President Roosevelt Against Collective Bargaining by the Public Sector

President Franklin D. Roosevelt
The American Presidency Project
August 16, 1937

President Roosevelt's letter to Mr. Luther C. Steward, President, National Federation of Federal Employees. In the letter, FDR takes a position that public employees should not be able to collectively bargain.

"My dear Mr. Steward:

 

As I am unable to accept your kind invitation to be present on the occasion of the Twentieth Jubilee Convention of the National Federation of Federal Employees, I am taking this method of sending greetings and a message.

Reading your letter of July 14, 1937, I was especially interested in the timeliness of your remark that the manner in which the activities of your organization have been carried on during the past two decades 'has been in complete consonance with the best traditions of public employee relationships.' Organizations of Government employees have a logical place in Government affairs.

The desire of Government employees for fair and adequate pay, reasonable hours of work, safe and suitable working conditions, development of opportunities for advancement, facilities for fair and impartial consideration and review of grievances, and other objectives of a proper employee relations policy, is basically no different from that of employees in private industry. Organization on their part to present their views on such matters is both natural and logical, but meticulous attention should be paid to the special relationships and obligations of public servants to the public itself and to the Government.

All Government employees should realize that the process of collective bargaining, as usually understood, cannot be transplanted into the public service. It has its distinct and insurmountable limitations when applied to public personnel management. The very nature and purposes of Government make it impossible for administrative officials to represent fully or to bind the employer in mutual discussions with Government employee organizations. The employer is the whole people, who speak by means of laws enacted by their representatives in Congress. Accordingly, administrative officials and employees alike are governed and guided, and in many instances restricted, by laws which establish policies, procedures, or rules in personnel matters.

Particularly, I want to emphasize my conviction that militant tactics have no place in the functions of any organization of Government employees. Upon employees in the Federal service rests the obligation to serve the whole people, whose interests and welfare require orderliness and continuity in the conduct of Government activities. This obligation is paramount. Since their own services have to do with the functioning of the Government, a strike of public employees manifests nothing less than an intent on their part to prevent or obstruct the operations of Government until their demands are satisfied. Such action, looking toward the paralysis of Government by those who have sworn to support it, is unthinkable and intolerable. It is, therefore, with a feeling of gratification that I have noted in the constitution of the National Federation of Federal Employees the provision that 'under no circumstances shall this Federation engage in or support strikes against the United States Government.'

 

I congratulate the National Federation of Federal Employees the twentieth anniversary of its founding and trust that the convention will, in every way, be successful."

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Library Topic: Public Pensions Crisis

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California pension funds have massively hemorrhaged since the economic downturn of 2008. Indeed, Gov. Schwarzenegger “told reporters last week that the big pension funds could face an estimated $300-billion shortfall in covering the cost of pensions to current and future retirees.” According to the LA Times, this “tremendous drop in the portfolios' value is...

"The raucous Wisconsin debate over collective bargaining may be ugly at times, but it has been worth it for the splendid public education. For the first time in decades, Americans have been asked to look under the government hood at the causes of runaway spending. What they are discovering is the monopoly power of government unions that have long been on a...

"The state of California's real unfunded pension debt clocks in at more than $500 billion, nearly eight times greater than officially reported.

That's the finding from a study released Monday by Stanford University's public policy program, confirming a recent report with similar, stunning findings from Northwestern University and...

Merrill of the Mercatus Center at GMU states that "what's happened is that states can and do promise to public employees benefits that are unrealistically high given the state's financial forecasts -- in part...

Whoriskey writes that the current market downturn “is ravaging public pension funds across the United States, with many state and local governments seeing more than 20 percent of their retirement pools swept away in the turmoil.” With roughly 60 percent of public pension assets invested in stocks, it’s of little surprise that pension funds are experiencing such...

Edmondson writes, “Portraying government employees as the ‘haves’ and private sector employees as the ‘have-nots’ is a creative, but inaccurate twist on historical reality.  This strategy is a sad new chapter in the painful story of an excruciating economic downturn that has negatively affected every citizen. It is a tactic that pits hardworking people on both...

