Tag Archives: Governor Paterson

Rhode Island to unionize daycare workers

Last week, the Rhode Island legislature passed a law to permit daycare workers who receive any subsidies from the state to either form a union, or join an existing union such as the SEIU. While they would not be eligible for state pensions or health benefits, and not permitted to strike, the law allows workers to collectively bargain over subsidies, training and professional development and “other economic matters.”

Daycare workers represent a target population for unions. A new law in Minnesota permits daycare workers to unionize so home providers can advocate for higher subsidy payments from the state. In New York in 2010, Governor Paterson pushed for daycare workers to pay union dues to the teachers’ unions in his 2011 budget proposal.

With Rhode Island in the mix, 17 states now permit or strongly encourage daycare workers to unionize. In the rush to unionize private business owners, the ostensible benefits – a voice in the legislature to lobby for higher state subsidies – are touted – and the costs are ignored For example, in Massachusetts, if a private daycare owner accepts clients who pay with state daycare vouchers, the daycare provider must be represented by a union and pay dues. These dues are skimmed off of the state subsidy for low-income parents which is paid directly to the daycare provider. To avoid unionization, the provider would have to turn away low-income families who receive state subsidies for childcare.

The SEIU claims unionization will improve the quality of childcare and offers economic justice for workers. But, the most dramatic result seems to be this:  where daycare workers unionize, the SEIU immediately gains a windfall of new dues transferred from a program meant to help low-income families pay for daycare, (to the tune of $28 million in Michigan, where similar legislation was recently passed).

As James Shrek writes in National Review, one of the more remarkable things about this effort is that it represents a new strategy by unions. The target group for unionization are private individuals or business owners who are also the recipients of government benefits. For instance, at one point in Michigan, a parent receiving Medicaid to care for a disabled child could receive SEIU representation. Some parents found the only result was a reduction in their monthly Medicaid payments and no representation, effectively, “forcing disadvantaged families to pay union dues out of their government benefits.”

As Shrek notes, the Minnesota law, which authorizes AFSCME to unionize in-home daycare providers, also potentially covers short-term summer camps, and grandparents watching their grandkids, or “relative care.”

Shrek asks, does this tactic represent a sign of desperation on the part of unions who are actively seeking new members to the point of organizing, “unions of one”? With a growing number of states joining the trend, it is worth watching how these laws affect those people and families that the unions are claiming to help.





New York to Shut Down?

The budget crisis in New York is getting worse. The state has remained in operation thanks to a series of emergency bills that have included dramatic reductions in some areas of spending. But Republicans, worried that the cuts do not go far enough, have opposed the last three emergency bills.

In the latest development, the New York Times reports that two Democratic Senators have said they will not vote for any more emergency bills if they entail further cuts. That’s a problem because Democrats enjoy a razor-thin 2-vote majority. This prompted Governor Paterson to state that he will not give into “thug-activity,” presumably referring to his fellow Democrats. At least one Democrat in question, Senator Díaz, took it that way: “The Governor called me a thug. When I pick a fight, I don’t go back. Let’s see what a thug can do.”

If the politicians fail to play nice, the Times reports that the state government may shut down. This crisis was brought on by out-of-control-government spending. But a government shutdown is not likely to be a win for those who wish to reign in that spending. In his recent analysis of budget rules, University of Rochester Professor David Primo finds that states with automatic shutdown provisions spend $64 more per-capita compared to states that do not have automatic shutdown provisions.

Primo explains:

This finding relies on a result, first shown by Romer and Rosenthal (1978), that the more extreme a status quo or reversion point, the more advantaged is the proposer in bargaining settings with take-it-or-leave-it offers. By making the reversion point, in effect, zero, states that do not allow for some reasonable level of spending in the absence of budgetary agreement advantage the proposer in the process (in this case, the legislature). This result demonstrates the sometimes surprising effects of budget rules.

Governors Revolt!

What’s gotten in to the governors? Across the country, a number of them seem to be fed up with their respective budget crises and are proposing bold action. As Eileen has written in the New York Post, New Jersey’s Governor Christie has shown remarkable resolve in tackling “the third rail of New Jersey’s budget: union-negotiated contracts and control.”

On Tuesday, I wrote about New York’s Governor Paterson and his plans to lay-off nearly 10,000 government workers (effective upon his successor’s first day in office). Now the Governor has gone a step further, announcing that he is “taking over” the budget cuts in order to keep the state afloat. After weeks of fruitless negotiations with state lawmakers, the state budget is more than 2 months overdue and there seems to be no consensus about how to deal with the $9.2 billion gap. So Paterson plans to impose dramatic cuts by including them in an emergency spending plan.

A little further west, in Illinois, Governor Pat Quinn and the state legislature are wrestling with a yawning $13 billion gap. Yesterday, the governor declared his intention to make the tough cuts that legislators seem unwilling to make. Of course, when pressed for details, he declined to offer a substantive plan. Hopefully, he’ll come around.

Hopefully, all of the governors will come around. A new report by the National Governors Association and the National Association of State Budget Officers (NASBO) will be released this morning. According to the Wall Street Journal (gated), it shows that states across the country still face a $127 billion gap over the next two years.

State Budget Crisis, New York Edition

According to the New York Times, Governor Paterson is looking to layoff about 10,000 state government workers in order to balance the budget. This comes just days after a federal judge blocked the governor from furloughing half of the state workforce for one day a week. Last year, the governor made a pledge to the public employee unions that there would be no layoffs until January 1, 2011. So, under the governor’s new plan, the layoffs would not take effect until that date. It is probably not a coincidence that that is also the day the governor hands the keys over to his successor.

