Considering that BJ's shows the biggest profits around lately, negotiator is working with CT government to prevent firing (c.)...the big three government concerns in CT dwarfed by size of California's problem.

CONTENTS:  how does society value money...is "wealth" better if earned, saved, invested or inherited?

Arbitration's big cost is democracy, not money
Manchester Journal-Inquirer
By Chris Powell
Published: Saturday, May 2, 2009 11:24 AM EDT

Manchester's teacher union is keeping quiet as it plays chicken with the town administration, which wants the teachers to make financial concessions like those already obtained from all the other town employee unions. So the other day an official of the teacher union in neighboring South Windsor was enlisted to make the case against concessions and in favor of continuing Connecticut's system of binding arbitration of public employee union contracts.

In an essay published in the Journal Inquirer, that union official, David Olio, noted that the General Assembly's Program Review Committee reported in 2005 that binding arbitration has not increased government's costs. The committee's report was ridiculous, insofar as binding arbitration is, by definition, the removal of government's power to decide major financial issues. After all, if binding arbitration is not great for the unions and bad for towns, why do the unions support it while town officials complain about it? But the committee report was useful politically, since most state legislators are terrified of getting near the arbitration issue, terrified of getting caught between the public and the unions, the most powerful special interest.

"Binding arbitration has helped instill labor peace," Olio wrote. This is the biggest myth about arbitration. Labor peace has been obtained not by arbitration but by the capitulation to the unions achieved through arbitration. If arbitration ever favored taxpayers and restrained public employee costs instead of increasing them, the unions would oppose it and begin striking, even though such strikes always have been against the law in Connecticut. (The second biggest myth about arbitration is that it was enacted in exchange for the right of public employees to strike. They never had that right.)

Resentful particularly of criticism in this space, Olio wrote that teachers earn only half as much as managing editors. But teachers are not management and managing editors are not government employees. Anyone can avoid the cost of managing editors. But no one can avoid the cost of public employees, a cost that, unlike the cost of managing editors, is a matter of public policy.

"A new teacher who gives up $3,000 will cost herself over $100,000 during her career," Olio wrote. "A retiring teacher who does the same will see his retirement affected for the rest of his life." So Manchester, Olio argued, is not asking for $1.7 million in concessions from the teacher union but for "$1.7 million in perpetuity." This well could be true if any concessions are not regained. But where does Olio think the money is coming from? For the potential perpetuity of the financial loss applies equally to taxpayers. That is, if taxpayers agree to pay $1.7 million now, they too may be paying $1.7 million every year in perpetuity. Are they supposed to feel this expense any less keenly than the teachers?

"Gov. M. Jodi Rell, a Republican, proposed a budget that fully funded the education cost-sharing grant, the state's contribution to education," Olio wrote. Yes, Rell did, and it is too bad, since state aid to municipal school systems long has served largely to subsidize increases in school staff compensation and so should be reduced to bring pressure on school systems to control staff costs. But Olio neglected to note that Rell also has proposed suspending binding arbitration for two years -- precisely because, that 2005 legislative report notwithstanding, arbitration does increase government's costs.

The federal government, Olio wrote, is sending money to states for education in part to avoid layoffs. But there would be no need for layoffs if school employee costs could be controlled. Forced to choose between layoffs and restraint with compensation, teacher unions themselves frequently choose layoffs. Indeed, it is hard to get the attention of a teacher union until layoffs threaten a majority of its members. To preserve their raises, teacher unions are often happy to sacrifice as many as half their members.

But the biggest cost of binding arbitration isn't money at all; it is democracy. Should the great majority of a municipal budget be decided democratically or not? Public employee unions say no because democracy would favor the public. Many elected officials also say no, because they don't want the political responsibility that otherwise would fall on them, don't want to have to choose year after year between the public interest and the special interest.

There is a solution to this cowardice: Elect the arbiters on a municipal basis. Arbitration would be preserved but suddenly would become democratic -- whereupon the unions would oppose it and be revealed as the enemies of democracy.

The Sorry State of the States
NYTIMES editorial
May 24, 2009

Is California next in line for a bailout? Facing a $21 billion budget gap, California has asked for federal aid, probably in the range of $5 billion to $10 billion. Whatever form it might take, say loans or loan guarantees, taxpayers nationwide would be kicking in to help clean up California’s mess.

So far, the administration has correctly declined to help, but there is no doubt that a fiscal meltdown in California — one of the world’s largest economies — would be a fiasco. If Washington is forced to intervene, it must do so in a way that does not simply create a long line of states demanding relief as well.

Nearly all of the states face budget shortfalls. Though California’s is the worst in sheer dollar terms, cumulative state deficits over the next two years are estimated at $350 billion to $370 billion. Federal stimulus spending will offset about 40 percent of that. To close the gap, most states have cut spending and many have raised taxes, or are seriously considering tax increases.

