MS. DIANE REHMThanks for joining us. I'm Diane Rehm. The 2008 financial crisis hit many state budgets in a big way. Stimulus money cushioned the blow for a while, but now that money is gone. Many politicians say it's time to rein in the overly generous wage and benefit packages offered to state and local employees. Joining me to talk about state budget crises and what projected shortfalls could mean for state and local workers, Lee Saunders. He's secretary-treasurer, American Federation of State, County and Municipal Employees. Good morning to you, Lee. It's good to have you here.

MR. LEE SAUNDERSThank you. Good to be here.

REHMDavid Leonhardt is a columnist for The New York Times. David, welcome back.

MR. DAVID LEONHARDTThank you, Diane.

REHMKim Rueben of The Urban Institute. Welcome to you, Kim.

MS. KIM RUEBENGood morning. Thanks.

REHMAnd from a studio at NPR in New York, Fred Siegel of the Manhattan Institute. Good morning to you, sir. Is Fred Siegel with us? All right. I'm afraid we've lost him for the moment, but we'll get back to Fred Siegel shortly. If you'd like to join us, 800-433-8850. Send us your e-mail to drshow@wamu.org. Feel free to join us on Facebook or send us a tweet. David Leonhardt, if I could start with you, why is it that public sector employees seem to have become a special target in state budget discussions?

LEONHARDTI think there are two reasons, Diane -- one somewhat fair and one mostly unfair. To start with the somewhat fair one, there are aspects of these contracts that really feel overly generous to a lot of people, in many cases because they are overly generous. We're talking about people being able to retire at 55, sometimes draw a pension that's substantial, and then take another job. Talk about people not having to pay at all for any kind of health care benefits, which leads to overuse of the health care system and drives up all of our costs. And so there really are provisions in these contracts that are a bit generous.

LEONHARDTBut when you actually dig in to the numbers, you find that the main reason public workers are paid more than private workers is that, on average, they're much more educated. So we should expect them to be paid more, the same way we should expect doctors to be paid more than journalists. Doctors are more educated than journalists, and they're better paid. And that really leads to the unfair reason, which is whatever legitimacy there is -- and there is some in the notion that public workers are overpaid. I think they have become such a target because many of us want to believe that these budget crises both the states and the federal government are facing is the fault of anyone but ourselves.

LEONHARDTYou see this more on the right through the Tea Party, which is more of an older group -- more of an older political group and wants to believe that taxes can be cut and Medicare and Social Security don't have to be touched -- which isn't true. But you also see it on the left with the notion that if only we didn't have Wall Street, if only we didn't have the military, we wouldn't have these budget problems. And so public workers become a convenient scapegoat. You can look at them and say, if only we didn't have public workers, our budget problems would be solved.

REHMDavid Leonhardt, he's a columnist for The New York Times. Kim Rueben, give us a sense of what states are looking at in terms of the cuts that they have to make in order to meet the shortfalls.

RUEBENSo states have been struggling for the last three, four years, and so budgets sort of took a nosedive in 2009. And partly, that was offset by stimulus, but the stimulus money is running out now. And so states have typically had to close about a quarter of their budget in terms of shortfalls because revenues have been low because of what happened with -- because of the recession. But partly, states now are facing what they need to do, and they have to make some hard choices because they're still facing about $100 billion in shortfalls coming forward. And there isn't that federal relief to help cushion that blow.

REHMKim Rueben, she is the public finance economist with The Urban Institute. And turning to you, Lee Saunders, you say that we're seeing a lot of grandstanding against public employees, but the facts really aren't there. Explain what you mean.

SAUNDERSWell, I would say this, that everyone recognizes -- including us -- that there are serious problems, economic problems, in state and local governments across the country. We understand that. Our members understand it. Our 1.6 million members understand that, and we recognize it. But let's talk turkey here. And what's happening is based upon what happened on Nov. 2, where we are faced with political retribution. People are essentially saying you opposed us. You had a grassroots machinery that opposed us. And we're going to come after you. We're going to come after you very, very hard.

SAUNDERSAnd, as a matter of fact, we believe that the labor movement and our allies are the only ones that stand in the way of the bankers and the corporations and Wall Street essentially running this country. And they recognize that, and they want to take us out. And that's what this is about. This is not about the facts that are being thrown out because many of the facts that are being talked about, that are being thrown out by the bankers, by the ultraconservatives, are lies. It's misinformation. It's a sound machine that's been created by the conservatives in this country.

