Caught: GOP Pension Raids in the Public Cookie Jar

Retirement Fund Raids

Kansas is currently providing a text-book classic example of the way Republican governors and legislatures are assaulting public employee pensions.   Remember, the GOP frames the discussion as a choice (a false choice) between government services and pension stability – NOT as a choice between tax cuts for the rich/corporations and government services.

So, how is Kansas a prime example?   In 2012 Governor Sam Brownback signed a bill to provide massive tax cuts to everyone but employees, some retirees, and individuals whose investments are so modest they cannot afford to create trusts or partnerships in which to shelter their incomes. [LJworld]  And then came the perfectly predictable news, “Brownback’s policies blew $258 million hole in income tax revenue.” [KCStar]  Now that the gap has been blasted in the state budget, what does Brownback propose to do?

“Most Kansas state agencies will have their funding cut by 4% as a way to address a projected budget shortfall. Governor Brownback announced his initial budget actions today.

The Governor will implement an allotment plan for most state agencies, reducing their spending by 4% in the second half of the fiscal year.

In addition, the plan calls to transfer $95 million from the state highway fund and take $40 million from the KPERS fund.” [KAKEtv] (emphasis added)

There we have it. A false choice between a cut in services and a pension raid versus the rollback of those exceptionally generous tax cuts for wealthy individuals and corporations in the state of Kansas.  Were those cuts a bit too generous? It would appear so:

“…the act dramatically changes the Kansas tax system, shifting the income tax burden from the wealthy and prosperous to working people. The act provides that all income of business owners is tax-free (except in the unusual case where a regular corporation is used). Although the act was promoted as a boost to small business, there is no limit on the size of business that can be exempt from tax.

Income of professionals — such as doctors, lawyers, architects, and accountants — practicing in partnerships will be tax-free. In a law firm, for example, the partners will pay no tax, while the clerical staff will continue on the tax rolls.

Income received from partnerships and trusts will be tax-free. Wealthy Kansans who own real estate, stocks, bonds and other investments will simply transfer those assets to a partnership or trust, thereby freeing all their investment income from tax.”  [LJworld] (emphasis added)

There we have it. Instead of admitting that the tax base was demolished and replaced with an extremely regressive tax structure, instead of admitting the tax base is no longer adequate to provide Kansas with essential public services, Governor Brownback is asserting that even more Austerity Political Economics will be applied – rather like announcing the hole in the bottom of the boat is fixed by making it larger. [More at IBTimes]

We might all be a bit more comfortable if Kansas were the only state raiding its public pension funds to cover budget shortfalls.  It isn’t.

The Great New Jersey Turnaround, during which in 2011 Governor Christie made a deal to salvage his budget using a restructuring of public employee pensions as part of the package – a package he is now trying to disclaim:

“The 2011 law shifted more pension costs to public workers, but it also gave them a contract right to full payments from the state budget into their underfunded retirement plans every year. Now, lawyers for Christie are calling that budget obligation unconstitutional, “void and unenforceable” and economically reckless.” [NJ.com]

His own plan is now “void, unenforceable, and unconstitutional?”  It isn’t too hard to figure out that the New Jersey governor can no longer deliver on his promise, so the lead paragraph in the  newspaper should come as no surprise:

“Gov. Chris Christie is asking a state judge to dismiss a flurry of lawsuits challenging a budget veto that reduced funding for public worker pensions from a once-promised $2.25 billion to $681 million.” [NJ.com]

Kansas, New Jersey, Michigan, Wisconsin [Prog] have all experienced raids on the public employee pension plans.  In Michigan pensions were raided to pay for film studio bills. [CapConf]  The raids have been numerous and counterproductive. [Alternet]

Trickled On: Indeed, the stock answer to all budget problems from Republican corners appears to be to cut services and raid the public employee pension funds – Heaven Forefend the solutions would incorporate cutting tax loopholes and raising taxation on the wealthiest citizens and businesses.  America’s most accomplished looters are living their Austerity Economics fantasies on the backs of secretaries, dispatchers, file clerks, police officers, sheriff’s deputies, firefighters, teachers, school lunch cafeteria workers, public health nurses, public hospital employees, city sanitation workers, city bus drivers, state and local highway department employees, emergency medical technicians, and the list goes on…

The messaging coming from GOP/conservative quarters is almost breath-taking.  Public employees are “pigs at the public trough” who are “thieves from honest taxpayers,” they are not the dispatcher in the sheriff’s office who talks a frantic father through the birth of his daughter, or the firefighter who risks his or her life to protect our property.  They aren’t the clerks in the county court house who insure that the records of your lawsuit don’t get lost in the jumble. They aren’t the people in the recorder’s office who insure that they title to your property is legal and proper.  They aren’t the highway department workers out at 4:00 a.m. clearing your way to work.

It’s easy to rail against “faceless, nameless bureaucrats,” it’s not so easy to disparage the efforts of public health nurses, or insult the efforts of the voting registrar’s office.  It’s easy to pontificate against those “faceless, nameless” ones, except that they do have names and faces and they work in comptroller’s offices making sure companies doing business with the state or city get paid.  They have names when they file incorporation papers for you with the state, they have names when they plan and advocate for highway intersection improvements, and they have names and faces when they when they are trying to handle ungodly case loads for children needing foster care.

