MS. DIANE REHMThanks for joining us. I'm Diane Rehm. Many state and local governments are struggling with how to pay for employee retirement plans. Republican lawmakers have introduced legislation that would require greater transparency of public pension funds. It would also ban the federal government from rescuing troubled funds. Some opponents see the measure in the House and Senate as an attack on public employees. Joining me here in the studio to talk about the health of the nation's public pensions, Ross Eisenbrey of the Economic Policy Institute. Good morning to you, sir.

MR. ROSS EISENBREYGood morning, Diane.

REHMSara Murray of The Wall Street Journal. Sarah, it's good to have you here.

MS. SARA MURRAYIt's great to be here.

REHMJoining us by phone from Capitol Hill is Andrew Biggs of the American Enterprise Institute. Good morning to you, sir.

MR. ANDREW BIGGSGood morning, Diane.

REHMAnd before we begin our conversation among those three guests, we're joined by phone from California, Congressman Devin Nunes. Good morning to you, sir.

REP. DEVIN NUNESGood morning, Diane. Thanks for having me.

REHMThank you. And tell me what you hope to accomplish with the Public Employee Pension Transparency Act.

NUNESEssentially, what we're trying to do is cut off or try to stop from happening what you see happening in Wisconsin, Ohio, Indiana -- to some degree -- and potential state bankruptcies in Illinois and California. You're seeing what Gov. Christie in New Jersey is having to do. Basically, we're at this point in time now in history because we do not know what we owe to the public employees through their pension programs. So the unfunded liabilities -- you have guests on your show today that know a lot about -- lot more about it than I do.

NUNESBut they're somewhere between a trillion to possibly as high as $5 trillion, which is basically insurmountable for the states to come up with that kind of money to pay employees into their retirement. So this is -- so the bill that we have proposed essentially deals with that crisis that's about ready to happen.

REHMTell me why you think the U.S. Congress should get involved at all.

NUNESWell, essentially, you just saw in Illinois, Gov. Quinn's budget alluded to potential federal bailout. To some degree, Obama -- President Obama's stimulus plan from a couple years ago was essentially a federal bailout to public employee unions, in many respects. And so what you see happening is that you have two things happening. One is, is that people are -- the states have come and will continue to come to the federal government for a bailout, which the federal government is in need of its own bailout, but it has no one to bail it out.

NUNESAnd, secondly -- and probably more importantly to some degree -- is you have the muni-bond market, which relies on selling tax-exempt bonds to fund many state and local projects, are actually subsidized by the federal taxpayer. So without actioning quickly and really -- remember, this is not any type of bill that's -- that does anything but try to help the public employees because we're just trying to get the public employees' information to know what exactly they have in their retirement account. And can they count on it or not? And, also, this would, you know, protect the taxpayer.

REHMIs this -- in your mind, Congressman Nunes, is it a political or a financial fight?

NUNESIn Washington or in -- at the state level or both?

REHMBoth.

NUNESLook, this is a financial disaster that we have on our hands. And I'm not saying that it's only because of public employee pensions. But what it is caused by is a tendency in kind of socialist utopian style governments, which we've slowly become in some states, like California. And at the federal level, I believe, when we're spending $3.7 trillion and taking in $2.5 trillion, we have a spending problem. And Margaret Thatcher, I think, famously said -- I think this was her original words. I don't know if she stole it from someone else or not.

NUNESBut I'll steal it from her and say that socialist governments work great until you run out of other people's money. And we are at that point. In fact, we are at that point so much that I would actually go to say that it's becoming a national security threat. So a failure to deal with a whole host of problems, one of them being public employee pensions, could lead to financial ruin for this country and many states.

REHMHow might your bill affect the rights of unions to bargain collectively?

NUNESThis bill wouldn't have anything to do with that. Essentially, all the Public Employee Pension Transparency Act does is exactly what it's titled. So it would essentially have a web portal for all Americans to be able to go to, where the public employee -- the public in pensions would put up their numbers -- essentially, what are their assets, what are their liabilities and what is their expected outcome on how they're going to meet their financial obligations? That's the first thing it does. The second thing it does is it then takes those numbers that the pension plans put up online, and it runs them to a conservative discount rate. So then all over the country, you can compare the roughly 2,500 public employee pensions against each other to know which plan is better funded compared to other plans.

