It’s Public Sector Union Pay and Benefits, Stupid, Bankrupting our Cities and States

Posted by PITHOCRATES - December 20th, 2010

The Greed of Public Sector Unions

Cities around the globe are imploding under the weight of their own debt crises (see $2tn debt crisis threatens to bring down 100 US cities by Elena Moya posted 12/20/2010 on the Guardian).

More than 100 American cities could go bust next year as the debt crisis that has taken down banks and countries threatens next to spark a municipal meltdown, a leading analyst has warned.

But it’s not just American cities.

Cities from Detroit to Madrid are struggling to pay creditors, including providers of basic services such as street cleaning. Last week, Moody’s ratings agency warned about a possible downgrade for the cities of Florence and Barcelona and cut the rating of the Basque country in northern Spain. Lisbon was downgraded by rival agency Standard & Poor’s earlier this year, while the borrowings of Naples and Budapest are on the brink of junk status. Istanbul’s debt has already been downgraded to junk.

Cities throughout the world are going belly up.  Why?  Here’s a clue.

US states have spent nearly half a trillion dollars more than they have collected in taxes, and face a $1tn hole in their pension funds, said the CBS programme, apocalyptically titled The Day of Reckoning.

State pension funds?  That means only one thing.  Union pensions.  It’s public sector union pay and benefits that are bankrupting our cities and states.  Why?  They’re monopolies.  Public sector employees have no competition.  There are no market forces dictating the pay of these employees.  And there is no incentive for the unions to bargain anything away.  Not when the municipality can raise taxes.  And that’s what the unions expect the municipalities to do.  Because they just don’t cut their pay and benefits.  Not when taxpayers can pay more taxes.  And when it comes to getting by on less, the unions will always choose the taxpayer to get by on less.  Not the unions.

Vallejo, a former US navy town near San Francisco, is still trying to emerge from the Chapter Nine bankruptcy protection it entered in 2008.

The city, now a symbol of distressed local finances, is still negotiating with the unions, which refused to accept a salary cut plan two years ago. Paul Dyson, an analyst with the Standard & Poor’s credit agency, said Vallejo, which is mostly a dormitory town for Oakland or San Francisco employees, did not have enough local industry to sustain its finances and property tax – a major source of local income – plunged with the collapse of the real estate market. The S&P credit-rating agency has a C rating on the town – the lowest level.

With a population of about 120,000, Vallejo has $195m (£125m) of unfunded pension obligations and has to present a bankruptcy-exit plan to a Sacramento court by 18 January.

Talk about the greed of CEOs all you want but their ‘greed’ never bankrupted a city.  Like the greed of unions do. 

Cities who don’t Cut Union Pay and Benefits Face Bankruptcy

This is our future.  The public sector grows bigger and bigger.  They take care of themselves.  And tax private business (and private citizens) more and more to pay themselves those fat union pay and benefit packages.  But when more and more people work for the public sector instead of the private sector, what do you get?  Vallejo.  Detroit.  Madrid.  Florence.  Barcelona.  Lisbon.  Naples.  Budapest.  Istanbul.  To name a few.  And how are these cities doing?  They’re sucking air.

You can cut the police and firefighters all you want but it won’t help the problem.  You may be able to squeeze another millage or two by scaring people by cutting their police and fire services.  But the public sector unions have got to cut their pay and benefits to make any real change.  And they have to be serious cuts.  They have to take such a big cut that…dare I say it?  Yes, I dare.  They have to take such a big cut that they end up living like you or me.  And everyone else who works in the private sector.

Of course, you know what the public sector union employees will say to that?  That’s just crazy talk.

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