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How Public Employees Have Superior Rights and Entitlements

America’s founders left us one of the most thoughtful documents ever written. The U.S. Constitution is the basis of our republic, not democracy, and what has allowed the United States to become the most prosperous nation ever. The freedoms and rights written down on that document are what makes America so prosperous. Within the 14th Amendment to the Constitution there is a clause that reads:

“No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.”

Most people who read that think it is good, and believe that here in America we are all equal. Well make no mistake, some are more equal than others. Many states and the federal government have laws that are in direct conflict with the 14th Amendment. These states have laws that grant superior rights to public employees over the rest of its citizenry. This is a clear failure of equal protection. Here are three examples:

“CONSTITUTIONAL PROTECTION” FOR PENSION BENEFITS

Currently there is a fight in Michigan over these rights. The public employee unions argue that under State law their pensions cannot be reduced. There are numerous examples of private sector workers who have had defined benefit pensions that were substantially reduced in bankruptcy. Steel and airline union members must be wondering why they didn’t enjoy that kind of constitutional protection with their pensions. Apparently the government didn’t find it necessary to provide them the same kind of equal protection under the law. Or more appropriately, these constitutional guarantees of pensions and benefits to public employees are unlawful, since the government has no business guaranteeing pensions.

The case in Detroit is very important nationally. The city is using the Federal Bankruptcy Code to reduce its pensions, because the pension funds are insolvent and unsustainable. As reported in the Detroit Free Press, on December 3, 2013, Judge Rhodes cleared the path for Detroit to proceed into bankruptcy and put the pension debt on the table with all the other debt to be cut (ref. “Judge rules pensions can be cut in Detroit bankruptcy“).

As a city, Detroit is subject to federal bankruptcy laws, however states are not. The next battle will be over state employee pensions, which are equally insolvent and unsustainable. It is here that the idea of “equal protection of the laws” should be applied. If a state is unable to guarantee pensions to every private citizen, than it should not be allowed to guarantee the pensions of its employees.

FIFTY-PERCENT DISCOUNT ON GOVERNMENT FORECLOSURES

Imagine being able to buy a home for 50% the appraised value. Well, if you work for the government, you can do just that through the Housing and Urban Development’s “Good Neighbor Next Door Program.” The federal government is in the business of making risky home loans through HUD and the FHA. When these loans go bad the foreclosures are known as HUD homes. Some of these home are put into the “Good Neighbor Next Door Program” and eligible for the 50% off discount. Under this program all one has to do is enter a lottery to be the lucky person to buy these homes. And lottery is a appropriate term, because if you win you can essentially be gifted over $200,000 in public funds. As they describe it on the HUD website:

“Buying a home through HUD’s Good Neighbor Next Door initiative is designed to encourage renewal of revitalization areas by providing an opportunity for law enforcement officers, firefighters, emergency medical technicians and teachers to purchase homes in these communities. HUD provides a substantial incentive in the form of a 50% discount off the list price of eligible properties.”

An example of a home recently listed in this lottery is 30 Jerome Ave., Thousand Oaks, CA. The home has been appraised at nearly $495,900, so the winner of this house will receive a nearly $250,000 windfall from the government. Now there are two caveats to this program. First, after purchase, you have to live in the home for three years as your primary residence. But the big one is you must be a local teacher, fire fighter, or police officer. One has to ask what business the federal government has awarding windfall financial lotteries to these “special people.” Of course it is no coincidence that these special public employees represent the most powerful public employee unions in the country.

The real question that needs to be asked about this program is, why is the federal government giving away public property at half its value to certain special people? Where in the constitution is the government allowed to gift public funds to certain favored people? Of course we all know the answer is that these powerful unions have yet again used their influence to milk the taxpayer even more. In Californian in particular, these public employees are some of the most highly compensated people in government and in the state.

FIFTY PERCENT DISCOUNT (OR MORE) ON FEDERAL TAXES

Another area of superior rights is in the disability scam. We all know that Social Security Disability Insurance is riddled with fraud. What most do not realize is that the fraud in SSDI is mere child’s play when compared to what many public safety union members get away with. The scary part is that many times what any reasonable person would consider fraud is actually legal, because the unions essentially wrote the law.

The way disability works for people not lucky enough to have superior rights is in one of two ways. Many workers carry disability insurance. This type of coverage will give a worker a percentage of his income until they are able to work again or until a per-determined amount of time has elapsed. The second type of disability insurance is Federal disability, this you can get when a doctor determines you to be permanently disabled and unable to work. Clearly there is a lot of fraud and abuse in the Federal disability system. Currently the largest monthly payment from SDI was $2,533 and the average was $1,177 (ref. Social Security Fact Sheet).

The majority of those payments are tax free. If an individual has other income and makes over $25,000, than 50% of the SSDI benefit would be taxed at their marginal rate. Overall the majority of SSDI beneficiaries make less than the taxable amount and it is tax free.

