By James Wigderson
Special Guest Perspective for the MacIver Institute
It was a benefit Milwaukee County's employee unions never asked for, but now they are fighting to keep it unchanged. Three public employee unions, American Federation of State, County and Municipal Employees (AFSCME), the Wisconsin Federation of Nurses and Health Professionals, and the Association of Milwaukee County Attorneys are suing Milwaukee County to try to reverse the decision by the County Board last year to limit the infamous pension backdrop payments.
If the unions win, county employees could face higher pension costs and even layoffs, while newer employees may have to pay more to subsidize the retirements of more senior county employees.
The pension backdrop payments were created under former County Executive Tom Ament, who personally benefitted (along with others in county government and the County Board) from the backdrop's creation. When the public learned of the potential million-dollar payouts from blogger Bruce Murphy (now editor of Urban Milwaukee), several members of the County Board were recalled. Ament resigned rather than be recalled, and a young member of the state Assembly named Scott Walker became the County Executive.
The way backdrops works is that it allows a long-time employee to opt for the pension level at the point when they were first eligible to retire. Then they would get a one-time payment of all of the money they would have gotten since then plus 8.5% interest. As Murphy reported at the time, Ament's lump-sum payment would have been $1.6 million had he been able to retire in 2008, plus a very generous pension besides.
The unions never asked for the benefit, but they got it just the same. And they didn't complain, either.
The financial fallout has been devastating for Milwaukee County, prompting efforts to rein it in. According to Milwaukee County Executive Chris Abele, the county has made, "$200 million in payments under the decade old backdrop benefit, and will likely pay another $100 million before it is through."
The first step in curbing the pension backdrop's costs was eliminating it for employees hired after the pension scandal was discovered. Today 2,243 employees are eligible for a backdrop out of 3,940 total employees eligible for a pension. About 450 employees are not eligible for pensions.
When Abele succeeded Walker as Milwaukee County Executive, he attempted to limit the backdrop payments going forward for those employees eligible for the backdrop. Last year Abele was able to persuade the Board and employees' backdrop benefits were frozen to at the level of what they were beginning January 1st.
The employee unions argue that once a pension benefit has been given it cannot be rescinded under state law. The counter is that the benefit is not rescinded, but only prevented from increasing after January 1st,
In an interview, Abele expressed his frustration with the unions' decision to sue. "We don't have some magical volcano that erupts money," he said.
Abele does not concede that the unions have any chance of winning their lawsuit. "I have a hard time seeing a path for the unions to prevail on this."
However, if they did win, "It's going to cost us money, all of us money, that could go to services," Abele said.
Will there be possible layoffs? "If they won, sure, it will have to come from somewhere," Abele said. "State law does not allow us to raise taxes - thank god. "
Abele warned that the effect of the unions winning would be, "either cutting services or borrowing more, neither of which are taxpayer friendly."
Newer county employees could feel the pain in a different way. If the unions prevail, the newer employees could find themselves contributing more each month to cover the retirement of their more senior colleagues.
As mentioned before, there are two different classes of county employees: those eligible for the backdrop and those that are not. However, regardless of the class they're in, county employees contribute the same amount, 4.4%. This means those ineligible for the backdrops are already subsidizing the backdrop payments for those that are eligible. If there is additional cost to the pension system because backdrop payments continue to balloon, those ineligible for the backdrop payments could be asked to pay more to subsidize their colleagues' expensive benefit.
Abele tried to change the formula so that those ineligible for the backdrops would pay on average $750 less while those who could receive the backdrops would pay $140 more.
"We tried to find a little justice," Abele said.
However, the County Board listened to the unions and the contributions were kept the same for the backdrop eligible and ineligible alike. Now that unfairness could punish the ineligible employees even more.
So if the unions win, many of their own members may suffer the consequences with either increased contributions or possible layoffs, even as taxpayers also suffer. In addition, everyone will pay as the county has to defend itself in court.