Tag Archives: union

Vallejo emerges from bankruptcy

Three years after Vallejo, California declared bankruptcy the city has presented the court with an 81-page plan, agreed to by creditors, to fix the city’s finances. A federal judge has approved the plan which is not yet available.

An earlier draft of the plan contains some union concessions including reduced health care benefits. Pensions will remain in place. The cost of unionized employees, whose salaries and benefits consumed 70 percent of the city’s general fund budget came in the form of layoffs and fewer fire stations, as well as reductions to libraries, recreation and convention centers.

According to The Wall Street Journal, bankruptcy proceedings have cost Vallejo $9 million, and residents have fewer city services.

The city did pay bondholders holding revenue bonds throughout the proceedings. The Bond Buyer reports that General Fund bonds were serviced at less than contractual rates, and payments were suspended between July 2008 and April 2009.

As with Central Falls, debt isn’t the driver of huge deficits. In Vallejo debt-service costs were only six percent of the city’s budget. In both cases the culprit behind municipal insolvency is not bond debt but increasing pension benefits and employee costs.


Do Politicians Regulate When They Can’t Spend?

That is the question Noel Johnson, Steven Yamarik, and I examine in our latest Mercatus Working Paper: Pick Your Poison.

Relying on data from 48 states covering the years 1970 through 2009, we look at the relationship between fiscal rules, fiscal outcomes, and regulatory outcomes.  The specific fiscal rule that we examine is a so-called “no-carry” rule, present in about half of the states.  It forbids legislatures from carrying a deficit over from one year to the next.  A number of previous studies have examined the impact of these rules (some of which I have blogged on in the past) and generally find that they restrain spending and taxation. We ask whether politicians constrained by these rules attempt to attract votes by engaging in active regulatory policy instead.  We tackle this question in three stages:

1.      First, we quantify the different spending and taxing outcomes that obtain when one or the other party gains control of both the executive and the legislative branches of state government.  After controlling for a number of other factors that have been shown to impact fiscal outcomes, we find that Democrats tend to raise individual income taxes by about $66 per capita when they are in control, while Republicans tend to lower overall taxes by $265 per capita and income taxes by $99 per capita.  Republicans also reduce total spending by about $353 per capita, education spending by about $135 per capita, and welfare spending by about $113 per capita (all figures are in 2009 dollars).

2.      Next, we show that when states have rules that restrict the legislature’s ability to carry a deficit into the next year, most of these partisan differences in fiscal policy disappear.  (There are exceptions, however; Democrats continue to increase individual income taxes and Republicans continue to reduce total taxation).

3.      Lastly, we look at the impact of these fiscal rules on regulatory behavior and find that they actually seem to be associated with more partisan regulatory outcomes.  In particular, Democrats appear to be more-likely to raise the minimum wage when no-carry rules restrict their ability to spend and tax more.  They are also less-likely to adopt right-to-work statutes (i.e., they are more-likely to favor a closed union shop than they otherwise would be).  Among Republicans, fiscal no-carry provisions tend to enhance their likelihood of adopting right-to-work statutes outlawing closed union shops.  We corroborate these results using Jason Sorens’s and William Ruger’s measure of paternalistic regulations.  These are regulations that are not easily justified on economic grounds.  They include things such as home schooling regulations, alcohol regulations, marriage and civil union laws, gun laws, and marijuana laws.  We find that, here too, the no-carry provisions seem to make Democrats more-likely to regulate and Republicans less-likely to regulate.

As we write in the paper:

Our results suggest political actors will use whatever policy instruments are available to them to achieve their ends.  If they are constrained along one dimension, they will substitute into more-partisan activities along the other dimension.

The implication for those who are trying to restrain spending is this: Institutions such as strict balanced budget requirements can be useful tools to restrain the fiscal size of government, but they may lead to an expansion in the regulatory state.

Thanks to my excellent coauthors, I learned a lot in researching and writing this piece.  It is still a working paper, so we would be grateful for any comments readers might have.

Job creation or job protection in California?

The Mercury Sun News editorial provides a strong critique of several pieces of new Sacramento legislation, claiming the bills are simply jobs protection measures for unionized employees.

The bills include Senate Bill 469 which requires cities to conduct an economic impact analysis before approving big-box stores that sell groceries. Unions are for it. Grocers and land developers are against it.

