Crony Capitalism in America: Public Sector Union Scandals Begin to Leak

Hunter  Lewis
Posted: Jan 26, 2014 12:01 AM
Crony Capitalism in America: Public Sector Union Scandals Begin to Leak

Many reporters reflexively support unions, and prefer not to acknowledge scandals related to them, especially at the local and state level. Nevertheless, troubling news accounts have emerged:

- A New York City sewer engineer is paid $775,000 ($173,000 regular annual rate plus back payments from settlement of a labor dispute).292

?? – A Chicago union leader takes a leave of absence in 1989 from the city’s sanitation department, where he earned $40,000, to work for a union. He is then allowed to “retire” from the city at age 56 with $108,000 pension. (The rules say that the individual should waive a union pension to do this. In this case, the official reportedly does not waive the union pension. The city knows this, but grants the city pension anyway.)293

- Another Chicago labor leader is allowed to return to the city payroll for one day in 1994, so that he can then take a formal leave of absence to work for a union. His city pension is $158,000 a year.294

- 16 psychiatrists working for California are paid $400,000 or more. One of them, with a degree from an Afghan medical school, takes home $822,302.295

- A California prison nurse earns $270,000 a year, principally through overtime.296 Some prison guards earn over $300,000.297

More than half the lifeguards working for Newport Beach, CA earn more than $150,000 in 2010. One earns $203,481. A lifeguard labor union spokesman comments: “We have negotiated very fair and very reasonable salaries. . . . Lifeguard salaries here are well within the norm of other city employees.”298

This union spokesman might have also explained that these compensation levels are comparable to those of California legislators, which averaged $140,000 in 2010, excluding extras such as free cars, free gasoline, obscure per diem reimbursements, and even exemptions from traffic tickets or having to pay on toll roads, a perk shared by other state employees as well.299 Attempts to force California legislators to reveal their total compensation and perks are always left to die in committees so that no one has to record a vote on them.300

- In Massachusetts, four state troopers are paid more than $200,000 and 123 over $150,000.301

- In New York City, firefighters may retire at half pay after 20 years. The city has 10,000 retired police officers under 50 years old. Pension benefits for a new retiree in 2009 average $73,000, often with a $12,000 year end bonus, and usually include medical insurance worth $10,000. All is exempt from state and local taxes.302 Public sector benefits have grown at a rate twice that of the private sector since 2000.

-In New York State, the law requires that any new bill must be evaluated for its effect on the budget. It is revealed that calculations are being made by an actuary who has been fired by the city (note: such firings are notoriously difficult) and whose chief clients are—who else?—the unions. Not surprisingly, he finds little or no budget impact to union benefit increases.303 Also not surprisingly, New York State has the highest employee pension costs in the country.

- New York lawmakers help the unions in many ways that go beyond directly increasing wages and benefits or relaxing work rules. For example, in 2010 the legislature seeks to allow local governments to borrow from the state pension fund in order to meet required payments to the same fund. This is done so that the localities can pretend to be meeting their inflated pension obligations.304

- States and localities also help the unions organize more workers and then collect the dues for them. In Michigan, a new union formed by the United Auto Workers and the American Federation of State, County, and Municipal Employees is called the Child Care Providers Together Michigan (CCPTM). There is a problem, however. Since the child care providers targeted by the union work for themselves, who will be the designated employer against whom to organize?

- The new union solves this problem with help from the state of Michigan and the US Department of Health and Human Services. A newly created shell corporation called the Michigan Home Based Child Care Council is granted the right to bargain collectively as a “public employer,” even though none of the child care providers works for this entity. In addition, the Michigan Department of Human Services helps out by collecting and remitting union dues by withholding a portion of the US government checks provided to low income parents for childcare.

- These checks are paid to the parents, not the child care providers, and are meant to help the low income parent find child care in order to take an outside job. No matter. Some of this money is now siphoned off to the new union. Where does this money go and how is it used? As one child care provider, now enrolled involuntarily in the union, has said, “We have a deduction taken from a check, and where that goes, I have no clue. There’s no communication [from the union].” Nor is this Michigan story singular. Fourteen states are facilitating the unionization of child care providers in one way or another.305

- In suburban areas of Chicago, some school administrators earn over $400,000 a year.306 Teachers in the city itself earn an average of $76,000 in wages (before benefits), far more than the average family. Yet the union turns down a contract offering a 4% a year salary increase and goes on strike at the beginning of the fall 2012 school year. A teacher in Michigan says that she “would not recommend to my pupils to become a teacher” because a proposed pension change would prevent her from retiring with pension at age 47.307

