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PRINT For 50 years, public unions, health-care lobbyists, and social-services a dvocacy groups have doggedly been amassing power in state capitols and c ity halls, using their influence to inflate pay and benefits for their w orkers and to boost government spending. The bill for that influence is now coming due, and it is overwhelming state and local budgets. For inst ance: In New Jersey, legislators wooing union votes in 2001 voted a 9 percent h ike in already rich pensions for the states 500,000 public workers, eve n though a falling stock market was shrinking pension-fund assets. In Washington State, the powerful teachers union led a successful 2000 e ffort to win legislation mandating smaller class sizes, promising that i t would cost taxpayers nothing, because surplus revenues could cover the program. This year, the cash-strapped state passed $500 million in new taxes to finance the mandate. In California, then-governor Gray Davis and a union-friendly state legisl ature passed a series of bills that swelled the number of state employee s who could claim disability retirement benefits and also expanded the n umber of ailments automatically classed as job-related to include HIV, t uberculosis, and lower-back pain. The flood of new disability claims wil l cost the states retirement system some $465 million over five years, much of which will come out of taxpayers pockets. Such extravagances help explain why state and local government spending r eached an all-time high relative to the national GDP during the 2002 rec ession, producing a fiscal hangover that continues today. Even in an exp anding national economy, with tax revenues surging once more, state and local budgets teeter in precarious balance, long-term deficits pile up, and politicians hike taxes to close spending gaps. The budgetary excess has prompted the stirrings of Americas newest tax revolt, as overburden ed taxpayers grope for ways to curb the often automatic expansion of sta te and local government and to reduce the power of public unions. The tidal wave of local government spending that produced this crisis bui lt up as tax revenues poured into state and municipal coffers during the 1990s boom. State tax collections rose by 86 percent, or about $250 bil lion, from 1990 through 2001, while local property-tax collections soare d by $90 billion, or 60 percent, during a period when inflation increase d by a mere 30 percent. Rather than give surpluses back to taxpayers, go vernment went on a spree, lavishing opulent pensions on employees and ex panding politically popular health and education programs. Unions and social-services groups were perfectly positioned to funnel thi s flood of surplus tax revenues into their pockets rather than back to t he taxpayers. Starting with virtually no representation in the public se ctor 50 years ago, unions have relentlessly organized workers, so that i n some states as many as 60 to 70 percent of public employees now are me mbers. As a result, these unions wield huge clout at the ballot box, and union dues give them vast resources to sway public opinion and influenc e legislation. Gradually, public unions have aligned with local social-s ervices and health-care groups that federal (and later, state and local) government began funding heavily during the War on Poverty of the 1960s and early 1970screating a new class of organization that lives off gov ernment money. These government-financed nonprofits and their union alli es now make up a powerful coalition for bigger government and higher tax es in statehouses and big cities across the land, and they didnt let a nickel of the 1990s tax windfalls slip through their fingers. All told, the swell of tax revenues produced about $93 billion in surplus es that state governments soaked up, the Cato Institute estimates; indee d, state general-fund spending alone increased by 85 percent from 1990 t o 2001, much faster than the combined rate of inflation and population g rowth. Absurdly, this spending tempo carried over into the economic slow down that began in late 2001 and lingered into 2003, as budgets that app eared to be on autopilot grew rapidly, producing $85 billion in collecti ve state budget deficits in fiscal 2003 alone. To close their budget gap s, state and local governments boosted taxes and fees on citizens and bu sinesses already hurting from the economic downturn. Local property-tax bills, for instance, grew by about 6 percent a year from 2001 to 2004, e ven though the consumer price index increased by only 67 percent for th e entire period. The prime budget buster has been the outlandish wage and benefits package s of public employees. Contractually guaranteed, they are untouchable ev en during economic slowdowns. Public-employee unions have so successfull y used their political muscle that whereas public-sector compensation on ce lagged the private sector, now the reverse is true. Astonishingly, th e average state and local government employee now collects 46 percent mo re in total compensation (salary plus benefits) than the average private -sector employee, according to the nonpartisan Employee Benefit Research Institute. Wages average a hefty 37 percent higher in the public sector, but the dif ferences in benefits are even more dramatic. Local governments pay 128 p ercent more, on average, than private employers to finance workers heal th-care benefits, and 162 percent more on retirement benefits. Although the private sectors heavier concentration of low-wage service employmen t accounts for some of the wage and benefit gap, public-sector employees do better these days even when you compare similar jobs. Total compensa tion among professional workers in the public sector is on average 11 pe rcent higher than for similar jobs in the private sector, for instance. Other comparisons of public- and private-sector pay illustrate the same g ap. The Citizens Budget Commission, a New York City fiscal watchdog, fou nd that the average public-sector worker in the metropolitan region rece ived 15 percent more in pay (not including benefits) than the average pr ivate worker. The gap was greatest in service-sector jobs, like security guards, health-care workers, and building-maintenance workers, where go vernment on average paid 94 percent more than private firms. A 2001 Rhod e Island Public Expenditure Council comparison of private- and public-se ctor average wages across the nation found that the average public-secto r wage was higher in 35 states. The public unions could only achieve this reversal because government is a monopoly, exempt from marketplace discipline. Competition can punish p rivate companies that give away the store to employees or that perform i neffectivelydriving the most profligate or inefficient out of business but government is perpetual regardless of how it performs, and public un ions have succeeded over the years in layering new perks and benefits on top of previous collective-bargaining gains that rarely get rolled back , even in tough times. Awash in contributions from the unions and agenci es whose pay they set, the gerrymandered state legislatures and one-part y city halls that hand out such largesse are well insulated from voter r etribution. Thus taxpayers wind up being nicked by a thousand small bene fits piled upon one another year after year. The buildup of two benefits in particularpensions and health careis now producing major budget disasters nationwide. State and local government s used tax surpluses and the 1990s stock-market rise to gold-plate pensi on programs, with disastrous effect once the stock boom ended. By 2003, state and local pension funds had accumulated over $250 billion in unfun ded liabilities, reports the National Association of State Retirement Ad ministrators, leaving taxpayers on the hook. New Jerseys pen sion costs are rising so quickly that without reform they will consume 2 0 percent of the state budget in five years, up from 8 percent this year . Illinois state budget pension obligations will reach $4 billion a yea r by 2010, which could make them a bigger share of the state budget than local aid to education. The pensio...
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