SAUNDERSPublic sector workers, when you look on average, don't make as much as private sector workers. Studies will show that when you base it on education and years of work, we're about 7 percent behind when you look at the benefit package and the wage package. So that's not true. In attacking pensions, these are hard-won benefits that we have fought for, for many, many years, many times going -- deferring wage increases so we could have health benefits, so we could have pensions. So we would say this, that we want to work with anyone to try to resolve the problem, but we will not be used as scapegoats.

REHMLee Saunders, secretary-treasurer at the American Federation of State, County and Municipal Employees. And, now, I think that Fred Siegel, a senior fellow at the Manhattan Institute is back with us. Good morning, sir.

MR. FRED SIEGELGood morning.

REHMAnd I gather your view is quite different from that of Lee Saunders.

SIEGELI suspect it's different from all of three of your guests. Public sector unionism is inherently problematic. Traditionally, liberals like Roosevelt and La Guardia were doubtful of it because they were afraid that the public sector would go into business for itself. They would be self-dealing. And what's happened over the years is, as public sector unions became more and more politically important and politically powerful, they were able -- in the words of the famous AFSCME leader, Victor Gotbaum, from New York, they were there to elect their own bosses.

SIEGELSo what you often have is, when bargaining comes, you have the public sector unions on both sides of the table, union representatives on one side and the politicians elected by those same union representatives on the other side. The effect is unbearable pressure on the fiscal well-being of the states and municipalities.

REHMWell -- but what about the promises made to those public employees? Should they now be disregarded? Are they unreasonable? Were they unreasonable before 2008 when the economy began to turn sour, Fred?

SIEGELThey are unreasonable to begin with, but you can't simply repudiate them. They are legal contracts, and I wouldn't argue for repudiation. But were they unreasonable to begin with? Yes, very definitely, because you didn't have the public being represented on either side of the bargaining table.

REHMFred Siegel, he is senior fellow at the Manhattan Institute. Do join us, 800-433-8850. Lee Saunders, one factor you did not mention in your summary of why you think this targeting is primarily political is exactly what David Leonhardt mentioned, the retirement eligibility at age 55, which is pretty young by today's standards. How do you respond to the idea that that's far too young and with too many benefits in place?

SAUNDERSWell, I think it depends upon the occupation, quite honestly, not only in the public sector but in the private sector and the kind of work that's being performed. And I think that, in some cases, based upon the kind of work that folks are doing, then they should be able to retire at 55.

REHMBut it's an overall age.

SAUNDERSBut let's -- overall, I think that there are tweaks that can be made to pensions. There's no question. I think we've got to look at what we call the spiking pension program. We've got to look at double-breasting. But even if we look at these kinds of issues...

REHMWhat does that mean, double-breasting?

SAUNDERSDouble-breasting is when someone retires from a certain position, and then they come back. And they start collecting a salary and getting the retirement at the same time.

REHMInto that same agency?

SAUNDERSYes, yes, yes, yes, yes. So we have to look at those kinds of things. But that does not resolve the serious economic problems that exist in state and local governments across this country. Those areas and those issues and dealing with the pension problems will not resolve those kinds of problems. There is a contract. There is a commitment for individuals to receive their pension benefits. What -- one of the problems that you've got right now is, you have many states that, for the past 10, 15 years, have not paid into their retirement systems. While the employee has continued to pay into that system, the employer has not paid into that system.

REHMDavid Leonhardt.

LEONHARDTAgain, I mean, it's almost -- I think it's important to preface almost any comment about this by saying this issue has become overblown. This is not the be-all and end-all issue of our fiscal situation, but it is certainly one of the important issues. And, I think, while I understand that there are contracts, and, obviously, we can't just reject the contracts, I do think there is a moral case sometimes for amending contracts and for amending benefits that have been promised.

LEONHARDTAnd I think it's this. If you look at someone who is 20 years old today, someone who's 10 years old, someone who's 30 years old, what we're basically saying to them is, yes. We know that these promises we've made are unsustainable, but we're going to do it anyway. You're going to have to pay the bill. You're just going to have to bear the brunt of it. And I don't think that's defensible either.

REHMDavid Leonhardt, a columnist for The New York Times. I see there are many callers waiting. We'll try to get to you as quickly as we can. Stay with us.

