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State Budgets

  • Unions And Pensions: Unfunded Culpability

    Written on May 4, 2011

    The Pew Center on the States just released an updated report on unfunded liabilities of state pension (and retiree health) systems. The figures are sobering. In FY 2009, state pension plans were funded at an average of 79 percent, meaning that they were short about one dollar for every five that projections suggest they’ll need to meet their obligations.

    While there’s no doubt about the troublesome implications of these findings, there’s a lot of disagreement as to causes. Lately, governors and state legislators (of both parties, but mostly Republicans), as well as dozens of commentators, have tried to lay the blame on the public sector workers, to whom the pensions are owed – seeking to restrict these workers’ collective bargaining rights, with the claim that this will help control the cost of benefits.

    The unfairness of blaming public sector workers – and their unions – should be pretty clear. By all accounts (also here), the primary reason that pension plans are in trouble is that the 2008 collapse of financial markets decimated the value of pension fund investments (the early 2000’s recession also seems to have played a role). Add to that an aging population (there is an increasing percentage of retirees as a share of the population, and they are living longer), as well as the failure of many states to make their required contributions during good times, and you have a fairly comprehensive explanation for the pension "crisis."

    Nevertheless, some have argued that public employee collective bargaining has exacerbated states’ pension problems – after all, more than their non-union counterparts, union members have tended to trade current salaries in favor of increases in deferred benefits. In that case, we might expect that states with higher densities in public sector union membership will have larger unfunded pension obligations. These differences need not be huge, but it’s reasonable to anticipate that they would be discernible. Let’s take a look.

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  • The High Cost Of Closing Public Libraries

    Written on April 18, 2011

    Government budget cuts, at all levels, can have tragic effects. It will take us a long time to recover from the damage the current cuts have done and will do. There are many vital public services – such as health care, aid to the homeless, and schools – that we must do our utmost to protect. But, at least for me, there are few cuts more bothersome than the closing of public libraries.

    Sadly, these closings are happening all over the nation, including New York, Ohio, Michigan and elsewhere.

    At the same time, use of libraries has been increasing for years. In 2008, according to the Institute of Museum and Library Services, the average person visited a public library 5.1 times, an increase of almost 20 percent since 1999. Of course, this use is not equally distributed – some people visit regularly, while others not at all.

    In part, this is because many low-income Americans rely on libraries, not only for books and periodicals, but as their primary source of internet access. As a result, the number of computers in public libraries has almost doubled since 2000.

    Let’s do some simple, illustrative math here.

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  • Are Teachers Driving The Public/Private Sector Earnings Gap?

    Written on April 4, 2011

    A great deal of the debate surrounding public sector unions focus on how much public employees earn versus private workers. Every credible analysis – those that account for huge differences between public and private workers in terms of characteristics like profession, education, and experience – find that public compensation is competitive or lower than that of private-sector workers (for recent examples, see here, here, and here, or a review here).

    I have, however, heard a few thoughtful observers make the point that virtually all these analyses include education workers, and that this might be a little misleading. It’s a fair point. Roughly one in five state/local government employees are in fact K-12 teachers, while another five percent are professors at public colleges and universities. This is important because analyses of public/private sector compensation essentially compare public employees with workers with similar characteristics (education being the most important one) in the private sector. The research above indicates that workers with more education pay a larger “price” for working in the public sector, whereas many lesser credentialed, lower-skilled government jobs actually pay more. Since many teachers have master’s degrees (and professors Ph.D.’s), and they are such a huge group, it’s reasonable to wonder if they might be skewing the overall estimates.

    So, I decided to see if a comparison of public/private compensation that does not include teachers and professors would yield very different results. Let’s take a look.

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  • Are Americans Really Unwilling To Pay More To Prevent Education Cuts?

    Written on March 14, 2011

    In a speech earlier today, President Obama asserted, “We will not cut education," and implied that doing so would be “reckless” and “irresponsible." The president’s heartening remark, however, comes as  education funding is taking a massive hit at the state and local levels in most states, including New Jersey, Pennsylvania, Florida, and, yes, Wisconsin. The damage will likely last for many years.