NUNESAnd that's essentially what the bill does. And then, of course, it says that the federal government is not going to come in and bail these pensions out. It does three things. Those are the three. It's pretty cut and dry. And, I think, had we had a bill like this in place, we wouldn't be seeing what we're seeing in Wisconsin and some other states because public policymakers and the employees themselves would have been well aware of this problem, and it wouldn't just been dropped on them like it is here in the recent months.

REHMCongressman Devin Nunes, thank you so much for joining us.

NUNESThank you, Diane. I appreciate it.

REHMAll right. And turning to you, Ross Eisenbrey, how do you respond to the congressman's points about somehow that the government reaching for some socialist utopian form of government?

EISENBREYWell, I -- it's stunning for him to say that. I don't agree with, really, anything that he said about either the causes of the states' problems or the value of his solution. The cause of the states' problems is not that their pensions are too generous or that, as he said, public employees don't know and the state taxpayers don't know how much is owed for them. The problem is that we had a tremendous financial collapse, the worst since the Great Depression. It wrecked state revenues. State revenues are still down more than 12 percent from where they were before the disaster.

EISENBREYAnd, you know, the real solution to a problem like that is to deal with Wall Street, to deal with, you know, the corrupt practices of mortgage brokers who were peddling toxic securities, you know, subprime mortgages and turning them into toxic securities with the help of Lehman Brothers and other Wall Street firms, Goldman Sachs, and then selling them to pension plans as AAA-rated securities when, in fact, they were junk. That's the real problem.

REHMDo you agree with the congressman's estimates that the pensions could be in debt by as much as $1 to $5 trillion?

EISENBREYNo, no. I think that that's -- as, you know, he called it on the basis of conservative assumptions, I would say it's just plain accounting gimmickry, that there is a way that the Government Accounting Standards Board has been requiring states to account for their liabilities. It's used all over the country. It's used everywhere, and it's common sense. It says, what is the expected growth of the assets that you have? And most states say the expected growth is about 8 percent because that's the historical return that they've gotten.

REHMBut that has not been the case in that...

EISENBREYNo. It is the case over -- you know, if you measure it over 20 years or a 30-year span, which is -- you know, these states go on. They're not going out of business like a small business or a corporation. So the right discount rate is the one that they've been using. They've met their targets over time and -- for example, last year, they made 12.5 percent.

REHMRoss Eisenbrey of the Economic Policy Institute. Andrew Biggs, how do you see it?

BIGGSRoss makes a good analogy to what happened in the housing and the financial crisis, but I would take a different lesson from it. When I first moved to Washington, you know, 10, 12 years ago, I worked on the house banking committee where we looked at issues of Fannie Mae and Freddie Mac and housing. And back then -- I mean, even -- this is a long time ago. There's -- we had hearings, and people were saying, look, we have problems here. They're playing fast and loose. There's danger to it.

BIGGSBut people would come back and say, oh, no, but they're doing good things, letting low-income people buy houses. Let's not rock the boat. And we know, you know, $150 billion of bailouts to Fannie and Freddie -- later, we know we made a mistake. The thing that, I think, could be a real shame is that we're just recovering from our last sort of self-inflicted financial crisis. And with public sector pensions, we could move into our next one. Economists are almost unanimous in saying that the accounting rules that public sector pensions use in valuing their liabilities and determining, you know, how much to put towards to fund those liabilities are wrong.

BIGGSThey're unanimous in this. They believe that the rules they used, which essentially used the expected rate of return on a risky portfolio of assets to value liabilities, which are guaranteed by law, is fundamentally wrong. It encourages the plans to promise too much in terms of benefits, to fund too little on a year to year basis and to take too much risk with the money they're investing. So it's -- there's just a disagreement here between how things work. But I think the economics community really says we need a change before it's too late.

REHMAndrew Biggs, he is resident scholar at the American Enterprise Institute. When we come back, we'll talk further, take your calls, your e-mail. I look forward to hearing from you.

REHMAnd we're back, talking with Ross Eisenbrey of the Economic Policy Institute, Sara Murray of The Wall Street Journal and Andrew Biggs of the American Enterprise Institute, all about public pensions. Turning to you, Sara Murray, Moody's ratings agency supports the Pension Transparency Act. What's the significance of that?

