Republican-American and Pension Reform – 1/22/2013

Posted by Bob on January 22, 2013 under Daily Blogs | Be the First to Comment

Tuesday’s editorial in the Waterbury Republican-American highlights a fundamental problem effecting Connecticut municipalities’ ability and resolve to achieve fiscal sustainability in local government.  You can link to the first few sentences of the editorial, but you can not access the entire article electronically unless you are a subscriber to the paper and obtain a username and password.  You may also simply buy the paper at numerous locations throughout the area.

The editorial, which like most in print media fails to provide a name to its writer, is entitled “Another Blow to Taxpayers”.  It criticizes the passage of the recent Naugatuck Firefighters collective bargaining agreement (“CBA”) because of the increased incentives to the existing pension plan which were bargained in exchange for an end to the defined benefit plan for all new hires.  The editorial also references a short term, health care benefit for those retiring within the next five (5) to ten (10) years without referencing the long term changes that will drastically reduce retiree health care costs for both existing and new members in the future.

One section of the editorial cites the change to the pension that increases the percentage of income a retiring firefighter can earn prior to twenty five (25) years of service without stating how many firefighters  (or police officers with similar provisions) have ever taken normal retirements prior to the twenty five (25) year requirement under the old percentages (none in recent times according to our Finance Department).  Of the two (2) retiring firefighters mentioned in the editorial, one was eligible for regular retirement prior to the CBA.  The other would have been eligible this year for full retirement, but chose to leave less than a year before twenty five (25) years at a slightly lesser percentage of income (74% rather than 75%).  Had the CBA not been approved, it is likely that particular firefighter would have stayed the extra months to retire at the regular benefit (75%) anyway.  Both will be replaced by firefighters earning the new defined contribution pension plan at a three and 75/100THS (3.75%) percent employer match.

The editorial references the previous blog post regarding the CBA, which provides significant details about the agreement.  After each and every significant agreement with our municipal bargaining units, I post a lengthy statement about the specifics.  Members of the media are able to see the good and the bad of each agreement, and are able to use all content contained therein as if it was a traditional press release.  We attempt to be fully transparent, and include detailed fiscal analysis to explain the costs and cost-savings in the short and long term.

It is no secret that we have focused significantly in the past four (4) years on ending the traditional defined benefit pension plans that have and continue to burden Naugatuck taxpayers.  A writer from the Republican-American praised our administration in an editorial dated September 22, 2010, for our efforts (once again, you need to have subscriber access to read the entire editorial).  At the time, the Republican-American stated that our administration deserved “support and congratulations for their efforts – and so do those municipal unions that have recognized the long-term problems posed by extravagant pensions…”  Waterbury Republican-American editorial “Reality Check in Naugatuck”, September 22, 2010.  The subject of the editorial was our efforts at the time to change the municipal pension structure by switching new hires to defined contribution pension plans for new hires.  At the time four (4) of the Borough’s seven (7) municipal unions had made the change.

The approval of the Firefighters CBA concludes the change to defined contribution pension plans for all new hires for each of the Borough’s seven (7) municipal collective bargaining agreements.  A municipal defined contribution pension plan is similar to the 401 (k) plans that have been offered in private industry for many years.  They drastically reduce costs over time, and is something for which the Borough should have bargained years ago.  The Firefighters CBA was similar to what was done with the Borough’s Police collective bargaining unit in separate agreements involving an early retirement and a new agreement significantly addressing health care.  The current Republican-American editorial mentions the switch to the defined contribution plan, but is critical of the changes made to achieve it.  The  writer argues that “it is unlikely that Naugatuck residents working in the private sector have such a sweet a setup.  The new contract, like most public-employee-union agreement, serves taxpayers poorly.” Waterbury Republican-American editorial “Another Blow to Taxpayers”, January 22, 2013.

On this comparison to private industry, the Republican-American is correct.  In the private sector, non-unionized companies can impose pension changes on employees unilaterally.  Municipalities in Connecticut, however, are governed by the rules of collective bargaining.  If agreement can not be reached, management and labor are left to the current and complex system of binding arbitration.  When public sector management attempts to be too ambitious in its desire for change, arbitration decisions against a municipality often cost taxpayers more money based on a side’s “last best offer” and the significant costs associated with the process.  This is not a perfect system, and is certainly very different from how things work in the private sector.  It is, however, a system that is governed from Hartford, and to a lesser extent federal labor law originating from Washington; not in Naugatuck.

Given this system, we at the local level attempt to negotiate agreements to the best of our ability within the system currently in place.  We use one of the state’s most qualified legal firms (Siegel, O’Connor, O’Donnell and Beck, P.C) specializing only in management labor law; not local lawyers.  We engage one of the leading health care insurance consultants, Dr. Joseph A. Fields, of Brown and Brown Insurance; to assist in navigating through the ever-changing health insurance industry.  All of our collective bargaining agreements are analyzed by the Borough’s Finance Department, led by Comptroller Wayne McAllister; and our Director of Human Resources, John Lawlor.  As stated above, information both good and bad is presented to the elected officials who vote on the agreements, the media and the public.

For years I have read editorials from the Republican-American criticizing public sector pensions as unsustainable.  In some parts of the United States (particularly California, see the linked article from the New York Times), such statements have become prophetic as communities tinker on the brink of municipal bankruptcy as they can not meet underfunded and extravagant pension benefits.  While it is true that change in the private sector would come quicker and without concession, we do not live in that world or control the system that governs the public sector process.  

In the collectively bargained environment there are limited strategies for management to exercise when negotiating.  One frequently used option is to focus on wage freezes for one (1) or two (2) years of a collective bargaining agreement while ignoring health care and pension costs and/or pushing the expenses for them into future years.  Wage freezes make great headlines, but fail to solve the long-term, structural costs which jeopardize the financial health of a municipality.  Ask a member of a bargaining unit if they would accept a wage freeze in exchange for maintaining low health care contributions and/or lucrative pension benefits.  Another is to gradually attempt to change existing benefit structures over time, while still offering traditional defined benefit and health care plans.  Firefighters remaining in the Borough’s defined benefit plan will double their pension contribution by the third (3rd) year of the new CBA (from 4% to 8%).  

The Borough’s strategy in recent years has been to recognize that we can not sustain the benefit structures for future generations of municipal workers and change pensions and health care benefits (for retirees and existing employees).  These changes do not create immediate savings, or the corresponding opportunity for politicians to take credit for short-terms solutions while not telling the public what the price tag will be in the future.  

Unfortunately changing the way we have negotiated labor contracts for many decades does not yield immediate benefit, and is not without cost.  At some point, however, the cycle most stop; those in government need to think beyond the next election; and communities have to look to sustainability.  The alternative under the current system is to simply bury our heads in the sand, and push the problems down the road.  When media organization’s frame this important discussion in a one-dimensional context, it unfortunately provides some decision-makers with the incentive to avoid making the difficult choices necessary to reduce long-term expenses.  

While I often disagree with the editorial staff of the Republican-American, I respect and welcome honest debate and ideas that force us to challenge our beliefs.  The world, however, is seldom black and white; and public discussions of complicated topics such as public sector pension reform are better served when facts and issues are presented in context and with consistency.  Today’s (1/22/2013) editorial presents a simplistic analysis of a detailed and nuanced collective bargaining agreement, some two-plus (2+) years after praising the same strategy it now criticizes.


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