Sunday, September 25, 2016

Solution to false "benefit crisis" isn't cuts- it's better fiscal policies

Jason Stein and Haley Henschel released an interesting, in-depth article in this Sunday's Milwaukee Journal-Sentinel titled "Wisconsin Faces Billions in Retiree Obligations." It's a discussion of pensions and Other Post-Employee Retirement Benefits (OPEB in the budget world), and here is a taste of some of the gaps between the money coming in to a community, and the cost of those benefits for those employees after they retire.
Today, a year of health insurance for just one City of Beloit worker and his or her family costs about $22,500. Keeping just one 52-year-old city police officer who retires today insured until 2029 — the first year the officer would be eligible for Medicare — would cost taxpayers at least $200,000, said David Osterndorf, the chief actuary at the Glendale consulting firm Health Exchange Resources.

"It wouldn't at all surprise me if you're seeing a $250,000 obligation," Osterndorf said. "It's really that kind of a number."..

Over the coming decades, the City of Racine owes a projected $417.5 million in health care and life insurance obligations to its retired and active workers and has nothing set aside to pay them. That works out to more than $5,300 for every person in the city, or three times as much as the city government spends in a year.

Meanwhile, Racine County expects to pay $193.4 million for its retiree health care. The Racine Unified School District projects $70.9 million in unfunded retiree health costs and $3.8 million more for a supplemental pension in addition to the state retirement system.
And this is where you see deficit scolds and other right-wing oligarchs try to claim "Public employee benefits are too expensive, we'll go broke!" Then that "crisis" is used as an excuse to stir up resentment against public sector workers, and pass Act 10-like measures to "level the field" with private sector workers who may not have such benefits.

But there are many problems with this analysis, and I'll start with one simple statement. There is no new fiscal crisis due to public employee benefits. The reality is buried in that first paragraph about workers in the City of Beloit- the "$250,000 obligation" is over the course of 13 years. These huge numbers of "unfunded liabilities" that are frequently quoted make the assumption that they would be paid out to all workers at one time, and that's ridiculous. It's like saying "you owe $200,000 on your mortgage", but doesn't mention that you're paying $1,400 a months for 30 years to pay it off.

Look, I'm not saying the annual payments for these benefits aren't important to keep in mind or that it's not causing a small amount of taxes to go up or crowding out other services that could be funded better. But we've been paying for these bills for decades and will continue to pay these bills for decades, and it's no different than what we've done for Social Security and Medicare at the federal level (and I'll talk more in a minute about how the solution to those fake "problems" are similar). And I'll freely admit that Act 10 provisions helped the bottom line for local governments by shifting the burden off of the government and shoving it onto the workers.

But let's not forget that Act 10 provisions have been imposed on workers without negotiation, has hampered the ability of local and state govermments to get quality employees, and then turned the "savings" into tax cuts and shared revenue cuts destroyed that any fiscal benefits that Act 10 may have given. And that's the real problem here in Wisconsin. It's not that these future liabilities exist in state and local government, it's one part demographics (BOOMERS) but mostly it points back to fiscal constraints put onto local governments by the WisGOP Legislature.
The strategy worked well for these local officials, pushing the bills off until the leaders were long gone. But as baby boomers retire, more of these costs are coming due, pressuring both taxpayers and the citizens who depend on the government for services....

Still, solutions will be a struggle in Wisconsin, where local tax levies are under a state freeze, aging infrastructure is demanding more investment and governments are finding it harder to compete for employees.
With WisGOP legislators continually preventing local governments from being able to raise their own revenues, it encourages those local governments to find "efficiencies" by cutting workers through vacancies and automation. With less workers paying in, it means there is less money coming in to pay for the benefits of these retiring Boomers. Then combine it with the ALEC/GOPs who chose tax cuts and cut shared aids to school districts and local governments, and now you have a real crunch that could have been avoided (and yes, I think many of the ALEC/GOPs are doing this intentionally).

And the solution is relatively simple- FREE LOCAL GOVERNMENTS. Allow them to raise the taxes necessary to pay for these services, if they so desire. This could include reversing the decision of WisGOP legislators to kill the bill that would have allowed local sales taxes to be designated for roads. This also could include cities of a certain size to impose their own sales taxes to pay for police and fire services, not only due to some of these communities having higher crime rates, but also because those bigger communities have events that attract people from outside the city that require more use of services than some bedroom suburb or unincorporated area. We already allow this second option in Wisconsin for tourist towns like Eagle River, Bayfield and Wisconsin Dells under the premier resort tax, so it's not a major change- it's just allowing larger blue-voting cities the same flexibilities that those small towns have.

We also need to get rid of the stupid property tax caps (a typical WisGOP "pose over policy" move that hasn't improved things one damn bit in this state), and allow local governments and their residents to decide the levels of property taxation that they think is adequate. If the state legislature doesn't like the idea of higher property taxes, then combine the caps with adequate shared revenues, but stop the "no-tax and no funding" mentality that is leading to the chronic deficits and continual cuts to services that keep driving away talent from the state. And while you're at it, WisGOP, end the anti-public worker policies that make it difficult to attract qualified people for those jobs (and perversely, drives up the cost of salaries to get those workers).

And there's one other simple option that should be used at all three levels of government - STOP GIVING RICH PEOPLE AND CORPORATIONS TAX CUTS, AND MAKE TAXATION FAIRER.