MURRAYIt's significant because it says this is not purely a political issue. The fact that a ratings agency is saying, you know, the transparency isn't really up to par, we should have more information out there, is important. And they say that it will force states to sort of look at their pension obligations in the face and make some significant changes.

REHMHow do you react to that, Ross Eisenbrey?

EISENBREYWell, I think transparency is great. I don't think that the federal government should be telling Maryland and, you know, places that are better managed than the federal government has been, you know, how to manage their pension plans. But transparency is good if you use a good measure. If you're using a sort of crackpot measure that would require you to overfund plans or that scares people into thinking that the liabilities are four times bigger than they are, you're causing, actually, more problems than you're solving.

REHMAndrew Biggs, if you would, how would the Public Employee Pension Act change the way that states value their pension funds?

BIGGSWell, it would not require that the states themselves change how they value or fund their liabilities. It would simply require them to report a measure that most economists think is appropriate. The way it works now is if you have benefit liability paid sometime in the future, the plans discount it back to the present at the rate of return they expect on their investments -- the 8 percent return. And economists think that's wrong because those liabilities are guaranteed. They're guaranteed usually by law, by state constitutions.

BIGGSAnd so the way economic logic works is you should discount the liability to the present using an interest rate that is commensurate with the risk of the liability. If the interest rate -- if the liability is guaranteed, you should use a low interest rate, like what you would get on U.S. Treasury bonds. So the Nunes bill would essentially require that plans report their liabilities valued on a risk-adjusted basis, valued on the U.S. Treasury return. And that...

REHMSo...

BIGGS...obviously would be a bigger number.

REHMHow do public pensions operate differently, then, from private pensions?

BIGGSThis is an interesting point because private sector pensions are required to value their liabilities using an interest rate derived from a portfolio of high-quality corporate bonds. And the logic of this is that private defined benefit pensions are very safe, but they're not riskless. If the company goes under, part of your benefits can be lost. So they use a -- an interest rate which, you know, reflects a moderate amount of risk. Public sector pension benefits are effectively 100 percent guaranteed.

BIGGSSo they should use a lower interest rate than the corporate bond rate that private sector pensions do. Instead, they use a higher interest rate. So the short story is, if public sector pensions were required to use the accounting standards that private sector pensions use, instead of reporting $500 billion in unfunded liabilities, you'd be looking at somewhere around $3 trillion.

REHMRoss.

EISENBREYWell, it's inappropriate for them to do that. Corporations go out of business. And the federal government is required to step in with a termination insurance program to pay off the pensions that are underfunded, so the government requires them to use a different interest rate, a different discount rate. These state governments are going to go on forever. They've been there for hundreds of years, and they'll be there for hundreds of years more. So the discount rate that Andrew is proposing and Nunes is proposing is wrong. The plans aren't investing Treasury bonds. They're investing in a mixed portfolio that gets a return of 8 or 9 percent, and they're actually using a conservative assumption. They generally actually get a higher return than their assumption.

REHMSara, do you want to comment?

MURRAYI think there's certainly a valid argument, that the rate of return on investment in the bill is a little bit too conservative. You're looking at about a 4 percent rate of return. So about half of what it assumes now for most -- for a large share of corporations, which, you know, like Ross said, can declare bankruptcy, can go out of business, their return on investment is about 6 percent. So this would be an even more conservative rate then for a lot of corporations who could potentially go under.

REHMHere's a powerful comment posted on our website from Robert, who says -- pardon me -- "As a retired high school teacher, I'm amazed how Wall Street, a war in Iraq, bank scandals and many other illustrations of wrongdoing received no punishment while people who've worked hard their entire careers are now threatened by the very governments we serve." He says, "I coached softball for 15 years, the debate team, the mock trial team, women's and men's basketball, many more activities over my 29 years."

REHM"If you add up the hours I worked, it was below minimum wage. I didn't complain because I knew the big picture. Pension, medical made it worth the time. I sit here now, receiving chemotherapy, wondering if my medical coverage will be stopped. Even worse, I'm almost happy they discovered it now while I still have insurance. The bottom line is the public workers didn't create this crisis. The politicians did." Andrew.