Only 15% of fourth graders in the Chicago system are deemed proficient in reading and 44% of high school freshmen do not graduate.308 Massive teacher contracts not only spell out what the teacher will do every moment of the day; they also make it virtually impossible to fire a teacher. Between 1986 and 2004, a mere 36 of 95,000 public school teachers in Illinois are fired.309 The result is that education cannot change or improve. Unlike other industries, stagnation is mandated. Some educators and parents try to escape the straightjacket by founding charter schools. But the unions pursue them relentlessly, opposing their founding or insisting, as the DC teachers union has, that charter teachers be forced to join the union and operate under its contract. Steve Jobs, Apple Corp. founder and political “progressive,” concluded before his death: “Until the teachers’ unions are broken, there is almost no hope for education reform.”310

The American Federation of Teachers (AFT) collects $211 million in dues in 2010; the National Education Association (NEA) $397 million. With state affiliates included, the total approaches $1 billion. The AFT president makes nearly half a million, and almost 600 officials at the two unions earn over $100,000. $297 million is donated to political campaigns over a decade—with total political spending much higher. It is hard to say how high the spending really is because members do not receive complete information.311

- Not all unionized school employees are teachers, of course, and this creates its own set of demands.

For example, the Chicago school system does not allow kids to bring lunches from home, unless they have a note from a doctor. Why? Is it because school lunches are so nutritious that no kid should miss them? No. The school lunch program of the federal government is a nest of crony capitalism, with a pizza classified as a vegetable to please the pizza makers, and meat irradiated to ensure that the unsold Iowa beef dumped at Iowa Senator Harkin’s insistence is not putrid.

No, the reason for the Chicago rules is different. If students could bring their own food, there would be fewer jobs for the school lunch employees affiliated with the super-powerful Service Employees International Union. The union wants more of these employees, not fewer, and also insists on benefits and wages that in many cases are further bankrupting the schools.312

The same union also wants more and more sick days for its workers (just for the protection of the children it says), plus more dinners and summer meals for children. Naturally First Lady Michelle Obama is working closely with the union as she promotes an expanded school lunch program.313 Meanwhile 35% of the Chicago school cafeterias have failed at least one city health department inspection. In one case, the staff had to be replaced, which was no easy administrative feat, before the school finally got a clean bill of health.314

- North Carolina does allow home packed lunches, but preschooler’s lunches must be checked and approved by school authorities. In one instance, a lunch consisting of a turkey and cheese sandwich, a banana, apple juice, and chips is rejected and the child is given cafeteria chicken nuggets instead.315

- In 2012, a bipartisan task force, co-chaired by respected New York Democrat Richard Ravitch and former Federal Reserve Chairman Paul Volcker, takes a close look at Illinois’s state finances. Commenting on their work, New York Times reporter Mary Williams Walsh notes that

Illinois has the lowest credit rating of the 50 states and has America’s second-biggest public debt per capita, $9,624, including state and local borrowing. Only New York State’s debt is bigger at $13,840 per capita. But Illinois has not been able to use much of the borrowed money to keep its roads, bridges, and schools in good working order.

Nearly two-thirds of the Illinois state government’s $58 billion in direct debt consists of bonds the government issued to cover retirement payments for workers. . . .

Yet despite all that borrowing, Illinois’s public pension system is still in tatters. In fact, its total pension shortfall is conservatively estimated at $85 billion. . . . The task force said that further reductions in pension benefits appear inevitable, though legally difficult.316

Commentator Walter Russell Mead says about this:

Illinois politicians, including the present president of the United States, have wrecked one of the country’s potentially most prosperous and dynamic states, condemned millions of poor children to substandard education, failed to maintain vital infrastructure, choked business development and growth through unsustainable tax and regulatory policies—and still failed to appease the demands of the public sector unions and fee-seeking Wall Street crony capitalists who make billions off the state’s distress.

Blue [state] politicians speak eloquently and often sincerely about their desire to help the poor. They speak beautifully about the need for better schools. . . . But these beautiful sentiments have less and less to do with the actual policies they pursue.317

- For the fifty states as a whole, unfunded public employee benefit liabilities are at least $1.26 trillion, according to the PEW Center on the states.318

- As financial pressures mount on states and localities, some try to escape the union chokehold by hiring part-time workers, by giving workers “contractor” rather than “employee status” to avoid benefits, and by paying minimum wages to the new hires. In this way, the union system creates two classes of employees, one favored and one far less favored.319 One municipality, Camden, New Jersey, choked in crime and unable to pay the large sums demanded by the police union, responded by disbanding its entire 230 member police force and asking the county to provide a new 400 member force at lower wages.320

In all these moves, there is a great deal of uncertainty. Can governments, for example, revise retirement benefit provisions of contracts? The unions say no. Famed attorney David Boies, in a Rhode Island test case, says yes: “There is no contract. Even if there was a contract, the state, pursuing the public interest, has the right to modify contracts.”321 Time and courts will decide who is right.

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