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Taking On Public Unions Isn't Just a Jersey Thing

December 22, 2010

By Josh Barro

This fall, South Park ran an episode called “It’s a Jersey Thing.” In the episode, South Park residents react with alarm as combative, deeply-tanned figures from Jersey Shore and the Real Housewives overrun their quaint mountain town. Come January, a real Jersey-style wave will wash over much of the Midwest. But unlike on television, this wave is likely to be welcomed by the locals.

In November, Republicans gained control of all levers of government in four large Midwestern states: Ohio, Indiana, Michigan and Wisconsin. And when the newly elected leaders there talk about how they plan to reform state government, they sound an awful lot like New Jersey Governor Chris Christie (R), placing reforms to employee relations and compensation at the top of their agendas.

The biggest fight is likely to come in Wisconsin, where Governor-Elect Scott Walker (R) campaigned on cuts to public employee compensation. Walker’s proposals include requiring state workers to pay 5 percent of salary toward their pensions -- currently, most pay nothing -- and requiring them to pay 12 percent of the cost of their health premiums, a bit more than double the current level. Essentially, this would constitute a significant cut in total compensation for public employees.

Of course, he will have a hard time getting unions to agree to those terms. That’s why he has also broached the subject of ending collective bargaining for public employees in Wisconsin altogether. This move may sound radical, but at least 15 states already prohibit collective bargaining for some public employees. Virginia and North Carolina do not allow it for any.

Walker’s Republican legislature is likely to be cooperative on delivering that reform, which is why the unions and outgoing Democratic officeholders tried to rush through new employee contracts in a lame duck session. But two defections by Democratic state senators made that impossible, meaning Walker will have a free hand to negotiate new contracts -- and the nuclear option of ending bargaining altogether.

Kasich has also voiced support for reform of collective bargaining, though it’s not clear that would mean a total abolition. However, he has made clear his commitment to reducing employee compensation costs, and has expressed his willingness to pursue a cost-cutting agenda by referendum if his (Republican) legislature is uncooperative.

The Ohio Chamber of Commerce, which is close with Kasich, released a report this week called “Redesigning Ohio,” which may constitute a partial preview of Kasich’s reform agenda. The report contains good proposals in areas from priority-based budgeting to criminal justice.

But the Chamber report is perhaps boldest in the way it would rework government’s relationship with public employees. Reforms in that area include a significant loosening of civil service rules and a move away from longevity-based pay toward raises for merit only. This is a great idea -- and one that is likely to be fought tooth-and-nail by the unions.

Not everything in the Chamber report is good. Its proposed pension reforms, unfortunately, would try to cut pension costs while retaining a defined benefit structure. This doesn’t get at the root problem with defined benefit pensions, which is that they expose taxpayers to undue investment risk and allow legislators to promise benefits now and pay for them later.

The report also, almost comically, singles out Ohio’s Motion Picture Tax Credit as a good tax expenditure that increases state revenues and should be retained. That is nonsense. This recommendation is a reminder that what’s good for business interests isn’t always what’s good for taxpayers; but overall, the Chamber’s recommendations for Ohio are still pretty good.

In Indiana, Governor Mitch Daniels (R) spent the first six years of his tenure working with a Democratic-controlled state House of Representatives. He was able to get quite a bit done with the Democrats and by fiat -- he even ended collective bargaining for state workers by executive order, as Indiana had no law guaranteeing bargaining rights -- but a new Republican majority will open up new opportunities.

A likely area of focus for Daniels in the next session is education reform, including greater school choice options, mandate relief for school districts, and performance pay for teachers. These moves had been fiercely resisted by teachers’ unions and, relatedly, legislative Democrats.

Michigan Governor-elect Rick Snyder (R), in contrast to his neighbors, has said that ending public-sector collective bargaining probably is “not a viable option in the Michigan system.” But he has called for reevaluation of employee compensation, especially at the local government level. Snyder’s guideline -- that compensation should be affordable and comparable to the private sector -- is a sensible one, but we will have to see if he has a framework to deliver on it.

Some of the reforms on the table in the Midwest would produce big savings in the first year -- for example, increasing employee shares of pension and health care costs. Other reforms (like changes to bargaining rights) would mostly produce changes over time, meaning they wouldn’t do a lot about the current year gap. But reforms to employee bargaining and compensation matter most if they apply at the local level, since that’s where most of the employees are.

This does not mean that employee relations should be a side issue for governors. Indeed, Christie has been very persuasive about the need to think about state and local government as one intertwined system -- measures that reduce costs in local government make it possible to cut local aid payments, and therefore take pressure off state budgets. In most state budgets, local aid is the largest or second-largest spending category, so cost-cutting at the local level can do a lot to close a state-level budget gap.

All of these governors will have to face significant budget gaps in the coming year, though years of fiscal prudence have put Indiana on better footing than the others. Walker and Kasich both signed the Americans for Tax Reform pledge to veto any net tax increases, and Daniels has also declared his intent to sign a no-new-taxes budget -- meaning they will have to come up with all their budget solutions on the spending side of the ledger.

That’s an awfully tall order. But as Chris Christie has shown in New Jersey, the road to state budget fixes that don’t raise taxes will necessarily run through employee compensation and public worker unions. We’ll see if these new governors (and one longstanding one) succeed in bringing that Jersey thing farther west.

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