Public employee unions, the last bastion of an American labor movement in decline, are facing the fight of their lives this year as strapped state and local governments seek to permanently downsize their pensions, pay, benefits and bargaining rights.
Powerful unions such as the National Education Association (NEA) and the American Federation of State, County and Municipal Employees (AFSCME) have been bruised in battles with Republican governors and legislators in Ohio, Wisconsin, Indiana and other states that are grappling with record budget shortfalls and fighting to stave off insolvency.
Even where state governments are controlled by Democrats, public employees such as teachers, firefighters, police and janitors are facing unprecedented layoffs, furloughs and cutbacks as a result of hemorrhaging revenues and burgeoning demand for services caused by the Great Recession.
After Republicans took control of state governments in fall elections, Democrats from the Oval Office on down came to the defense of unions, which have been among the party’s most ardent and generous backers for decades.
Even with powerful political figures such as President Obama in labor’s corner, analysts expect the sheer size of record budget gaps at all levels of government to force unions this year to produce even more major concessions. They point to the significant curbs in labor costs accepted by Detroit’s autoworkers in 2009 in the wake of the industry’s bankruptcy and national financial crisis.
“A lot can be learned from the auto industry in the last three years. For the survival of GM and Chrysler, the unions had to change a lot of the formulas for retirement. They had to do it because the cost of benefits is way too high,” said George Walper, president of the Spectrum investment group.
A different environment
Like the auto industry, state and local governments negotiated generous retirement formulas and health care benefits for employees in decades past, when such perks seemed less costly and the U.S. economy and industries were not facing stiff global competition for jobs, he said.
“It’s a different environment today,” and governments that depend for their revenues on taxing private-sector industries and employees are finding that, just like businesses, they can no longer afford overly generous benefits, he said.
General Motors Co., Chrysler LLC and other top American corporations have been forced to downsize and reform or face bankruptcy in recent years, while state, local and federal governments were able to postpone their reckoning by going deeper into debt.
Generous aid in Mr. Obama’s $821 billion stimulus bill in 2009 provided money for education, infrastructure and energy projects, allowing states and cities to postpone major cutbacks, layoffs and reforms.
But this year, the federal aid is disappearing, states and cities are reaching the limits of their capacity to borrow at favorable rates, and the delayed effects of dramatic drops in revenues from sales, property and other taxes are being felt with full force. The result: showdowns in state government over budgets and spending from coast to coast.
Nicole Gelinas of the Manhattan Institute said the stimulus and record state and local debt issuance of more than $3 trillion in recent years only papered over overspending problems and postponed the inevitable trade-offs.
“States are spending too much money on their work forces,” she said. As “disastrous” as the bailouts of GM and Chrysler were, “at least the auto companies and unions had to acknowledge that their labor costs were outdated and unaffordable.”