State Budget Battles
The crisis in state budgets
States across the U.S. are suffering from budget shortfalls because the recession has reduced their tax revenues; meanwhile, Medicaid obligations, pension costs for state employees, and other costs have grown. Governors, both Democrats and Republicans, are calling for major cuts in spending—meaning cuts in salary and benefits for state workers, and cuts in education and other public services. These cuts would result in layoffs of teachers, police officers, firefighters, and other public employees.
Elected officials disagree over the best response to the budget crisis. Some conservative governors are ruling out tax increases, and relying entirely on spending cuts; about a fifth of the states that have released their proposed budgets are even planning tax cuts, mostly for corporations, in the hope that this will lead to economic growth. (These states include Arizona, Florida, Maine, Michigan, New Jersey, North Carolina, and Wisconsin.) This will require even deeper spending cuts to balance budgets.
Why has the problem come to a head now?
For the past two years, states have used federal stimulus money (along with tax increases and spending cuts) to balance their budgets. Little federal money is left, though, and costs have grown. There are more children in public schools, more students at public colleges and universities, and more Medicaid enrollees than in previous years, and the cost of health insurance for state employees has only grown. Republicans won majorities in 26 state legislatures in 2010, many of them with Tea Party support; if they refuse to raise taxes, they must rely on spending cuts to balance their budgets.
• “Unions broke the bank.” According to many Republicans, public sector workers have long enjoyed salaries and benefits far greater than those of private sector employees—and these costs have driven the states into debt. A handful of Republican governors are determined to roll back the power of public employees’ unions.
• “They’re trying to destroy public services.” Democrats say the proposed budget cuts in many states are deeper than necessary, and will hurt the poor and middle class. Further, the need for spending cuts has been aggravated by Republican governors’ tax cuts for corporations and refusal to raise taxes on the wealthy. Conservative governors favor smaller government, and, by forcing layoffs of public workers, they’re working toward that goal. Democrats also charge that Republican governors are targeting state workers’ unions because these unions contribute heavily to Democratic candidates’ campaigns.
Drama in Wisconsin
Republican governor Scott Walker, elected last November, proposed a plan that ended most collective bargaining rights for most state workers, allowing them to negotiate only over salary. (Police and firefighters were exempt from the change.) The plan also increased workers’ required contributions to pensions and health insurance, froze salaries for two years, and cut 3,000 jobs. The union offered a compromise—agreeing to pay more for benefits, but not to give up collective bargaining rights—but Walker rejected the offer. Crowds of more than 10,000 people gathered at the capital to protest the proposed plan, and state workers occupied the Wisconsin statehouse. (Similar proposals in Ohio and Indiana also provoked demonstrations.) Democratic legislators in the state house, opposing the changes and facing a solid Republican majority, took the drastic step of leaving the state in order to prevent a vote. After a three-week stalemate, however, Republicans in the State Senate used a procedural maneuver to pass a revised bill without the Democrats present, and the Assembly approved it the following day. The bill accomplishes most of the governor’s goals; Democrats predict a backlash among voters. (For more on the end of the standoff, see this New York Times article.)
1/17/12: A petition to recall Governor Scott Walker of Wisconsin has been signed by more than a million people—almost twice as many as required to put a recall in motion.
• Between 8/08 and 2/11, state and local governments eliminated about 426,000 jobs.
• One reason for rising costs: 4 million more people are expected to receive Medicaid health insurance in 2012 than in 2008, because employers have cancelled coverage and employees have lost jobs.
• 45 states and the District of Columbia face a total budget shortfall of $125 billion for fiscal 2012.
• Proposed spending cuts include eliminating health care subsidies for roughly 280,000 low-income citizens in Arizona, 60,000 in Washington State, and 70,000 in Wisconsin.
• At least 37 states are proposing to spend almost 10% less next year than they spent before the recession began.
Are state workers’ pay and benefits too generous?
Many people believe that state workers earn more and have better benefits than their counterparts in the private sector. It’s true that the average salary for public workers is greater than the average in the private sector—and pensions are rare in the private sector. But there’s a problem with the comparison: most state workers are teachers, professors, and nurses, and have more education than most private sector workers. (State and local employees are twice as likely as private-sector workers to have a college or advanced degree.) When comparing roughly equivalent jobs, middle- and high-income state workers earn less than their private sector counterparts, even when benefits are included; however, among lower-income workers, state workers are paid somewhat better.
For details, see this report by the Center for Budget and Policy Priorities, and this analysis by the New York Times.
Are state pension funds in big trouble or not?
State pension funds lost huge sums as the stock market plunged during 2008 and 2009. Some have been underfunded: states haven’t paid in as much as they should have. As a result, some governors say their states can no longer afford generous pensions for state workers. But economists say the problem has been overstated. Most of the stock market losses have been regained, and very small increases in annual contributions will be enough to meet long-term pension obligations. For more on this, see the Huffington Post.
Who’s paying for this policy battle?
• A group called Americans for Prosperity is spearheading a national campaign to cut public-sector union benefits. AFP was created and is largely funded by the Koch brothers, billionaire businessmen who have funded many conservative causes. Koch Industries was one of the biggest contributors to Wisconsin Governor Scott Walker’s campaign. For more on this, see the New York Times.
• In response to proposals that would curtail collective bargaining rights in Wisconsin, Iowa, Ohio, Indiana and other states, unions have launched a $30 million campaign to fight challenges to their bargaining power.