BIGGSWell, nobody has proposed, and, in fact, it would be illegal to cut benefits that have already been earned. Once you've earned a certain level of public pension benefits, in most states those benefits are effectively guaranteed. So if you're a retiree out there and collecting benefits, they can't be cut. Retiree health benefits are an entirely different issue in terms of legal protections and in terms of the accounting rules that are applied to them. So they're a separate issue from pensions.

BIGGSI would like to just return quickly to something Ross said, where he referred to this idea of market valuation as a crackpot measure. I don't like to drop names, and so I won't actually say the name. But I was discussing this the other day with a fellow who has won the Nobel Prize in economics. And he basically said to me, I don't understand why the pensions don't get this. And, now, if you won the Nobel Prize, you're -- you know, things come easier to you in terms of understanding things. But the point I would make to Ross is -- I mean, Ross, you have plenty of good economists in your organization.

BIGGSI can promise you, just go talk to them, and they'll say, this is how economics works. It's that there is -- there was a speech given a year or so ago by the number two of the Federal Reserve Board. He said economists are well-known for disagreeing on things, about things. On one hand, this, on the other hand, that. What they unanimously agree on is if you're evaluating a low-risk guaranteed liability, you have to use a low interest rate. And so there's -- it's unequivocally in contravention of economics theory, of private pension accounting and of the basic functioning of financial marketing.

REHMAll right. And, Sara, in your reporting, I know you've talked to a great many economists. Is there one view that's out there that you believe is overriding all the others?

MURRAYYou know, like Andrew said, economists take different views all the time. And so to say that all economists are on one side of this issue is clearly not a fair representation of where economists are. I do think there are a fair number of economists who think this 8 percent return on investment is a little bit too high, even though, historically, we have seen we have been able to keep up with that. But then you get into a situation like this, where a recession batters your investments and states manage their funds irresponsibly. And all of a sudden you're in the middle of a crisis. And so, I think, the idea is, going forward, we don't want to set ourselves up for that again.

REHMAnd, Ross, turning to you, is there, in your mind, a coordinated effort on the part of Republicans to take power from unions and reduce retirement benefits for public workers?

EISENBREYWell, I think there is. And -- but there's a bigger problem, which is that there's a coordinated effort to take away retirement security from all workers. I mean, Andrew is part of a movement -- Congressman Nunes is part of it -- that wants to privatize Social Security. They want to privatize public pensions. I mean, they're in favor of actually doing away with public pensions and converting them into 401 (k) plans, you know, which are much less secure, which are -- for each dollar of benefit delivered are much more expensive, but which, because they're privatized, will allow people on Wall Street to make a lot of money off of them. It's the same dynamic that we've seen with Social Security. And that's the bigger issue.

REHMWell, but there must be some kind of problem. You've got the Securities and Exchange Commission devoting an entire team to investigating public pensions. Why do you think that is?

EISENBREYWell, there are two things here. For one, the Government Accounting Standards Board spent three years looking at this and rejected the Biggs-Nunes proposal, okay? So to say that this is unanimous is just not true. And we could go into that, about what he's talking about. He's not talking about how pension plans ought to operate. But the real problem with the pension plans is the people using the current discount rate have not put in the amount of money that they should. Each year, there's an annual required contribution. And going back in New Jersey to Christie Whitman, they decided not to do it. They, you know -- if the one...

REHMYou are saying they underfunded.

EISENBREYThey underfunded. They had a requirement that was using the old standards, and they didn't meet it. And Illinois is, you know, maybe the worst offender in this regard, but there are other states that have done this. Nevertheless, overall, the states have done very well, even despite two recessions in the last 10 years, the home loan scandals of an earlier period, they've managed to keep their funding up. It was at 100 percent before -- before the 2001 recession. They were 100 percent funded overall. So this is not a continuing problem. It's a problem of this recession and some particular states who need a targeted response.

REHMSara?

MURRAYI'd have to disagree to say that this is just a problem that came along with the recession. It's a problem that's getting a lot of attention because it got a lot worse or a lot worse during the recession. But the bigger issue than trying to, you know, cut benefits that these public employees have earned is that states just manage their funds irresponsibly. And one way was underfunding, not putting enough aside, but the other thing was increasing employee benefits without paying for them. I mean, we saw temporary increases that ended up being permanent. And those are the kinds of things that now governors are looking at and saying, we actually have the ability to roll this back. And they're doing that.

