Polarization and Policy: The Politics of Public‐Sector Pensions

• DOI: http://doi.org/10.1111/lsq.12145
• Date: 01 February 2017
• Published date: 01 February 2017
• Author: Sarah F. Anzia,Terry M. Moe

SARAH F. ANZIA

University of California, Berkeley

TERRY M. MOE

Stanford University

Polarization and Policy: The

Politics of Public-Sector Pensions

For decades, America’s state and local governments have promised their workers

increasingly generous pensions but failed to fully fund them, producing a fiscal problem

of staggering proportions. In this article, we examine the politics of public pensions.

While mainstream theoretical ideas in the American politics literature would suggest the

pension issue should be polarized, with Democrats pushing for generous pensions over

Republican resistance, we develop an argument—rooted in more traditional theoretical

work by Schattschneider, Lowi, Wilson, and others—implying that both parties should

be expected to support generous pensions during normal times and that only after the

onset of the Great Recession, which expanded the scope of conflict, should the parties

begin to diverge. Using a new data set of state legislators’ votes on hundreds of pension

bills passed between 1999 and 2011, we carry out an empirical analysis that supports

these expectations.

The economic downturn of 2008 plunged America’s state and local

governments into f‌inancial trouble, leading to widespread layoffs of pub-

lic workers and cutbacks in public services. Since then the economy has

slowly improved, yet most of these governments face a challenging

future—due to an unresolved policy problem that threatens their f‌inan-

cial well-being and with it their capacity to provide a full range of public

services to their citizens. The problem is the unfunded cost of public-

sector pensions.

Before the Great Recession, this problem attracted little public

attention. But with the steep drop in the stock market, the assets of state

and local pension funds plummeted and left many seriously under-

funded—and very much in the public spotlight. As f‌inancial economists

and credit-rating organizations weighed in, moreover, analysis revealed

that the underfunding problem was far more severe than the govern-

ments’ own data suggested—between $1.1 trillion and $3.8 trillion,

depending on the underlying assumptions (Munnell, Aubry, and

Cafarelli 2014)—and that it was not simply due to the recession-caused

LEGISLATIVE STUDIES QUARTERLY, 42, 1, February 2017 33

DOI: 10.1111/lsq.12145

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C2016 Washington University in St. Louis

decline in asset value. The problem was chronic and many years in the

making, rooted in widespread departures from sound accounting prac-

tices, with governments offering their workers increasingly valuable

pensions but failing to make the up-front payments necessary to fund

them (e.g., Kiewiet and McCubbins 2014; Novy-Marx and Rauh 2009).

Detroit has gone bankrupt, as have Stockton, San Bernardino,

Vallejo, and Central Falls, with pensions playing a key role. More cities

are likely to follow. Others are devoting much larger shares of their

budgets to pension costs, crowding out other services. Under current

law, states cannot go bankrupt. But ballooning pension costs are staking

ever-larger claims to their revenues, squeezing services, and imposing

austerity. Going forward, rising pension costs will likely continue to be

one of the major challenges confronting state government.

This article explores the politics of public-sector pensions. One of

our aims is to shed new light on the political sources of the nation’s pen-

sion problem: a problem of profound consequence that is well worth

studying as a signif‌icant realm of American government and politics

(Kiewiet 2010; Thom 2013).

1

Our second aim is an analytical one. The

pension issue, as we will show, offers an instructive case for analysis—

for it reveals a pattern of politics strikingly inconsistent with mainstream

theoretical ideas that, for well over a decade, have structured the way

political scientists tend to think about the politics of public policy.

2

A mainstream approach to studying pensions would start with the

polarization that has gripped the nation in recent decades and the litera-

ture that, in documenting its growth with great sophistication, has

profoundly shaped scholarly thinking. Scholars widely agree, for exam-

ple, that the congressional parties have grown distant from one another

ideologically along the left-right continuum; that these same partisan divi-

sions are present among America’s political elites and activists; and that

over the years a broad range of policy dimensions—civil rights, abortion,

and religion, for example—have been absorbed into this same ideological

continuum, reinforcing party conf‌lict (Barber and McCarty 2013;

Layman, Carsey, and Horowitz 2006; Poole and Rosenthal 2007). Recent

work has shown, as well, that polarization at the state level is comparable

to what is observed at the national level (Shor and McCarty 2011).

The pension issue would appear to be a setup for polarized conf‌lict

between the parties. It is clearly a labor issue, and labor issues have been

a def‌ining component of the left-right continuum; indeed, as Jochim and

Jones (2012) have shown in an analysis of congressional voting on 18

policy dimensions, labor issues stand out as among the most polarized.

The pension issue is also a f‌iscal issue of spending and taxing, which,

again, is a classic source of party conf‌lict. There is good reason, then, for

34 Sarah F. Anzia and Terry M. Moe