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Commentary By Steven Malanga

Public Perks Become a Laughing Matter

Governance, Economics Civil Justice, Tax & Budget

Saturday Night Live has long helped to define the country’s political mood and to shape it at the same time. Chevy Chase’s portrait of President Ford as a stumbling, bumbling figure didn’t do Ford’s 1976 election bid much good. Dan Aykroyd’s portrayal of a chastened Jimmy Carter apologizing that he couldn’t fulfill all of his campaign promises helped to define the later years of the Carter presidency. And Tina Fey’s imitation of Sarah Palin has managed to make the former Alaskan governor both a butt of jokes and a bona fide celebrity, depending on the circles you travel in.

So I assume we’ve reached some sort of tipping point in our attitudes toward the perks enjoyed in the public sector after the SNL skit this weekend entitled the “2010 Public Employee of the Year Awards.” Hosted by one Desmond McCoy, a transit worker from Oakland who announces he has retired on full disability because he’s permanently paralyzed (even though he’s clearly ambulatory as he saunters on the stage), the skit celebrates government employees who are “just like workers everywhere except for the lifetime job security, guaranteed annual raises, early retirement on generous pensions and full medical coverage with no deductibles, office visit fees or co-payments.” Wow. This is a long way from Phil Hartman playing Bill Clinton visiting McDonald’s to snarf up French fries.

Still, SNL is undoubtedly tapping into a mood that’s become widespread among voters and is reflected especially in state and local budget battles this spring. After a 2009 budget season in which government employees were largely spared much pain thanks to federal stimulus money and a host of tax increases and fiscal gimmicks that helped balance local budgets, 2010 is shaping up as the year when elected officials, many up for reelection and under pressure from taxpayers, are cutting back pension plans, worker contracts and benefits in an effort to deal with new round of budget shortfalls.

Some of the impetus for reform is no doubt coming from New Jersey which, because its gubernatorial election occurs the year before mid-term congressional elections, is often considered a bellwether. Chris Christie’s election as a Republican reform running against high taxes and rich public employee prerogatives was telling, but what was perhaps even more telling is that his opponent, Democratic incumbent Jon Corzine, managed to get just 45 percent of the vote in a state in which his party has a 700,000 edge in voter registrations (an independent who also ran on public sector reform garnered 6 percent of the vote).

The Democratically controlled state legislature in N.J. has already passed one round of benefits reform, signed by Christie, which eliminated part-timers from the state’s rich pension system, bases retirement earnings on the last five years of service (instead of the last three) and requires state employees to contribute 1.5 percent of salary toward their health care. Tellingly, the Senate President in Jersey is a former private sector union leader who has said that blue collar workers can no longer afford the taxes needed to keep benefits so high for public workers.

Pension reform is now on the table in a number of states. Illinois, which by some measures is suffering from the largest unfunded pension liabilities of any state, passed legislation earlier this year which rolls back the retirement age for state workers from 62 to 67, though it only applies to those entering the system as new hires.

The new law also bases pensions on the last eight years of earnings, rather than the current four years, and prohibits public employees from drawing pensions from more than one source. The measure followed an investigative series in the Chicago Sun-Times last year which found the pension bill for state, Cook County and the city of Chicago pensions were upwards of $800 million a month.

Pension costs are a central part of campaigns in states with the worst fiscal outlooks. Meg Whitman has made reform of California’s system a key part of her campaign to be governor in a state where a recent study estimated the three major public employee pension funds to be a half trillion dollars underfunded. Whitman is touting a plan to move employees to a defined contribution plan. Her likely Democratic opponent, Jerry Brown, has slammed the plan an effort “to put everyone into the loving embrace of Wall Street.” That clearly sets out the turf between the two.

Staggering pension costs have even sparked calls for reform from public union allies. Los Angeles Mayor Antonio Villaraigosa used his job as a union organizer for teachers as a jumping off point for his political career, but with his city under budget pressures so severe he’s worried about running out of cash, he’s calling for scaling back public pensions. No wonder. Pension contributions will consume nearly a fifth of L.A.’s general fund this year.

Although pension costs are a long-term problem, public sector pay increases, including automatic gains locked in by contracts, have helped drive budget deficits and are now a target for cuts to help balance budgets. When Christie announced an $833 million cut in state aid to local school districts, he pointed out that if teachers took a one-year pay freeze and agreed to contribute a small amount to their health plans, districts could make up the entire lost state subsidy. But only a handful of the state’s 591 school districts won such concessions from their teachers, which sparked anger in Jersey, where private sector pay declined 1.8 percent last year. That prompted a school budget revolt where voters in 60 percent of towns rejected school budgets.

In Chicago, meanwhile, school officials are trying to leverage the fact that private wages declined 1.2 percent last year to get teachers to accept a one-year wage freeze, which the system estimates would save $169 million. In New York, Gov. Paterson used emergency powers of his office to delay a 4 percent wage hike for state workers under the rationale that the state was in danger of running out of money (in fact, the state has delayed sending out tax refunds for the same reason). Paterson is lobbying to make the freeze permanent, but the legislature is balking. In Louisiana Gov. Bobby Jindal has already signed off on pay freezes for 90,000 executive and rank and file workers to deal with a $1 billion budget shortfall in a $25 billion budget.

There is clearly a voter desire for such savings. In New Jersey a poll taken after Christie’s election found 61 percent of voters backed public-employee layoffs, and fully three-quarters supported a wage freeze for state workers. But you don’t need polls to tell you that when even Saturday Night Live is getting in on the act.

This piece originally appeared in RealClearMarkets

This piece originally appeared in RealClearMarkets