Contagion: when unions and employers can’t agree, businesses fail

When unions can’t work with employers in the private sector, companies go under. Hostess Brands Inc. is the most recent case in point, announcing that it will close its doors because of financial insolvency. Hostess has filed for bankruptcy twice since 2004, most recently this January. The company has an annual revenue of $2 billion,...

When unions can’t work with employers in the private sector, companies go under. Hostess Brands Inc. is the most recent case in point, announcing that it will close its doors because of financial insolvency.

Hostess has filed for bankruptcy twice since 2004, most recently this January. The company has an annual revenue of $2 billion, but it also has almost $2 billion in unfunded pension liabilities. Despite this, members of the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union began striking last week over 8 percent wage cuts.

“We do not have the financial resources to weather an extended nationwide strike,” Hostess CEO Gregory F. Rayburn said in his announcement today, also noting that this labor disruption impaired the company’s ability to manufacture and distribute its goods.

According to court filings, Hostess officials said it would probably take about a year for business to wind down. Hostess has 18,500 employees today – about 1,400 of these employees work at the company’s Schiller Park location. It will need about 3,200 employees to start the transition process; after the first few months, however, the company will only need 200 employees.

Hostess isn’t alone. Government employee unions are clashing with government leadership in Illinois, and, like Hostess, Illinois doesn’t have the funds to continue funding skyrocketing pensions. Legislators and union leaders would rather turn to taxpayers to perpetuate a broken system through income tax hikes – and, ultimately, a progressive income tax – instead of joining forces to make much-needed reforms to the state’s pension system.

Illinois pension systems are funded just above 20 percent levels, based on the Governmental Accounting Standards Board’s and Moody’s Investors Service’s latest proposed rules. Taxpayers are on the hook not only for Illinois’ $209 billion in unfunded pension liabilities, but also for $54 billion in unfunded state retiree health care benefits.

It’s time for unions and government to find real solutions and stop holding taxpayers hostage in order to maintain reckless and unsustainable spending habits. Hostess provides insight into what lies ahead if the two sides can’t deal with this reality. Will unions and legislators get the message in time to save state workers’ pensions?