Scott Walker, “Why I’m Fighting in Wisconsin,” Wall Street Journal, 3/10/11: “In 2010, Megan Sampson was named an Outstanding First Year Teacher in Wisconsin. A week later, she got a layoff notice from the Milwaukee Public Schools… because her collective-bargaining contract requires staffing decisions to be made based on seniority… [T]he union leadership would not accept reasonable changes to their contract. Instead, they hid behind a collective-bargaining agreement that costs the taxpayers $101,091 per year for each teacher, protects a 0% contribution for health-insurance premiums, and forces schools to hire and fire based on seniority and union rules. ¶My state’s budget-repair bill… reforms this union-controlled hiring and firing process by allowing school districts to assign staff based on merit and performance. ¶Most states in the country are facing a major budget deficit. Many are cutting billions of dollars of aid to schools and local governments. These cuts lead to massive layoffs or increases in property taxes—or both. ¶In Wisconsin, we have a better approach to tackling our $3.6 billion deficit. We are reforming the way government works, as well as balancing our budget… [T]he changes are modest. We ask government workers to make a 5.8% contribution to their pensions and a 12.6% contribution to their health-insurance premium, both of which are well below what other workers pay for benefits. Our plan calls for Wisconsin state workers to contribute half of what federal employees pay for their health-insurance premiums. (It’s also worth noting that most federal workers don’t have collective bargaining for wages and benefits.)… ¶Most crucially, our reforms confront the barriers of collective bargaining that currently block innovation and reform.”
“The Hollow Cry of ‘Broke,’” New York Times editorial, 3/3/11: “It’s all obfuscating nonsense, of course, a scare tactic employed for political ends… [A] substantial part [of the problem] was caused by deliberate decisions by state and federal lawmakers to drain government of resources by handing out huge tax cuts, mostly to the rich. As governments begin to stagger from the self-induced hemorrhaging, Republican politicians like Mr. Boehner and Mr. Walker cry poverty and use it as an excuse to break unions and kill programs they never liked… Wisconsin voters might not have noticed when Mr. Walker approved business tax cuts earlier this year that made his budget gap worse…”
“He [Governor Walker] is not trying to balance a budget, he is trying to destroy unions in this state.” — Bryan Kennedy, president of the American Federation of Teachers, Wisconsin.
“We have a collective bargaining process that is heavily skewed toward labor. It has become an albatross around our necks, and it can’t continue.” — Erik Helland, Republican House majority whip in Iowa.
“After only one month in office, Walker’s approval rating has plummeted… [These Republican governors are] waging an all-out class war on unionized workers. It’s a shameful effort to bust the wage structure and legal protections that support America’s already-endangered middle class.” — Jim Hightower, radio commentator
“There’s a limit at the state level to how much you can continue to increase taxes to pay for this stuff, because residents can move to another state.” —Ted DeHaven, budget analyst, Cato Institute
“Cutting state services… slows the economy’s recovery from recession by reducing overall economic activity. When states cut spending, they lay off employees, cancel contracts with vendors, reduce payments to businesses and nonprofits that provide services, and cut benefit payments to individuals. All of these steps remove demand from the economy.” — The Center on Budget and Policy Priorities
“An increase in taxes will destroy the ability of our economy to grow, which will mean less revenue to government.” — Florida Republican Senator Marco Rubio
“For our economy, if we want to get back to recovery, cutting spending is a road to disaster.” — Joseph Stiglitz, Nobel Prize-winning economist. [According to Stiglitz, state budget cuts are hurting the recovery, because every dollar in spending cuts produces about $1.50 in lost economic activity. He recommends increasing state taxes for the wealthy, along with more selective budget cuts.]
“Public offices should have never been unionized let alone have collective bargaining. It’s a conflict of interest. Unions support those who support them and in turn the elected politicians favor the unions.” —Jim Jensen, responding online to a video on the Heritage Foundation’s website
“These… people are now punishing the most vulnerable in our society: the poor, elderly, poor pregnant women, as well as public employees who are being vilified as greedy… [T]he richest among us… continue to get tax breaks and reap rewards while tens of millions of ordinary Americans will suffer.” —Martin, a reader responding online to on a New York Times editorial
“I defy you to look at the first six weeks of the Cuomo administration in Albany and discern much of a difference between what [N.Y.’s Democratic] Governor Andrew Cuomo is saying and what Governor Chris Christie is saying on these big issues. And it’s not because all of a sudden Governor Cuomo and I have decided that we’re members of the same party, because we’re not but we are confronted with the same problems and these problems and issues are not partisan. They are obvious and long overdue to be solved and so that’s why you see Andrew Cuomo or for God’s sake even Jerry Brown in California talking about reducing salaries of state workers by 8-10%.” — N.J. Governor Chris Christie, speaking to the American Enterprise Institute
“The debt problems before us are huge. Even in Wisconsin they cannot be addressed simply by taking on the public sector unions. Studies done in North Carolina and elsewhere suggest that collective bargaining only increases state worker salaries by about 5 percent or 6 percent. That’s not nearly enough to explain current deficits… It will require varied, multipronged approaches, supported by broad and shifting coalitions… The foundation… has to be this principle: make everybody hurt. The cuts have to be spread more or less equitably among as many groups as possible. There will never be public acceptance if large sectors of society are excluded. Governor Walker’s program fails that test. It spares traditional Republican groups (even cops and firefighters). It is thus as unsustainable as the current tide of red ink.” — David Brooks, New York Times, 2/11/11
For more information
Center on Budget and Policy Priorities, “Governors are Proposing Further Deep Cuts in Services, Likely Harming Their Economies Less-Harmful Alternatives Include Revenue Increases and Rainy-Day Funds,” 3/3/11
For a survey of state budget problems, including state-by-state data
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Last updated 1/18/12