California enacted big spending cuts and tax increases in February, but they were not enough. Last week, voters rejected budget measures that would have eased the state’s dire condition. If federal aid were to allow California to go on delaying necessary reforms, other states would want the same slack.

Like other states, California is suffering from a collapse in tax revenues brought on by the recession. Unlike other states, it suffers from severely dysfunctional politics, including gridlock-inducing budget procedures and a deeply anti-tax strain that plays itself out in endless voter referenda, dating back to the Proposition 13 property tax cap from the 1970s. As a result, Gov. Arnold Schwarzenegger declared recently that more tax increases are politically impossible. Yet, his proposed spending cuts are also unappealing, if not impossible, including slashing education and health care funds and releasing prison inmates early.

What the Obama administration should make clear is that a bias for spending cuts — and against tax increases — is the wrong approach for California and other states. Both spending cuts and tax increases are harmful in a downturn, because they reduce already weak consumer demand. But most states are required by law to balance their budgets, so when deficits emerge, they are forced to do one or the other, or both.

Contrary to conventional wisdom, raising taxes may be better than spending cuts because tax increases, especially if they are focused on wealthy taxpayers, have less of a negative impact on consumption. Spending cuts hit consumption hard, depriving the economy of money that would otherwise be spent quickly. They also have the disadvantage — so evident in the cuts proposed by Mr. Schwarzenegger — of falling heavily on the needy.

If California cannot or will not solve its problems and emergency federal aid is deemed necessary, the administration must attach strings — perhaps by limiting the ways the money can be spent. An onerous quid pro quo would send a message to other states that bailouts are not worth the hassle — that there are no pain-free ways out of this downturn.
Calif. Voters Reject Measures to Keep State Solvent
NYTIMES
By JENNIFER STEINHAUER
May 20, 2009

LOS ANGELES — A smattering of California voters on Tuesday soundly rejected five ballot measures designed to keep the state solvent through the rest of the year.

The results dealt a severe setback to the state’s fragile fiscal structure and to Gov. Arnold Schwarzenegger and the state legislators who cobbled together the measures as part of a last-minute budget deal passed in February.

The measures, which would have prolonged tax increases, capped state spending, earmarked money for education and involved the state in a complex borrowing scheme against its lottery, were rejected by roughly 60 percent of those who voted. The failure of the measures, combined with falling revenues since the state passed its budget, leaves California with a $21 billion new hole to fill, while foreclosure rates and unemployment remain vexing problems here.

“Tonight we have heard from the voters, and I respect the will of the people who are frustrated with the dysfunction in our budget system,” Governor. Schwarzenegger said in a prepared statement. “Now we must move forward from this point to begin to address our fiscal crisis with constructive solutions,” Mr. Schwarzenegger said.

While the governor was a strong supporter of all the measures, he was not the public face of the effort, as he was in 2005 when he took on the budget issues, and well as the state’s unions, in another failed effort at the ballot box. This time the Republican governor let teachers and firefighters do his talking for him in advertisements, and indeed was not even in the state the day of the vote.

Instead, he was a guest of President Barack Obama at the White House, where the president was announcing tough new federal standards on automobile emissions that emulate California’s environmental standards. He updated his Twitter account through out the day ("Just landed in DC. Look forward to updating you tomorrow, hopefully with pictures or video") but made nary a mention of the propositions there.

The one measure to pass, which would prevent legislators and statewide constitutional officers, including the governor, from receiving pay rises in years when the state is running a deficit, was approved by more than 75 percent of those who cast ballots, demonstrating the overwhelming disgust many Californians say in polls that they feel toward elected officials in a time of deep budget paralysis.

The central measure, Proposition 1A, would have increased the state’s rainy-day fund but also restrict spending in future years, and extend several temporary taxes. Proposition 1B, which was connected to 1A, would have required $9.3 billion to be paid to education to make up for shortfalls in spending levels set by a voter-approved proposition in 1988. Voters indicated in polls earlier this month that they had a distaste for protracted taxes, caps on spending during inflation periods and general legislative and gubernatorial will.

The other failing propositions were 1E, which would have redirected money guaranteed for mental health services to the state’s general fund; 1D, a similar measure using money earmarked for early childhood programs; and 1C, which would have modernized the state lottery and permitted the state to borrow from future profits.

But voters — roughly 10 percent of those registered, according to midday figures — seemed to have lost patience with ideas cooked up by legislators to fix the state’s perpetual budget imbalances. The governor and lawmakers will now be forced to debate yet again what methods will be used to set the balance sheet right and vote on new measures to cut spending. Those proposed measures will be draconian and politically difficult, including large education cuts and reductions in prison sentences.

