unrest. Bankruptcy or threats of massive layoffs will almost certainly be needed to get meaningful results.

While the offloading of retiree health care onto the exchanges might be appealing to many hard pressed cities and towns, it might be more complicated than they think. On the other hand, if they have a strong enough case to file bankruptcy, retiree health costs might be the trigger to file.


In the larger picture, if cities are able to offload their retiree health promises to the Affordable Care Act, then US taxpayers will get a big share of the tab.  Watching 58 year olds enjoy retirement from Detroit or Chicago city jobs and get Federally-subsidized health care until they reach 65 might not sit well with 60 year olds in the private sector who have no retiree health care until eligible for Medicare and have to keep working and keep paying taxes to subsidize the Detroit retiree’s health benefits. Further, if this strategy turns into a flood of unexpected exchange participants, what happens to the projected expenditures?  Undoubtedly, they will be off. And what if a bunch of private sector companies follow suit?


If a few large municipalities such as Detroit and Chicago are successful in reducing their expenses substantially by pushing retirees into the exchanges, there will undoubtedly be a flood of other municipalities around the country rushing to do the same. Moreover, there could be a number of school districts that could benefit from dumping retiree health benefits.  In short, taxpayers might find themselves on the hook for funding much more health care than Affordable Care Act drafters imagined. 


This is another unforeseen consequence of a health care law with seemingly unlimited ramifications and complications.

Pennsylvania Credit Rating Takes Another Hit

Citing the unwillingness of political officials to make difficult decisions, Fitch bond rating agency has lowered Pennsylvania’s credit rating. This follows Moody’s downgrade last year. Fitch also says that unfunded pension obligations now represent the dominant share the state’s long term obligations.

The failure to address the problem this year compounds the issue and inevitably makes the eventual coming to grips more difficult. There are reasonable proposals on the table including those made by the Governor earlier this year. Fear of offending the powerful unions has hamstrung the Legislature who apparently cannot put the well-being of the state ahead of their fear of being opposed heavily by unions in the next election.

But no one should be surprised. This is the same Legislature that refuses to deal with the money wasting prevailing wage law, public ownership of liquor stores, teacher strikes, transit strikes or any other issue that unions defend with all their considerable power.

While they might congratulate themselves on maintaining their privileged positions, they must be made to understand that in the long run, their opposition to solving any problems they create will make it harder for Pennsylvania to compete. The boost the state has received from Marcellus Shale will not be enough to overcome the obstacles represented by the free market killing behavior of so much of the body politic.

More downgrades can be expected. How many will it take to get Harrisburg’s attention?

A Glimpse into Pennsylvania’s Economic Thinking

The debate over privatization of Pennsylvania’s liquor stores has uncovered a very sad and costly lack of understanding of economics and a very strong attachment to union doctrine.

No statement has been more revealing than the comment by a Turtle Creek resident who said she was opposed to privatization because it would eliminate jobs. First of all, private liquor stores will need employees. How will shelves get stocked or sales rung up or bookkeeping and accounting done without employees? Thus, the resident’s comments show either a complete lack of understanding of how business works or belief that if a job is not held by a union employee it does not count. Either way, the opinion of this person reflects the thinking of a large portion of Pennsylvanians. And that thinking remains one of the biggest obstacles to strong job growth in the Commonwealth.

Ironically, the comment came in a report on polling results that found Pennsylvanians view the economy and jobs as very important while the privatization of liquor stores by comparison was only moderately important. Ironic because of the difficulty in creating a pro-growth environment in a state where a huge fraction of voters are still in thrall to the idea that unions create good jobs and where the government has been a hand maiden to union entrenchment in the economy and delivery of public services.

Sometimes a short response to a reporter’s question encapsulates a boat load of information about an issue. The Turtle Creek commenter has done just that.

Unions Threaten Court Challenge to Governor’s Pension Reforms

With the predictable certainty of robins returning in spring, public sector unions in Pennsylvania have thrown down the litigious gauntlet, promising lawsuits against Governor Corbett’s plans to head off a financial crisis stemming from massive unfunded pension obligations.

The unions are opposed to the idea of having new employees being placed in defined contribution pension plans but they are hopping mad over the prospect of having the formula for calculating retirement benefits changed on the future earnings of current employees. The reform plan calls for the current workers to retain the benefits accrued to date but will lower the rate of payout on earnings from when the law becomes effective through retirement. Obviously, for workers close to retirement the impact will be small but for those with 10 or more years left to go to retirement there will be a significant effect. The longer the time to retirement the greater the reduction in benefits will be.

But what choice does the Governor have? The pension systems for state employees and teachers are woefully underfunded and the state government is facing the prospect of having to allocate additional billions a year of state funds to return the pension funds to a financially responsible condition. These additional payments are money the state does not have unless it raises taxes substantially.

