Some historical reference is needed to understand exactly why now, and why this is so important?
The national economy really started shrinking into a recession in 2006, that was the peak of the housing bubble that kicked off these events. If you understand how revenues work in State and Local municipalities you understand that Property Tax rates lag behind home values by approximately a year and a half (18 months). Those property tax revenues comprise the most substantial portion of local revenues. As the values drop, if the millage rate remains similar, the subsequent revenue drops. Essentially your property tax payments drop with the lower home value. Combine this with State sales taxes dropping because of lower purchasing activity, and add to it a drop in State income taxes for those who have lost jobs and businesses making less money, and now you see a drastic reduction in tax revenue. Those three factors determine, and drive, the capacity of a state or local municipality to afford its public employees.
In the private sector economic contraction immediately leads to drops in employment as businesses contract their labor force to meet the drop in sales revenues. Less business equals fewer employees. However, in the public sector the contraction is delayed as noted above. Also something different occurred this time around. Local and state revenues began declining in 2007 and then again in 2008. However necessary contraction to drop public sector payrolls was avoided by federal intervention. The $762 billion stimulus bill passed by Obama in 2009 was used to ‘prop up’ states budget gaps. In essence the drop in revenue, and subsequent need to drop public payroll was avoided by replacing local revenue with those federal dollars, a “Stop Gap” measure. As those funds began drying out (last year), states were going to have drop payrolls for Fiscal Year 2010. Obama again stepped in with a $29 billion public worker payroll bill, sold to legislature as a “saving teachers’ jobs” bill.
These federal interventions only worsened the problem and delayed the inevitable. Instead of states reducing their public sector labor force in fiscal year 2009 to match lower revenues, then cut again in fiscal year 2010 to match these deepening revenue drops, the process was avoided with deficit spending vis-a-vis Federal Stimulus. Remember the actual revenue continued to decline throughout this period, and still today continues to drop. So what would have been small incremental steps down never happened, they were avoided or postponed. Instead of the naturally occurring economic payroll reduction being three smaller steps over time we have one massive step that needs to be taken.
In addition, as this was occurring the federal government kept extending unemployment benefit subsidies to the states (now beyond 99 weeks) which was, and is, another form of hidden stimulus.
This avoidance happening over the past 3 years was recognized by many common sense conservatives, Tea Party folks, and basically anyone with a decent understanding of fiscal economics when it was occurring. But those employees in the public sector just never understood it. Why would they? Their payrolls and benefits were being propped up by Obama’s fiscal policy, which was driven entirely by his detachment from any real economic understanding, and the demands of public sector workers to continue the practice. AFSCME (American Federation of State County and Municipal Employees) was the largest donor to Democrats, the biggest lobbyist, and they were the driving force behind the legislative stimulus bills. The public unions were protecting their members interests by demanding federal spending.
However, the time for reckoning is here. The federal bailout monies have been exhausted, the states cannot fill the gap, revenues continue to shrink, and the step down in payroll -which is now massive- must be taken. There simply is no avoiding it. There are three or four years worth of built up and avoided public sector labor contractions (reductions) that must happen prior to Fiscal Budgets 2012 beginning. Those budgets begin in October of 2011 (this year). Each of these state governors is looking at dramatic reductions in spending vis-a-vis public employees, or massive increases in taxes to cover the budget gap. It is a stark reality, and unlike the federal government states must balance their budgets and cannot go into deficit.
That is why what is occurring in Wisconsin is also occurring, or going to occur, in every state. Chris Christie faced this issue head on last year, and will again this year. The pushback from the AFSCME Union leadership is extreme. Wisconsin coincidently is the state of origination for the AFSCME union. That’s why it literally is ground zero for them and you see all the other unions throughout the country coming to meet up and support. The AFL-CIO, SEIU, UFCW and others are joining AFSCME and sending teams of protestors into Wisconsin to draw a line in the sand.
Obama and his incompetent administration created this crisis with their insane economic recovery program which consisted entirely of federal spending. However, no amount of federal spending can fill the gap of natural economic contraction forever. The only thing his plan did was postpone the problem, make it bigger by avoiding it, and now we have to face the issue on a much more significant scale. This is going to be very ugly. The union leadership knows exactly how big the problem is, that is why they ‘invested’ their donations into the Democrats at such significant levels. However, those same union bosses have basically lied to their membership over the past several years by avoiding and never discussing the problem.
In addition to drops in local revenues many of the negotiated union contracts within local municipalities have automated increases in pay built into them. If the municipality is not given the capacity to remove these contractual obligations the only method of closing the gap is either cut employees, which will happen anyway but to a lesser extent, and/or raise tax rates on the citizens within the municipality. By empowering the local municipalities to restructure their union obligations the governor in Wisconsin is providing local city council members with greater flexibility, and perhaps be able to avoid tax increases.
The states with the most entrenched unions will face the biggest challenge. Wisconsin, Michigan, Illinois, Ohio, New York, New Jersey, California, etc. The ‘bluer’ the state, the more difficult this is going to be. If there has been a Democrat governor for quite a while it will be even more challenging. Fiscal discipline is tough, really tough. Everyone likes to eat ice cream, fewer like to eat spinach; but the private sector worker/taxpayers are tired of being the host to parasitic public sector unions used to gorging themselves.
The host is dying.
At this point, the teachers’ union and their Democratic supporters have conceded the argument. They could not defend their refusal of Governor Walker’s relatively small demands and so they launched into ridiculous ad hominem, violent rhetoric (shudder!), and, eventually, cowardly flight. We should take instruction from what has happened in Wisconsin over the past two days. Public sector unions are, as we have said before, a blight on our states and nation. We should do everything in our power to rid ourselves of them entirely and make sure, by law if necessary, that they can never come back again. It would make me very happy if Governor Walker fired every single teacher who called out sick over the past three days. They let down the taxpayers of Wisconsin and, more importantly, taught their students that it’s okay to lie, cheat, and steal in order to get what you want.
Now take a close look at this map from the midterm elections. Do not despair. There are more of us than them. We will win this fight. This is what the lefties are up against. They know it. Fix Bayonets !!