At The Bottom Of The Lottery Barrel

Here’s a telling indicator of just how bad Illinois’ financial situation is:  the Powerball and Mega Millions lotteries have kicked Illinois out of the games because the state legislature has been unable to agree on a balanced budget.

You read that right.  The Land of Lincoln is such a financial basket case that even the big lotteries won’t have anything to do with the state.  Apparently the lotteries have been talking about pulling the plug on Illinois for years, and they’ve finally decided to do it.

310-million-powerball-ticket-sold-at-mich-gas-station

It’s a significant step on the lotteries’ part, because Illinois reported $99.4 million in Mega Millions sales and $208 million in Powerball sales within the 2016 budget year.  And the loss of the lotteries will be an issue for Illinois from a budget standpoint, too, because 40 percent of the sales revenue goes to fund public schools — and how is the cash-strapped state going to make up the difference?

A spokesman for the Multi-State Lottery Association, which runs the games, said the group “is focused on protecting the integrity of its games and the experience of its players.”

What does that mean, exactly?  It’s kind of weird for the lotteries, which make their money solely by selling tickets to credulous rubes who don’t know or don’t care that the odds of winning are astronomical, to be talking about the “integrity” of their games.  Are they saying they’re afraid that Illinois, in its desperate search for cash, might try to tinker with the games to jury-rig the results, or seize the proceeds if the winner happens to live in Illinois, or decline to hand over the sales revenues?

It’s not entirely clear, but we do know this:  You know you’re really in deep doo-doo when gamblers think you’re too tainted to deal with.   Even the gamblers aren’t willing to gamble on dealing with Illinois.

California On The Brink

California is teetering on the precipice.  Yesterday Governor Jerry Brown said the state is facing a $16 billion budget deficit.  He proposed some spending cuts to make up the shortfall and asked voters to vote to raise taxes, “temporarily.”

If I were a California voter, I’d be a bit skeptical of Brown’s budget figures.  He forecast a $9.2 billion deficit in January; only four months later that amount has nearly doubled.  His budget also assumes economic growth, a sharp increase in new home construction, and $1.5 billion from Facebook’s initial public offering.  The Governor’s budget also counts on the use of one-time funds, and assumes that he will be able to convince state employee unions to accept a reduced workweek and that he will be able to convince the Democrats in the California state legislature to cut spending on social services.  Notably, Governor Brown also refuses to cut spending on a high-speed rail program.

In short, it’s the by-now-familiar scenario where voters are asked to approve “temporary” increases to the sales tax and income tax on the promise of cuts that never quite materialize.  Brown’s budget contemplates spending $91.4 billion.  Can’t California assign priorities and just cut those programs at the bottom of that priority list?  Rather than relying on phony promises of reduced workweeks and percentage cuts, or overly optimistic growth forecasts, how about making tough decisions and ending programs altogether?  How about firing employees, rather than negotiating to trim their workweek?  How about cutting the dreamy high-speed rail program in the face of budget realities?

The Wall Street Journal has an interesting piece contrasting how New Jersey Governor Chris Christie dealt the deficit he inherited with Brown’s approach.  Christie ended a high-speed rail program as an unaffordable luxury.  Christie vetoed tax increases as economically suicidal.  Christie was able to close New Jersey’s budget deficit without raising taxes.  Why can’t California make similarly tough decisions?

California DREAMing

You have to give the California state government some serious credit for apparently being completely divorced from fiscal realities.

The Golden State is facing a crushing, multi-billion-dollar budget shortfall — so much so that Governor Jerry Brown has ordered state departments to turn in their cell phones and BlackBerrys — and yet the state is getting ready to pass the California DREAM Act, one part of which makes public tuition assistance funds available to “undocumented immigrant students.”  The bill has passed the Assembly, seems certain to pass the Senate, and Governor Brown has said he will sign it.  The availability of tuition assistance comes on top of the fact that California allows the “undocumented immigrant students” to pay tuition at California state colleges at in-state levels, which are significantly lower that the tuition charged to out-of-state students.

I have nothing against immigrants — to borrow the linked editorial’s deft phrase, “illegal or otherwise” — but doesn’t it seem like fiscal nuttiness for a state that is billions of dollars in debt to be extending new benefits to anyone, much less to illegal immigrants?  With this kind of responsible management of the public purse, is it any wonder how California got into its current predicament?

 

Does Limiting Public Employee Collective Bargaining Save Money For State And Local Governments?

In Wisconsin and Ohio, new Republican majorities in state legislatures, and new Republican governors, have modified public employee collective bargaining rights and argued that it is part of an overall effort to bring state and local government budgets back into balance.  Democrats have responded that the budget control argument is a bogus fig leaf and that the real motivation for the Republicans’ actions is union-busting, pure and simple.

It therefore is interesting that in Massachusetts — Massachusetts! — the House of Representatives voted overwhelmingly in favor of a bill to restrict the ability of municipal public employees to collectively bargain about health care benefits.  Moreover, the House effort was led by Democrats, who argued that the changes will help struggling cities and towns.  Indeed, the Democratic Speaker of the House contended that the changes would save cash-strapped municipalities $100 million and allow them to maintain more jobs and provide more services.

