Sometimes you have to say no … even to your friends
By David H. Landon
It’s difficult to say no to your friends. It’s difficult to say no to people you respect that are performing jobs that are both dangerous and vital to the community. Yes … it’s difficult, but sometimes it can’t be helped. Senate Bill 5 and the effort to repeal it through state Issue Two is such an example. When, next Tuesday, I vote “Yes” on Issue 2, which is a vote in favor of Senate Bill 5 (SB5), that’s exactly what I will be doing. I’m saying no to my friends who are police officers, firefighters and public servants. It’s uncomfortable to be on the other side of this issue from those friends, but as I review the bleak financial picture facing Ohio and its nearly 5,600 political subdivisions, I believe there is no other choice.
Ohio’s economy continues to struggle. Unemployment rates still hover around 9 percent with nearly 535,000 Ohioans out of work. Going into this current biennial budget there was an $8 billion dollar deficit. Last March the Republican-controlled legislature passed SB5 as part of the effort to bring spending in Ohio under control.
One area of concern that SB5 attempts to address is employer (read this as taxpayer) contributions to public employee retirement funds. Ohio’s taxpayers contribute a significantly higher percentage towards public employee retirements than do taxpayers in other states. SB5 requires that public employees contribute not less than 10 percent of their retirement and 15 percent of their health insurance premium. Compared to much higher contribution rates by employees in the private sector, that seems like a reasonable request.
Recently one of the nation’s top state budget watchdog groups, State Budget Solutions, released a report demonstrating the dramatic extent of unfunded liabilities facing state government public employee pension funds. Cities and states in the U.S. have long-term unfunded liabilities totaling as much as $2.8 trillion in public employee benefits. The study showed that the increasing cost of supporting the unfunded liability required to pay government employee pensions is the real driver of the budget crises in the states. As a non-government employee, if your 401K tanks because the market reacts to trouble with the euro or the debt crisis in Greece, then your retirement funds take a haircut. If the state employee pension funds have a bad year in the market, it’s a different story. Built into the union contracts is a guaranteed rate of return on these public employee retirement funds. If the market loses 10 percent for the year, the public employee pensions still must make their guaranteed rate of return. Eventually, it’s the tax payers who must make up the difference.
Overly generous provisions in public contracts that have accrued over the years have put governments in a financial bind. According to the study, states with the largest pension liabilities are California, Illinois, New Jersey and Ohio. That’s just one of the reasons SB5 was necessary and needed. The bill allows bargaining on wages but bans it for health coverage, pensions or staffing levels.
For example take the State Teachers Retirement System (STRS). The STRS is essentially broke. It possesses only 59 cents for every dollar in liabilities, leaving a $38.7 billion hole. In Ohio an employee working in the private sector can expect a 6.2 percent employer contribution to Social Security and a 4 percent 401K employer contribution, totaling 10.2 percent. This level is considerably lower than both STRS’ current 14 percent and the 16.5 percent contribution rate unions are requesting. In fiscal year 2010 STRS received $1.5 billion dollars from the taxpayer. Whether or not Issue 2 passes, Ohio is facing fiscal insolvency in its public employee pension program. Taxpayers will be left to bail out a fundamentally flawed retirement system in need of serious reform.
There are other parts of SB5 that unions understandably find onerous. Any time legislation potentially takes away a source of revenue from a group, they’re not going to be happy. SB5 makes paying union dues optional and up to each employee. Taking away part of the income from dues reduces the money that unions have to lobby and to make political contributions with. They are understandably upset about this, but the reality is that not every public employee supports the political actions of American Federation of State County and Municipal Employees (AFSCME). An employee should have the option of not contributing to an organization that doesn’t reflect his political point of view.
SB5 also eliminates binding arbitration. Binding arbitration under current law is available only to those public employees that fall under the public safety classification. SB5 places the final decision of contract negotiations back with the people who were elected to make decisions on spending: the elected officials. We have had binding arbitration for public safety workers in Ohio since 1983 when the Celeste administration rammed it through the legislature. SB5 returns to the elected officials responsible for the financial welfare of a community the authority to make the final decisions on salary increases.
There was a story recently that demonstrates the problem of when elected officials become overly generous with benefits for public employees. When SB5 was about to pass there were 11 deputy sheriffs in neighboring Clark County who opted to retire. The accumulated sick leave for these 11 deputies under the terms of their contract with the county cost Clark County taxpayers over $1 million dollars. SB5 will limit the payout for sick leave to 1,500 hours of accumulated time. Based on the current law the sick leave pay-out for these deputies averaged more than $100,000 per deputy. As nice as it is to reward our friends with lucrative payouts, we simply can no longer afford it.
Sometimes you have to say no … even to your friends.
David H. Landon is the former Chairman of the Montgomery County Republican Party Central Committee. He can be reached at DaveLandon@DaytonCityPaper.com.