“We face a staggering $21.3 billion deficit and in order to prevent a fiscal disaster, Democrats and Republicans must collaborate and work together to address this shortfall,” said Governor Schwarzenegger. “The longer we wait the worse the problem becomes and the more limited our choices will be.”

Lawmakers will regroup in Sacramento on Wednesday.

Bill Watkins, an economist with University of California in Santa Barbara, said legislators “have some interesting decisions to make now,” adding: “Education is definitely going to take a hit. The way we finance local governments is a travesty and funds will be taken away this time.”

Finch seeks moratorium on pension funding
CT POST
By Ken Dixon
Updated: 05/20/2009 12:18:47 AM EDT

HARTFORD -- Bridgeport Mayor Bill Finch lobbied his former colleagues in the state Senate Tuesday in an attempt to defuse a financial time bomb that could blow up and cost the city about $25 million.

The improvised fiscal explosives date back 10 years, when Joseph P. Ganim, now in federal prison on corruption charges, decided to invest city-employee pension funds in the stock market, which fell sharply a couple of times over the years before plummeting to historic lows last fall.

The $350 million bonded in 1999 fell in value to $269 million by the end of 2006, $263 million in 2007 and it's now worth $161 million for the 1,000 city police and fire department employees and retirees who joined the Pension Plan A by 1980, according to Michael Feeney, the city's chief financial officer.

Now, Finch wants a two-year moratorium on contributing to the fund at levels required by the state, with the hope that the markets will come back and the city will recoup some of its losses.

At stake are city jobs that Finch said he would be forced to terminate to make up for the losses.

"Bridgeport was one of six cities that bonded and then took the bond revenues and bought stocks, much the way that George Bush had talked about privatizing Social Security," Finch said. "It turns out it's not a very good idea." He said the city has been filling a $3 million deficit in the pension plan each year, but this year the requirement will be more than eight times that, but it hasn't been planned in the city budget.

"It's not in the budget because no town has that ability to backfill a pension deficit," Finch said. "There's plenty of money to continue paying people for many years, but actuarially you're supposed to spread the deficit over three or four years." He said the state law that allowed the pension bonding requires extending payments of the deficit over several years.

"So we need to suspend that for two years because of the market collapse, in order to be able to see if the market will come back enough to backfill this," Finch said. "I mean, we're talking about many times the $3 million at a time when there's no possible way to do it."

He stressed that retirees are in no danger of missing pension checks, but the city just needs a little time to wait for the stock market to readjust. He talked of the so-called dot-com bubble, which burst in March 2000, when the value of high-tech companies fell sharply.

"The market has gone down from 1999," Finch said. "It turns out it was a very bad idea, but this temporary relief is justified and important because of the very serious consequences of coming up with 20 million more dollars would either require an enormous tax increase or very sizable layoffs."

Feeney, in a phone interview from Bridgeport City Hall, said the state requires Bridgeport to keep that pension fund at a minimally funded threshold of about 78 percent. To do this, the city would have to invest $25 million this year, including about $4.5 million already set aside.

He said over the last 18 months the funding ratio has fallen to 45 percent.

"We're looking for relief over the next few years to put together a game plan to go forward," Feeney said. "In the meantime, everyone who currently has a pension will keep getting paid." He noted that the State Teachers Retirement Plan has regularly been underfunded and no educators have missed out on pension benefits.

"No one will ever notice this," Finch said. "But we really need to get this relief or, frankly, there's not much of a plan to do what's required because it's so catastrophic."

Finch and Feeney said the governor's budget office -- which enforces the funding-level requirements -- and Democratic majority leadership support the legislation.

"There's only a consequence if you enforce the law," he said. "If you don't enforce the law you may be putting off a consequence to down the road, but it's way down the road and you would hope that over a period of 20 or 30 years the stock market would go back and fill these coffers that you don't want to fill up with cash right now because it would be so serious a consequence."

Finch hopes that sooner rather than later, the stock market will come back.

"The law was well-intended, but never contemplated a complete collapse of the capitalist financial system," Finch said, noting that Pension A's levels got worse and worse during last year's Wall Street collapse.

"I think what it points out is that investing in the stock market for people's pensions was an ill-fated idea from the beginning," Finch said. "We're paying for the sins of the past."

The mayor was also in the Capitol on Tuesday to remind House and Senate members that urban centers need to retain current levels of state aid.

"I'm here to remind the legislators that we're going to have extraordinary cuts at the local level in police, fire and sanitation if we aren't held harmless from what we're hearing are pretty significant cuts being discussed," Finch said in an interview outside the House. "We can do them, but they have to understand that we won't have the manpower we need to run them."

He said that when the Legislature voted last week to approve union contracts that protect state jobs from layoffs for two years, it set up the towns and cities for cuts in state aid.