There is another option of course. The state could cut education and other funding as well as its own employment levels sufficiently to cover the pension payments. Or it could renegotiate contracts to lower dramatically current compensation including health care, vacations, salaries, sick leave, etc. And it could urge school districts to do the same. Absent any meaningful concessions, the layoffs should begin.

The proposition must be that the excessively generous pension and other benefits promised by irresponsible governments and school districts in the past must not be allowed to wreck the current economy by forcing ever higher taxes to sustain the promises. There must be some willingness on the part of the unions to recognize the plight taxpayers are facing. If they persist in their unwillingness to make any concessions, then there is little choice but to slash the size of payrolls to compensate. If they decide to play hardball, the state and school districts must be ready to throw down their own gauntlets.

Union Membership Skids and Job Growth Shifts

At the national level, union membership fell in 2012 from the 2011 reading, tumbling from 11.8 percent of the work force to 11.3 percent. Interestingly, union membership was down in both the private sector and among government employees.



Private union membership dropped from 7,202,000 to 7,037,000 pushing the percentage of workers in unions from 6.9 to 6.6 percent.  In the public sector, union membership dipped from 7,562,000 to 7,328,000 lowering the percent unionization from 37 to 35.9 percent.


Membership in government unions remains greater than private sector membership even though there are five times more private sector employees than public sector workers.  The bulk of public union membership is accounted for by local government where about half of government workers are employed and where over 40 percent of workers are in unions. By contrast only 27 percent of Federal and 31 percent of state employees are in unions. Local government percentage had the biggest loss in union membership, sliding from 43.2 percent in 2011 to 41.7 percent in 2012.


Last year’s slide in private sector unionization was a continuation of a decades’ long trend. It is important to bear in mind that the recent declines have come despite policies of the current administration and rulings by the National Labor Relations Board designed to assist in unionization efforts along with rulings extremely favorable to bargaining units.


Percentage unionization fell in many industries including construction, manufacturing, private education, private health care, information, retail trade and transportation and utilities. The financial sector saw a slight rise in unionization but remains below two percent of employees.   Meanwhile, the professional and technical services sector, holding at 1.2 percent union membership in 2012, ranks among the very lowest unionized sectors.


By occupation, the management category, production workers and the education and training categories saw significant declines in percentage union membership from 2011 to 2012.


How did unionization fare in Pennsylvania and other states?  Total union membership in Pennsylvania (private and public) fell from 779,000 in 2011 to 734,000 in 2012 resulting in a drop from 14.6 percent union membership to 13.5 percent.  The breakout of changes to public and private union members are not available as yet but, given the slide in local and Federal jobs over the past year, there is reason to suppose that the number of government union members in Pennsylvania was also down somewhat.


But the biggest drop in union membership would have been in the private count. Overall modest private sector job gains resulted from a mixture of weakness in construction and private education that was offset somewhat by strength in finance, leisure and hospitality, and professional and technical services.  Education and construction have relatively high percentages of unionization while the faster growth sectors have very low percentages of unionization. Thus the mix effect could account for some of the decline. However, there was almost certainly a slippage in unionization across many industries.


Meanwhile, many other traditionally strong union states also experienced major declines in the percentage of unionized workers. One of the biggest drops occurred in Wisconsin where the percentage fell from 13.3 to 11.2.  Maryland saw unionization slip from 12.4 to 10.6 percent, West Virginia was down from 13.8 to 12.1, Illinois down from 16.2 to 14.0 percent and Connecticut plunged from 16.8 to 14.0 percent. In short, the 2012 decline in union membership was widespread across industries and occupations and was quite large in some of the most heavily unionized states.


Thirty-four states had membership decreases, some quite substantial as noted above. Fifteen states and the District of Columbia saw unionization rise, including a small uptick in California and some significant gains in traditionally very low unionized states in the South and Midwest.


Moreover, the unionization decline hit all working age groups. The least unionized age group, the 16 -24 group, had the smallest drop in percentage of employees in unions, 4.4 percent to 4.2 percent. The biggest decline occurred in the 45-54 age group, 14.9 to 14.0 percent.


Recent data for union membership are not available for the Pittsburgh region although there are figures for 2010.  At that time, 10.8 percent of percent of private employment were union members and 50.3 percent of public workers were in unions.  The Pittsburgh Metropolitan Statistical Area (MSA) unionization percentages are significantly higher than national numbers for both the public and private sectors.


Noteworthy for Pennsylvania and the Pittsburgh MSA, the long term trend of private union membership is downward but in recent years has fluctuated up and down year depending on the state of the economy. Generally speaking, when there is a strengthening of job gains, unionization has notched up, and when the economy softens, the unionization percentage drops.  Nonetheless, private sector unionization in Pennsylvania has fallen from over 15 percent in 1990 to under 10 percent-almost certainly caused in large part by the enormous decline in manufacturing jobs in the state. No doubt Pittsburgh’s private unionization has followed closely the same pattern, but was made even more dramatic by the huge declines in airline employment following the loss of hub status at Pittsburgh International.