"A public worker gets promised a pension. If the correct value, based on best assumptions, is not set aside to fund that pension, then we have the equivalent of a theft of services. Future taxpayers will have to make up for past underfunding, a Ponzi scheme will ensue, or those promises will not be kept despite whatever laws (which politicians have a way of interpreting to their advantage as...

"State governments have reported unfunded pension liabilities—the difference between what plans have promised to pay public workers and the assets set aside to pay out these benefits—of $452 billion as of June 2009. ... Estimates place the shortfall in local plans at an additional $190 billion. ... These reported figures, however, severely underestimate the pension obligations governments owe...

"'Public pension funds across the U.S. are hiding the size of a crisis that’s been looming for years. Retirement plans play accounting games with numbers, giving the illusion that the funds are healthy—this paper alchemy gives governors and legislators the easy choice to contribute too little or nothing to the funds, year after year.' Deferment and quick fixes now...

Even though the “state issued $10.1 billion in pension obligation bonds in 2003 to reduce unfunded liabilities, the borrowing is a gamble because the state must repay the money with interest over 30 years. To do this without turning to taxpayers, the state will have to earn average annual returns on investments that exceed the 5.05 percent interest rate on the...

"A California dustup over large pension payments is shining a spotlight on the practice of spiking -- increasing a salary just before retirement and boosting the lifelong payout.

...

The practice is getting more attention amid growing concerns about the sustainability of guaranteed pension payouts for public employees after...

"Recently, workers with employer-sponsored 401(k) plans have taken it on the chin. The bear market has hurt anyone who invested their 401(k) money in stocks, and many employees who invested too much in their employer's stock have seen huge losses.

401(k) plans have behaved so badly that many are now calling for significant reform, or even these plans' outright abolition. Yet before you...

"Here's a dilemma: You manage a public employee pension plan and your actuary tells you it is significantly underfunded. You don't want to raise contributions. Cutting benefits is out of the question. To be honest, you'd really rather not even admit there's a problem, lest taxpayers get upset."

“State and local governments, hard hit by the economic downturn of 2001, find themselves in a financial bind. While sharp anti-tax sentiment constrains revenue and governments face new outlays for everything from homeland security to No Child Left Behind, there's a growing feeling that the retirement promises made to everyone from office workers and state patrols...

"Joshua D. Rauh just announced on his blog about a new study that he just released, with Robert Novy-Marx, that estimates state and local pension contributions need to increase by a factor of 2.5 to reach solvency in 30 years. That amounts to a tax increase of $1,398 per household, per year!

The study is titled 'The Revenue Demands of Public Employee Pension Promises.'"

"Promised pensions benefits for public-sector employees represent a massive overhang that threatens the financial future of many cities and states." Laing goes on to point out that over 15,000 California pensioners receive $100,000 or more each year. Additionally, Laing points out that some estimates of the pension funding gap is upwards of $3...

"America's public sector pensions have been a scandal for years. It wasn't that long ago that they finally got around to doing their accounting the way that normal pensions do:  by showing how likely their assets were to generate enough revenue to pay for future benefits.  When they did, we found out what critics had long been claiming:  many pension...

This CNN article discusses how New Jersey plans to deal with their massive $34 billion dollar pension shortfall—money which goes towards the retirement packages of teachers, firefighters, and cops. “For years, states nationwide have shortchanged the retirement programs that cover teachers, police, and other public employees; now the stock market plunge has wiped...

Chart or Graph

"The three lines in each graph show aggregate state pension fund assets under three return scenarios: a 6% return (the dashed line), an 8% return (the solid line) and a 10% return (the dotted line)."

"As of 2006, around 60 percent of public pension assets were held in domestic or foreign equities and slightly over one-quarter in bonds, with smaller allocations to real estate, cash, alternate investments such as private equity, or other asset classes. (Figure 1)"

"There are large public sector pay variations between regions in the United States. Table 3 shows that average compensation per hour for government workers varies from $49.02 in the Pacific region to $30.73 in the West South Central region."

"While above-average returns are available for savvy investors, taking risk, particularly in correlated asset classes, opens up the possibility of large investment shortfalls."

