Problems are for Solving

For the year 2009, 43 out of the 50 states have budget problems. Most of those states had surpluses from 2005-2007. How many of those 43 states put funds away from the surplus for the lean years that might come? Not very many.

Why are the states having budget problems? Because tax revenues are down. The real estate market crash and the recession we’re entering will affect the state budgets by billions of dollars across our nation.

Local governments are not immune to the problem either. My own city just published a press release here on the changes they’re making to deal with the economic downturn.

Before I quote from the press release, look at this article detailing how the public sector pays 11% more in benefits and wages than the private sector. That’s state and local government numbers only, btw, not including Federal salaries. If you’re a state government employee or local government employee, on average you’ll be making 11% more than if you worked for a for-profit company, let alone a non-profit private charity.

I believe this is because government pay scales get instituted during private booms and are unadjusted when the bear markets come. So now, when layoffs and pay and benefit cuts are looming nationwide, government employees will enjoy the same benefits and automatic salary increases they enjoyed last year, while tax revenues plummet. The solution often chosen at these times is to raise taxes, rather than cut spending, which will only compound the problem. The fewer dollars able to be spent in the private market (because they were taken as taxes), the worse the economy will get.

Now to the release. Here are the changes Peoria is making:

The City always looks to use tax dollars most efficiently, but those efforts will be re-doubled in the coming months.”

Beyond the measures taken during the budget process, the City is identifying a number of cost-cutting steps. Those steps include:

• Instituting a sensible hiring freeze starting on January 1, 2009;
• Implementing recommendations from a recently completed report by the Energy Efficiency Task Force that will reduce fuel and electricity costs;
• Reducing the number of employee take-home cars; and,
• Realizing a savings of approximately $150,000 in the City’s refuse collection contract.

In early January, at the direction of the City Council, the entire senior staff of the City will gather for a series of workshops that will identify further contingency plans to be enacted if revenues are depressed. The finance staff is constantly monitoring receipts in order to identify trends before they become realities.

Starting at the bottom. In January the high paid city staff (senior staff for the city make six figure incomes) will gather for workshops. I’m guessing these workshops cost money.

Next line up: what does “realizing a savings” mean? Does that mean that they’re cutting the services back? That Waste Management just suddenly cut their prices? The whole phrase sounds suspicious.

Reducing take home cars? Why do public employees need take home cars? It’s a nice fringe benefit, but when taxes are high enough, those ought to have gone out the window in favor of a rainy day fund for times like this.

And a hiring freeze? What about a wage freeze? A benefit cut? Caterpillar has frozen all wages corporation wide, and management bonuses will be next to non-existent. And still people are losing jobs.

Mitch Daniels spoke at an event I attended recently and talked about how he turned Indiana from a huge deficit to a surplus in four years. Are you sitting down? He said “we spent less than we took in.” They didn’t raise taxes, they adjusted spending.

We are likely only at the beginning of what could be the biggest recession since the 1930’s. If the City of Peoria means business, they need to look ahead at what’s coming and prepare for it by taking big steps now, and finding unessential services that can be cut, and therefore jobs. Scale back benefits to be equal to what workers in the private sector have. Save money for when it gets worse.

And they can start by tossing out the idea of raising the sales tax to support a museum that not enough people want and trash this $40M taxpayer subsidy for a private hotel.

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