At the local level- end the ridiculous amount of TIFs and other preferential treatment to corporations that allow them to avoid paying for the city services that they use and benefit from. These costs are increasingly pushed onto everyday homeowners and renters, and the payoff of higher property tax base (which lowers tax rate) doesn't seem to happen nearly enough for this to be a worthwhile strategy for the typical Wisconsinite.

At the state level- Increase fairness in taxation and get rid of exemptions that overwhelmingly favor the rich and corporate. This includes the absurd "Manufacturers and Agriculture" tax credit that has resulted in 11 mega-millionaires getting a tax break of nearly $2 million a year EACH, with no action required to get that write-off. Wisconsin has had 3 straight years of revenue shortfalls, which became an excuse for the lack of shared revenues, which then makes it more difficult to pay for retirees, keading to this false OPEB "crisis".

By the way, these OPEB concerns at the state and local level mirror the garbage we hear in DC about the "trillions in future cost" of Social Security. Let me show you this clip, narrated by a certain former presidential candidate, and remind you how those lies are spread, and how dishonest they are.

And the way you stabilize Social Security and its sister program of Medicare can also be done in a way that would make many of these state and local retirement benefit "concerns" go away.

1. MEDICARE FOR ALL- The biggest costs with these OPEB benefits comes from those bridge years for employees that are between retirement, and not at the 65-year-old limit of Medicare. Not only are those employees not working and taking those benefits, but they're also at an older age where they cost more to insure. Well, if you have Medicare for all, these local and state governments don't have to pay for these bills, now do they?

And even if you phased in Medicare for all to start at age 55, that covers almost all of the health insurance costs for those retirees. It would be a massive tax shift away from state and local government, and would be a huge stabilizer for communities. Oh, and for those workers, who don't have to face the prospect of being screwed out of the benefits they've counted on for decades.

2. SCRAP THE CAP AND EXPAND SOCIAL SECURITY- When I see GOP Congressmen like (mo)Ron Johnson shed crocodile tears about how the government faces a financial crisis due to the future costs resulting from Boomers retiring, I want to scream "PAY THE SAME TAXES AS WE DO, ASSHOLE!" That's all it takes, making rich people pay the same 6.2% Social Security tax that you and I do. In fact, if you expand Social Security to Age 55 (which could be afforded quite easily, if we chose), it increases the options for older workers, and keeps them from being locked into a job well past the time that want to or can work. And if you do it right, this also means public employees don't have to rely their pensions as much, and therefore the future promises don't have to be so high, reducing future liabilities.

So while I appreciate Stein and Henschel's article in Sunday's Journal-Sentinel, as the post-retirement benefits costs are an ongoing issue that needs to be monitored, I also reject the right-wing framing of this being some "scary crisis." It is anything but, and the solutions are relatively easy, they just require a rejection of ALEC "starve the beast" mentality, and actually require an understanding that taxes do indeed have to pay for stuff. Do it right, and communities can stay stable and continue as places with a high quality of life that attracts talent.

I prefer that instead of seeing cities and other places decline, and become places where children, workers and retirees are fighting it out for a dwindling amount of resources, while the rich and corporate steal away and hoard what they have taken from those people. That's the road we're on if we buy into the BS that the Koch/ALEC Axis wants us to believe.


  1. There's just something about editorials like that that always sound the same: "Oh my god, we have to pay people for the work they've done? What gives?"

  2. Read that J-S story this morning. After each paragraph, I'm yelling "universal healthcare!"
    I get that they're trying to explain a relatively wonky issue and not necessarily propose a solution... but how do you spill so much ink on various healthcare cost scenarios and not mention Medicare for all? Anyway, glad you caught that. Hope an editorial board somewhere follows-up along these lines.

    1. You mean the Gannett and MMAC-approved editorial board that gives a paycheck to Christian Schneider? Good luck lufthase.

      And for you and Chuck- Isn't it funny how we NEVER mention that giveaways to corporations and a lack of revenues in general is a major reason behind the lack of funds that we have available to make good on these promises to workers? Corporate media sucks.

    2. I'm honestly reminded of the mentality of a rapist, or someone who is the abuser in a relationship. "We know we're hurting you, and we know we've taken enough, but we're going to do it again."

      For some reason in this state, working class people are unashamedly asked to bend over, repeatedly, while the supposed "job creators" are never taken to task by the media. Not even once.

    3. Well, the fact that WMC announced today that they're buying $250,000 in "independent" TV ads (that'll support Republicans) may explain why the media won't step up and go after the worst corporate culture in America.

      Gannett has especially made "public sector benefits crisis" an ongoing crusade in their papers, and that has to be coming from the top.

  3. And look at what was on Mike Gousha the same day I wrote this-

    1. Milwaukee Mayor Tom Barrett is calling for the ability for the City of Milwaukee to institute a sales tax, to better pay for police and other services.

    2. House candidate Tom Nelson went on the show saying he will protect and extend Social Security.

    I swear I had no idea that they were saying those things yesterday, and I don't think those guys are among my 4-6 readers. But it is interesting to hear.

  4. All these projections of health insurance costs are phony. They calculate what a city would have to pay if all retirees demand a insurance subsidy that they bargained for years ago. But how many retirees have their former employer actually shell out for a Medicare supplemental policy? I have yet to meet a fellow retiree who is not enrolled in a Medicare Advantage plan--and for that, the city pays absolutely nothing. In that case, the future obligation of the city is purely notional.