State of Concern

Vicious circles infest state financial planning. People lose jobs, so income tax plunges. Houses fall off the value cliff, folks walk away and abandon properties, and property tax revenues plunge. People without jobs stop buying, so retail sales taxes plunge. In the last three recessions, it took states three to five years to catch up (with employment being a trailing economic indicator), but this time, the “jobless recovery” suggests that states would be lucky to get back to normal in double that time. Six years would be optimistic. So what do states do in the meantime?

AOL Money (October 4^th) tells the why and the wherefore as state revenues continue to dwindle: “Census figures show states' income taxes plunged almost 28 percent in the second quarter of 2009, falling even further in places such as Arizona and California that were among the hardest hit by the housing market collapse. States' quarterly sales taxes fell almost 10 percent compared to the previous year... Unlike the federal government, states generally must balance their budgets. That's why one-third of states have raised taxes this year. They've hit the wealthy with income tax surcharges, hiked sales taxes that disproportionately affect the poor and targeted smokers, drinkers and motorists with higher taxes and fees.”

Unemployment insurance, welfare, and Medicaid claw at state reserves and revenues. With up to two thirds of state revenues coming from sales and income taxes, just when folks can afford it least, these governments are raising fees, income taxes, college tuition and sales taxes… all “little pressures” that further prolong the agony, adding months if not a full year to this already battered economy. What else are they to do, state officials ask? Well, let’s consider one arena where maybe it’s time for a change.

Take a good look at the retirement benefits and healthcare benefits accorded to state employees… a really good look. Used to be that the trade-off for getting paid a bit less than the marketplace was alarming retirement, vacation and health insurance. Now that government workers are actually making more than those in the private sector, with vastly superior job security, isn’t it time to level the playing field and reexamine those extraordinary benefits? Retirement after 20 years’ service is breaking us. Even 25 and 30 years can be light if these folks are in their 50s.

At some point, as we debate national health insurance, we might actually want to level the benefits playing field. It’s time to ask the unions and state governments to understand how galling it is for those of us who have to write big checks for benefits that they take for granted feel about disgruntled employees who are witnessing and resisting attempts to increase co-pays and deductibles in their insurance package. I’ve asked a lot of state employees to guess what people in the private sector have to pay to get the same level of coverage that they have. The closest guess I have heard approached half of the actual cost. They don’t even know what it really costs!

It’s equally galling when government retirees have “defined benefit plans” which provide them with a precise (cost-of-living adjusted) monthly stipend when they retire. Most of the rest of us have to settle for Social Security plus whatever can be paid based on the amount in the retirement count when we need to access it. There’s nothing wrong with providing reasonable benefits to government employees, most of whom have earned the right to receive them, but when we start having to raise tuition and push education beyond the means of average families, when we have to tax people who are already facing falling income based on a failed economy, maybe we need to take another look at what seems to be excessive in this day and age.

Maybe it’s time for a reality check. We cannot afford these massive and often unfunded state employee retirement funds, silk stocking health benefits and often absurdly early retirement opportunities. It just seems strange for taxpayers to struggle to provide benefits for their “public servants” that the taxpayers cannot afford for themselves.

I’m Peter Dekom, and I approve this message.