“Plan Design Is No Bargain” by John Edward

John Edward, a resident of Chelmsford who earned his master’s degree at UMass Lowell and who teaches economics at Bentley University and UMass Lowell, contributes the following column.

The City of Lowell has a $2.7 million snow removal deficit because of an unexpectedly harsh winter. Just do not pay the bill! If the City has an outstanding loan just pay it back at whatever interest rate and payment schedule suits the budgetary constraints.

Voters in the Town of Chelmsford recently rejected a $9 million proposal for a new fire station. Perhaps voters would have been more inclined to vote yes if they knew the Town stood prepared to pay the contract winner less than the awarded bid price if money is tight.

Most people would agree these are bad ideas. Violating contracts signed in good faith is not an appropriate form of “fiscal discipline.”

Last year, both the City Council in Lowell and Town Meeting in Chelmsford approved submitting home-rule petitions to the State Legislature that would allow local officials to unilaterally impose changes to municipal health-care plans. Unilaterally means without renegotiating union contracts.

Times are tough for local governments. Health care costs are a major burden. However, as Governor Patrick recently said, “we don’t need to attack public sector workers to make changes for the people of the Commonwealth.”

The Governor, and many others, have denounced attempts in Wisconsin and Ohio to take away collective bargaining rights. Yet, Lowell City Manager Bernie Lynch, Chelmsford Town Manager Paul Cohen, and now the Massachusetts House of Representatives want to do just that. The House just passed a bill allowing local governments across the state to unilaterally dictate important benefits like co-payments and deductibles.

A properly functioning capitalist system requires a government that stands ready to enforce contracts. A properly functioning capitalist system requires collective bargaining, not a government that stands ready to violate contracts.

As John Kenneth Galbraith explained over a half century ago, capitalism requires both competition and countervailing power. Wal-Mart offers a countervailing power to manufacturers that often operate with limited competition. The court system may provide a countervailing power against retailers should they exploit or discriminate against “associates.” Health insurers are supposed to offer a countervailing power against health care providers.

In 1937, Congress passed the Wagner Act giving unions the right of collective bargaining. According to UMass-Lowell labor historian Robert Forrant, labor viewed the Wagner Act as their “Bill of Rights.” In The Economics of Collective Bargaining, the author describes what developed as a “social contract” between labor and industry.

Collective bargaining rights firmly established labor unions as a countervailing power. We should not break a social contract with unions. We should not repeal the worker’s Bill of Rights. We still need organized labor as a countervailing power.

We should also acknowledge that the proposed measures do not solve the real problem with health care costs. The home-rule petitions, and the legislation, would grant Lowell and Chelmsford the power of Plan Design. Plan Design allows municipalities to unilaterally change the health insurance benefits offered to employees, or force workers to join the state’s Group Insurance Commission (GIC). Plan Design can save cities and towns money by shifting the burden to workers and by taking advantage of economies of scale offered by a larger insurance pool such as the GIC.

The United States spends more than twice as much per capita on health care as major countries in the world. Extending economies of scale with a single-payer system would reduce costs for the entire economy. It works very well for other nations with health care systems rated superior to ours.

The government intervening to take away basic worker rights does not seem to bother people. Yet, opponents brand meaningful reform like a single-payer system as socialism.

Anti-government sentiments also fuel a bias against public service employees. Misleading statistics and unfortunate cases of abuse convince people that government workers are overpaid.

Adjusting for level of education, most public service employees in Massachusetts make much less than private sector workers. For example, Massachusetts state and local employees with a college degree earn only 85 percent as much as their private sector counterparts.

Government workers do receive some benefits that are better than those received in the private sector. Health care is an example. On the other hand, private sector workers receive dramatically better retirement benefits. According to analysis performed by the Massachusetts Budget and Policy Center, after factoring in non-wage benefits, college-educated public service employees are still paid much less than their counterparts in the private sector.

State and local governments should not default on debt or violate business contracts. The state already reduces their retirement contributions by an estimated 50 percent by denying state workers access to social security. Local governments should not be balancing their budgets by denying contractual promises to public service employees.

Labor unions should cooperate and bargain in good faith to realize savings for cities and towns. Mayor Menino and Boston’s unionized workers recently proved it is possible.