REHMAnd I look forward to hearing from you as we talk about benefits being paid to state and local workers within municipalities all across the country. We have David Leonhardt of The New York Times, Lee Saunders of the American Federation of State, County and Municipal Employees, Fred Siegel of the Manhattan Institute and Kim Reuben at The Urban Institute. And, Kim, I know you wanted to make a comment just before the break.

MS. KIM REUBENI just wanted to add to what David was saying, that, you know -- in part, when we're talking about state budget issues and local budget issues, we're mainly talking about employees and employment because that's what state and local government does. It's not like the federal government where it's buying things or transferring money to elderly. Most of the money that state and local governments raise in taxes go out to provide services. It pays for things like teachers and firemen and police.

MS. KIM REUBENSo when we talk about needing to balance budgets, we really do need to have the workers at the table and to be part of the discussion. And so, irrespective of what the politics are right now, I think they do need to be part of the discussion about how we're going to get out of both the short-term and the long-term problems facing state and local governments.

REHMOf course, and one factual question I'd like clarified, what percentage of public sector employees are actually unionized?

SAUNDERSIt's about 34 percent.

REHMThirty-four percent. And what percentage of those are teachers?

SAUNDERSI wouldn't -- I just don't know the answer to that.

REHMBecause the teachers are separate -- in a separate...

SAUNDERSThey will be included in the 34 percent, in that overall number.

REHMThey would be.

SAUNDERSYes.

REHMI see.

SAUNDERSYes. Can I mention something? And I think that the point that was just made is very, very important. The purpose of collective bargaining -- and we strongly believe in collective bargaining, obviously, not only in the private sector, but in the public sector. But the purpose of collective bargaining is for the employer and the employee organization representative to sit down and talk about the issues that confront the members, the workers, but also the community at large. And I think it is extremely important to say that that process should be respected, and it should be used where we have collective bargaining in the public sector.

SAUNDERSIn many cases right now, you have a lot of politicians who are disrespecting that process completely, who don't want to sit at the table with the employee representative, with the union to talk about -- to talk over issues, to come to some kind of resolution in dealing with the problems that not only our members are faced with, but what the employer is faced with. They refuse to respect and honor collective bargaining, and that is a very, very wrong approach.

REHMDavid Leonhardt.

LEONHARDTI think, certainly, collective bargaining does need to be at the core of what's going on here. I think what's hard -- Fred mentioned the idea that there is some inherent tension with the public sector union, and there is. But part of what's difficult about this discussion is that private sector workers have done so poorly over the last decade -- and they've done somewhat poorly over the last 30 years as well -- that, I think, for a lot of people, what's difficult about having this discussion now is that if you go and you cut public sector pay and public sector benefits, it feels like a race to the bottom.

LEONHARDTIf private sector workers had more bargaining power, if they had been able to capture some of the productivity gains that have largely flowed to businesses over the last decade, then you might not be so worried about this from a macroeconomic point of view. But it just feels like, to many people -- and I understand this -- it feels like yet another assault on middle class people.

REHMSo what you're saying is...

SIEGELExcuse me...

REHMExcuse me, Fred. Hold on one second. What you're saying, David, is that while public sector employees have been able to continue with that collective bargaining, private sector employees' unions are being disregarded or are, indeed, collapsing?

LEONHARDTThat's right. In many cases, they are. And that is one reason. It is by no means the other reason -- the only reason. Stagnation of education is one reason. There are all sorts of reasons. But that is one important reason why we have -- we are now at the end of a decade in which median household income has not gone up. That is astonishing when you consider how much GDP has gone up over the last decade. It hasn't gone up a huge amount, but it's certainly gone up. And so it really -- again, I do think there are unsustainable aspects of public contracts. But you do look at this and wonder, okay, well, where are decent middle class jobs going to be?

REHMFred, forgive me for interrupting you.

SIEGELSure.

REHMGo right ahead.

SIEGELI think David conflated two problems. There is a problem, I think, of private sector income. This last decade is the first decade I know of in America where public sector employment increased faster than private sector employment. But if I look at those areas where public sector employment is strongest, the effect has been -- say, a place like Upstate New York, the effect has been the reduction in private sector wages as everyone else has to pay for the cost of the public sector.

SIEGELHere's the question I would ask to anyone giving me an example of where high public sector wages have improved wages for people in the private sector. I don't know of any. I don't think there are any. Insofar as that's the case, then Mr. Leonhardt needs to disaggregate his argument. His point about private sector wages is right. I don't think it's related to this -- what we're discussing.

REHMDavid.