"The State of California understates teachers’ pension unfunded liabilities by as much as $101.2 billion. to put this in perspective, California’s total budget was about $89.5 billion for FY2009-2010."

"Table 1 shows average compensation per hour worked in state and local governments and the U.S. private sector."

The chart ranks the states (from highest to lowest) in terms of the size of the necessary tax hike, per year, to achieve solvency of the state’s public pension system. As you can see, New Jersey ranks top in the country at $2,475 while Indiana comes in last at $329.

Moving forward, the younger generations of Americans face growing burdens of taxation as older generations retire and take benefits through pensions, medicare, and social security. This chart shows the change that will be taking place in government as 60% of federal employees are eligible for retirement through 2016.

"Even before the market started melting in late 2007, employers' costs increased 40 percent over a five-year period. Meanwhile, employee contributions remained constant."

"The implicit debt facing New Jersey in its underfunded pension plans, as with most states, was encouraged by the actuarial methods used to value the plans and the choices of legislators over a period of years to extend generous benefits while deferring payments to the pension funds."

"According to their calculations, New Hampshire’s pension system will run out of money in 2022 - only eleven years from today - see Table 4."

"Figure Q plots the distribution of investment return assumptions. As with inflation assumptions, investment return assumptions for many plans have been reduced in recent years. In particular, all investment return assumptions in the Public Fund Survey above 8.5 percent have been reduced. The median and modal assumption remains 8.0 percent."

"We first started running the nearby chart on the trends in public and private union membership many years ago. It documents the great transformation in the American labor movement over the latter decades of the 20th century."

U.S. spending on pensions dramatically skyrocketed beginning in the mid-1950s.

"The first column is the year that each state will run out of pension fund assets assuming they earn 8% on their assets and that they use future contributions to fund new benefits in full."

Analysis Report White Paper

This paper discusses Federal retirement statistics in order to gain a better understanding of the future makeup of the Federal workforce. A significant number of employees are eligible or will become eligible to retire in the near future, making a deeper analysis of the retirement of Federal civilians more timely and meaningful.

"Accurate measures of public pension liabilities are important for policymakers, taxpayers, investors considering the economic environment in which to start or locate a business, and bond purchasers considering the risk premia appropriate to municipal government bonds that are in practice subordinate to public pension liabilities."

"This paper analyzes the flow of state pension benefit payments relative to asset levels and contributions. Assuming future state contributions fund the full present value of new benefits, many state systems will run out of money in 10-20 years if some attempt is not made to improve the funding of liabilities that have already been accrued."

In the wake of the economic downturn that began in 2008, public schools face serious and seemingly long-term fiscal challenges. Rising pension costs are a particular concern for school districts, whose dollars help prop up state retirement plans that often have substantial unfunded liabilities.

"These programs will cost Illinois more than $100 billion during the next 30 years. Because the state has not designated money for these three programs, they operate on a yearly pay as you go basis. This means that as retiree health care costs rise faster than the state’s total revenues, they will squeeze out state spending on other core services."

"In 2008, wages and benefits of $1.1 trillion accounted for half of total state and local government spending. This bulletin examines state and local compensation costs, with a focus on the lucrative pensions enjoyed by public sector workers."

State and local employee pension plans, which are primarily defined benefit plans, have come under increased scrutiny of late. Plan funding conditions have worsened during the early years of the 21st century, especially during the aftermath of the post-2007 recession.

"CalPERS, CalSTRS, and UCRS together administer the pensions of approximately 2.6 million Californians. Between June 2008 and June 2009, these three public pension funds lost a combined $109.7 billion in portfolio value (see Table 1)."

"The Civic Federation goes on to note, 'Illinois will not be able to balance future budgets without substantial pension reforms today. These reforms are the necessary first step toward putting our state government on a solid financial footing.'"

"Given the current expected shortfall of Social Security retirement funding, there are considerations to privatize all or some of the Social Security trust fund's 'portfolio.' Although it is often assumed that this is a new idea, the nation has had experience with privatization of federal pensions extending back to the U.S. Navy Pension Fund almost 200 years ago."