The Massachusetts initiative still has to pass the Senate and be signed by the Governor, so it may well not become law.  Still, the fact that Democrats in the Massachusetts House supported such a measure on budget grounds seems like a powerful argument for the proposition that modifying public employee collective bargaining rights is a legitimate way to achieve significant savings in government spending.  If Democrats have accepted that argument in Massachusetts, how can Democrats in Ohio and Wisconsin contend that similar efforts in their states are motivated wholly by partisan politics and mindless anti-union sentiment?

Weirdness In Wisconsin

Wisconsin — home to the Green Bay Packers and their cheesehead fans, different varieties of beer, and countless solid Midwestern burghers of Germanic lineage — has a long and storied tradition of political ferment and dissent.  With the bizarre happenings in Madison over the past month or so, Wisconsin is living up to its rich political and cultural reputation.

Three weeks ago, Wisconsin Senate Democrats fled the state, hoping that last-ditch tactic would prevent a quorum and therefore a vote on a bill to change collective bargaining rules for government employees.  They believed their procedural “Hail Mary” — coupled with constant protests by teacher and public employee unions and union supporters in the Wisconsin state capitol — would exert pressure on Governor Scott Walker and Republicans who supported the bill.  The Republicans held firm, however, and the parties were at an impasse.

Now the Republicans have made the Democrats pay for their high-risk tactic.  Yesterday, while the Democrat Senators remained out-of-state, Republicans stripped the collective bargaining bill of the budgeting provisions that presented the quorum problems and then passed it through the Wisconsin Senate.  Because they chose to absent themselves from the state, no Democrats were present for the final vote or to raise objections to the procedure.  The bill now goes to the state assembly.  In the meantime, protesters flooded, once again, into the Wisconsin state capitol.

In the linked article, the leader of Wisconsin Senate Democrats accuses Republicans of showing “disrespect for the people of Wisconsin” and conspiring to “take government away from the people.”  We’ll have to see whether that spin has any resonance with Wisconsin voters — but it is hard to see how Republicans who stayed on the job in the face of public protest, waited for weeks for petulant Democrats to return to the governmental process, and then enacted legislation in a public forum in the Democrats’ absence, showed more “disrespect for the people of Wisconsin” than the Democrats who tried to take their ball and go home.

Senate Bill 5 Moves On

By a one-vote margin, the Ohio Senate today passed Senate Bill 5, the controversial legislation to modify the collective bargaining rights of public employees.  The vote came as pro-union demonstrators again flooded the Ohio Statehouse and its grounds to try to stir up opposition to the measure.  The union protesters manage to get six Republicans to break ranks with leadership and vote against the bill — but they needed seven defections to kill the bill.  The measure now moves to the Ohio House, where it is expected to pass.  Governor John Kasich supports the bill and would sign it if it makes it to his desk.

I respect the public employees who came to Columbus to exercise their free speech rights and oppose Senate Bill 5, but I believe it is a necessary measure.  Ohio is facing a huge budget deficit, and many Ohio municipalities also are facing budget shortfalls.  A significant part of the state and local governmental budgets are devoted to public employees compensation and benefits.  Senate Bill 5 seems like a reasonable step to deal with those costs.  Public employees could still bargain about wages, hours, and working conditions, but not health care, pension benefits, or sick time.  Public employees also would not be able to strike.  The move should allow Ohio state and local governmental entities to bring public employee health care and pension benefit contributions in line with the prevailing approaches in the private sector, and the savings produced as a result will help to make up the budget shortfalls.

We shouldn’t kid ourselves, however.  Senate Bill 5 is not going to fix Ohio’s budget gap by itself.  Our legislators need to roll up their sleeve and continue to look carefully, and skeptically, at state programs, state departments, and state agencies and decide whether they truly are needed, and if so at what funding level.  What services are critical, and which provide non-essential services that we simply cannot afford any longer?  Public employees in Ohio should not be the only group that bears the brunt of necessary budget cuts.

 

At The Ohio Statehouse Union Rally

A view from the Statehouse steps onto the northwest lawn

Today, after lunch, Richard and I walked over to the Ohio Statehouse to check out the big union rally against Senate Bill 5, the bill that would affect the ability of public employees to engage in collective bargaining rights.  I had been hearing the hubbub outside my office window and was eager to see the turnout.

We got to the Statehouse about 12:45 and entered at the Third Street entrance.  There were some union folks out on Third Street and milling around the entrance.  We saw people wearing public employee union t-shirts, jackets and buttons in the map room and in the Atrium above.  Rows of chairs had been set up in the Atrium, facing each other across a center aisle, and as we walked through a large, leather-lunged woman was leading the crowd in “We want respect” chants.  I would estimate that several hundred people were in the Atrium, and they were in good spirits.