Assuming the general pattern of unionization by industry nationally holds to a substantial degree in the Pittsburgh region, that would mean construction, manufacturing, local, state and Federal governments, commercial airlines, utilities, and telecommunications will have well above average private sector levels of percent union membership.  At the same time, sectors such as finance, professional and technical services, food services (which represent the bulk of the leisure and hospitality sector employment) that have very low levels of unionization nationally are likely to have much lower than the Pittsburgh MSA average private sector unionization percentage.


As we have noted in a recent Policy Brief (Volume 13, Number 2) there has been a slowing in overall job growth in the MSA but as that has happened, the employment picture has been bolstered by strong gains in professional and technical services, finance, and the leisure and hospitality sectors.  Indeed, these three sectors all set record high employment readings in late 2012. Meanwhile, construction and local government jobs have fallen and manufacturing has flattened out after a small upturn in growth a year or so ago.  Private education and health care job gains have also slowed from their rapid pace of recent years.


This is an interesting development to say the least. Industries with quite low unionization have shown strong gains over the last year while some of the most heavily unionized sectors have been on a downward track or slowing.  Coincidence? Perhaps. But it is significant that sectors that are very dependent on taxpayer funding are losing steam.  And why not?  For one thing, government employment compensation, driven by union contracts, pensions, and health care along with inefficiencies created by work rules have pushed public employee spending beyond what taxpayers can afford-or wish to pay for. Prevailing wage rules lead to public construction costs that are far above those set in a free market system of construction contracts.  That means taxpayers are getting less production than they should for what they are spending.


One of the biggest perennial unaddressed problems in Pennsylvania is the inordinate power wielded by unions, particularly government unions, over law and policy making.  Power that has produced the right of teachers and transit workers to strike, creating enormous bargaining leverage that is allowed in very few states and that list is shrinking. This power has also produced some of the most labor favoring binding arbitration statutes in the country. 


The mutually beneficial relationship between elected officials and government employees is exactly the kind of problem that Madison warned against in the Federalist Papers, i.e., government taking sides with or promoting a special interest against the interests of the general public.

Union Membership Still Skidding

At the national level, union membership fell in 2012 from the 2011 reading, tumbling from11.8 percent of the work force to 11.3 percent. Interestingly, union membership was down in the private sector and among government employees. Private union membership dropped from 7,202,000 to 7,037,000, pushing the percentage of workers in unions from 6.9 to 6.6 percent. In the public sector, union membership dipped from 7,562,000 to 7,328,000 and the percent unionization declined from 37 to 35 percent.

Government union membership remains greater than the private sector membership even though there are more than five times more private sector employees than public sector workers. The bulk of public union membership is accounted for by local government where about half of government workers are employed and where over 40 percent of workers are in unions. By contrast only 27 percent of Federal and 31 percent of state employees are in unions. Of course, with the military excluded from union membership, the Federal percentage unionization is lower than state and local percentages.

How did Pennsylvania fare? Total union membership (private and public) fell from 779,000 in 2011 to 734,000 in 2012 which led to a drop from 14.6 percent unionization to 13.5 percent. The breakout of changes to public and private union members are not available as yet but, given the slide in local and Federal job over the past year, there is reason to suppose that the number of government union members was also down somewhat.

But the biggest change would have been in the private count. Overall modest private sector job gains resulted from a mixture of weakness in construction and private education and strength in finance, leisure and hospitality, and professional and technical services. Education and construction have relatively high percent unionization while the faster growth sectors have very low percentages of unionization. Thus the mix effect could account for some of the decline. However, there is almost certainly a general slippage in unionization across many industries.

Many other strong union states also experienced major declines in percent unionized workers. Among the biggest drops occurred in Wisconsin where the percentage fell from 13.3 to 11.2. Maryland saw unionization slip from 12.4 to 10.6 percentage, West Virginia down from 13.8 to 12.1, Illinois down from 16.2 to 14.0 percent and Connecticut sliding from 16.6 to 14.0 percent.

In short, the decline in union membership is widespread and is quite heavy in some of the most heavily unionized states. This has happened notwithstanding the enormous effort of the NLRB on behalf of organized labor to promote membership and union powers.

There can be little doubt that heavily unionized states, particularly those with high numbers of public sector unions, are politically blue states. Unionized workers are a major political force, especially those with government jobs. Their interests lie with politicians will support spending that protects their jobs and compensation.

