Loosening the Grips of the Contract Claws: How a More Balanced Approach Can Help States Address Their Budget Shortfalls

JOURNAL OFCIVLRIGHTS& ECONOMICDEVELOPMENT [Vol. Loosening the Grips of the Contract Claws: How a More Balanced Approach Can Help States Address Their B udget Shortfalls Aaron Barham Follow this and additional works at: http://scholarship.law.stjohns.edu/jcred Recommended Citation - There are "two classes of people in New Jersey[:] Public employees who receive rich benefits, and those who pay for them." 3 -Governor Chris Christie, New Jersey "Look, I understand that teachers are the brains of the operation, O.K.? But my hours are cut, and my taxes are killing me. They have got to take it in the ear, too." 4 -Michael Tini, Card Dealer, Atlantic City, New Jersey Regardless of the degree to which public employees are to blame for states' dire fiscal circumstances, the frustration of Gov. Daniels and Gov. Christie is understandable. Indiana and New Jersey, like the vast majority of other states in the country, are currently in a financial crisis amidst the most serious and sustained economic downturn since the Great Depression. The economic slowdown has caused the steepest decline in tax receipts on record.5 While tax revenues have decreased, the need for critical statefunded services has not. As a result, even after making very deep spending cuts over the last two years, at least forty-six states struggled to close shortfalls when adopting budgets for fiscal year 2011.6 For states that face large budget gaps, the consequences are severe. Budget difficulties have led over forty-six states to reduce services to their residents, individuals. 7 including some of their most vulnerable families and Thirty-one states, including New York, have restricted eligibility to health insurance programs or access to health care services. 8 Even more states have implemented cuts to K-12 education 9 and public 4 See Michael Powell, Public Workers Face Outrage as Budget Crises Grow, N.Y. TIMES, Jan. 2, 2011, at Al. 5 See Elizabeth McNichol, Phil Oliff, & Nicholas Johnson, States Continue to Feel Recession's Impact, CENTER ON BUDGET AND POLICY PRIORITIES, Jan. 9, 2012, http://www.cbpp.org/cms/index.cfn?fa=view&id=7 11; see also Mikel Chavers, A Tale of 4 States: Insights from Vermont, North Carolina, North Dakota and Montana into Dealing with Recession, CAPITOL IDEAS, http://www.csg.org/pubs/capitolideas/JanFeb_2011/ATaleof4States.aspx (State tax revenues were 8.4 percent lower in fiscal year 2009 than in 2008, and an additional 3.1 percent lower in 2010). 6 Nikolas J. Ortner, Low Cost Freedom: Optimizing the Success of Early Prisoner Release Initiatives, THE INDEPENDENT CONSULTANT, Nov. 2010, available at http://www.soa.org/library/newsletters/the-independent-consultant/201 1/february/ind-201 1-iss33ortner.aspx; see McNichol, supra note 5. 7 McNichol, supra note 5. In order to stimulate revenue, New York's budget reflected significant increases in the cigarette tax and the imposition of a tax on sugary drinks. It also increased State income taxes by over $4 billion annually. Joan Gralla, GovernorPatersonSeeks $136 Billion Budget, Non-diet Soda Tax, REUTERS, Jan. 19, 2010, http://www.reuters.com/article/2010/01/19/us-newyork-budgetidUSTRE60146W20100119. 8 Nicholas Johnson, Phil Oliff & Erica Williams, An Update on State Budget Cuts: At Least 46 States Have Imposed Cuts That Hurt Vulnerable Residents andthe Economy, CENTER ON BUDGET AND POLICY PRIORITIES, Feb. 9, 2011, http://www.cbpp.org/cms/index.cfin?fa=view&id=1214 (New York's cuts to Medicaid and CHIP included reduced or frozen reimbursements to health care providers); Jeff Sell, Autism Society Public Policy Report, AUTISM SOCIETY, Mar. 9, 2011, http://support.autismsociety.org/site/Clubs?club id=1217&sid=16434&pg-news. 9 Johnson, supra note 8; K-12 EDUCATION AND OTHER CHILDHOOD EDUCATION PROGRAMS, GLOBAL COLLEGE SEARCH ASSOCIATES, LLC [hereinafter GLOBAL COLLEGE SEARCH ASSOCIATES], colleges and universities, while increasing the price of college tuition due to insufficient state funding.1o Finally, states have made reductions in a variety of other programs, including those for poor families and other vulnerable populations. 1 Such spending cuts are additionally problematic during a recession because they reduce overall demand and can make the downturn deeper.12 In New York State, one group that has not experienced the effects of these budget cuts is the State's unionized workforce,13 which is one of the largest categories of expenditures for government operations.14 Out of an operating budget of $79.2 billion, New York State spends nearly $1 1 billion on wages for its work force of 220,000.15 Moreover, the cost of providing medical insurance for these workers is expected to surge from $1.8 billion to $2.5 billion over the next three years. 16 By 2015, state pension costs, which are set by law in Albany, will exceed $8 billion a year, compared with $2.6 billion last year, according to a state projection.17 Governor Paterson's Executive Budget Proposal (...truncated)