Meanwhile, the Wall Street Journal reports “the state has paid out millions of dollars to local nonprofit groups—including $28,500 for a tennis league, $11,000 for a lighthouse museum and $2,700 for a curling club.”

Most states have been on a long-term spending binge (according to data from the BEA, real aggregate state and local government spending is 230% its 1980 level while real aggregate state GDP is just 197% its 1980 level). Of course, public employees and other special interests (such as tennis leagues) benefited mightily from that spending binge.

However New York ends up balancing its budget, it is interesting to note that, as a general rule, states tend to deal with unforeseen shortfalls by cutting spending rather than by raising taxes. This, at least, was the finding of a 1996 study by Bohn and Inman.

Which leads us to an often-underemphasized point: When states over-extend and over-spend, it isn’t just the taxpayer who ends up feeling the hurt. In the end, it is often those who have been made unrealistic promises–the public employees with the giant pensions or the special interests with the sweet deals–who end up paying when those promises are unexpectedly snagged away.

Over the course of the next several months, New York and other states will provide a test of this hypothesis.

A Tale of Two Governor’s Addresses

New York and California are arguably in the worst budgetary condition of all the states. Yesterday, the governors of each gave very different State of the State Addresses on how they intend to deal with the coming months. Governor Schwarzenegger reiterated his request that Washington, D.C. send back what is owed to California. In his words, “the federal government is part of our budget problem.”

In his analysis, this means more federal money will help fix California’s budget. However, more federal money to California will accomplish exactly what it has accomplished to date. It will delay real reform of California’s fiscal tailspin (e.g. CalPERS).

By contrast, Governor Paterson of New York gave a somber assessment of New York’s “winter of reckoning,” placing blame squarely on the state legislature for excessive spending and deal making with unions, feeding an “addiction to spending, power, and approval,” that has left the state in economic catastrophe.

New York’s Governor got the diagnosis right. As The New York Times notes, last year’s stimulus led the state to increase spending by 9 percent, even as the economy faltered and revenues plummeted.

Both governors want to stimulate “green job” creation. Unfortunately, it’s a policy more that’s more well-intentioned than effective. Governor Schwarzenegger talks of privatizing prisons. Governor Paterson wants ethics reform in fundraising. The primary difference is while New York’s governor has admitted to a spending problem, California’s is still making excuses to continue.

NYC’s Metropolitan Transit Authority: The Customer Is Always Last

Toy MTA TrainNew York’s Metropolitan Transit Authority is broke. Back in May, Governor Paterson approved $2.1 billion in tax hikes to plug the authority’s $383 million hole, including, as the Manhattan Institute’s Nicole Gelinas notes, an ill-advised payroll tax in the middle of a deep recession. Predictably, revenues fell short. On top of this, the Governor agreed to $91 million in pay increases for top MTA officials. The MTA’s hole is now $400 million.

As if to hammer home that the MTA exists to serve its employees rather than its customers, a judge ruled this week that the state must pay the Transit Workers Union an 11 percent pay increase over the next few years.

The result: MTA will cut off service on the W and Z lines, reduce service on the G and M lines, and shrink 49 bus routes. Riders are guaranteed longer wait times, and cars will be packed. An MTA board member calls it “a failure of government.”

For some policy ideas, the MTA might review its history. Initially, NYC’s buses and and train services were private. Between 1932 and 1953, the city and the state acquired New York City’s transit systems. And since that time it has experienced frequent financial crises. In spite of years of subsidies, transit prices continue to rise. As Wendell Cox writes, New York transit remains immune to competitive pressure and instead relies on the deep pockets of taxpayers. By contrast, the Tokyo and Hong Kong transit systems get most of their revenues from rider fares.

While privatizing is a near-impossibility, Cox notes that competitive contracting might go a long way to lowering MTA’s runaway spending. The Transport for London bus system took this route and reduced costs per mile by 40 percent.

New York: Local Government Pension Costs May Triple

According to the New York Comptroller’s Office, by 2015 New York’s county pension costs are set to soar from $2.6 billion to $8 billion – amounting to nearly one-third of civilian payroll costs (and 40 percent of fire and police payrolls). Recovery depends heavily on the stock market’s performance. And, even if the market does recover, tax hikes and/or benefit cuts are likely inevitable.

The public sector pension crisis is much vaster than New York; many states and local governments have spent years overpromising benefits, deferring contributions, and underestimating the size of those unfunded liabilities. Public sector pension plans are underfunded nationally by $310 billion.

Governor Paterson and Comptroller Thomas diNapoli disagree over how to deal with New York’s mounting pension system losses.

The comptroller suggests local governments increase their contributions, a strategy the governor argues will only raise property taxes. Governor Paterson suggests limiting benefits to new employees.

At least the state isn’t taking Montana’s approach to its pension crisis: when your actuary tells you to cut benefits or increase contributions, hire another actuary.

The New York Times notes the root cause of the nationwide crisis in public sector pension plans: the difficulty of saying “no” to unions:

If there is any silver lining, the trends appear to have somewhat curbed Albany’s appetite for extending pension enhancements to public employees to placate labor unions, which wield enormous clout and lobbying dollars in the capital.

“I’m alarmed,” said Assemblyman Peter J. Abbate Jr., a Brooklyn Democrat and the chairman of the Assembly’s Labor Committee, who is one of the capitol’s more reliable union allies.

“Bluntly,” he said, “I’ve spoken to a lot of the union leaders and their lobbyists and said I don’t want to see bills that will cost the counties and the state millions of dollars.”

Andrew Biggs of the American Enterprise Institute discusses how governments cook their public pension books in the Wall Street Journal.