Galbraith said, “Support of countervailing power has become in modern times perhaps the major domestic peacetime function of the federal government.” That was over fifty years ago and we seem to have forgotten.

As expressed by Professor Forrant:

Absent a set of rules, which collective bargaining and the signing of a contract establishes, the employer can exhibit unrestrained tyranny at the work site should he or she so choose. And, at the same time, the employer can strip away legally negotiated benefits without any worker recourse should collective bargaining rights be compromised. And, there is scant evidence that the majority of employers would ever ‘do the right thing’ toward all of their employees on their own.

Plan Design will save cities and towns money. That does not make it right.

Many public service employees are already disadvantaged by not being allowed to strike. State and local governments should not be designing plans that further disadvantage an essential countervailing power. Tell your town officials and state representatives to do the right thing.

10 Responses to “Plan Design Is No Bargain” by John Edward

  1. Joe S says:

    If health care parameters are taken off the table for future negotiations, doesn’t that leave room for collective bargaining on other parameters? Taking them out of existing contracts should certainly be a no-no.

    Or, is the elimination of health care parameters just the first step onto a slippery slope to remove other parameters, such as pension benefits from the collective bargaining process?

    Total reform of the health care system may be the better option. There are too many examples of waste and abuse in the pay for service system we now have.

  2. Jack Mitchell says:

    Let me speak plainly.

    When Martha Coakley was defeated, the fight for major progressive reforms including Card Check, was substantially undermined. Think what you like about Scott Brown, but he was certainly the 41st vote against Card Check.

    I was on the ground in 2009-2010. I watched the media, old and new. Coakley’s loss was her own to a large degree. But I will assert, Union members, failed to make the difference. Why? Well based on the the signals out there, it was because they had what they needed, great healthcare and perks. All attained through collective bargaining.

    The election of Scott Brown opened the flood gates of tea party chaos. Brown’s election sparked the tinder of an overwhelmed middle class. In the 2010 midterms, the confused and distraught believed the GOP lies. Stimulus investment was slammed to a halt. Safety nets and relief for States, slashed. Austerity wrapped its icy grip around the necks of state and municiple Unions.

    Guess what, brothers and sisters, you blew it. Now deal.

  3. C R Krieger says:

    I agree that a contact is a contract.  I do not agree that the Wagner Act covered Civil Servants, federal, state or local.  We have drifted into that, which should raise the question of if “Civil Service” like protections should still apply.

    As for counter-vailing power, there are those who would argue that municipal and state unions have disproportionate power.  Look how the Wisconsin Governor exempted police and firefighters.  And Card Check doesn’t seem to represent a fair and open process.

    This is an area that needs a lot more fair and open debate.  Another law passed in the dead of night doesn’t meet that criteria.

    And, it isn’t like there are enough Republicans in the General Court to control anything.  As Kad Barma keeps reminding us, “Power corrupts and absolute power corrupts absolutely”.  Who did you vote for in the last half dozen General Court elections?

    Regards  —  Cliff

  4. RIchard J. Sweeney says:

    Mr Kreiger,

    If as you state (and I agree with) “I agree that a contact is a contract.” Then perhaps this is the most important issue. Business contracts contain clauses for failure to complete on time and other contingencies. BUT they do not contain clauses for “If I change my mind”. The contracts with the unions were negotiated in good faith, a faith that people such as City Manager Lynch, Town Manager Paul Cohen, and Speaker DeLeo in his proposed budget are violating. What is to stop City Manager Lynch and friends from just ignoring contracts with private companies and costing private industry jobs because companies do not make the profits that they negotiates their contracts based on.

    What’s worse, this disreguard for the contract as negotiated hurts not only current municipal employees, but people who have given their careers to serving the people in their municipalities. Wether or not they meet your definition of “Civil Servants” they have served their municipalities and the people of those municipalities. Begining during the Nixon Administration, the municipal unions in Lowell took greatly reduced increases or in some case cuts to help Lowell survive economic “set backs” renegotiating contracts which had already been “carved in stone” to help the municipalities they served. Teachers who retired about 20 years ago, retired at 80% of their top three years of income, at that time $25,000.00 was about top pay. The State Legislature has granted some cost of living increases, but that same teacher is still bringing in more than $14,000 a year less that a begining teacher. Every year, what they pay in insurance share has gone up more than the cost of living. These people are not over paid.