    In all the debate about what to cut and how deeply, there seems to be an assumption that an increase in revenue for education – to avert these massive cuts - is not an option. Although there are exceptions, very few Democratic governors are supporting tax increases to make up their states’ shortfalls, while Republicans governors are, of course, adamantly opposed.

    Among many members of both parties, the presumption seems to be that raising revenue is simply a non-starter, because the American people are unwilling to pay more.

    I’m not so sure. There is some evidence to suggest that this assumption deserves a second look.

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  • How To Make A Misleading Public/Private Earnings Gap Disappear

    Written on March 5, 2011

    USA Today last week published yet another story claiming that public sector workers make more that their private sector counterparts - this one saying that Wisconsin is one of many states where this is the case. Their “analysis” used data from the Bureau of Economic Analysis, and compared total compensation (salary+benefits) between workers in the private sector and state/local government.

    No matter how many times they are told that you can’t just make a straight comparison of dissimilar groups of workers, apparently they still don’t get it. Incredibly, this particular article admits as much, and even quotes economist Jeffrey Keefe, who tells them that the gross comparisons don’t account for important sectoral differences in education and other factors. In other words, their numbers don’t tell us much of anything about public versus private sector compensation. Still, there is the headline: "Wisconsin one of 41 states where public workers earn more." How many people saw that headline, and now believe that public workers are “overpaid?"

    USA Today, of course, is not alone. These assertions have lately become insidious, coming from governors, commentators, and others. But when a major national newspaper decides to run this story at this politically-charged time, based on their very own “analysis," a separate response seems in order.

    I’ve discussed this issue before, but maybe it would be more helpful to show how the data are more properly analyzed in a step-by-step fashion, using 2009 U.S. Census microdata (the American Community Survey, available from the wonderful organization IPUMS.org). Here’s how you make a false earnings gap disappear in five minutes.

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  • Are Public Employee Unions To Blame For States' Budget Crises?

    Written on February 9, 2011

    A disturbing number of people are blaming public sector unions for states’ current budget crises (also here, here and here). Their basic argument is that unions have seriously exacerbated budget shortfalls because a significant proportion of state spending is tied up in employee compensation, and unions, via collective bargaining, increase salaries and benefits.  As a result, so the line goes, unions have created unsustainable expenses for state governments in a time of declining or still-recovering revenues.

    Needless to say, the relationship between unions and state revenue/spending is complex.  The claim that unions are responsible for state budget gaps (or at least for larger gaps) is therefore extremely difficult to examine, especially during a fiscal crisis. Nevertheless, we can take a quick, modestly rigorous look. 

    There are 30 states that provide collective bargaining rights for state employees, virtually all of them via state laws. One way to evaluate the merit of the accusations above is to see whether states that allow collective bargaining have more severe budget problems than those that do not.

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  • Ready, Disclaim, Fire

    Written on January 31, 2011

    Earlier today, newly-elected Michigan Governor Rick Snyder released his "Citizens’ Guide to Michigan’s Economic Health." The general purpose was to provide an easy-to-understand presentation of the state’s finances, and to encourage local governments to do the same. These are of course laudable goals, but one of the report’s major findings, also mentioned in the governor’s press release, was a familiar one:

    Average annual compensation of state employees (including salary, wages, and benefits) was over twice the average annual compensation of private sector workers in 2009.
    As might be expected, many reporters and editors dutifully ran this outrage-inspiring finding as a headline (also here and here), even before the report was officially released: State workers make twice as much as private sector workers. Governor Snyder rolled out the report as part of his presentation to the Business Leaders for Michigan Summit, in which he spoke about the state’s fiscal situation.