LEONHARDTI think the relationship between these two aren't clear. I don't disagree that the way to help -- I mean, there's a reasonable point there, that we don't want to help private sector workers by helping or herding public sector workers. But the reverse is true as well. In my column this morning in The Times, I wrote about Indiana. Mitch Daniels is the governor of Indiana, has done a lot of impressive things to cut the budget there. He's gotten rid of 18 percent of the state workforce since becoming governor. Private sector wages have done quite badly in Indiana, too. They've trailed neighboring states. They've trailed the nation. So it's not simply a matter of, oh, if only we shrink the government down, we're going to have some great economic boom. Economic growth is more complicated than that.

REHMWhat about the so-called right-to-work laws that prevail in 22 states? Lee Saunders, how are they affecting the rights of public employees?

SAUNDERSWell, you've got to look at the public sector and private sector in a couple of different kinds of ways. We are not covered under the National Labor Relations Act. We have -- we are covered by individual state laws. So in some states across the country, we have the opportunity and the ability to bargain collectively. In other states, we don't. If you look at those states where we have the ability to bargain collectively, in those states that do not have right-to-work laws, then you will see that the wages are better, benefits are better and the economy is stronger. If you look at states that have no collective bargaining or are right-to-work states, you will see that their economies are actually weaker. And I think that that's a direct correlation, and we've got to take a look at this.

SAUNDERSBut I think we're missing a big point, and I mentioned it in the beginning. You know, we're being used as scapegoats, and it's not only the public sector workers but the private sector workers. And I think that we've got to look at the real solutions to these kinds of problems, and we've got to have an honest dialogue -- not one with misinformation -- to talk about how we deal with those problems. You've got to include Wall Street. You've got to include fair taxes. You've got to include paying for what you should pay for, as far as those who have the ability to pay. All of those kinds of things come into the equation.

REHMDavid Leonhardt.

LEONHARDTThey do all come into the equation. I mean, I think we -- what we want to do is focus on the macro situation here, right, and what are the big problems facing the economy right now? I think a short list would certainly include two things. One, the huge deficit that we have long-term, both in Washington and in the states, and, two, the fact that pay for most people in this country has grown extremely slowly. It has trailed behind anything. It has trailed behind productivity growth. It has trailed behind economic growth. It has certainly trailed behind the stock market. It has trailed behind corporate profits. And so what we need to think about is some kind of comprehensive solution that is going to deal with both of these things.

REHMAll right. So you're talking about the macro, and on this program we are trying to focus somewhat on the micro. And the question becomes, to what extent has the stagnation in wages -- to what extent is that related to or totally unrelated to unionization? Lee Saunders.

SAUNDERSI think that if we're -- history will show this, that the -- if you have organized workers, then you have been able to fare better as far as wages and benefits. That may not be the case now simply because the private sector organization, the unionization is shrinking. It's at 7 percent now. In the public sector, as I said, it's about 34 percent. But I think that, again, this cannot be a discussion about racing to the bottom. Okay? We've got to have a discussion about how we get out of this economic mess that we're in, and there's got to be a fair discussion that impacts on every single person.

REHMFred Siegel, what about that?

SIEGELIf I look at places -- the most unequal places in the United States, the places where the poor are stuck in positions where they're not likely to rise, they tend to be the places that are most heavily unionized. New York City is very heavily unionized. We have an enormous chasm now between the working poor and the wealthy. The problem with what's just being described is it freezes the economy by increasing cost. And, listening to Mr. Saunders, I would think that, based on what he said -- that New York is doing better than Texas. New York has lost a million people, mostly middle class since 2000. There's tremendous out-migration.

SIEGELOne reason -- only one reason for that out-migration is that, in the case of New York, we pay more now in firemen's pensions than we do pay in firemen salaries. That's not sustainable, but nor is that the reason that New York State overall has a problem. If we're going to stay away from the micro, let's stay away from -- one other point. Mr. Saunders talked about retribution. I think he's right about that. What's happened over the years, as local Democratic Party machines declined, public sector unions became literally the machinery of the Democratic Party. They get out the vote operation for the Democratic Party.

SIEGELSo this polarization which we're seeing is genuine and, I think, immensely problematic because it's going to require bipartisanship to resolve some of these problems. And, lastly, on what Mr. Leonhardt said -- regards to Indiana. If I look at the surrounding states, if I look at Southern Illinois, the problems he describes are actually considerably worse. In other words, per capita income has declined. It's distorted somewhat in Illinois because of what -- the mercantile exchange, the financial sector in Chicago -- which, like the financial sector in New York -- is wildly overcompensated. So I wouldn't go too far with the Mitch Daniels example.