Pittsburgh Schools Head Asks For Ideas

Staring at a nightmare of intertwined problems seemingly of Gordian Knot proportions, Pittsburgh’s Superintendent issued a plaintive call for help in the form of ideas about how to solve the conundrum. Joining in a non-helpful way, the Post-Gazette weighed in editorially praising the school for not raising tax rates for twelve years, ignoring entirely the tremendous ongoing decline in enrollment over the period and the increases in other revenue that have allowed the schools to keep spending well above $500 million.

Here’s an idea for the Superintendent. Send to the Board a proposal to set aside $10 million to create a thousand $10,000 scholarships that can be used by parents who wish to send their children to non-public alternatives. With the current spending of over $21,000 per student that would represent a savings for taxpayers. And if the recipient students perform better academically, which most probably will, it is a win-win for taxpayers and students. If demand for scholarships is greater than a thousand, arrange to expand the program year after year.

But here’s the problem that will have to be confronted. With declining enrollment, school employment, including teachers, would be reduced. No doubt there will a lot of screaming by the unions and their supporters about the cuts. If that happens, the parents of school children in the City will be able to see what is really important to the Board-their kids’ education or kowtowing to unions.

The Board will be under intense pressure from unions and the indefatigable defenders of the public education monopoly who have long since forfeited any moral claim to their anti-choice positions. Years after year and decade after decade miserable academic performance and wasted potential of so many students lives. Where do they go to get back the opportunity derived from a good education?

The truly remarkable part of the story is that the union and the defenders of public monopoly education apparently feel no responsibility or remorse. For the unions, it is understandable if not defensible. They are about their members and their power. Students are and have always been secondary. Maybe some individual teachers would like to put students first but they toe the union line when they have to choose between the students and union loyalty.

Bottom line, the Superintendent should make this such an important priority that she will threaten to resign if the Board refuses to consider the idea.

Chicago Teachers’ Strike: Union Power Run Amok

In a scenario remarkably similar to those played out all too frequently in Pennsylvania schools and transit agencies, strikes and threat of strikes are being used in Chicago to boost public employee pay, benefits and working conditions. Teachers walked off the job this morning making good their threat of two weeks ago.

Like a bad relationship, this is a gift that keeps on giving. The right of teachers to strike in Illinois, one of the three leading states for teacher strikes and one only a handful that still permit strikes, should be a wakeup call for taxpayers around the country. Demands of public sector unions are the primary force in the rapidly growing number of state and local governments facing financial chaos.

Chicago teachers already earn far more than the average Chicago household, $71,000 to $47,000, and receive substantially more benefits. Yet they are demanding a 30 percent pay increase over the next four years in addition to job security guarantees. All this against a backdrop of a school district facing nearly a billion dollar deficit by the need of the school year. Where will the money come from? State taxpayers that just recently saw a huge increase in their income tax rate? Local property taxes? This in a state with horrendous financial problems of its own.

What’s even more deplorable is the abominable academic performance in the public schools in Chicago where only 15 percent of fourth graders are reading at fourth grade level and only 56 percent of students ever graduate. It is little wonder that 50,000 of the City’s 400,000 students are enrolled in charter schools-where there is no strike and students are going to school.

The taxpayers are almost certain losers in this episode, the way they always are in Pennsylvania public sector work stoppages. The shame is that people with the power to shut down vital public services have learned that enough is never enough. And experience tells them the taxpayers, the students and the parents of students can just shut up and take it. And they will take it until they grow a backbone strong enough to vote out the legislators who insist on protecting public sector unions.

Given the Mayor’s strained relationship with the union and his opposition to the demands of the teachers, it will be interesting to see how the President reacts and which side he will support. Will it be loyalty to his former chief of staff or go where the votes are-the teachers unions as representative of his most formidable voting bloc?

Union Members Show Dislike for Dues—and Unions

Following Wisconsin’s enactment of legislation that removes the automatic check off of union dues and requires them to be voluntary on the part of unionized employees, large percentages of members have chosen not to pay the dues and have been removed from union membership rolls. According to the Wall Street Journal, membership in AFSCME, the state’s second largest public sector union, has dropped from over 60,000 in March 2011 to just over 28,000 currently.

Clearly, union members who were so demonstrative in their attacks on Governor Walker and the Republican members of the Legislature for enacting the removal of forced union dues are quite comfortable in not paying those dues.

Besides the removal of forced dues deduction from paychecks, Act 10 also requires that each bargaining unit hold a vote to retain the union as their bargaining unit. In addition, the right to strike has been taken away. Taken together these changes have stripped the unions of the ability to hold taxpayers hostage and as a result have made union membership far less economically beneficial to the employees.

Wisconsin has shown the other traditional heavily unionized states that the people and the taxpayers can stand up to the power of public unions. When will Pennsylvania politicians join this brave movement and emulate their brethren in Wisconsin and Indiana who are leading the way in restoring sanity to the balance of labor negotiating power and returning freedom to labor markets?