The Pelican Post

Unionized government workers now outnumber unionized workers in the private sector. What does this mean for taxpayers?

Dr. Daniel D’Amico of Loyola University points out, “with collective contracts it is difficult to maintain good incentives for individual job performance.” In other words, better workers get the same wage as lower performing workers. Further, “if a union obtains better terms for its members, then the costs of production paid by employers increase.” The higher production costs will be shifted to the consumer, resulting in higher priced goods and services.

The Cato Institute‘s Chris Edwards analyzes the cost of public-sector unions for our overall economy. Specifically, his statistical analysis shows that the state’s public debt increases as the size of the unionized state workforce increases. Further, Edwards demonstrates that the state’s management quality decreases as the union’s share in the state workforce increases.

Due to their political influence, public-sector unions are not subject to competition and their workers are indirectly granted preferences over non-union members. By relying on government’s preferential treatment, public-sector unions skew market forces: collective bargaining in the public sector creates higher labor costs. Further, states provide lower quality services while taking on increased financial pressures.

In order to safeguard taxpayers’ money, legislators should end their political preference for public unions and limit public unions’ influence by encouraging competition across the public sector. These measures will improve the quality of public services by limiting excessive increases in labor costs and the unnecessary waste of taxpayer money.

Most people agree that federal organizations such as the US Postal Service and Amtrak are far from being efficient. However, little has been done to improve their operations. On this matter, Chris Edwards of the Cato Institute makes a number of interesting points in Downsizing The Federal Government. Edwards argues for the privatization of several federal assets and operations.  His recommendations include:

• Ending subsidies to passenger rail and privatizing Amtrak
• Privatizing the U.S. Postal Service and repealing restrictions on competitive mail delivery
• Privatizing the air traffic control system, the nation’s airports, seaports, federal electricity utilities, and parts of the Army Corps of Engineers
• Selling excess federal assets, including buildings, land, and inventory

Edwards points out the advantages of these privatization efforts:

“Privatizing federal businesses and infrastructure would allow new managers to extract greater efficiencies out of existing assets and to improve customer services. Private entrepreneurs can often innovate where government workers cannot, and they can more easily end unneeded and failed activities.”

These steps would foster economic growth and lead to higher performance. Many European countries have already privatized government-owned businesses: Italy privatized its postal service, Germany its rail system, and Britain its British Airline Authority. The United States should pursue the same path and let private entrepreneurs take over inefficient public businesses, improve customer service, and make more efficient use of existing assets.

Despite Gov. Jindal’s spending cut in late December, Jan Moller reports in the Times Picayune on a possible “mid-year budget deficit that could be as high as $400 million.” According to the state Department of Revenue, lower income and sales tax revenues are to blame. In February, the state collected $209 million but paid $230 million in tax refunds.

As Moller reports, Louisiana law allows Jindal to “cut 3 percent from each budget unit without legislative approval.” Even if the state is collecting insufficient income and sales tax revenues, Jindal should engage in further cuts and avoid tax increases.

Advocates of tax increases argue that further cuts threaten essential state services (i.e. health care and education) and damage the economy by reducing demand. But Chris Edwards of the Cato Institute correctly points out that cuts in state spending can force a restructuring of programs and finances that would be otherwise impossible. Edwards notes: “Just as recessions weed out the least successful businesses in the economy, policy makers should use the recession as an opportunity to weed out their least successful programs.”

If Governor Jindal judiciously cuts spending it can have a positive impact on the state’s future economy. Louisiana should take advantage of this situation and phase out unsuccessful and failing state programs.  This will lead to a more sustainable budget and the efficient use of taxpayer money.

Chris Edwards of the Cato Institute highlights the level of government intervention by examining the various forms of federal aid to the states. As he writes in Downsizing the Federal Government:

“There are more than 800 state and local aid programs, based on my count of programs in the Catalog of Federal Domestic Assistance. They range from the giant $225 billion Medicaid to hundreds of programs that most taxpayers have probably never heard of, such as a $15 million program for Nursing Workforce Diversity, a $120 million program for “Boating Safety Financial Assistance,” and a $150 million program for Healthy Marriages.”

President Obama recently announced several aid programs for Louisiana. As described in the President’s FY2011 Budget, these programs provide “lower taxes, better teachers and classrooms, and important investments in our roads, highways, and airports.” Louisiana will receive:

• Tax cuts for 1.6 million families
• $1 billion for schools, students, and teachers
• $895.8 million to fix and expand the state’s network of roads and highways, modernize airports, and expand water and sewer infrastructure
• $543 million in new funding for Pell Grants to help families pay for college
• $518.6 million for housing assistance

With the current federal deficit at $12 trillion and expected to increase, is this federal aid really appropriate? Edwards provides a number of reasons to believe that this kind of spending does not make sense:

• Grants spur wasteful spending and bureaucracy
• Aid allocation is haphazard
• Federal aid reduces state policy diversity
• Grants cause policymaking overload and make government responsibilities unclear
• Common problems are not necessarily national priorities

Our Constitution provides for a system of federalism, which lets states identify and address their own priorities.  This system encourages creativity among the states and helps prevent the concentration of too much power in Washington. Unfortunately, federalism has taken a beating and states are now in the habit of looking to Washington first.

Congress could encourage more federalism by cutting federal grants-in-aid. More power would consequently be returned to states and the private sector and unnecessary federal spending would be minimized.

President Obama has announced his 2011 budget proposal. When FY 2010 ends on September 30 the deficit will total to $1.6 trillion, much higher than the Congressional Budget Office’s forecast.

The Bush tax cuts will expire at the end of this year and if Obama extends their term, the federal deficit estimates will be even higher. Brian Reidl estimates the national debt to count for 98 percent of the GDP by FY 2020, higher than last week CBO’s forecast of 67 percent.

Next year’s budget totals $3.83 trillion, and the Obama administration describes it as “a budget that helps middle class families.” Chris Edwards explains that the 2011 budget will be “$1.1 trillion more than the federal budget nine years ago had promised. That’s a 41 percent forecasting error.” Will this kind of forecasting error keep happening?

The government has become too big and taken too many actions beyond its core responsibilities. To effectively control spending, legislative changes to current budget rules will need to be made.

One useful step would be for the federal government to give states more freedom to find innovative and cost-effective ways to solve problems.  One of the “laboratories of democracy” could certainly come up with something better than our existing Medicaid program, for example. So if there is a silver lining in the projected deficits, it is that dramatic reform may be inevitable.