Collective bargaining and health care benefits in New Jersey

Is collective bargaining for public employees an “historic right”? That is the position of Bob Master, political director of  the Communication Workers of America (CWA), one of New Jersey’s public sector unions. He objects to a plan put forward by Governor Christie and Senate President Stephen Sweeney that would allow the legislature to set health care benefits, removing the item from the negotiating table. As for the historic nature of collective bargaining. Such powers arrived relatively recently in the public sector. With most states extending these provisions in the 1960s and 1970s, and up through the late 1980s. For a review, see my recent paper. (Economist Leo Troy, and political scientist Joseph Slater each provide a history of public sector unionism and reach the opposite conclusion on the implications of collective bargaining in the public sector.)

In New Jersey pension policy has always been a matter for legislation, a fact that Mr. Master does not challenge. Even if health benefits are removed from the table this does not eliminate the political leverage  public unions have over influencing legislators and thus legislation. Nor will it fix the core problem. Health benefits in New Jersey are completely unfunded and face a $66.7 billion liability.

Part of the reason that the bill has suddenly materialized is that until 2007 governments were not required to recognize the cost of Other Post Employment Benefits (OPEB) on their books. A bomb was dropped when this rule went into effect revealing $1.5 trillion in hidden liabilities in U.S. state and local governments.

Unlike pensions health benefits don’t come with the same guarantees. Of far greater relevance for public sector workers is how are state and local governments going to provide health benefits in the face of  such daunting costs? The Christie-Sweeney proposal asks workers to contribute on a sliding scale from 3 percent to 35 percent of their health insurance premiums depending on their salary.

Assembly Leader Sheila Oliver backs the unions’ position and proposes that health benefits remain off the table for three years. In 2014, collective bargaining for health benefits would be re-established and unions could seek lower contribution rates during the negotiation process. It would also make collective bargaining a gubernatorial campaign issue. It is a strategy that points to the uniquely political nature of public sector unionism. And it underscores the institutional incentives for politicians to promise short-term benefit enhancements at the expense of long-term solvency.