AB 646 and AB 455 involve labor negotiations with unions. SB 931 forbids local government from using taxpayer funds on lawyers or consultants advising on how to get around union rules – which could be interpreted in one of two ways – does it limit local spending or does it favor unions?

And AB 438 requires public notice before a city can withdraw from a public library and contract with a private provider while “barring lower pay rates and layoffs in a new system.”

If the editors’ analysis is correct, the bills show how public sector unions as a special interest can acheive their goals outside of the collective bargaining process. At least one California legislator has introduced a bill aimed at collective bargaining reform. It could be that these bills aimed at local government may be part of unions’  pro-active strategy to prevent layoffs or firings of public employees should local governments introduce competition to city services.

The “Pac-Man” of New Haven’s budget

Steven Malanga of The Manhattan Institute has an article tracking the impact of compensation in municipal budgets.  New Haven’s Mayor John DeStefano, long a public sector union ally, now finds himself in the position of trying to reduce the fast-rising costs associated with employee compensation. In the city’s $475 million budget, pension and health care benefits are projected to rise by $12 million this year. Other cities facing out of control employee costs include Costa Mesa, California, Pittsburg, PA, New York City, Chicago and Newark, N.J.

But so far attempts at money-saving by city officials has mainly been met with union protests.  A self-defeating stance.

As Malanga notes, the local level is where these costs are most strongly felt. Municipal managers are increasingly being forced to choose between offering basic services and keeping up with fast-rising benefits costs – in some cases the result of state-level statutes that enhanced benefits and failed to consider the costs.

In a forthcoming paper we find that one culprit is decades of budgeting in the dark. These costs appear to be a surprise because budgets don’t indicate in a meaningful way to the public how  much a municipal government is carrying in pension and health care costs. Budgets reflect what the municipality chose to pay in a given year and not how much is needed to keep the system funded. In fact, in the case of New Jersey, these numbers aren’t always made clear to the local governments due to state reporting conventions.

For more on the pressures in local budgets, read the original article here.

Reforming disability retirement in Montgomery County, MD

On the heels of Atlanta, Georgia’s sweeping pension reforms, and the cooperation of New Jersey Republicans and Democrats to reform pension and health care benefits, comes the news that City Council President (and former private sector labor leader) Valerie Ervin lead the Montgomory County Council to vote to reform disability retirement for public workers. Unions opposed the measure saying it was an issue for collective bargaining. Ervin’s reply: the council has stayed out of disability retirement for 21 and half years waiting for the unions to budge to no avail.

The political shakeup resulting from public union intransigence is noteworthy as  Robert McCartney writes in The Washington Post. Public unions wield political power. Last year a city council member was voted off the board due to union opposition for backing pension reform. In Montgomery County, “unions have played an out-sized role in politics…partly because they’re open-handed with campaign contributions and campaign workers.” Ironically perhaps union support and “boots on the street” were instrumental to Ervin’s election in 2006.

What has changed in a year? State and local budgets haven’t improved. Revenues are tight and the costs associated with benefits, often negotiated with unrealistic and erroneous accounting assumptions, are beginning to eat up larger portions of the funds used to operate services. Unions’ strategy of refusing to face numerical reality has led to budgetary gridlock and the emergence of a newly pragmatic tenor in labor-government negotiations.


Illinois’ “Goldilocks” budget

This year Illinois’ budget is larger than last year even though the state anticipates a shortfall of  over $9 billion. The Civic Federation notes this is made possible due to overinflated revenue estimates.

The strategy to achieve balance includes a variety of one-shots, including delaying payments to vendors, reports Benjamin Stout of the Illinois Statehouse News.  To cover its huge pension liability the state is making a $4 billion payment into the system. For the past three years that payment was made with bonds. Other strategies: the state will take longer to pay Medicaid, and is banking on higher revenues from newly hiked income taxes. Kurt Erickson at the The Quad-City Times calls it, “The Goldilocks Budget.”

One representative is asking that AFSCME re-open its contracts to find cost-savings. The union is opposed to any contract re-negotiations.

Lawmakers sent Governor Quinn a $33.4 billion budget to sign, but the Governor wants to spend $36 billion. He is constrained as Governor. At this stage in the budget process, he can only line-item veto not add to the legislature’s approved budget. One representative suggests the Governor come back in the fall and ask for more money.

