Unions Try to Make It Harder for Local Governments to Make Pension Payments

As unfunded pension liabilities mount, California’s cities and counties are bracing for the additional contributions they’ll have to make to the California Public Employees’ Retirement System in coming years. Meanwhile, unions representing government workers are trying to limit the fiscal options that counties have to help pay for those higher pension payment requirements.

Last year, the California Public Employees’ Retirement System board approved a significant reduction in the system’s assumed rate of return on investments. If investment returns are diminished, state and municipal governments are going to have to make up the difference. The dollars involved are significant. For example, Lodi is expecting its pension contributions to more than double next year from $6 million to $13 million as a result of the change.

“That’s our library, parks and recreation department, a police beat and a fire station,” Lodi City Manager Steve Schwabauer told the East Bay Times.

Enter the unions and Assembly Bill 1250. Recognizing local governments are looking for ways to cut costs and save money, AB1250 places major roadblocks in front of future privatization efforts that local governments might undertake.

Strong opposition from 200 cities and the League of California Cities caused the bill to be amended – and it now exempts cities. But it would still hit county governments, preventing them from choosing their best courses of action. The bill would block counties from “displacing” their government workers. It would force contractors to pay employees at the same level of wages and benefits that government employees in those jobs receive, thus eliminating some of the potential cost savings from outsourcing.

The bill also requires county governments to conduct flawed cost comparisons before contracting out services. The comparisons required by this legislation are designed to stack the deck against the private sector. Under government accounting, many of the “all-in” costs of public service delivery (including office space and overhead) are spread across many different agencies and multiple sections of the government’s budget. This law would say those costs – a county government agency’s overhead costs, for example – cannot be included in a cost comparison with the private sector. Thus, any comparison will feature a radically underpriced figure on the government’s side of a cost comparison with the private sector. This makes privatization look artificially more expensive than in-house government service delivery. It selectively ignores costs associated with public workers. And, if a private company bidding to provide the service doesn’t win a cost comparison under the rules set by the bill, the law would prohibit counties from privatizing the service.

In many ways, the proposal is set up to make decisions of whether or not to outsource services solely on costs, which, ironically, is a criticism often leveled against proponents of privatization. Services shouldn’t be outsourced to the lowest bidder, unions often say. Under this law, a local government would be banned from trying to improve the quality of its services while maintaining the same cost levels.

Many localities are looking to lower costs, improve service quality and find more expertise. There is a wealth of evidence showing that simply making government workers compete with the private sector generate benefits for taxpayers – regardless of whether public or private entities ultimately deliver the services.

In this case, public employee unions recognize the higher pension contributions local governments have to make to CalPERS, the greater likelihood they’ll start exploring privatization opportunities. But the unions’ push to take viable options off the table pits them directly against taxpayers. Not only are California taxpayers being asked to cover over $100 billion in unfunded pension liabilities – for these union workers, they would be asked to tackle the budget problems caused by these pension obligations with one arm tied behind their backs if this law passes.

Hopefully, the state Legislature realizes that county governments need tools like privatization to deal with the fiscal crises many of them are facing.

This column first appeared in the Orange County Register.