REHMDavid.

LEONHARDTJust two quick factual things. Since 2005, per capita income has trailed -- in Indiana, has trailed that in Illinois, in Kentucky and in Ohio. So, I mean, obviously, if you slice Illinois in different ways and take out the highly paid people, maybe you can make the statistics look different with...

SIEGELJust take out Chicago.

LEONHARDT...that simple thing. The second thing is -- well, so then you look at Kentucky where it doesn't have a Chicago and per capita income has also done better in Kentucky. The second thing is that, it is true that the so-called big blue states -- New York, New Jersey, Illinois and California -- have some of the worst budget problems, and they really are going to have to deal with that. And that's Kim's area of expertise. But it's not true that the inequality there is caused by the public sector.

LEONHARDTThe reason New York and California are more unequal than say, Alabama, is not because New York has all these public sector unions. It's because New York has -- and California -- have these incredibly highly paid jobs. So it's not that the middle class and the poor in Alabama are doing much better than the middle class and the poor in California.

REHMDavid Leonhardt, a columnist for The New York Times. And you're listening to "The Diane Rehm Show." It's time to open the phones. Let's go first to South Bend, Ind. Good morning, Rich. You're on the air.

RICHYes. Hi. Good morning. My topic or thought has kind of echoed what David said earlier about the private sector versus public sector unions. People look at public sector workers and how much money they make and their benefit package and say, they shouldn't get that much. But then, really, they should be looking at themselves and their own job and saying, why don't I make a comparable way to incomparable benefit package to the public sector workers? I mean, it -- they're -- it seems like they're blaming somebody else for their own situations, you know. Why don't they look at themselves and say, like I said, what can I do to make that same kind of benefit package, the same kind of wage package?

REHMWell -- and, I think, in the current situation, it's very easy to look around and say, how come I'm not benefiting while all these guys from Wall Street, all these big bankers, all these state top officials -- as we have seen -- are making lots and lots of money? Fred.

SIEGELYes. I would point out that part of the reason you can have those wages in the public sector is it's a monopoly. It's a monopoly. It's extractive. And what -- when you go around the country, and you talk to people, they -- especially in the blue states, which are losing people by the droves, you have a sense of government as an extractive mechanism. Now, on New York, Mr. Leonhardt, I think, has missed the point. New York is hard on the middle class 'cause it's hard to open a business here.

SIEGELIt's hard to be upwardly mobile here. In New York and California, the middle class are voting with their feet. There's a framework of a highly compensated sector -- Silicon Valley, Hollywood -- in one hand, the financial sector in the other. And a large public sector union presence squeezes the middle class. They're the ones who end up paying the cost to the public sector, the high cost to the public sector.

REHMAnd...

SIEGELIt's not a good atmosphere.

REHM...that's the voice of Fred Siegel of the Manhattan Institute. And, by the way, Fred, it's actually David Leonhardt who is a columnist for The New York Times. Did you want to add to that, David?

LEONHARDTNo. If anything, I wanted to ask a quick question of Kim, if that's okay...

REHMSure.

LEONHARDT...which is, can you give us some understanding of, really, which states are the worst off? And is it the ones we hear the most, New, York, New Jersey, Illinois, California? Or is the list different from that?

RUEBENSo long-term, those were the states that are going to be worst off. So New York, New Jersey, Illinois have some long-term problems. The other ones that have problems -- and largely it has to do with what happened with the housing market -- Arizona, Nevada, are in pretty bad shape. And so we hear a lot about people leaving California, but, you know, people have started leaving Nevada, too. And they're trying really hard to figure out how they're going to raise money now that they can't necessarily just depend on a growing economy and gambling and tourism.

REHMAnd what about the public sector employees in those states?

RUEBENIt varies. So some of them have pretty high contracts, and some of them don't. I think, in general, they get paid less. There are some, you know, bad examples. There are firefighters in Las Vegas who make a huge amount of money, but, in general, I don't think they get paid that much. But I think, in part, public sector workers, in general, make middle class salaries. They don't make a huge amount typically, and they don't make the very bottom. But part of that has to do with the fact that they are educated. And for people who have college degrees, they've largely traded some stability for higher salaries.

SAUNDERSI would just say this. In states like Nevada and states like Arizona, there is not a high density of public sector unionism in those states. So it's not like the public sector workers are organized in those two states.