REHMSara Murray, she's economics reporter from the Wall Street Journal. And you're listening to "The Diane Rehm Show." Now joining us by phone from an undisclosed location, Wisconsin State Sen. Lena Taylor. She is one of 14 Democratic senators who fled the state rather than vote on a bill that would strip most state government workers of their collective bargaining rights. Good morning to you, Sen. Taylor.

SEN. LENA TAYLORGood morning, Diane. It's such a pleasure to be on your show. And thank you for giving voice to the Wisconsin workers, to the Wisconsin 14, who are standing on the Constitution so that those Wisconsinites would be able to have a voice and have time to see this bill that's being rammed down their throat.

REHMTell me what you hope to accomplish and how long you figure you can stay out.

TAYLORI think the answer to the first question is we wanted to accomplish slowing this bill down because -- although our governor says he doesn't like high-speed rails, he's taking this train, and he's taking it rather fast. And he's trying to run right over the Wisconsin workers and the Wisconsinites, more than a quarter of a million, moving towards a half a million, who have come to the capitol to say that they completely disagree with him. So slowing down the bill was priority number one, so that people would have an opportunity to know what was going on because they tried to ram this through in less than five days. It would have been three days if we had not left. And so that was the problem.

TAYLORWe also wanted to make sure that people have an opportunity to find out what's in the bill because the bill has -- at least a third of it -- and that's being kind -- has no physical effect whatsoever, like, for example, the no-bid contracts that he has for the power plants, and that his fourth largest contributor, the Koch Brothers, seem to have an interest in. So this was really, first and foremost, about slowing it down but also to give time to our Republican colleagues as well as to our governor to realize that the governor has won. He got everything he wants. He got all the concessions that he was requesting that they do. And, because of that, we are saying you won, governor. Now you don't have to take your citizens' rights away.

REHMNow...

TAYLORAnd that was the other reason. And how long? You know, we're tying to give them time to do what they need to do so that they're not just denying citizens their First Amendment Right, which is one of the things they did on the committee but also, hopefully, that they won't be denying them rights that they presently have.

REHMWhat do you think of Gov. Walker's threats to begin laying off 1,500 public employees if you don't come back and vote?

TAYLORYou know, that's his choice. He doesn't have to do that. Those are not his only options. And we respect that he wants to be a bully and that he is not going to rise towards good leadership, which is consensus building, which is bringing people together to talk about how can we address the challenges that exist in our state. All he has to do is go to the bargaining table, accept the fact that he has won, and all of his concessions have been done. Municipalities say that they don't want what he's doing. The unions have said they agreed in his concessions. And almost 70 percent of Wisconsinites say that they believe that workers should have the right to sit at the table.

REHMTell me what concessions you're willing to make.

TAYLORI believe that we have continued to express that the only thing that's important is to take out taking away the rights of workers. This was a legacy that was set in Wisconsin more than 50 to 100 years ago.

REHMYou're talking about collective bargaining rights.

TAYLORTalking about the -- yeah, being able to sit at the table to talk about your work conditions and to talk about all of the things that can affect workers, including worker safety. And those conditions are important issues that have to be discussed. So, yes, being able to sit at the table and bargain. The freedom to bargain is what we're looking to see the governor not take away.

REHMAnd if he doesn't?

TAYLORWell, I'm hoping that -- and I'm stepping on faith that he is going to rethink his position and that he's going to take something from the playbook of his mentor that he always speaks about, which is the governor, you know, from Indiana.

REHMAll right. Wisconsin State Sen. Lena Taylor. We'll be right back.

REHMAs we talk about the pension system for public employees, I'm going to open the phones now. Now, we have two guests on the line, Wisconsin State Sen. Lena Taylor, one of 14 Democrats who left the state rather than vote on a bill to strip most state government workers of their collective bargaining rights. We have Andrew Biggs. He is a resident scholar at the American Enterprise Institute. Sara Murray, economics reporter for The Wall Street Journal and Ross Eisenbrey of the Economic Policy Institute. We're going to open the phones now, 800-433-8850. First to Roanoke, Va. Good morning, Rob. You're on the air.