We have one recent example of what can happen when private interests take over the jobs of public employees.  Just for a moment, remember when the mortgage servicers and lenders tried to do an end run around county recorders?  The electronic MERS system was supposed to speed up the transaction time for mortgage lenders previous to the collapse of the housing bubble, in many cases by-passing the humble office of the county recorder.  How well did that work out?  By 2012 the system got a major smackdown:

“Today, Washington State, which is a non-judical foreclosure state, gave MERS a serious setback. Its finding in Bain v. Metropolitan Mortgage, that MERS may not foreclose in Washington, is not as bad as it sounds, since MERS instructed in servicers to stop foreclosing in its name in 2011. But the reasoning of the ruling is far more damaging. And the court has opened up new grounds for litigation against MERS in Washington, in determining that its false claim to be a beneficiary under a deed of trust is a deception under the state’s Consumer Protection Act (whether that can be proven to have led to injury is a separate matter).” [NakedCapitalism]

This problem wasn’t confined to the state of Washington. Some 62 million mortgages were involved. [Yes]  Problems at MERS became so severe that fewer than 30% of the mortgages had accurate records of home ownership. [NYT]  No one is now advocating the Speed Is Everything privatization of mortgage handling – there’s been too much litigation, and entirely too much confusion. [Wash]   Yes, life was more predictable, litigation less extensive, and confusion less apparent when public employees handled the recording of deeds.

However, even public recognition of previous disasters in privatization, acknowledgement of public service workers as public servants, and attention to what happens when public services are cut in the interest of saving the fat wallets of corporate America, won’t be enough to stop the Great Cookie Jar Raid by the Republicans.

They won’t stop until someone applies a sharp slap on the wrist, or they are reminded that “you shall not press down upon the brow of labor this crown of thorns. You shall not crucify mankind upon a cross of gold.” [WJB]

2 Comments

Filed under conservatism, Economy, Politics, public employees

2 responses to “Caught: GOP Pension Raids in the Public Cookie Jar

  1. I’m going to take a different angle on this. Your arguments are — as always — both true and obvious once pointed out. (I am not sure I’ve ever said to you what I have said about you many times — that you are to economics writing what Isaac Asimov was to science writing. You don’t just get things right, you show people why they are right. People who read you don’t just understand what to think, but why they should think it.)

    Unfortunately the best arguments eventually go stale, especially since people who hear them have heard the response from Republicans, and if they don’t have the good fortune to have read you and seen why the arguments are true, they can inspire a response of “Oh, no, not THAT again!” — particularly with readers who are a little uncomfortable admitting they have been fooled.

    So, let’s look at the inherent conflict of interest faced by the owner of a small or medium-sized business in a place like Kansas — and to simplify, one that does all its business in-state. I don’t think enough has been made about this, that as a taxpayer, he may benefit financially from these insane tax policies, but the results of them hurt his business far more than the lessened business income tax can possibly make up for — and in ways that can’t be redressed by merely spending that income tax reduction ‘wisely’ even if it was attempted.

    Of course, part of this is familiar to all readers of DB, the idea that more money to spend by consumers means more revenue for businesses which is the main thing that grows jobs. But it’s not just that.

    Businesses need good roads to get their products delivered. (It would be fascinating for someone who understands such things — I’ve never driven in my life and the last time I was in a household that even owned a car was sixty years ago, when I was 8 — to figure out if the cost of driving on bad roads, the wear and tear, and things like broken axles or bad springs costs a business more than the savings from not spending the money to keep the roads up.) They need police protection to keep the profits from going into the hands of robbers, highjackers and embezzlers.

    Something even more important is that they need employees, and, theoretically, at least, employees that are able to function at their best. The long term costs of bad schools aren’t easy to figure in — but they affect the quality of employees turned out by those schools for decades — even if they are ‘turned around’ they can’t go back and ‘re-teach’ the students graduated during the bad periods. And ‘quality of schools’ is usually one of the most important factors in attracting new employees.

    But employees don’t have to be just ‘smart’ but also healthy enough to function well. The loss of productivity from a sick employee hurts the company — and if the employee can’t afford the time to go to a doctor, can’t afford the cost of the doctor’s visit, or can’t afford the time for the palliative help that is the best an emergency room can supply (contrary to the idea that ‘the poor, even the working poor, can always use emergency rooms as their PCPs) — then he will just work through his sickness — maybe, if it is contagious, spreading it through the office, store, or factory.

    And it helps if employees are loyal, actually care about their job or their employer, but if they are fuming over their pension being cut — even if the employer only contributed to the cut by supporting the budget cutters — they aren’t going to be motivated to do their best work. (The same for other problems like traffic jams, school problems their kids are having, etc.)

    And none of this deals with the increased chance for a truly catastrophic event. A bridge collapse, a school collapse, a company owned truck crashing — even if only product and not lives get lost — a preventable fire, an employee-made mistake because of illness, ignorance, poor education, or lack of concern — an uncaught embezzlement or a tax error that comes back to haunt the company — any of these or many other similar occurrences could cost a company many times the savings that Brownbackianism gives it — could even cost the owner more than his tax-free income gives him.

    Given the obviousness of all of this, I don’t see why small business owners are not the strongest Keynesians out there. Or why economics writers don’t shape their arguments so they reach both owners and workers, instead of invariably — on both sides — pitching it as part of a destined worker/management battle.

    And, to get back to a point I shot past, I’m surprised that editorialists don’t point out the inherent contradiction and conflict of interest in a policy that makes the owner richer (by making his income tax-free) but hurts the company (and thus his own income) by starving those services that the business needs as much as do the average citizen.

    Whew! (Am I the only commenter you get who can go on as long as you do? Now if only I could do it a tenth as well as you…)

  2. An amen chorus for you🙂