Now let’s compare this corrupt and fraud riddled system with the one that public safety officers in California get to use. In California pension board trustees vote on whether or not to approve disability pensions. The boards are largely made up of union members, and only have to consider what a doctor says, not follow. In Marin county, sheriff deputy Karen Wofford was awarded a $64,000 a year pension (a monthly payment of $5,333) that was 80 percent tax free for an injury to her trigger finger. She gets cost of living adjustments and an 80 percent tax free pension for the rest of her life and she is not even 50 years old.

Miss Wofford is just one example. The reality is that an unnatural amount of public safety officers in California miraculously develop some type of disability right at their retirement time. Nearly 70 percent of all California Highway Patrol officers retire with a disability pension. The fraud is so outrageous and obvious even the union members have a term for it. They call it “Chief’s Disease.” Some of these Chiefs retire with back pain, possibly from sitting at a desk all day, and receive 50 percent tax free pensions worth millions.

The public should be curious why we have so many disabled public safety workers on the payroll. Is it just a coincidence that so many become disabled right at the time they are eligible for full retirement or is there something more sinister going on. We all know the answer is that it is just another way to scam the taxpayer. The next logical question is, why can’t anyone who retires with similar ailments get a 50 percent tax deduction on any withdrawals they make from their retirement savings? The answer is that public safety employees have superior rights, in direct conflict with the constitution. They should be subject to the same limitation as SSDI recipients. In addition there should be a limit on the amount that is tax free. Chiefs receiving $200,000 a year in pension benefits should only be allowed to deduct the maximum amount allowed under SDI, that would be equal protection.

Public safety members should get excellent disability insurance and life insurance. The taxpayer should even pay for it. But receiving benefits worth millions for mere back pain, a malady that afflicts nearly every adult over the age of 50, is immoral and unfair to taxpayers.

These are only three examples of how public employees now occupy a position of privilege well beyond that afforded to other equally hard-working American citizens. The reason for these unconstitutional laws at the state level is simple, public employee unions. Without them many of our problems would not exist. Elected leaders would have been able to balance budgets, use reasonable actuarial assumptions, and pay a fair wage, all without having to fear retribution from the unions. The enormous power of the public employee unions is destroying the unwritten social contract in this country. Their continued abuses are becoming more and more visible to the average citizen. The only way to fix the problem is to outlaw collective bargaining in the public sector. Even progressive hero FDR understood the danger of public unions. He penned this in regards to collective bargaining for public employees:

“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.”

What we have seen since the mass unionization of government workers in this country is exactly as FDR had feared. It is time to consider an end to collective bargaining for public employees, perhaps even an Amendment to the Constitution explicitly banning collective bargaining for government employees at all levels. It will not fix everything in this country, but it will be a big first step into getting our constitutional republic back where everybody is protected equally under the law.

Bill White is a financial analyst with over a decade of experience. He holds a MBA in Finance and has consulted for various industries. He became interested in municipal finance when he realized what a threat it was to the social fabric of our country and has since dedicated much of his time to informing the citizenry about the powder keg that municipal finance has become. He believes strongly that a democratic republic can only prosper with a informed electorate.

Massive Disability Fraud Uncovered in New York

Editor’s Note:  As the author points out in the report to follow, this may just be the tip of the iceberg. For more on what public employee retirement disability fraud could be costing Californians, please refer to our 2011 California Public Policy Center study “The Impact of Tax Exempt Disability Pensions.”

In what I believe amounts to a mere 100th of a percent of the disability fraud problem, CNBC reports About 100 people accused in NYC disability scam.

 More than 100 people were rounded up and arrested Tuesday morning as part of a massive investigation into disability fraud in the New York City area, authorities said Tuesday.

The alleged ringleaders, which included 83-year-old Raymond Lavallee, a former Nassau County assistant district attorney, and retired police officer John Minerva, surrendered to the Manhattan District Attorney’s office, according to prosecutors.

Approximately 80 additional police and firefighters, mostly from the tri-state area but some from as far away as Florida, also were arrested in the multiagency sweep that started at 5:30 a.m.

Most of the police and firefighters arrested are former New York City workers, prosecutors said.

Millions in claims over decades, prosecutors say

According to the allegations, police and firefighters falsely claimed stress-related illnesses to pocket tens of millions of dollars in disability benefits. Many of the suspects also received 9/11 pensions, sources said. As the case unfolds with potentially more arrests, the fraud dollar amount could rise even further, authorities said.

The Manhattan DA’s office also released pictures of several suspects, who received hundreds of thousands of dollars in benefits. In one picture, a man named Richard Cosentino is seen on a boat and swordfishing. He received $207,639.70 in payments, according to prosecutors.

Another image shows Louis Hurtadoin inside a martial arts photo. He pulled in $470,395.20, prosecutors say. And in yet another photo, a man named Glenn Lieberman is sitting on a WaveRunner, with both middle fingers raised, smiling into the camera. He received $175,758.40 in benefits, according to prosecutors.

A spokesman for the NYFD union declined to comment.

At best the union will choose not to respond. More likely, the union will protest the arrests when the story dies down, just as unions protect child molesters in LA and New York.

About the Author:  Mike Shedlock is the editor of the top-rated global economics blog Mish’s Global Economic Trend Analysis, offering insightful commentary every day of the week. He is also a contributing “professor” on Minyanville, a community site focused on economic and financial education.