REHMLee Saunders, secretary-treasurer of the American Federation of State, County and Municipal Employees. More of your calls, your e-mail, when we come back.

REHMAnd here's a message on Facebook from Kim who says, "I'm very troubled. This discussion is leaving out one of the main reasons that pension funds are suffering poor investments, the behavior of Wall Street. My pension suffered because of investments in Enron. Not only do I contribute, but the matching contribution has been paid by private foundations. Let's discuss morality more broadly than just retiree contracts." Which gets to you, Lee. How much do people make in the public sector?

SAUNDERSI think we've got to put some facts on the table rather than listening to the conserve of sound machine as far as the overpaid and bloated governments across the country. On average, our members make a little more than $40,000. When they retire, their pension benefits are between $19- and $20,000 a year. These are folks that have spent their lives in public service, providing essential public services to the citizens of this country. That doesn't seem to me that that's outrageous. Those salaries, those benefit levels aren't outrageous. But, again, I think that it's awfully difficult to have a micro-discussion without having a macro-discussion as far as what we need to do in how we move this country forward.

REHMKim.

RUEBENSo part of it is we've actually spent a fairly stable amount of money on state and local government. And so part of it is figuring out what we're spending that money on, especially as cost for education and health care grow. And so part of what's going on with pensions -- and I think the Facebook person is right -- that part of it has to do with investment. And part of the reason that benefits got more generous had to do with negotiations that happened during boom period.

REUBENSo the fact that we experienced two boom periods in this country, when pensions seemed really overfunded, meant that benefits got more generous, and state and local governments stopped making some of their contributions. So part of the reason a lot of this is coming to a head has to do with the fact that the stock market has declined, and the other part has to do with the fact that annual contributions weren't necessarily always kept up.

REHMSo you've got private pensions not paying, but the contractual obligations on the part of government to public sector employees, David.

LEONHARDTYes. And it's always hard to disagree with someone who writes in by the Internet because they can't fight back. But I would say I don't think it's mainly things like Enron. If you look over long periods of time, the stock market's done quite well. So forget about the ups and downs. Sure, you put some money in Enron. It's done terrible. Your pension fund has also put a lot of money in Google, and it's done great. The bigger problem is the amount of money that's been put into these things.

REHMHere's an e-mail from Elena in Washington State who says, "I think that politicians should lead by example. Before they cut salary and benefits of the rank and file, they should step up and cut their own salaries and benefits first. This show is discussing state and local governments, but the American public would be appalled by how much federal congressional politicians get in the way of benefits pay and retirement." Lee.

SAUNDERSI think the American public should be appalled over -- about the fact that wages have really been stagnant for the working poor and for the middle class. Yet when you look over the past 10 years, you see that for the top 1 percent of wage earners in this country, their salaries and their compensation packages have tripled -- have tripled. And this is the top 1 percent of the wage earners in this country. Something is wrong with that picture, and we've got to get a handle on that. You don't single out someone who's playing by the rules every single day. But whether it's a public or a private sector worker who are trying to make ends meet, whose salaries are in the $40- or $50,000 range, and then you'd ignore the fact that you had the very wealthy in this country not stepping up to the plate to resolve these issues.

REHMDavid.

LEONHARDTI think one interesting political question here is how public sector unions should respond to this outpouring of frustration. And, clearly, part of that answer for them is going to going on offense, right? And, you know, that's what we hear from Lee, and they have some very reasonable arguments to make. But I also think part of it should be some kind of retreat, to think about what are the things with public sector unions that most outrage people. And I think some of them are not pay or even benefit issues. They are job issues. They are the fact that in many schools, almost all teachers are rated to be doing a good job. There is no workplace for everyone who's doing a job good, at least no big workplace.

LEONHARDTAnd so, I think, if public sector unions were willing to give on some things like, hey, we're actually willing to be evaluated in our jobs. We understand that, to some extent, we are a monopoly, as Fred said, and so that we need to have some accountability in our jobs. I think that might actually help with some of the other political issues. It also -- as a really nice side benefit -- might benefit education.

REHMKim.

RUEBENWell, I think David's point is exactly right. I think as we move forward -- and we've actually seen places start doing this -- where instead of just having a salary based solely on experience and education, we've seen some teacher's unions step up and have negotiations and move into something based on student performance, where people are actually getting paid for what goes on in the classroom. And as that happens, we could see some movement in some of these discussions. And the pension stuff feeds into some of the worst part, especially in education, in that if people are burnt out, they sort of need to keep teaching to get their pension. And for new teachers, people who are there three or four years, they often leave without any sort of pension benefit from that time because of the way vesting works.

