Monday, February 27, 2012

State and City Financial Woes, Including Jobs, Public Services and Public Sector Pensions

Budget Woes Prompt Erosion of Public Jobs, With a Heavy Toll in Silicon Valley tells the story of financially strapped San Jose, California.

San Jose is illustrative of what's happening in numerous state and local governments across America:

"The nation has lost 668,000 state and local government jobs since the recession hit — more than in any modern downturn . . . . {I}n cities and states around the country, the loss of those jobs has made it harder to provide services and has upended the lives of thousands of workers who had thought their government jobs were safe.

It is not just faded industrial cities that are struggling to retain their workers. San Jose, a growing city of nearly one million in the heart of Silicon Valley that is now the nation’s 10th biggest, has shed 1,592 jobs — more than a fifth of its employees — over the last four years as falling tax revenues, rising pension costs and dwindling state aid have all taken their tolls on the city and its workers. . . . the city’s tax collections this year are projected to remain below where they were five years ago — and California law makes it hard for cities to raise taxes, since they must win voter approval first. Pension costs now consume more than a fifth of the city’s general fund budget, officials said, and have risen to $245 million this year from $73 million a decade ago.

“You’ve got this double whammy for local government of the retirement costs escalating and the crash of ’08, the recession, knocking revenues down at the same time,” Mayor Chuck Reed, a Democrat, said in an interview in his office in the city’s new 18-story Richard Meier-designed City Hall, which was built in better times by his predecessors.

The city government’s employee head count has shrunk to 5,400 from 7,418 a decade ago, when it had fewer residents. Branch libraries are open only four days a week. And the city recently won agreements from its unions to cut compensation for all of its employees by at least 10 percent.

Now Mr. Reed is taking aim at pension costs, which rose after the benefits were improved over the last decade, with police officers and firefighters able to retire after 30 years with pensions worth 90 percent of their salaries. He supports a ballot measure this June that would require workers to go into far less lucrative retirement plans, or to contribute up to 25 percent of their salaries to keep their current benefits. “Every dollar the city pays for retirement costs is a dollar we can’t spend on services for our residents,” he said in his annual State of the City speech this month.

Union members picketed the speech. They have accused the city of exaggerating the future costs of pensions to build support for the measure. Jim C. Unland, the president of the San Jose Police Officers’ Association, said that the police were willing to negotiate on retirement costs, but that the mayor’s proposals went too far.

Yolanda Cruz, a library network engineer and the president of the city’s Municipal Employees’ Federation, pointed out that city workers would not get Social Security, and that the average pension for nonuniformed workers was $36,000 a year. She said a city-commissioned poll had found a growing willingness to raise taxes."

At least the taxpayers will have their say in the matter. My guess is that they'll say no to higher taxes to pay for the rich pensions of public sector workers. Then the employees themselves can decide to contribute more or agree to reduced retirement benefits. They'll be free to choose, after the taxpayers have first spoken. Sounds right to me.

In Alabama, a County That Fell Off the Financial Cliff relates the tale of bankrupt Jefferson County (Birmingham), Alabama. Here's what the article says in part:

"Officials here have only begun to grapple with the implications of life under Chapter 9 of the federal bankruptcy code, a municipal form of debt adjustment, rather than reorganization or liquidation. Until now, the most famous example was Orange County, Calif., which filed for Chapter 9 in 1994, after risky investments went horribly wrong. Many local governments are struggling to pay their bills these days, but hardly any have filed for bankruptcy. Notable exceptions include Harrisburg, the capital of Pennsylvania, Vallejo, Calif., and Central Falls, R.I.

“This is really a journey without a road map,” said John S. Young, the civil engineer who was appointed by an Alabama court to figure out how to fix Jefferson County’s sewer system. Today he is that project’s official receiver in name only: a federal bankruptcy court has suspended his powers, ruling that the federal bankruptcy law trumps state laws that protect bondholders.

Ordinary citizens can’t do much at this point. Jefferson County has even canceled municipal elections scheduled for this August. It seems that there’s no money for voting booths, either."

Yes, many of our American cities and states are in unfamiliar territory today. Promises made in the past are unable to be kept without huge tax increases or severely reduced public sector jobs and public services.

In many situations, public services have already been curtailed, and it's now obvious that public sector pensions were frequently underfunded by huge amounts. Meanwhile, taxpayers rightfully are reluctant to endorse the prior under-the-radar pension plan promises of their elected representatives.

And while talking a good game in general terms, public sector union leaders, like the politicians, also seem unable or unwilling to come to grips with these ugly realities.

My view is that we're probably in the second inning of the first game of a long doubleheader.

So let's be sure to stay tuned as this stuff gets sorted out in lots of cities, counties and states. It will because it has to.

You see, it's not just the federal government in need of severe belt tightening and a serious ongoing diet. It's very much the public sector as a whole.

Thanks. Bob.

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