    I’ve already discussed how these gross comparisons of public and private sector workers – whether nationally or in a single state – are invalid. That is, they compare two completely different groups of workers: Public employees, who are mostly professionals, and private sector workers, many of whom work in lower-wage, lower-skill jobs. But this time, you don’t need to take my word for it. After featuring the “twice as much” finding in a header and pull-out quote, the governor’s report says it directly:

    However, this analysis does not compare private and public sector employees with similar jobs, years of experience, or education.
    Let me translate that for you. It means: This comparison is meaningless.
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  • Meet The Bureaucrats

    Written on January 23, 2011

    You needn’t look far to see that state public employees are under intense scrutiny. Politicians and other commentators are using rhetoric that is simplistic and often misleading. But, in the debate over their relative value, these state workers have an additional problem: I get the strong feeling that most Americans have little idea what they do.

    If you ask the average person to describe what a public employee does, you might hear the word “bureaucrat." Those who wish to dismantle large chunks of the public sector have come to use the term as the pejorative for all public servants (most often in the federal government context) - probably in the hope that it will conjure up images of large government buildings filled with endless rows of faceless, overpaid desk workers collating papers.

    So, who are these state public employees? What are they actually doing? These are very basic questions, yet they are rarely addressed in detail, at least not lately. And, let’s be honest – in one way or another, our tax dollars do pay for these workers’ services, and regardless of your views on state budget troubles, it’s always good to know what you’re paying for. Luckily, of course, the question is easily answered. In the simple table below, using 2009 data from the Occupational Employment Statistics program of the U.S. Bureau of Labor Statistics, I present the breakdown of state government workers by occupational category (note: these categories are comprised of varying numbers of similar detailed occupations, and while my examples in the table are the largest, they are not the only ones in each category).

    In order to summarize this table, let’s suppose you’re invited to a party to meet ten people, who are a roughly representative sample of the 4.5 million state employees across the nation. Let’s meet the bureaucrats!

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  • Do Americans Think We Spend Too Much On Education?

    Written on December 13, 2010

    Cost-cutting is all the rage in education policy. This makes a lot of sense during a recession (the next few years will be brutal), and even during good times we all want money to be well-spent. But much of the discussion on this topic is less about weathering the storm than about a long-term effort to stop the growth of spending on public education. The underlying assumption, hardly unique to education policy, is that people are tired of increasing school costs, and want to start cutting back.

    So, I wanted to take a quick look at what Americans think of education spending, now and over time, using data from the General Social Survey (1972-2008), a nationally representative sample of U.S. opinions and other characteristics (run by the National Opinion Research Center).  The question queries whether respondents believe the U.S. is spending too little, too much, or about the right amount on improving the nation’s education system (note the question’s use of "improving," which likely influences responses to some degree).  Also keep in mind that these are pre-recession data.

    The 2008 data in the table below (non-missing sample size is 993) show that there’s actually a lot of agreement about education spending levels: Almost 3 in 4 Americans (71 percent) believe that we should spend more on improving education, while only about 1 in 20 feels that expenditures are too high.

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  • Evasive Maneuvers

    Written on November 10, 2010

    In a previous post, I showed how the majority of funding for education and other public services comes from state and local tax revenue, and that low-income families pay a disproportionate share of these taxes (as a percentage of income). 

    One of the reasons why this is the case is that many corporations – especially the largest and most profitable – have managed to avoid paying most of the state taxes that they owe (45 states have some form of business tax).  State corporate income taxes (CIT) are levied on business profits – so, for the most part, it’s only the highest-income individuals who are liable (through the businesses they own) for corporate taxes (the top 10 percent wealthiest individuals own about 90 percent of all corporate stock).

    A 2005 joint report by Citizens for Tax Justice and the Institute on Taxation and Economic Policy took a close look at state CIT payments by 252 Fortune 500 companies between 2001 and 2003. Their findings were astounding. These corporations were able to shelter roughly two-thirds of their actual profits from state taxation, while 71 of them paid not a penny in state taxes during at least one year between 2001 and 2003.  During the years they paid no taxes, these 71 companies reported $86 billion in profits to their shareholders.

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