    It sounds good to say we can save money for our city, yet there are other ways to save money than to betray the trust of people who spent their lives serving their towns and cities. I must admit Paul Cohen is not an original thinker. Bernie Lynch himself began this process when he was town Manager in Chelmsford.

    I note that Mr. Edward points out that the City of Lowell faces a $2.7 million bill for snow removal above what they planned for. I have a great deal of trouble feeling sorry for Mr. Lynch in this case. He hired a new head of the Department of Public Works, who reduced the order for salt, and changed vendors “to Save Money”. What Mr. Edward does not mention is that the vendor was out of salt when the city went back for more after using up the smaller amount that they ordered, and the city had to pay a premium price to procure more salt to get through the winter. Bad planning always leads to higher expenses. Perhaps if we hadn’t changed vendors, our previous vendor would have made an effort to have the salt for a long time customer. Also if CIties and Towns in New England would stop pretending we don’t have snow, and sometimes a lot of snow in the winter, and actually planned for winter, we might actually save money. Lowell, before my Lynch did plan for winter and did not run out of salt when towns did.

    The City of Lowell under City Manager Lynch has added assistant City managers and brought in friends from Chelmsford to fill city department management positions. Perhaps we should save money by not adding more management level personel that Manager Lynch has known for years. He is running a City, not an employment agency for friends. He needs to stop bringing in friends, and stop trying to balance the city budget on the backs of the workers and retirees.

    As for the percentage of Republicans seated in the Great and General Court of the Commonwealth, You and I have discussed this issue before. IF you do not run for the seats, you can not win them, and the State Republican party frequently lets the majority of seats go unchallenged.

    Respectfully – Richard

  5. C R Krieger says:

    Ah yes, the need to run folks for office.  Or have them stand for office, as our cousins say.

    But, I feel for folks who have retired and found their retirement health care changing underneath their feet.  As a retired military person I have experienced that and those who retired before me even more.

    A retirement of 80% seems generous.  For the military it is a max of 75% of base pay, which excludes housing and subsistence and flight pay and all those other little items that made active duty a little less onerous.  You still get to shop at the Base Exchange, but that is not necessarily the good deal it was years ago.

    So, it is a contract because it is enforceable.  Is this contract enforceable?  That is the question before us.

    As for Mr Lynch, he is the Strong City Manager, as our Charter calls for, but he is beholding to the City Council.  I believe they are the ones to whom the retired school teachers need to appeal, since apparently we are not going to have the same kinds of demonstrations here as were noted in Madison, Wisconsin.

    This is the year, this is the appropriate time to make a move on the City Council if one is unhappy with Mr Lynch.  Frankly, on balance, I am not unhappy with his handling of City affairs.

    But, for sure we do need an open debate about what it means to be a government employee.  What are the expectations on each side?  What duties are owed by each side?  Perhaps Dick Howe will offer his space for the debate.

    Regards  —  Cliff

  6. Richard Sweeney says:

    Even an open discussion would be nice. But, The City manager would not even meet with the retired teachers. He simply dictated what he would do. After promising the City Council that he would meet with them, last June of July, He met with all City Retirees in December, and told them what they would be offered. About a month ago he called 7 teacher retirees into a meeting with him and told them that the retirees would be given the choice between a PPO and an HMO and they have until July 1st. to decide which they will chose.

    As for 80%, yes it does sound generous, of course the Legislature has a bill to bring minimum retirement pay UP TO $17,000.00 a year for the oldest retirees. Which clearly indicates there are enough people below that that the legislature feels the need to have a bill. (just under 156.2% of The 2011 Federal Poverty Level) there are a number of retirees below the poverty level which is why the legislature feels the need.

    In your own words since I didn’t define the discussion this way. “So, it is a contract because it is enforceable. Is this contract enforceable? That is the question before us.” Hmmmm, interesting, when is a contract not a contract?

    I think before this can be discussed we need you to clarify your “Definition” both of a Contract and a Civil Servant. Lets talk more when you have answered this clearly.