REHMAll right. I want to put teachers aside for a moment. We have an e-mail from Al in Pembroke Pines, Fla. who says, "Our newly elected governor, Rick Scott, has vowed to make cuts to public sector pensions and benefits. He rode national bandwagon of poorly performing and managed pensions, was elected as a result, when in actuality, Florida has the fourth best performing and healthiest pension in the nations. The cuts we -- in public safety and education -- are about to suffer after four years of no raises and the loss of extra duty employment due to the weakened economy is sinful."

REHMThat takes me to the question of what happens when taxpayers realize that there may be fewer firemen on the job, there may be fewer teachers for larger classes, police forces are cut back? What happens, Fred?

SIEGELWell, let's look at this on a micro-level because we just had a snow storm in New York. You -- everyone, I suspect, knows about this.

REHMYeah, you bet.

SIEGELAnd what we had in New York is a situation in which we have substantially fewer sanitation men than we did a decade ago when Bloomberg came in, or 20 years ago. And yet the total cost of those -- a declining workforce has grown rapidly because of the pension and health cost. But in talking about this overall, it's really -- I think that the caller from Florida -- the e-mailer from Florida got it right. It's very different in different states. New York's pensions are fully funded. We've done a good job in New York. Illinois simply -- and, now, New Jersey have simply not funded their pensions. In some states, you have a pension guarantee. It's a kind of made-off scheme. No matter what happens, the pensions are guaranteed an 8 percent return.

SIEGELThat's not possible. And, Diane, what you just mentioned about teachers -- if I look around the country, as a number of teachers has increased, the number of students has declined. The expenditures have nonetheless grown rapidly, and the performance continues to be abysmal. So looking at this on a micro-level, I think is essential. Now, finally on the pension point that Lee made, New Jersey -- elected officials in New Jersey, you know, can serve as an elected official, an executive in the town, then as a state legislator and also have a private sector pension. Some of these guys are collecting three pensions. And so the question I would ask is, why are state legislators, why are they given pensions? This isn't supposed to be a lifetime job.

REHMAll right.

SIEGELThis is supposed to be a job of a citizen.

REHMLet's take a caller in Sycamore, Ill. Good morning, Bob. You've been waiting a long time.

BOBYes. I'd like to know why these workers' contracts are any less sacred than the contracts between the bankers and AIG? Their credit defaults basically were insurance. Insurance isn't supposed to pay out on fraud. Those people that created this economic collapse should be imprisoned for economic sabotage during a time of war. The $3 trillion they stole out of this economy should be clawed back and use to rebuild our infrastructure. That'll create jobs, and then we can deal with the deficit.

REHMAll right.

BOBTaking this money from these people is only going to drive us deeper in a hole.

REHMAll right. Thanks for your call. And, David Leonhardt, what about that? The workers in the private sector, who were told that they had guaranteed pensions through AIG ended with nothing. How is that different from what public sector employees are asking for?

LEONHARDTWell, look, when there are legal contracts, people can't simply ignore them. But the contracts can be renegotiated. They can be changed in different ways.

REHMAnd that's what you're saying needs to be done as far...

LEONHARDTIn some cases. In some cases.

REHMIn some cases. Give me an example.

LEONHARDTWell, I mean, I think that some of these teacher contracts are an example with evaluation, but it's not just teacher contracts. I mean, essentially all forms of government really are a monopoly, or many forms are, as Fred said. And so what you want to do is you want to try to figure out ways to have real accountability in government institutions, and many of these contracts make that more difficult. There is a similarity here to Detroit. The GM contracts protected workers in many ways that, in the short run, seemed really good. But, ultimately, combined with some really bad management, they undermined the strength of those companies. And in the long run they weren't good.

REHMAll right.

LEONHARDTAnd I think well-functioning government agencies are actually in the interest of government employees as well.

REHMTo Tacoma, Wash. Good morning, Hal.

HALGood morning. The problem with the public employees versus the private employees is that the public employees are not answerable for performance. The private companies have to make a profit, or everybody in the company makes less. And I'm not talking about the extreme examples back East. I'm talking about small business. If a company doesn't do well to stay in business, everybody has to take a cut. Government is not supposed to make a profit, but they are supposed to break even. And when they're not breaking even, the money has to come from somewhere. But the taxes aren't coming in. Nobody has the right to get the same salary. You have the example of the firemen, saying, well, gee, we haven't had a raise in three, four years. Well, how about a cut?

