I wrote the other day about restrictions in the Federal stimulus bill that substantially reduced the ability of state governments to cut spending in response to lower tax revenues. It turns out there are a myriad of other limitations, including court cases and past consent decrees, that make it nearly impossible for states to do much if anything about their budget shortfalls (except raise taxes, of course). Just about everyone except for taxpayers have a set of lawyers in courts full time preventing budget changes that affect their special interests.
If you thought elected officials in your state were running the budget show, you might be in for a surprise. Likely as not the federal courts are more powerful budget authorities than the state's legislature or executive. A few consent decrees can easily cripple any attempt to pass a balanced budget requirement in a state legislature, and overturn the act itself in federal court if it does happen to pass. Tennessee, for instance, was shacked by three consent decrees, all of which were administered by federal judges. Before even writing budget legislation, the governor of Tennessee had to persuade two federal judges, who were the de facto managers of the state's health care system, that any changes were a good idea.
The most damaging consent decrees to state budgets tend to be related to staffing levels. A number of state agencies settled all manner of employment and discrimination claims by entering consent decrees freezing staff levels. Often state employee unions were among the most active consent decree wielders. These decrees tend to lock up not only staff levels, but salaries (through "constructive termination" clauses that equate even modest pay cuts with termination and thereby trigger staffing minimum clauses) and pension benefits as well.
Explain to me again how these government officials who signed these incredibly short-sighted consent decrees just to get through their own term in office are more long-term focused than private actors? Would any of you short-term-focused capitalists sign an open-ended agreement to never cut staff or salaries or benefits for employees no matter what the future fortunes of your company were?
The only way through this is going to be a massive string of state and local government bankruptcies.
Update: Sort of related, I got this in my email today from a reader
The City of San Francisco pays for two Police Departments and two Fire Departments, less about 5%.
Both have one active-duty department and one retired-duty department.
When a cop or firefighter retires in San Francisco, he receives a 90% pension.
Then, every year THEREAFTER, the retiree receives 50% of every raise negotiated by the active duty Memorandum of Understanding.
He seems to have it right, he links to this site, which does indeed show that the COLA on retiree pay includes 50% of all raises given to active duty employees. I wonder how early they are vested?
Update #2: Via Nick Gillespie, update #1 is not that unusual:
Retirement incomes for the most experienced government employees top out at 88 percent of their active-duty pay. Unlike most private-sector workers, whose retirement is driven by the strength of the stock market and their 401-k plans, the pensions for government employees are guaranteed.
In addition to higher average retirement incomes, government retirees in Ohio also enjoy government-sponsored health care, can retire as young as 48 for police and firefighters, and have the opportunity to 'retire' and collect a full pension while going back to work, often at full pay for doing the same job. Such 'double-dippers' were paid more than $741 million by the State Teachers Retirement System last year and $240 million by the Public Employees Retirement System, records show.
In Toledo, even the mayor is a double-dipper.
Since starting his current term in January 2006, Toledo Mayor Carty Finkbeiner has drawn his annual salary of $136,000 in addition to a state pension for more than two decades in elected and unelected positions. He is leaving office on Monday.
And because he is already receiving a Public Employees Retirement System pension, Toledo taxpayers have paid $75,221 into an annuity as an additional retirement fund for Finkbeiner.