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Utah Gov. Gary Herbert and Steve Malanga of the Manhattan Institute break down how governments are fighting growing union regulation.
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If you I bet I negotiate with my boss over my salary and pension -- -- says yes or no.
Government workers do that to.
But their negotiation is a little different because their boss doesn't really pay the -- their boss is a politician.
Who is likely to be long gone by the times say the bill for retirees medical care comes -- The result is that politicians make so many promises to government workers and as a result.
Cities and some states are trillions of dollars in the red.
So where will tomorrow's politicians get the money to pay them would pay what they promise well they'll hit you taxpayers raise your -- -- The -- probably -- some workers they'll say oops sorry no more money left to pay for.
For years you have to pay your own retirement or health care.
The my favorite expert on the subject is Steve maligned -- Manhattan institute.
And he points out the two states have made Smart changes to prevent this -- bomb from going off once you taught their governor is Gary harp Gary Herbert so.
Governor Herbert what do would you -- you -- Well number one we try to think long term and you talk it's not just short term it is long term for a lot of reasons so we moved from -- defined.
Benefit to defined contribution.
Oh my god please let it know what I don't say those words -- Steve uses them all the time and they are very important but I know lol you right now when you hear defined benefit.
Years switching off so.
-- let's try to explain what you're talking about and maybe that will make it more interest things so.
Defined benefit means you politicians.
Define a benefit and you say.
This is what we're gonna pay you in the future could retirement income you're gonna receive some kind of insurance policy some kind of guaranteed.
Benefits you received after you retire until you die we promise he'll.
As opposed to what Steve you encourage states to switch to is.
Well he's he used the term defined contribution it's also -- -- would -- -- 401K.
Okay right that's where you define what the money is that you're gonna give the employee -- In an account so that they can have it towards their retirement and they build that up over the top but once you make that contribution the taxpayer's liability ends at that point it's not unending.
And -- -- the worker it's not like Social Security or Medicare which is also promised this is -- this is real money this is.
Money is taken out there is actual money.
The fifteen year -- got absolutely yeah.
And it's so it's not subject to the whims of politicians while.
The other one is suggest a promise.
Hot air I would say and there's a good chance overtime admitted that there won't be the money.
To pay -- although I would say that the hot air is actually kind of risk for taxpayers.
Because in many states -- -- good courts say this is guaranteed so if you come up short over twenty or thirty years.
It's the tax -- will have to has to make up and we're already seeing.
Tax rates go up around the country at least in part because of this obligation the politicians have not follow through on.
But Rhode Island which had six billion in unfunded liabilities may change but the three billion.
Utah also released Tuesday she and workers get mad workers not like it you know it.
In the beginning there is concern about what am -- losing.
And of course we explain to them unless we make some changes.
This system will in fact go bankrupt.
And those who are entitled to the benefit will not receive it young people coming in the new employees -- but could bankrupt the system.
So we end up having a two track system that kind.
Keep our promises to the first was that have a defined benefit they give it choice to those -- -- coming on board to get back acts rarely sound.
And it in -- are your pension system was already in such good shape.
Fit all you had to do was make and -- new deal for the new employees he didn't have to mess with the old plant that's right we were about a 100%.
Before that Great Recession hurt.
And you know you invest in funds -- and and diminish this was such a great.
Diminishment of the overall money we lost about six billion dollars.
We have to take corrective action to make sure that the state actuary sound and -- did not affect become a boondoggle for the taxpayer.
-- saved but -- cause the exception.
-- absolutely public employees tend to resist.
Any kind of change.
They do so in part because they're union leaders tell them.
That 401K style plans don't work.
Even though for instance I'll give -- an example among teachers in America 50% of teachers in America leave the percent profession within five years.
If they had a -- 01 K they would take all their money with them.
But in a defined benefit plan to get very little if you leave and switching go to another job so basically this kind of plan is perfect for people who are gonna stay in government for their entire lives that's.
Exactly right.
But it's awful for the taxpayer in the unfunded liability at the moment is four and a half trillion dollars.
Up from two trillion just in 2008.
Yes it keeps rising here's the thing.
It this in this is the irony forty states say in the last two years they have done reform to their pension system.
Yet the liabilities the debts that's what they are the debt keeps growing because most of the reform is extremely superficial unions screen.
When -- -- they fight this tooth and tell us that this is this is.
I don't think they would like to have their own pot of money to hold on -- well I certainly would like to have my own pot of money hall on the on the other hand.
If I were a worker in California and I had a system where after thirty years I can retire with 90%.
-- my salary which is what you get in California if you're -- public safety worker.
-- -- -- aren't are true this true.
Part private sector unions.
Don't get away with this -- they can't have unfunded liabilities what I what what's the difference between the private sector in the government competition.
But the thing is that it that that first of all they're all there were our.
A lot of the about 50% of private workers at one point had defined benefit.
Companies however.
Started going bankrupt as a result of this company's had -- -- cost items as a result list so they switched.
And unions try to resist.
But in a competitive marketplace.
Where you're in the private sector you can go out of business.
The difference is that government doesn't go out of business instead the tax Payer is the backstop all of this and that's part of the problem.
Fit FDR said about.
Organizing all government employees should realize that the process of collective bargaining cannot be transplanted into the public servants.
The very nature and purpose of government makes it impossible.
This is FDR.
The great conservative -- great concern that they don't yet today it seems conservative today.
The conservative today.
You get political points for having done this now or are absolutely we -- political points to is good principles.
And that public understands that the public does understand it and we are one of only seven states and just got a rating from New York.
Here just in the last Friday.
That triple A bond rating from all three rated names is a triple triple one of only seven states and it makes a difference when we go forward.
-- -- -- Businesses and people look for certainty.
And predictability going for what -- they wanna have a bill on another Israel money that they want and all the were balanced her budgets the employs one and although there's something real.
And and one of the selling points to change our process was to say look flat.
You can take money which you when you leave whenever you leave you don't have to just -- to tell you dies it can be passed on your children in Chicago Rahm Emanuel said if we don't fix our pension system.
You won't get people to move here you won't get businesses to move here because they know that what they're doing is they're buying into this enormous debt.
So I think what the governor says about the competitiveness of states in terms of the business competitive news we're going to see pension liabilities as a part of that in the coming years.
Thank you Stephen -- cash and.
