by | BLOG, BUSINESS, CONSTITUTION, GOVERNMENT, RETIREMENT
There’s another issue with regard to the crushing liabilities of public sector pensions. Several states, such as California and New York, have a constitutional amendment that grants pension entitlement to public sector workers. In other words, once a person is working for the government and they have a defined benefit plan, they are entitled to keep it and transfer it, even if the contract runs out.
This kind of constitutional amendment says it’s a constitutional requirement to pay employees for their pensions. Now, what it should mean legally is that any pension any employee is earned, it is a constitutional obligation. But that’s not the problem. It has been redefined by the leftest political structure and judiciary to mean something else, which from an economic literacy point of view, that something is incompetent. They have defined it to pay the pension not only for what they’ve earned but also include an obligation to continue that level of funding into new contracts, even those that aren’t signed on yet. So even if a contract is over, it’s not really over. And their employer can’t renegotiate it.
In contrast, in private industries, if an employer terminates a defined benefit plan by a negotiation with a person or whatever, they can’t reduce what they already promised, but there’s an amount that is calculable and then that’s it. Whatever you’ve earned in a contract is specific to that contract. When the contract is over, you have to negotiate a new contract. The terms can be the same. The terms can be different. You may suddenly get offered a contract with no medical benefits when you once had medical benefits. By and large, contracts tend to be the same but there is no obligation to have anything in a new contract that existed in a prior contract.
But in the government world in some places, you have to give the person the same pension benefits in a new contract. Therefore, that is a whole additional cost factored into what an employee earns. The fact that he is required to be given that benefit in the future is an additional cost that is never factored into the equation. As a result, we have enormous forced sums of liabilities that add to the unreported sheets. Yet the municipalities say they are entitled to keep that same level of funding, which is economically illogical and illiterate. The crux of the problem is that the amendment is interpreted in a way that interferes with the ability for two parties to contract by giving one party extra benefits. This is both unjust and financially negligent.
by | ARTICLES, ECONOMY, FREEDOM, GOVERNMENT, POLITICS, TAXES
The Teachers Union in Pennsylvania is putting self-interest ahead of the schools.
A recent article in the WSJ highlights the problems of the Philadelphia school system trying to navigate the process of staff reduction. The unions claim that seniority is the only criteria for cuts, while school administration wants other choices. Pennsylvania is one of a few states that grants teachers a right to strike, so this fight is one which is sure to be long-suffering.
The schools point out to the unions that since “a 2001 state takeover spurred in part by major financial problems and woeful test scores, the system has been governed by the School Reform Commission, a five-member board jointly appointed by the governor and mayor. State law permits the commission to suspend some parts of the school law, including seniority protections for employees”. This is the point of contention with the unions.
While the article is decent, it misses a very important part related to contracts and negotiations. The teacher contracts expired in 2013. Therefore, those teachers who are complaining that there is no right other than seniority — because that right exists in their contract — are operating as if the contract is still valid. It certainly is not. Despite the fact that their contracts expired nearly a year ago, they still claim rights under that contract. This is patently false; when a contract is over, it is over -they have the right to nothing unless it is negotiated in a new contract.
If the school administration is struggling financially, there is nothing to stop them from say, offering teachers 15% – 25% lower pay than what they made in previous contracts in order to get back on their feet, but even more importantly, to get them in line with what similarly qualified individuals are earning in the private sector. There is no inherent right to a higher salary or even the same benefits as they had previously earned. The private sector does not operate this way. The public sector cannot either, if it is to remain solvent.
Teachers don’t automatically deserve work rules, pensions, and pay other than what the private sector pays, especially in a down economy. A teacher strike shouldn’t be over a 10-15% assumed increase based on past contracts and situations. The harsh reality is that the schools simply cannot afford the current teacher pay and pension/benefits packages. And it should not have to pay those salaries and benefits – the realities of life, the job market, and the economy have set compensation levels for similarly qualified individuals at substantially lower than Philly teacher levels. It is only teacher union and political cronyism that has allowed this fiasco to exist.
The Pennsylvania school system would do well to be reminded that, because teacher contracts are expired, they are not bound to continue them on previous, overgenerous terms. Their obligation is to provide their services in return for certain compensation and benefits during that time. But that’s it — they are only covered for the period of the current contract.
This point is important because there really can be no part of a negotiated contract that promises any compensation or benefits for services rendered after the end of the contract period; otherwise, a locality (Philadelphia in this case) runs the risk of continuing runaway financial obligations for which it cannot properly budget and it hamstrings future body politics not even in office yet.
Financial difficulties have already plagued the system once, in 2001. Unfortunately, the wake-up call seems to have been missed. Slapping down a $2 cigarette tax for the schools is not going to save the system. It’s merely a band-aid when a tourniquet is needed.
Overhauling the pay and compensation packages of Philadelphia teachers would be thoroughly beneficial. Even though it may be politically difficult and unpalatable, budget reform and deficit reduction will naturally follow once compensation levels have been stabilized and brought in line with their private counterparts.
