The refrain of privatization seems to play over and over. Our cities are going broke and can’t afford to make retirement payments; public health nurses, city park employees, and other workers who provide important services will not get what they worked hard for all their lives; and the only way out is to put pensions into the hands of privately held corporations. Or at least, that’s what the tea party and other political interests would have us believe.
Fortunately, there is a recent example of a city where people have fought back against this prevailing narrative and won: Cincinnati. Although public employee pensions may seem an unlikely proving ground for new alliances between local unions and business leaders, the people of Cincinnati showed that unity was possible when, last November, 78 percent of voters rejected a tea-party-backed ballot measure that would have drastically altered the retirement prospects for city workers.
Cincinnati’s resounding defeat of an organized effort to privatize public employee pensions is surprising because of the broad spectrum of people who opposed it. As a supporter of organized labor and an opponent of pension privatization, I was struck by the way in which unions and their community allies were able to mobilize major business executives, faith groups, seniors’ rights organizations and even the local chamber of commerce around a single outcome: safeguarding stable retirement for the people who have worked for it.
The yarn that cities can’t afford to honor their pension obligations is one that has spread across the country thanks to a big media push by conservative think tanks and communications outfits. As Cincinnati approached last November’s election, a three-person group called Cincinnatians for Pension Reform (with the clever abbreviation CPR) signed up over 15,000 names in less than a month to put Issue 4 on the ballot. A writer for Labor Notes magazine wrote in October that “Paul Jacob of the Virginia-based Tea Party group Liberty Initiative Fund has put more than $81,000 into CPR thus far. The conservative California-based National Taxpayers Union has put in another $52,000. Liberty Initiative has funded similar anti-retiree measures in other cities.”
Issue 4 would have amended the city charter to turn city employees’ defined-benefit pensions into 401(k) plans, shifting administrative payments to private fund managers. It also would have drastically shortened the timetable for paying off the city’s debt, demanding deep cuts to city services to pay it down more quickly.
Issue 4 was based on a model provided by the American Legislative Exchange Council (ALEC), a national group backed by conservative billionaires Charles and David Koch that sponsors tea party candidates and pushes right-wing legislation in states and cities. While it’s true, as these groups point out, that some municipal and state employee pension funds have been chronically underfunded, draconian proposals such as Cincinnati’s Issue 4 tend to do more harm than good. In Rhode Island, for instance, the state allowed its public employee pensions to be handed over to hedge funds for private management. This move has resulted in public funds being handled in total secrecy by Wall Street banks that do not have retirees’ best interests at heart. Insisting that cities and states shift the pensions to a stock-market-based model removes public control of the public funds. And demanding that the unfunded portion of the pensions be addressed by slashing services is a move that hurts people across our cities.
There is a genuine problem when city pensions are underfunded, but the culprit isn’t big government: The problem is Wall Street firms that let fund managers wreak havoc on a city’s investments.
Tea party backers are taking advantage of the weakened position of these cities in the aftermath of the economic crash to pursue their long-held agenda of deregulation and privatization. By mislabeling the cause of the pension crisis, they subject ever more public goods to the whims of the unregulated market — ignoring the financial sector malfeasance that was at the root of the economic downturn.
Wolves on Wall Street
The problem facing Cincinnati was not, as privatization advocates would have it, brought about by the living wage jobs that the public employees had secured over decades of service. It was a crisis bred on Wall Street. As recently as a decade ago, Cincinnati’s public employee pensions were 100 percent funded. Now it’s a different story: “While pension funds should be at least 80 percent funded to be considered healthy, Cincinnati’s is only about 61 percent funded,” wrote the Cincinnati Enquirer in an October editorial. The city lost millions following the economic crash of 2008 and began having to dip into current revenues to pay for its retirees’ pensions. The City Council understood that public employees alone shouldn’t be made to bear the brunt of city-level budget constraints, and it brought in a committee to conduct independent oversight and make recommendations for adjustments to the pension system.
The Tea Party and ALEC, on the other hand, are trying to put both pensions and existing city services in the hands of private companies. As a rationale for such drastic intervention, they cite an ideology of “smaller government” and claim that the unfunded pensions represent a dangerous crisis. Ballot measures similar to Issue 4 have already been passed in Knoxville, Tenn., San Jose, Calif., and San Diego.
There is a genuine problem when city pensions are underfunded, but the culprit isn’t big government: The problem is lax government oversight of Wall Street firms that lets fund managers wreak havoc on a city’s investments. Appreciating this reality is an important step in rejecting scapegoating and coming up with constructive solutions to the pension-funding issue. The handing over of pension funds to private managers has allowed for runaway speculation, which ultimately exacerbated the financial crisis for cities.
A final lesson to come out of the Cincinnati case is that it is possible to unite unusual coalitions to beat back the tea party. Leaders from Cincinnati’s business community — many of them Republicans — were not necessarily supportive of the ballot measure. They knew that changing the city charter via the ballot box was an extreme measure that would have brought instability to the city’s political system, when there were already avenues in place for stabilizing the pension funds. Cincinnati’s business community, anchored by Procter & Gamble and Kroger, helped persuade even the otherwise conservative local chamber of commerce to oppose Issue 4.
In a press statement, the Cincinnati USA Chamber of Commerce said the measure raised “too many unanswered questions surrounding the amendment including increased costs to the City” and expressed concerns regarding the measure’s legality. Both the candidates for mayor also came out against Issue 4 in the days leading up to the election.
Meanwhile, a coalition of labor unions, local religious leaders and seniors’ rights groups used door-knock canvassing, direct-mail advertising and phone calls to reach local voters. The American Federation of State, County and Municipal Employees, the public employees’ union, along with other unions such as the firefighters’ union, put across the message that Issue 4 would require the city to cut back on essential services. Faith groups denounced the campaign, saying it was irresponsible to burden taxpayers with a shortened timeline for paying down the city’s pension liability. The current time needed to pay down the unfunded liability portion of the pension guarantee is 21 years; Issue 4 would have fast-tracked that down to 10, forcing deep cuts to services. As the Cincinnati Enquirer editorial board wrote, “It’s a system in need of reform. But Issue 4 proposes terrible solutions to a serious problem.”
It's easy to get the impression from media coverage of politics that Americans are hopelessly divided. But Cincinnati’s experience shows that, at the local level, things are not necessarily so hardened. It also provides some hope that other cities can find constructive local approaches to policy debates that, at the national level, are polarized along strict partisan lines.