Economic Devastation Demands Government Downsizing
Some states propose cuts. Others want back at the federal trough for another bailout.
On Monday, Michigan’s Senate Appropriations Committee Chairman Jim Stamas called for a layoff of “nonessential” state employees in response to budget concerns precipitated by the pandemic. “We are facing a serious financial challenge, and we need to consider all options to adjust our spending — such as cuts to popular programs and laying off nonessential state employees, including those in the Legislature,” Stamas stated in a press release. “The state is doing everything it can to address the global COVID-19 pandemic, but we also must soon make the hard decisions to address its tremendous impact to our economy and state budget. The longer we wait to act, the deeper the cuts will need to be.”
Stamas’s counterpart in the Michigan House, Rep. Shane Hernandez, questioned the term nonessential and wondered whether those employees whose departments are seeing less demand for service should also be laid off.
Both men are Republicans, and Democrat Gov. Gretchen Whitmer, who froze hiring “nonessential” workers in March, remained noncommittal regarding Stamas’s statement. “We’re going to have to work together and make some tough decisions,” she hedged.
Unfortunately, the numbers don’t lie. The Michigan Department of Treasury estimates a $1-$3 billion revenue shortfall this fiscal year, and another $1-$4 billion hit on next year’s budget in a state where more than one million people have already filed for unemployment benefits. Whitmer, who has raised her political profile by issuing some of the most draconian restrictions on state residents in the entire nation — restrictions that far more resemble an abuse of power than science or common sense — may ultimately become the biggest victim of her own “success.”
In New Jersey, a plan released by Democrat Senate President Stephen Sweeney would cut the hours and pay of 100,000 public workers. The Senate Majority Office estimates state and local government employers would save $750 million over three months by furloughing a quarter of the state’s 400,000 public-sector workforce.
Yet there is a bit of fiscal legerdemain in play here: State employees would take unemployment for several days a week over three months and keep their healthcare benefits. As a result, many workers could actually end up making more money than they currently earn, because the recently passed CARES Act increased weekly unemployment benefits by $600.
New Jersey Gov. Phil Murphy has yet to comment on the proposal. Yet he warned that because state tax revenues “are falling off a cliff” there will be historic layoffs if the federal government doesn’t bail out his state and/or state lawmakers don’t back his plan to borrow up to $9 billion from the Federal Reserve.
A federal bailout is problematic, to say the least. New Jersey has been a fiscal disaster for years, largely due to unfunded public pensions and retiree healthcare benefits. A report issued in 2017 revealed that a state with a $35 billion budget had liabilities of $253 billion. And before the crisis hit, annual pension and benefit costs were projected to rise to $11.3 billion by FY2023 — and consume 27% of the state’s budget.
All of this was precipitated by the state’s public-sector unions, which politically leveraged “compliant” politicians to increase their benefits, irrespective of the state’s ability to underwrite them. Thus a federal bailout would reward years of taxpayer-be-damned fiscal irresponsibility.
New Jersey is hardly alone. Democrat Illinois State Senator Don Harmon has requested a $41 billion bailout from Congress — including $10 billion for Illinois’s underfunded public pensions — citing the economic burden of the coronavirus pandemic on the state’s ability to raise revenue. Even The New York Times admitted that problems with the state’s pension system “far predate the coronavirus” and that “it is considered by experts to be one of the worst funded in the nation.”
How many other states will follow suit? In 2018, Moody’s Investors Service estimated that public pensions are underfunded by $4.4 trillion. Again, that was before restrictions imposed in varying degrees throughout the country ravaged private-sector employment — which underwrites public-sector employment.
That dynamic, which precipitated an exodus from high-tax states long before the pandemic, is likely to be exacerbated. Many Americans, justified or not, have long resented underwriting employees that, in a majority of cases, make more money, have better benefits, and enjoy better job security than their private-sector counterparts.
In other words, maybe it’s time to downsize government employment at every level, especially at the state and local levels where it increased from 6.4 million workers in 1960 to 19.5 million workers by 2017.
Such numbers make a mockery of the idea that America is a nation of limited government as outlined in our Constitution. So do government unions per se, as their self-promoting and self-protecting rules are the antithesis of government of, by, and for the people.
On the heels of the $2.2 trillion CARES Act already doling out roughly $250 billion to the states (equivalent to three months’ revenue for all states combined), many states are demanding to be allowed back to the trough for a bigger bailout. “You know the state governments are broke, to use a very blunt term,” New York Gov. Andrew Cuomo lamented. “You know the state governments are now responsible for the reopening and the governors are going to do the reopening, and they have no funds to do it.”
On Wednesday, Senate Majority Leader Mitch McConnell proposed a far more realistic way of dealing with this untenable status quo: States should declare bankruptcy in lieu of the feds bailing out profligacy.
All well and good, but McConnell and his fellow members of Congress should also lead by example. They should suspend their own salaries and benefits in solidarity with their fellow Americans. So should state governors, mayors, council members, etc. — as the same people whose constitutionally dubious diktats deem millions of private-sector workers “nonessential.”
Will they? House Speaker Nancy Pelosi gave us all a great indication. Her suggestion that Americans have “found our ways to keep our spirits up during these trying times,” while posing in front of a high-end freezer stocked with expensive ice cream — even as she was holding relief for distressed small businesses hostage to her progressive wishlist — will resonate long after the crisis has passed.
Especially among thoroughly dispirited Americans forced to wait for hours in lines at food banks.
There are many, truly dedicated government employees performing invaluable services. But it’s time to separate the wheat from the chaff — utterly irrespective of the labyrinth of union rules that inevitably protect incompetents.
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