    Richard Sweeney

  7. Joe S says:

    The retirement pay for public employees should probably be turned into a sliding scale in a way that it addresses both the concern of Mr. Krieger (80% seems generous) and Mr. Sweeney (a fair number below $17,000). Social Security achieves this by providing a retirement benefit that is based on 90% of monthly earnings up to a certain amount, then 50% after that to a larger amount, then 10% after that, and then a COLA (although none in the past two years due to abnormal CPI changes) over time.

    It is usually the abuses at the higher end that irritates people, such as when long term politicians get themselves appointed to a high-paying job for a few years to maximize their pension. A modified system would temper that while giving a needed boost at the lower end of the pension pay scale.

  8. Richard Sweeney says:

    Dear Joe,

    The factor that comes into play with the public employee retirees that we are discussing is that at another time people thought retirees were double dipping, so as they are members of a State Retirement Plan, they are forbidden from collecting Social Security and are not eligible for Medicare. Because the law say’s they are not eligible for Medicare the cities and towns are liable for providing the retirees with Medical Insurance. This system will not last forever. Cities and towns have since put teachers onto Social Security as a retirement program, so they will be eligible for Medicare in the future. It should be noted that since the law requires employees to pay Social Security Taxes, the retirees did pay their Social Security Taxes, they are just legally unable to collect the benefits.

    I know and respect Mr. Kreiger, but I respectfully disagree with him in this case. I would still like Mr. Kreiger to give us his definition of “Civil Servant” and “Contract” so the conversation can be on a level where we can clearly understand each other’s position. Another question becomes, since Mr. Kreiger holds another job now, does he also qualify for Social Security. I am of the position that if you have paid into a retirement program, you should be able to collect from that program. So if people in Mr. Kreiger’s position are able to collect Social Security, I have no problem with that.


  9. Joe S says:

    Didn’t mean to confuse the pension system with Social Security, I was just using that program as an example of how a sliding scale of benefits could be structured for public pensions.

    As for people who have a public pension but also worked in the private sector for at least 40 quarters of Social Security tax payments, my understanding is that they are eligible for Social Security benefits, but with a reduction in benefits based on their public pension.

    As for public retirees receiving Medicare, many can, either based on their own contributions to Medicare taxes, or the contributions of their spouses. However, some retirees find it financially beneficial to forego Medicare and retain the public retiree health insurance. That becomes an additional burden to the property tax, so it is an option that should probably be ended.

  10. C R Krieger says:

    As to Mr Sweeney’s question, yes, military folks who contributed to Social Security do get to collected it, if they live that long. I collect Social Secuity, into which I paid when I was in the Air Force and when I worked for a local private sector firm in Andover.

    As for a definition of Civil Servant, I rely on the often maligned and always useful Wikipedia:

    1.  A branch of governmental service in which individuals are employed on the basis of professional merit as proven by competitive examinations.

    2.  The body of employees in any government agency other than the military.

    Wikipedia allows as how members of QUANGOs may also be counted in the number of Civil Servants, and that says a lot about QUANGOs and about how responsibilities normally thought of as governmental are being farmed out, along with the work.  The size of government, at least Federal Government, has gone up by passing functions over to outside contractors.  Both of my sons work for contractors and are doing work in support of the Federal Government.

    But, back to Civil Service, in the US, over a hundred years ago we went from a patronage system to a competence system for Federal positions, based upon the assassination of a President by an aggrieved office seeker (Pendleton Act).  In exchange for not being thrown out of a position with every change of administration, there was the understanding that the Civil Service would be above the political process (Hatch Act).

    As for the definition of “Contract”, I plead that I am no lawyer, but note that this blog belongs to a lawyer  As he “moderates” all comments, if I stray he will, I assume, correct me.  I would think tht is part of the implied contract between commenter and blog moderator.  So, as for a definition, I go with something along the lines of mutual assent and consideration.  Something is offered and something is paid.

    But, as I noted earlier, the Govenment seems free to adjust their own contracts with employees.  In the case of military service, what had been implied was the deal in the 1950s was later shown not to be the deal.

    I agree with JoeS that those who are getting too little due to inflation, need to be given some help in catching up, although I would not that such “catch up” does not mean “go ahead”.  Those who have served our City should not be shackled to a contract that did not conceived of the conditions of today.


    Regards  —  Cliff