Public Sector Austerity: The Unsaid

State and local government employment has been falling, and the propaganda machine has noticed. “There is something historically different about this recession and its aftermath: in the past, local government employment has been almost recession-proof. This time it’s not. Going back as long as the data have been collected (1955), with the one exception of the 1981 recession, local government employment continued to grow almost every month regardless of what the economy threw at it. But since the latest recession began, local government employment has fallen by 3 percent, and is still falling.” And why is that? Tax cuts? Republicans in Congress? “Note that a Republican was president after the 1981, 1990 and 2000 recessions. Public-sector austerity looks a lot better to conservatives when they’re out of power than when they’re in it.”

Austerity, huh? So state and local taxes, not just federal taxes, have been falling as a share of the economy? And therefore we deserve less in public services in return? Is that what is going on? I’ve seen several reports implying this is so. But let’s look a little closer at what this austerity constitutes.

Measured on an annual average basis, according to the Bureau of Labor Statistics, state and local government employment fell by 501,000 from its 2008 peak to 2011. It went from 19,748,000 to 19,247,000, a decrease of 2.5%. It is likely that when annual average data for 2012 is released early next year, it will show another decline.

You get a different picture looking at data from the U.S. Census Bureau on the membership of U.S. state and local government pension funds.

According to this source, the number of active members, those state and local government employees who are working and accruing pension benefits, fell by 100,900 from 2008 to 2011, from 14,627,900 to 14,526,550.

Assuming these figures, and the BLS figures, are correct, two things are implied. Of the 19,247,000 state and local government workers who were employed in 2011 as per the BLS, 75.5% were members of pension systems and earning benefits as measured by the Census Bureau. And of the 501,000 public employees who were no longer working in 2011, those who were not earning pension benefits accounted for 400,000. Perhaps because most among those laid off, or not hired to replace those who left, were low seniority workers who had not yet become part of the pension plans, or workers in jobs that were not eligible for pensions.

Meanwhile, according to the U.S. Census Bureau, the number of inactive members of pension funds, those who have earned some pension benefits but were not yet eligible to collect, increased by 496,300, from 4,449,400 to 4,945,800.

This is consistent with the layoff of many low seniority employees who are far from retirement age. When public employee unions cite very low figures for the average pension collected, remember that this includes workers who only worked for the government for a few years and only earned the right to a very small pension, not just full career public employees.

Here is the kicker. While there were 501,000 fewer state and local government workers providing services, according to the BLS, the number of retired public employees receiving pension benefits increased by 883,000, from 7,724,000 in 2008 to 8,607,160 in 2011. That's an increase of 11.4%. So the number of current AND former state and local government workers combined went up, even as services (as reported by the media) were slashed across the country.

And yet the hundreds of thousands of additional retirees taxpayers are being required to carry are seldom never mentioned as a factor in the reduction of services. How much do 883,000 additional retirees cost?

Well I can tell you what they should cost. They should cost nothing. If the retired state and local government workers were only receiving what they were promised when they were hired, and taxpayers set aside enough money to pay those benefits while they were working, then the accumulated funds ought to be enough to pay for their retirement. But of course that isn’t what happened.

In New York City for the second time, but in other places for the first time. Places that are not used to paying vastly higher taxes for inferior and degraded services, like NYC residents are.

How much should residents of the rest of the country be required to sacrifice to pay those benefits, benefits that have often been retroactively enhanced? Bankruptcy courts will be deciding this throughout the country over the next decade. Will they use the New York City standard, as it was applied in the 1970s?

First raise your state and local tax burden to the highest in the nation. Then cut public education spending, other than on retired teachers, to a level far below the national average. In exchange, tell the teachers that in all but a few “special deal” schools the influential get into, they have no obligation to do their job, to the point where several generations of children are by and large not educated. Cut the number of police officers working to the point where the murder rate is double the national average, the robbery rate is many times the national average, and lesser crimes are not even investigated. Let large part of the community burn down. Let bag ladies die in the street unassisted. Let the infrastructure fall apart, until some parts of it are lost for decades or forever. Eliminate school sports, close libraries, and let garbage pile up in the parks and the streets. Have the tax burden rise so high and the quality of life fall so low that one million people flee.

But pay those debts, pensions, and retiree health insurance. That’s what New York City was required to do back then. That’s what New York City will end up doing again, after having once again retroactively enhanced pensions and run up debts. and the longer it puts off paying what will be required, the worse it will be.

I wonder how this will play in Peoria. And in the suburbs and the Sunbelt.

A couple of news stories from the last week or so. From the New York Post : “a bulletin from the New York State Teachers Retirement System suggests that taxpayers and students are in for a nasty one-two punch. Schools, the retirement system recently announced, will have to fork over as much as 16.5 percent of their payrolls next year — a whopping 40 percent jump — to keep the pension fund sound. That means less money for upstate and suburban students. (New York City runs its own pension system for teachers; its turn will come soon enough.)” 

Actually, New York City’s teacher pension fund is in far, far worse shape than the state fund that covers teachers elsewhere in New York State, and the amount of money that is being sucked out of the classroom is already far, far higher. Though not yet enough.

A few days later there was another announcement. From the New York Times: “Six years after New York’s highest court forced the state to substantially increase financing to poor school districts, the group that won that ruling is threatening a new lawsuit unless Gov. Andrew M. Cuomo and the Legislature come up with billions of extra dollars for those districts. Saying the state is at least $5 billion behind on a 2007 financing agreement that followed the court ruling, the group, the Campaign for Fiscal Equity, contends that Mr. Cuomo’s aid cuts, and his cap on property tax increases, have once more exacerbated the financing gap between rich and poor districts.”

“In a sharply worded letter to the governor and legislative leaders sent this week, the group, which was started by parents and education advocates, said ‘the state’s underfunding of our public schools is so severe that it amounts to a violation of its constitutional obligation to provide New York’s children with adequate education resources.’” So the schools don’t have enough money?

“The governor has long lamented that New York State has the highest per-pupil spending in the nation with classroom results that are not commensurate. But battles over education aid are perennial in Albany, and a coalition of smaller city school districts is already suing the state, claiming they are not receiving adequate funding.”

But we know from the data that the level of spending in these school districts is off the charts. And the courts actually held that funding needed to go up in New York City.  There as a second lawsuit for other school districts in New York State.  And the same New York State courts that found that the state had short-changed New York City’s schools dismissed that lawsuit, because the spending everywhere else in the state was sky high. And now it is sky high in New York City too.

So why is it not enough? Anyone else connect the dots?

Perhaps school districts in the rest of the state did some quick calculating of what they will have to do to pay for those pensions. Including those districts that took advantage of the state legislature’s great idea – borrow the money you owe to the pension fund from the pension fund and pay it back later! Now they say they don’t have enough money. Yes they do. The problem is where it goes. And that decision is irrevocable.