June 10, 2015
There is a widely circulated story in policy circles that public sector unions are to blame for underfunded public pensions. The story is that the unions effectively make deals with politicians they support to get generous pensions and leave the funding for people to deal with in the future.
In fact, there is little evidence to support this story, as many states with weak or no public sector unions rank near the bottom in pension funding, while some states with strong unions, like New York and Wisconsin, have pensions that are near full funding. Nonetheless, the story is still widely believed.
A ruling by New Jersey’s Supreme Court yesterday should help to kill this story once and for all. The basic issue was whether the unions could hold the governor to an agreement where he had agreed to make payments into the pension funds in exchange for concessions from the workers. The court said no, the governor and the legislature could not be bound by any deal.
In other words, whether or not required payments are made to pensions, at least in New Jersey, is entirely up to the legislature and the governor. The unions have no voice in the matter.
It should be pretty hard to blame the unions in this situation, but that doesn’t mean folks will stop doing it.