Signs at today's Statehouse rally

We crossed through the Statehouse Rotunda and exited out the Broad Street entrance, which was where the real action was.  A temporary stage had been erected and two singers with guitars were singing union songs.  The crowd covered about two-thirds of the west lawn and sidewalk, with people sitting on the benches and standing on parts of the McKinley memorial.  There were lots of union t-shirts, hats, and some very creative signs criticizing Governor Kasich.  Some of the signs seemed to be generated by outside forces.  For example, we saw several signs referring to Governor Kasich and Wisconsin Governor Walker as “Koch-heads” or “Koch addicts,” and I’m not sure most union workers would focus on the Koch brothers as sign material without some kind of prompting.

The people at the rally were pleasant and friendly, and the whole gathering had an upbeat open-air feel.  The Ohio Highway Patrol had officers at points in the Statehouse, and they were professional and friendly as always.  We later heard an estimate that 8,500 people were at the rally.  I’m not sure it was that large when we were there, but there definitely were thousands of people in attendance.  We did not see any counter-protest.

Regardless of your politics, if you are downtown restauranteur you have to like these protests.  We saw lots of protestors crowding into the Tip Top, Dunkin Donuts, and other restaurants in the core downtown Columbus area.

Protest, And Response, In Wisconsin

We are learning a lot about a changing America, and a changing political landscape, from watching the ongoing story in Wisconsin about legislation that would affect collective bargaining rules for public employees.  The story began with public employee unions flexing their muscle.  They prevailed upon their members — many of whom apparently called in “sick” — to flood the state capitol in protest.  They also prevailed upon Democratic state senators to flee the state and bring the legislative process to a halt due to lack of a quorum.

But then something surprising happened.  Yesterday, a counter-demonstration occurred, as thousands of “Tea Party” activists and other citizens came to the state capitol to support Wisconsin’s Republican Governor in his budget-cutting efforts.  In all, police estimated that 68,000 people came to the state capitol to either support or oppose the collective bargaining bill, and they did so peacefully.  Even more interesting, police report that there were heated arguments between the opposing sides, but no violence.

It is not surprising that teachers and public employees would turn out to protest; their pay and benefits will be directly affected by the outcome.  What I think is extraordinary, however, is that thousands of citizens whose interests are not directly affected were motivated to spend a Saturday outside, advocating in support of the budget-cutting efforts of Wisconsin’s governor.  It says a lot about the deep level of alarm about out-of-control spending that thousands of people would spend their precious weekend hours at a counter-protest.  Wisconsin’s governor, and his Republican allies in the state legislature, must have been encouraged by the strong show of support — which probably is the tip of a much larger iceberg.

It also says something that thousands of people could turn out to support competing sides of a hotly debated issue without violence.  The teachers, public employees, and citizens who went to the state capitol to exercise their rights to free speech and assembly look a lot more adult than the Wisconsin Democratic Senators who turned tail and ran out of state rather than participate in the political process as they were elected to do.

States In The Red, Looking For A Way Out

As even a casual follower of the news knows, many states are struggling with huge budget problems.  Ohio is one of them.  Usually the problems are the result of declining tax revenues, increased government spending and support obligations, and the fact that bills are starting to come due on grossly underfunded state employee pension and retirement plans.

States are taking different approaches to their predicament.  Illinois recently enacted huge increases to its individual and corporate income taxesCalifornia has declared a state of fiscal emergency.  Some states have focused exclusively on cutting spending.  And, it now appears, other states have quietly gone to Congress to explore the possibility of either a federal bailout or changes in the law to allow states to declare bankruptcy.  In these Tea Party days, there doesn’t seem to be much appetite for bailouts — especially for states that seem to have behaved irresponsibly with their budgeting decisions and can’t be trusted to behave responsibly in the future.  So, the “bankruptcy option” evidently is being seriously explored as a way to allow states to avoid their pension obligations.

I’m opposed to a federal bailout of the states.  I’m also opposed to any change in the law to facilitate states wiping out their debts through a bankruptcy-type process.  I think the bankruptcy option would be bad policy for two reasons.  First, I think such an approach is not fair to people who have agreements with the states that would be affected by a bankruptcy process.  State employees who have worked for years on the understanding that they will receive a pension should not be deprived of their pension payments.  For those workers, the pension was part of the deal, they have relied on the pension in their retirement planning, and it would be unfair for states to now renege on the deal.  Second, bankruptcy would affect not only state workers with pensions, but also all people who have contracts with the state, all people who purchases state bonds and debt instruments, and all others who do business with the states.  It would be a drastic step that would, I think, forever affect the state’s credit rating and investor confidence in government securities generally.  States that have been responsible in their budgeting and spending would be tarred, too, and would have to endure higher interest rates on their own borrowing as a result.  Obviously, neither of those results would be welcome.

The solution for states that are in a budget bind should lie in the state, itself, making the tough choices and difficult changes necessary to get their fiscal houses in order.  Cut spending.  Eliminate programs that aren’t essential.  Sell state property and assets.  Negotiate changes  to future pension obligations and eliminate pensions for newly hired employees.  Change laws that require automatic escalations in pension payments.  Explore users fees as additional revenue sources.  But don’t come to Uncle Sam for a bailout, and don’t take a bankruptcy option that could leave retirees high and dry and cripple state credit ratings for decades to come.