ROBGood morning, Diane. First, I have to say my wife says every time she listens to your show -- and it's true with myself also -- a question comes up in our mind. Someone who's talking and seems to be avoiding the question, you always ask the questions that we want to ask.

REHMThank you.

ROBThank you. The -- my wife worked for the federal government for 30 years. And her position -- and I'd be interested in the Wisconsin representatives' comments on that collective bargaining is -- I think, there's no question it should be allowed. It's, I think -- to tell you, if it were transparent, it would also bring the public into -- which is sort of what's been happening now that the representatives are out of the state. But do the public unions in Wisconsin have the right to strike? My wife feels that public employees providing a service can collectively bargain, but they should not strike.

REHMSen. Taylor.

TAYLORThey cannot, which is one of the reasons why we were suggesting to our teachers that we did not want individuals staying away from our children so that our children would be able to get the education they need.

REHMAnd, Andrew Biggs, do you want to comment?

BIGGSWell, I think, you know, we've been talking mostly about the pension issues. And I just think it's important to draw a distinction between what is going on, on these sort of -- these pension accounting issues and what you believe about the health of the pension and what is going on in Wisconsin or in other states. They really are distinct issues. The -- sort of the market evaluation view for public pensions is not a partisan issue at all. So I just think it's -- I mean, they both play into each other obviously. But I think we don't want to politicize one part by drawing it into another debate which, obviously, is more political.

REHMSara, do you agree with that?

MURRAYI would have to disagree. I think these issues do go hand in hand, and they are both --you know, they both have a political underpinning, whether you agree that an 8 percent return investment or 4 percent return -- state and local officials see this pension transparency bill as sort of a veiled attack on, you know, public employees and public employee unions. And Wisconsin is sort of taking that, you know, a few steps further, but it's kind of in the same vein.

REHMAll right. To Haslett, Mich. Jeff, you're on the air.

JEFFThank you, Diane. I appreciate the opportunity.

REHMSure.

JEFFTwo points. One was, I'd like to relay a common sense compromise that I think could be done, and then the second, there's an 800-pound gorilla that I'll discuss at the end. And then I'm going to take my answer off the air.

REHMAll right.

JEFFFirst of all, I worked for a city very much like Madison, and their pension system has and does work very good. I am now medically retired, but they took 5 percent of our check out for 20 years, and there's an annuity that will pay my pension for 11 1/2 years. And that's money taken out of my paycheck, and it just so happens actuarial study shows the average worker in that city only lives 11 1/2 years after his pension is drawn. And the national average is 22 years, so there's another point about what public worker's face. So they are very well-managed. We had 7 percent a year as a base, and then it was so well-managed that we often got a bonus with it. So it was agreed to by the union and the employer, and I think that there are commonsense compromises that can be reached if you look around at successful programs. And the...

REHMAll right.

JEFF...city that I worked for was one. And, secondly, I just would like to mention a problem that nobody seems to want to talk about -- and Gov. Walker has even exempted them -- and that is the police and fire pensions are not the same as the garbage collector or the forestry worker or the parks worker. They generally have five years less that they can retire in, like, 20 years. They had a higher multiplier in their pension calculation where I worked, and they also had unlimited overtime. And that goes into their final average compensation, which greatly affects their pension.

REHMThat's interesting. Sen. Taylor, why...

TAYLORThat is...

REHMGo ahead.

TAYLORI wanted to comment -- I wanted to comment on that, Diane, if I could.

REHMSure.

TAYLORThat's all very true. And I brought that issue up during finance because, in my particular community in Milwaukee, Wis., the amount that we pay for fire and police is the majority of the municipal budgets. And so, even the municipalities are suggesting that this piece that the governor is doing, where taking out bargaining, is not something that they agree with. And one of the reasons is because the very thing that your caller just said. Another -- one of your other callers spoke about, you know, basically whether or not the pension issue is, you know, really separated. And I want to answer that. And it's really yes and no, in some ways.

TAYLORIn the situation that we're in now, the unions have already gave concessions related to pension and concessions related to health care. Do I agree that pension and health care issues, benefit issues, have been a huge driver in costs and challenges that exist, or even when we sit down at the bargaining table, some of the items that are able to be bargained on? I'm not going to disagree with the governor that those things have created financial challenges, but what I'm not going to do is give him a pass. He has to sit down at the table. He should try. When I grew up, and when I was growing up, my mother would always say nothing beats a failure but a try.

