Sunday, October 16, 2011

Here's the correct target for state budget crises

It's the housing bust -- not government workers.

We knew that all along, actually. But a new report backs us up. The University of California at Berkeley found that the fall in housing prices was the main reason for the state's fiscal crisis.

That didn't stop 12 states from curbing collective bargaining rights for government workers -- using budget problems as an excuse. The report's authors note,
The fallout from the political jostling around public workers has been that hundreds of bills related to public employees and unions were introduced in state legislatures—most of which sought to restrict public sector unions. At least twelve states have significantly restricted collective bargaining through new legislation in 2011 including: Wisconsin, Ohio, Indiana, Arizona, Idaho, Michigan, New Hampshire, Oklahoma, South Carolina, Tennessee, Utah and Wyoming. A common rationale for these proposals is that growing costs associated with public sector workers, especially union-represented workers, are at the root of state budget deficits. Governor Scott Walker of Wisconsin said “we can no longer live in a society where the public employees are the haves and taxpayers who foot the bills are the have-nots."
That's not to say the budget deficits weren't serious after the Great Recession. They were the worst on record.

But all that talk about bloated government payrolls, overpaid public employees and gold-plated pensions is a lot of crap, concludes the report:
The size of the public sector workforce per thousand thousand residents is not growing and previous studies have found that public sector compensation, as a share of public budgets, has not grown. Researchers have consistently found that public sector workers are not compensated more highly than their private sector counterparts after taking into account level of education, experience and other important factors.
And this:
...public sector compensation as a share of state budget has actually declined (between 1192 and 2009).
The report concludes:
Public sector unions provide workers with a voice on the job and enable members to choose their form of compensation. This has generally led to a greater share of compensation paid in health and retirement benefits than in cash wages.

Budget deficits were primarily caused by the housing crisis and subsequent economic downturn which resulted in a decline in revenues as the economy contracted. Finally, controlling for the decline in housing prices, we find no statistically significant correlation between union density, union strength and the size of state budget deficits.

For states to address their budget deficits, the most important factors are national economic growth and a resolution to the housing crisis. Solutions that focus on cutting state and local budgets can be expected to further weaken the economy.