Monday, January 24, 2011

Belt Tightening And Redoing Unions And Pensions Is Not A Crisis

A ton of States and other municipalities are going to be losing their good credit ratings according to Moody's and other agencies that track that kind of thing because the economy is still doing poorly and they are paying too much interest on the bond's that they have issued over the years. They can lower that by raising people's property taxes, but that's not going to happen unless they want anarchy.

One thing I think they need to do, as it states at the end of this article and as I have said all along, cut or renegotiate the unions and pensions. You can keep the existing funds and honor the contracts for those who are currently collecting, but say, anyone hired after (pick a date), will only be getting this much, etc.

Sure States and Unions have leverage against each other, but in the long run, the State has the upper hand. The way things are, thanks to poor investments, no extra money, and other things that can damage the economy and budgets, Pensions are getting nearly 50% of states budgets and that can not be sustained over the long run, everyone will go broke.

Via Unlike the federal government, state governments are generally required to balance their budgets every year. That is a good thing, but it does require state policymakers to make difficult budget trade-offs, especially when the economy is poor.

As in other states, the recession hit the Texas budget. A new report from the Texas comptroller shows that tax revenues fell 9 percent in the current (2010-11) biennium budget — but an influx of federal "stimulus" funds means total revenues will be up 3.5 percent.

As the stimulus funds peter out in coming years some claim Texas will face a giant budget gap of up to $27 billion. But the comptroller's new data projects that tax revenues will grow 7 percent in the coming cycle, and overall state revenues will remain essentially flat.

A flat budget is not a crisis. During recessions, just about every family and business has to trim their budget, so why not governments? Indeed, being occasionally forced to cut the least useful spending is a much-needed exercise for private and public organizations alike.

Under Gov.Rick Perry, the Texas government feasted before its current recession-induced diet. Total state spending jumped 69 percent from the 2000-01 budget to the 2008-09 budget. So while the budget is flat now, it's after a large run-up.

Texas and many other states are said to still have budget "shortfalls" going forward. But partly these shortfalls just reflect bad forecasting. If a state plans on a 5 percent increase in revenues and spending next year, but revenues come in at a two percent increase, they are said to have a "shortfall" of three percent. The problem is that the state should have been more conservative in its estimates.

If there is a real fiscal crisis in the states, it is not due to the economic slowdown. Instead, it is the huge unfunded obligations that state and local governments have built up in their pension and retiree health plans that will take major changes to fix. Balancing their current budgets — that's easy. Reforming employee compensation plans — that's the real heavy lifting.

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