I’ve been having a look at Illnois’ 2012 budget and it is remarkable. Of note are the five strategies the Governor outlined to fix Illinois’ long-running structural deficits. This includes  the “Illinois Now!” initiative, a “jobs-creation program” financed by bonds which claims credit for creating 135,000 jobs. The rest of the strategy includes “strategic borrowing”, federal assitance, higher taxes, and small programmatic reductions.  Structural changes are nowhere apparent, in a state that will run out of assets to pay for pensions in a few short years.

New Jersey gets closer to a deal on health care with unions

I have a new post at Public Sector Inc on the negotiations underway between the Governor, the legislature and the Communications Workers of America over how health care benefits should be structured. But there’s another level to this conversation: where should this policy be decided? In collective bargaining negotiations with the union and two branches of the New Jersey government? Or should this be in the realm of state legislation, as is pensions policy?


Collective Bargaining reform and health care costs in Wisconsin

The Journal Sentinel reports that under a new restrictive collective bargaining law that only allow unions to negotiate over inflation-capped wages, local governments in Wisconsin may seek to replace the current health care benefit. WEA Trust has been in place for 40 years, created by the teachers’ union the plan currently ensures employees in two-thirds of the state’s school districts. The switch in some districts has been made for non-unionized employees. The effect of many districts switching to more cost-effective plans will force WEA Trust to compete with other providers according to one analyst.

WEA Trust claims it is named on one-third of collective bargaining agreements and is listed as the “standard bearer” meaning districts can switch to lower cost, equivalent plans.

Brown Deer school district began using a different carrier in July and has saved the district $170,000 or the equivalent of  “at least two teachers”.

Interns of the World, Unionize!, or The Costs and Benefits of Unions

Most economists—whether the they favor unions or not—view them as cartels. That is, unions are price-fixing organizations that collude to raise their price (aka the wage rate) above what would prevail in a competitive market. What could possibly be wrong with that?

Not much if you happen to be in the union. But there is quite a bit wrong with this if you happen to be a nonunion worker, jobless, a consumer of union-made products, or a taxpayer whose employees (public sector workers) are unionized.

Why is this so? Well think about the way a union works. When it negotiates to raise the wage above what would prevail in a competitive labor market, two things happen: 1) employers want to hire fewer employees at the new, higher wage, and 2) more people want to become employees at the new, higher wage. When this happens, those who don’t carry a union card are priced out of the market.

When I was in college, I had a LOT of internships (usually working for nonprofit research organizations). The going wage for an internship at the time was something like $1,000 a semester, or about $3.00 an hour if you worked 20 hours a week for 16 weeks. This was not enough to live off of and today I write a student loan check every month as a reminder. But I was willing to work for this paltry wage because I knew—given my low experience level—employers wouldn’t be willing to pay any more. I also knew I would learn new skills during the internships so that one day I could command a higher wage (even net of student loan repayments).

Now imagine what would have happened if, back in the late 1990s, all the interns had unionized and successfully bargained for higher wages. Research organizations would have decided that they could make do with fewer interns and a few more full-time students would have decided to apply for the internships. This combination would have inevitably locked some people—perhaps me—out of the opportunity to intern.   

Thus, nonunionized interns would have suffered. The customers of the research organizations would have also suffered as they would have seen a decrease in the quantity and quality of research that the organizations produced. Even those in nonunionized industries would have suffered as they would have found themselves competing with a higher supply of workers who couldn’t find internships. Arguably, there would have been longer-term costs as well because large sections of the workforce would have missed out on the opportunity to gain valuable on-the-job-training.

Unions likely benefit those who are in them. Research suggests that U.S. union workers’ wages are about 18 percent higher than those of nonunion workers (I say ‘likely benefit’ because despite this, many workers still prefer not to be part of a union). But whatever benefits do accrue to unionized workers, it is helpful to remember that there are also costs.

Public Sector Union Reform in the States

The New York Times features an article on how some states are looking to scale back the power public sector unions currently enjoy. Prompted by the scope of the fiscal impact that pensions and other benefits are having on state and local budgets, Governors and Legislators are considering taking away collective bargaining as well as potentially banning public sector workers from organizing. The head of the American Federation of State, County and Municipal Employees says these moves are  just payback for public sector unions’ financial support for particular candidates.

The late 20th century rise of the public sector union is one of the most profound and until recently, largely overlooked, changes that occured in American government. As Rutgers economist Leo Troy has noted the rise of public sector unionism represented a “structural break” from the Old (private sector and industrial) Unionism. However, many labor economists continued to treat the two as similar a major misstep in understanding the nature, goals, and implications of government unions.