A discussion in the New York Times about the challenges in solving the New York state budget deficit. The same issues are impacting not only California and Illinois but most other states.
California has some bright people running for Governor with outstanding business success. But California and New York states are both huge institutions that are incapable of balancing their own budgets. And I am not sure what even Meg Whitman who was so successful at eBay will be able to do that the Terminator was not able to do.
These governments make long-term promises that frequently underestimate the costs and the adjustments their citizenry will make (like moving out of the state if you are paying the bill or moving into the state if it is a better entitlement program that the neighboring state). But once these promises are made they are almost impossible to undo.
And these states all have public employee unions that have long-term contracts that pay their employees far more than the private sector. These unions are running things and have long-term binding contracts. These unions won’t accept a more reasonable compensation package and they won’t go away.
Here is the critical difference between a public-employee union and a union representing workers at a steel company, construction or glass company in the private sector. In the private sector, unreasonable unions drive the company out of business, and the jobs eventually go to non-union competitors or overseas. That is why union membership has consistently dropped in the private sector (to about 7.8%) while public employee membership (36%) has grown so dramatically since the 1960s.
What do we do? We need a bankruptcy process for the states (which is not available like it is in the private sector or even for counties and cities). We need a vehicle for tearing up these union contracts and replacing them with compensation packages that are no higher than the public sector. And we need to be working on this now so we don’t have Congress putting together a last-minute bailout when New York or California can’t pay their bills (which is not too far off).
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