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Civil War Looms Over State and Local Budget Issues

Although the news media have tried without success to portray the Tea Partiers as racist right-wing agitators, the movement will only continue to gain strength and mainstream support as state and local budget issues come to a boil.  All politics is local, as they say, and the battle lines are being drawn in cities and towns across the U.S. for what could eventually turn into a civil war between taxpayers and public employees.  Private-sector workers are understandably angered in these very hard times by the unseemly spectacle of government employees fighting to hang onto the outlandish perks and benefits that they’ve long taken for granted – benefits that have in fact helped push many state and local governments to the brink of insolvency.

Photo of Tea Party protest

California is the mine canary on this issue, and the public-employee unions there have been digging in their heels. As reported by our colleague Mish Shedlock, there’s a bill before the Assembly that would make it much more difficult for cities to go bankrupt. Assembly Bill 155 represents, in Mish’s words, an attempt by “outrageously overpaid California public union parasites” to “[suck] the last drop of blood out of every taxpayer.”  Quite so, we fear, since the bill would drastically limit the ability of such seriously beleaguered cities as Los Angeles, Redding, Sacramento and San Diego to enact the drastic measures that alone can bring their operating costs into line with tax revenues.  Reducing what amounts to absurdly generous pensions and health benefits would seem like a no-brainer these days, and it is probably inevitable that this will eventually occur. But for now, the public unions in California and elsewhere have been pushing just one solution: raise taxes. That may be a non-starter for most of us, but it has not kept Assembly Bill 155 from reaching the desk of Gov. Schwarzenegger.

Teacher Pay

Teacher pay and benefits are driving many cities to the wall, and they are surely a factor in having turned the Sage of Omaha, Warren Buffet, bearish on municipal bonds. Buffett went public the other day with predictions of a “terrible problem” for the bonds in coming years.  We don’t know whether Buffett was being obtuse or merely cynical in suggesting that the answer would likely be a Federal bailout of the states and cities. Does he actually think that the “Federal Government” can somehow afford things that will already have bankrupted state and local governments? Buffett may have inadvertently framed the key economic issue of these times:  What kind of recovery are we buying with dollars produced from thin air? If the likes of Warren Buffett cannot understand the fallacy – and ridiculousness – of Uncle Sam somehow coming to the rescue of the cities and states, then what hope is there that the phony recovery’s cheerleaders in Congress and the newsrooms will get it?

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