TAYLORAnd what I find disgusting and what I find to be a lack of good leadership is someone who cannot see when nearly, and growing to, a quarter of a million of your residents are displeased with your choice. Individuals who voted for him, individuals who endorsed him and are now saying now that they're sorry that they endorsed him and they regret their endorsement, it should at least make you pause and check yourself and to look at what you're doing. And what I don't like is that his leadership style says it's his way or the highway. It's a government of wants. It's not a dictatorship, and he needs to accept the fact that he must engage with his people and with the legislature.

REHMAndrew Biggs?

BIGGSWell, it's -- I don't know. I mean, I agree that you want engagement on this. And, certainly, I know I'm not expert enough on Wisconsin politics to say one way or the other the housing should go. I think, you know, there is a perception among people that the overall compensation for state and local employees may be above what some other folks get. It's -- I've done some work in that area. It's a complicated thing. And I don't think we can say one way or the other, which way it goes. But we do know that the costs of pensions, retiree health care are challenged. And, you know, the sooner we come together and find a way to address it, I think the better off we'll be.

REHMYou know, it's interesting. We've had four or five e-mails from New Jersey listeners, pointing to the fact that past New Jersey governors have borrowed from the pension plans to balance their budgets and then not paying them back. Why is this allowed? And why is this not mentioned? Sara.

MURRAYYeah, I mean, it is allowed. It depends on the state. And this is what we're talking about when we say states have managed their pensions irresponsibly, borrowing from your pension fund or not making the required contributions.

REHMWell, that's very different then from the amount of interest or discounted rate that pensions earn. I don't -- I think there is a connection, Sara.

BIGGSDiane, there actually -- this is Andrew -- there actually is a very direct connection. I mean -- you know, Ross was certainly right that, you know, a lot of states have not met their pension obligations. They've not paid as much in as they should have. Sara is right in terms of the borrowing -- we call it pension obligation bonds. But the discounting, the accounting rule encouraged all of this. They -- if you're allowed to discount your liabilities at the return on -- the expected return of your assets, that encourages pensioners to invest in riskier assets, which they have.

BIGGSThey're now mostly in stocks, hedge funds. You know, from what Ross says about Wall Street, public pensions are the biggest holder of hedge funds in the country. That produces swings of values. So when, in the good times, they look overvalued, plans will...

TAYLORRight. It's...

BIGGSWell, they'll raise benefits. They'll stop making their contributions. And, in the bad times, things look bad. If you use more conservative assumptions, more realistic assumptions, then this sort of dynamic just wouldn't happen. It's the same with the pension obligation bonds. (word?) I would just correct something, Sara, I think that the...

TAYLORYou know, I don't disagree. I don't disagree with that, but I want to be really clear. In Wisconsin, the pension concessions and the health care concessions have all been provided. And if the governor was to sit at the table to say we need to draw new parameters or we need to think of new options where we can be more efficient in our services but we can also figure out how to make sure that the risks that we invest in -- let's say in the pensions -- that the swing is not such that it creates the same changes, or get into the state system, for example, in our state so that our health care cost can be different.

TAYLORThe point is that you can't have those discussions if you don't sit at the table. Or if you're saying we don't want you to be able to negotiate certain items so that -- or that we need to be able to do it in a quicker time period. Whatever the issues are, my point is that you at least have to be at the table.

REHMAll right.

TAYLORAnd so there is no question whether it is municipalities or whether it's, like, for example, our sewage district or our school districts all have issues Our county all have issues with pension and even retirees and their pension and what that costs. But...

REHMAll right. I want to read to you an e-mail from Jackie who says, "Talk to the retired employees of the city of Prichard, Ala. They contributed to their pension plan over 30 years of employment and are now getting zero. The underfunded pension plan ran out of money last year." Can you comment, Ross?

EISENBREYWell, we don't know what the circumstances are in Prichard. We don't know whether there was embezzlement or whether the -- they didn't make the required contributions. I think that we really can't say in that particular case. And, in fact, it's important not to paint with a broad brush here and say the states have done these things. Some states have done these things. Many states have well-managed pension plans. They didn't invest in risky assets, except when they were told by Moody's and Wall Street that they were AAA-rated, completely safe investments. So, you know, the problem is not pension plans, per se.

