A Faustian Bargain? Or Not?


This story is about a public union and public employees who had their jobs "outsourced" by the local school district  to a private company, simply because it was cheaper to do so than to continue the outrageous costs that fell to taxpayers to support. Bloomberg's Business Week brings us the story:
Rick Thorne worked as a custodian in Chelmsford, Massachusetts, schools for 22 years, earning $20 an hour cleaning floors, cutting grass and setting up for assemblies in the community, about 30 miles ... northwest of Boston.
In March 2011, the 5,500-student system put its custodial contract out for bid. Aramark Corp., a Philadelphia-based global food-service and facility-management company, agreed to clean the town’s seven schools for $841,000 annually, $400,000 less than the custodians’ union. Aramark offered Thorne and other members their jobs back, at $8.25 to $8.75 an hour. They declined.
“I was like family. I knew all the kids,” said Thorne, 55, who’s still unemployed. “It’s brutal. It gets worse every day.”
The School Committee first sought bids from ten bidders, including  AFSCME, Local 1073.  After four meetings, the Committee rejected the union's "final and best offer."  That offer included a pay cut of $1.50 per hour, giving up a weeks vacation and the more than 1,000 days in the union's sick pay bank. But that offer would not dent the difference between the $1.3 million cost of keeping the union employees versus Aramark's contract offer.

Chelmsford's Department of Schools, acting as school districts across the country always do in protecting teacher jobs and paychecks, had been neglecting the repair and replacement of equipment needed by the custodial staff.
"The cost of replacing old equipment and staff was so considerable," [Committee Member Allen] Thomas said. "It's a sad circumstance and it's not the custodians' fault. It's the situation they were put in after a long period of time, of not having the money to upkeep equipment."
School Committee Member Nick DeSilvio looked at the big picture:
"I never knew what was offered as far as hourly rates were concerned," he said. "I had to look at the long run, and that was the impact to students. The cost savings will help the district do what we do best, and that's educate our kids."
So the Aramark deal is now done.
Firing higher-paid employees in unions and outsourcing the work to Aramark’s non-union labor let the town spend $250,000 to hire more teachers, [Committee Head Janet] Askenburg said. The school system also had $129,000 in severance and unemployment costs.
“It was a tough decision but also a bit of a no-brainer as well,” she said, adding that the committee and the superintendent were running the system like a business. “If we were to run this based on emotions and feelings, we wouldn’t have made this decision.”
Aramark employs 27 custodians in Chelmsford’s seven schools, at an average wage of $12 an hour, said Kathleen McWilliams, business manager for the schools. They receive health benefits, contributing a third of the cost, and can enroll in a 401(k) retirement-savings plan, she said.
After a choppy transition to the new custodians, “the schools have never been cleaner.” But behind the curtain, the Wizard of Oz is pulling strings on a deal with the Devil.

Recall that Rick Thorne, our 22-year custodian, has never found a job in well over a year. Incredibly, at age 55, he immediately became eligible for a retirement pension of $1,500 per month and the school district pays two-thirds of his health care premium.  It is tough, after 23 years of unskilled labor in your background to find a job. On the other hand, what is not clear is why Mr. Thorne did not apply for his old job or one of the 26 other custodial jobs filled by Aramark.  The lower paying job at $12 per hour plus the pension equals more money than he received as a school employee - with the added bonus of no union dues.  Sadly, union mentality prevailed and his lament about losing his job (see above) falls on deaf ears. Hopefully, he reports his pension income to Workforce Development when he files weekly U/C.

Pension fund administrators are responsible to invest employer contributions in order to earn a return on fund assets for the critical purpose of affording to finance the current and future pension payments..
Aramark is financially backed by the $50.8 billion Massachusetts Pension Reserves Investment Trust Fund, which funds Thorne’s pension. In 2006 the state invested $125 million in a pool run by Thomas H. Lee Partners, one of the four private equity funds that bought Aramark in 2007. The fund, Boston-based Lee’s Equity Partners VI, returned an annualized 2.8 percent as of March 31, according to the California public-employee pension CalPERS. “It’s a cruel irony to think that for some workers, their pension money is being invested in a manner that could ultimately strip them of their pension or drastically reduce their pension benefit,” Jim Durkin, a spokesman for AFSCME Council 93, also based in Boston, said in a statement.
The Massachusetts Pension Reserves Investment Management Board, which manages the state fund, is directed by legislators to get the highest return within an acceptable level of risk for all state taxpayers, says Chief Investment Officer and Executive Director Michael Trotsky. The retirement fund has stakes in almost 9,000 companies. “Even if it were appropriate to dive into each of these individual companies that our managers are invested in, to do so would be impractical, if not impossible,” Trotsky says. “PRIM hires investment managers who have full discretion.” Massachusetts has forbidden the fund from taking stakes in companies that do business in Iran or Sudan or sell tobacco. It doesn’t prohibit holding positions in those that eliminate government jobs, and such bans have few advocates among labor. “The unions have been pretty quiet, and one of the reasons is there is this conflict” between workers’ job security and retirees’ pensions, says Eileen Appelbaum, an economist with the Center for Economic and Policy Research in Washington.
Pension funds obviously must tend to the investments provided by fund contributors just as private firms such as Aramark are charged with generating a return for stockholders and bondholders.  When investment motivation changes, this capitalist-based society we call America is in big trouble.

Twenty dollars per hour to sweep floors and clean rest rooms was excessive compensation.  So was a pricey pension plan that paid out 50% of final earnings to a 55 year-old ex-employee AND funded post-employment health care. Unionists got greedy and School Department negotiators had no skin in the game - so taxpayers took it on the chin for years. and will continue to do so until the last pensioner is dead - if as I suspect, the pension and health plans are underfunded.

So who is that man, dressed as the Wizard of Oz, lurking behind the curtain? Karl Marx may still be alive and well and living in Taxachusetts - but there is always hope for the reincarnation of a Federalist icon, Alexander Hamilton, James Madison or perhaps John Jay.  God forbid that we hear the words of comedian Flip Wilson chanting: "The Devil made me do it."