WASHINGTON — A House oversight committee hearing slated to examine state and municipal debt Thursday devolved into an extended debate about collective bargaining, featuring two sitting governors from opposite ends of the political spectrum.
The panel’s focus stoked a larger concern, voiced among some market participants earlier this year, that Republicans have politicized the issue of unfunded state pension liabilities as part of a broader effort to crack down on labor unions, which tend to vote for Democrats. One estimate, often cited by Republicans, pegs states’ unfunded pension liabilities at $3 trillion.
In his opening statement, Rep. Elijah Cummings, D-Md., said he strongly opposed efforts to blame middle-class workers for the economic downturn.
“This recession was not caused by them,” he said.
Earlier this week, the House Committee on Oversight and Government Reform circulated a list of five witnesses, a mixture of academics, policy experts, and Wisconsin Republican Gov. Scott Walker
Walker’s efforts to reform his state’s public-sector collective bargaining rights spawned protests in Madison this year, with opponents squatting in the state capitol and Democratic lawmakers fleeing the state to avoid voting on the measure.
When the committee convened Thursday, only two witnesses appeared: Walker and Vermont Gov. Peter Shumlin, a Democrat. Both leaders were swept into office last year as states across the country grappled with the continuing fallout of the economic crisis — budget constraints, dwindling revenues, and persistent unemployment.
In his remarks, Walker said he had retooled his state’s collective bargaining system so local governments could require employees to pay 5.8% of their pension contributions and 12.6% of their health care premium costs. He did so, he said, to protect “middle-class jobs and middle-class taxpayers.”
Shumlin, by contrast, said he had responded to his state’s budget shortfalls by paring the two biggest budget items, expenditures on health care and prisons.
“I do not believe that those to blame for our current financial troubles are our law enforcement officers, firefighters, and other state employees whose services we take for granted,” he said in his written remarks.
Two key Republicans on the committee signaled ongoing concerns about the muni market, including whether issuers provide adequate information to investors.
In his opening statement, committee chairman Darrell Issa from California said: “The bond markets are not transparent and the reporting rules do not force adequate disclosure.”
Under federal securities laws, the Securities and Exchange Commission polices the bond market through its jurisdiction over broker-dealers. The SEC currently lacks authority to regulate issuers directly.
Rep. Patrick McHenry, R-N.C., said that “shadow accounting” has kept states’ unfunded pension liabilities off their books.
“We’re not facing a revenue problem,” he said. “It’s a spending problem. But as always, the numbers don’t lie.”
Still, for much of Thursday’s three-hour session, panel members grilled the governors about a host of topics, ranging from whether Democratic presidents Franklin D. Roosevelt and John F. Kennedy supported labor unions to whether collective bargaining was a fundamental human right.
Shumlin and Walker, meanwhile, both said they do not support a policy prescription touted by some Republicans — extending the protection of federal bankruptcy laws to the states.
Shumlin also noted that rating agencies had told him they thought the issue of state pensions’ unfunded liabilities had been greatly exaggerated for political reasons.
In an interview after the hearing, Issa said disclosure practices among state and local issuers remain a concern, especially for public-sector pensions.
“We don’t have transparency,” he said. “We don’t know how big a hit they took.”
Issa talked about the importance of a bill he has co-sponsored with Rep. Devin Nunes, R-Calif., that would require state and local governments to submit annual reports to the Treasury Department disclosing detailed information about their pension plans, including unfunded liabilities determined on the basis of a Treasury rate, or roughly 4%, rather than the more commonly used rate of return on investments, or roughly 7% to 8 %.
“There’s no logical reason for the states to maintain secrecy,” Issa added, before ducking into an elevator.