"New Hampshire’s pension and other post-employment benefits (OPEB) system, mostly health insurance, for retirees is unsustainable and, as of June 30, 2010, underfunded by nearly $4.7 billion. In other words, the assets put in reserve to meet future benefit obligations are not enough to meet projected liabilities."

"Funding public pension systems represents one of the greatest financial challenges for state and local governments today. About 84 percent of state pension systems are underfunded, with enough assets to cover only 80 percent of their future pension commitments, according to Wilshire Research."

"The Public Fund Survey is an online compendium of key characteristics of the nation's largest public retirement systems and is sponsored by the National Association of State Retirement Administrators and the National Council on Teacher Retirement for the purpose of increasing knowledge and understanding of the public pension community."

"We calculate the present value of state employee pension liabilities as of June 2009 using discount rates that reflect the risk of the payments from a taxpayer perspective."

In this study, we consider the case of New Jersey, which operates five defined benefit pension plans for state employees. ... The New Jersey Senate unanimously passed legislation in February 2010 that would put a question on the November ballot to constitutionally require the state to begin to make its full annual payment to the state’s pension system.

"States report that their public-employee pensions are underfunded by a total of $438 billion, but a more accurate accounting demonstrates that they are actually underfunded by over $3 trillion."

"Even with a hard freeze of all benefits at today’s levels, contributions still have to rise by more than $800 per U.S. household to achieve full [pension] funding in 30 years."

"California politicians can either continue hiding their heads in the sand, or else face up to these looming obligations by ceasing to promise overly lavish benefits and by increasing the required contributions from salaried employees."

"Thus, total unfunded liabilities for all benefit plans are an estimated $3.1 trillion — nearly three times higher than the plans report."

This brief examines the reasons why some public pension plans are less well funded than others. The authors write that "while state and local pensions as a group are about as well funded as plans in the private sector, significant variation exists. More than 60 percent are adequately funded, but almost 40 percent are not."

Video/Podcast/Media

"The interactive map is based on Table 2. Market valued funding ratios and unfunded liabilities on page 42 of An Options Pricing Method for Calculating the Market Price of Public Sector...

Discussants address the pension crises threatening to sink cities and states.

Fox Business News interviews Joshua Rauh of Northwestern University regarding the $3 trillion aggregate shortfall for public pensions. He recommends moving public employees to defined contribution plans and 401k-type plans for new workers, though he does argue also for bailouts of roughly $75 billion from the federal government to various state governments.

"Panelists talked about the possibility of a federal bailout of state pension funds. Among the topics they addressed were recent losses and market value declines as a result of the weak economy, challenges for future sustainability of public pension programs, and potential pension system reform. They also responded to questions from the audience."

Governor Schwarzenegger of California discusses the state's public pension crisis, something he calls the single biggest threat to the state's fiscal health and future. He says that promises were made that cannot be made and that the unfunded liability to California is $500 billion.

Primary Document

While President Franklin D. Roosevelt opposed collective bargaining by government employees, it wasn't until President Kennedy that government employees were able to collectively bargain at the federal level. Executive Order 10988 is below which first granted the federal employees collective bargaining.

EMPLOYEE-...

President Roosevelt's letter to Mr. Luther C. Steward, President, National Federation of Federal Employees. In the letter, FDR takes a position that public employees should not be able to collectively bargain.

"My dear Mr. Steward:

 

As I am unable to accept your kind invitation to be present on the occasion of the Twentieth...

David Johns comments before the Social Security Subcommittee on the positives and negatives of our British counterpart's public pension policies, and the lessons that we should take from their experiences.

A report established by a committee of chief investment officers (CIO's) by the Association of Public Pension Auditors which outlines the various risks that publicly funded actuaries may encounter, and how to avoid such risks.

"The purpose of this report is to provide updated information on actuarial accrued liabilities as they relate to Other Postemployment Benefits (OPEB) for school districts in Minnesota."

Introduction:
"Mr. Chairman and members of the Subcommittee, I appreciate the opportunity to testify today on Chile's private pension system, especially since it has become the model for countries around the world that have reformed their public pension systems or are considering doing so.

In 1924 Chile was the first country...

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