REHMLee Saunders.

SAUNDERSI would just say this. We are willing to sit down at the bargaining table and talk about any issue that impacts on the employer, the employee, the community at large. You have a number of these ultraconservatives now who are saying that they want to do away with collective bargaining. They don't even want to sit down with the worker, with the employee representative to resolve these kinds of problems. I don't think that's the way to go about doing things and the way to get the proper input to resolve these problems.

SAUNDERSI also have to say this. There is a misconception that the public sector has not stepped up to the plate and sacrificed. In many cases, across the country, through the collective bargaining process, we have accepted furloughs. We have accepted wage freezes. We have accepted changes in benefit levels, but it has been done collectively with the input of the employee organization.

REHMWhat about that, Fred?

SIEGELWell, it's partly true, but partly not true. In California, in the midst of this fiscal crisis, the public sector unions fought Schwarzenegger's ill-conceived -- I would agree -- furlough plan. In the case of New Jersey, Christie, who can be sometimes over the top, asked teachers to withhold pay increases for a year, given the fact that the state was $10 billion short out of a $30 billion budget. And he was turned down flatly. It's a complicated picture. There are places where it happens. There are many -- most places, it doesn't happen.

REHMFred Siegel of the Manhattan Institute. And you're listening to "The Diane Rehm Show." And let's take a call in Rock Hill, S.C. Good morning, Benjamin.

BENJAMINGood morning, Diane. I have a question. Why is it that when budget issues come up, the first people who are asked to sacrifice and step up to the plate are working people? It was the top 1 percent, the banks and the Wall Street financiers that put our economy into the position that's in right now. Why aren't they being asked to sacrifice on this thing?

REHMKim.

RUEBENWell, they are to some extent. When we're talking about state budgets, the one place where taxes seem to have gone up is there have been a number of taxes put into place -- millionaires' taxes -- so income taxes have gone up in New York, in California, in New Jersey. So there has been some increase in the amount that's being paid by people at the top in some states. And so there is limited amounts of what state governments can do beyond raising taxes or cutting benefits, and it's sort of hard when you have to do some of both. And the people who disproportionately benefit from states are lower income people, so...

REHMDavid.

LEONHARDTI agree with that. The caller is also on to something important here. There is a very strong argument that we should be raising taxes on high-income people. We're facing a huge deficit. High-income people have had their tax rates fall more than any other group, more than middle class, more than the upper-middle class over the last 30 years. They've also gotten, by far, the biggest raises. So there's just a really strong argument for raising tax on high-income people. And when someone comes up and says, oh, no, that's going to hurt the economy, just remember, those same things were said before Bill Clinton did it. And we had the '90s boom. Then George W. Bush cut taxes for high-income people. It was supposed to lead to a great economic boom. We had the slowest economic growth since World War II.

SAUNDERSI think the caller is right on target. I believe that we've got to look at alternatives. And David mentioned something, as far as looking at those who are making money, who can afford to pay more. All of the burden should not be placed on the average working family across this country...

REHMCould we...

SAUNDERS...and that's what the noise machine is doing right now.

REHMI wonder if we could be seeing the beginning of the end of unionized public workers.

SAUNDERSWell, I will say this. We are a union of 1.6 million members. We are actively engaged in fighting back, in stopping the misinformation and the lies. We are engaging our members and educating our members, so they are ready for the fight and ready for the struggle. We are engaging our coalition partners and our allies across the country. We will not back down. We want to see a country that works for all.

REHMLee Saunders, he is secretary-treasury of the American Federation of State, County and Municipal Employees, David Leonhardt, columnist for The New York Times, Kim Rueben of The Urban Institute, Fred Siegel at the Manhattan Institute. Thank you all so much.

LEONHARDTThanks, Diane.

SAUNDERSThank you for having us.

RUEBENThank you.

REHMAnd thanks for listening all. I'm Diane Rehm.

ANNOUNCER"The Diane Rehm Show" is produced by Sandra Pinkard, Nancy Robertson, Susan Nabors, Denise Couture and Monique Nazareth. The engineer is Erin Stamper. Dorie Anisman answers the phones. Visit drshow.org for audio archives, transcripts, podcasts and CD sales.