REHMRoss Eisenbrey of the Economic Policy Institute, and you're listening to "The Diane Rehm Show." Let's go now to St. Louis, Mo. Good morning, Adam.

ADAMGood morning, Diane. This is a very important subject. I'm glad you're talking about it.

REHMThank you.

ADAMFirst, I want to say thank you to Sen. Taylor for being on today and for doing what you're doing. You're doing the right thing. This is a terribly important conversation that we have across the country. And the longer that you and the other Democrats are out, the longer we'll be able to have this conversation and the more people understand what's really going on. What I think is really going on -- and it is valuable to have these sort of economic policy discussions. I think what's really going on is this is a question of priority. This isn't about states not having enough money. This is about what do we do with the money we have.

ADAMWhen Gov. Walker came into office in Wisconsin, he came in with a budget surplus. And he went and pushed through tax cuts the state of Wisconsin couldn't afford, giving away money to the wealthiest sectors of the economy there, and now he's turning around and saying the public sector unions have caused this crisis. That's just not true. You know, I work for a public sector union here in Missouri, and we're seeing similar sort of things. They're not going after our right to bargain like they are in Wisconsin.

REHMAll right. I'm afraid you're breaking up on us, Adam. But, Sen. Taylor, talk about Adam's point that, when the governor came in, there were something like $140 million in tax cuts that he gave...

TAYLORA hundred...

REHMGo ahead.

TAYLORA hundred and forty-two million, Diane, to be exact.

TAYLORAnd the part that I find rather frustrating is he did it under the guise -- the same way that he lied to the people and said that he had to do a budget repair bill when we didn't meet the statutory trigger in our state for a budget repair bill, when he lied and said it was a budget repair bill but a third of it has policies and favors for special interests who are top four donors -- his fourth highest donors. The same way he lied about the budget repair bill, he lied about what he called the jobs -- special session jobs or job special -- special session for jobs.

TAYLORWhatever it was, it was zero jobs done in the entire session. There were eight bills that were done. Those bills cost $142 million. They were favors for the rich and not a job, period. And so this governor lied to the people, and he went and immediately came in, spending the credit card and spending $142 million in our state. And this is -- you know, it's unacceptable.

REHMSara.

TAYLORAnd the only way -- one last thing, Diane, if I could.

REHMSure.

TAYLORThe only way that we've been able to even bring light to what he was doing because he introduced it late on a Friday, we were on, in finance, on Tuesday, and they were ready to put it on the floor on Thursday.

REHMSara.

MURRAYYeah.

TAYLORSo...

MURRAYI mean, I think the problem here is that if you want to get concessions from public employee unions -- you know, if you're saying you're having a hard time funding things, paying for this, that's fine. But you need to come to the table and be asking for shared sacrifice. So, I think, the problem in Wisconsin is the perception is there's not a shared sacrifice. The perception is the governor is doing what he wants. He's putting his priorities on the table and then saying, all right, we're going to take from you to fund those priorities. And that's not -- that doesn't foster good political will among anyone.

REHMAndrew Biggs.

BIGGSWell, now, I agree with Sara that there should be shared sacrifice. I think, though, some of the hostility you're getting towards public employees is, you know, common because the economy is bad, people have seen their jobs lost. I mean, public employees have a one-third chance of being, you know, fired or laid off as private sector employees. So, you know, there is this feeling in the economy. I mean, if these were good economic times, I doubt we would be having, you know, these kinds of fights right now.

REHMRoss, I'm going to give you the last word.

EISENBREYWell, a quarter of a million public employees have lost their jobs in this recession, so they've taken it on the chin already.

REHMRoss Eisenbrey of the Economic Policy Institute, Sara Murray of The Wall Street Journal, Andrew Biggs of the American Enterprise Institute and Wisconsin State Sen. Lena Taylor, thank you all so much. And 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 Tobey Schreiner. Dorie Anisman answers the phones. Visit drshow.org for audio archives, transcripts, podcasts and CD sales. Call 202-885-1200 for more information. Our e-mail address is drshow@wamu.org. And we're on Facebook and Twitter. This program comes to you from American University in Washington. This is NPR.