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Helping to Build a More Attractive Business Climate

posted in: Weekly Commentary 0
By Lowell L. Kalapa

Lawmakers, as well as administration officials, appear to be celebrating the turnaround in the financial and economic fortunes of the state as tax collections outpace forecasts.
However, that celebration may be a bit premature given the obligations of the state and the burgeoning list of programs and services that have been acquired over the years. Indeed, one of the largest obligations on the plate in the future is the repayment of debt that was issued or refinanced by the past administration. How faint the memories seem to be as we recall the cries for billion dollar capital improvement projects to jump start the economy just a few years ago. Couple all of that debt with the debt that was refinanced as interest rates dropped to all time historic lows and one can only hear the time-bomb ticking.
While refinancing prior debt certainly helped to improve the cash flow in the year or two after the refinancing took place as only interest on the refinanced debt was due, both the principal and interest will have to be paid on that refinanced debt in the coming years. True, the state has a limitation on how much debt service can be encumbered, but until now that limit has not been reached. However, if new debt is issued or interest rates rise, there is the possibility that the debt limit will be reached.
Should it be reached, this would mean that 18.5% of the average of general fund revenues will have to be earmarked for debt service. As the portion of the resources which must go toward paying off debt rises, the portion representing programs and services and salaries paid to the public employees who provide those services must shrink unless, of course, elected officials believe taxes need to be increased.
If mounting debt is not enough of a challenge to lawmakers and administrators, then the rising cost of collective bargaining ought to be a real concern. Lawmakers granted the largest public employee union “binding arbitration” as an alternative to being able to strike. Until this action was taken, binding arbitration was granted only to those units that were thought to provide services of imminent importance to health and safety such as police and fire personnel. The newly granted binding arbitration rights extend this option to personnel who generally provide services that are not necessarily life-threatening should those services not be available. True, having these public workers go out on strike may be inconvenient for taxpayers, but again the lack of the services is not a threat to life and limb.
What should be of concern is that based on the track record of agreements that have been subject to binding arbitration in the past, the arbitrators have generally come down in favor of the demands by labor. Management has rarely been awarded its offer. As a result, settlements that are reached by binding arbitration have been generous, if not costly, to the taxpayers who must ultimately foot the bill.
What is ironic is that when collective bargaining was originally approved by the 1968 constitutional convention, the rationale was that public employees should have “the right to strike.” The balance between the right to strike and how much government and ultimately the taxpayers were willing to pay was the impetus behind the drive for the ability of public employees to collectively bargain. The willingness and the ability to pay for negotiated pay increases are at the heart of collective bargaining.
Thus, extending binding arbitration to those units which provide services that are not life or safety threatening violates this relationship or balance between those who provide these services and taxpayers who must foot the bill. As a result, taxpayers can anticipate that the cost for collective bargaining will soar out of control since management will be at a distinct disadvantage in the negotiating process.
With each succeeding negotiation and settlement under binding arbitration for the largest of the public employee unions, the squeeze on resources will become even more pronounced. Taxpayers and elected officials should be concerned, as this cost will loom out of control and well beyond the resources of the state.
Should both the cost of collective bargaining and debt service continue to spiral along this path, the alternatives become quite clear and simple, either resources will have to be increased – read taxes need to be increased – or real and painful cuts will have to be made to state spending.
Regardless of which choice is made, the consequences will come at the expense of the taxpayer unless changes are made.

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