- The Washington Times - Friday, November 11, 2011

Unions are rejoicing at last week’s referendum vote repealing restrictions on collective bargaining for public-sector employees in Ohio. Gov. John Kasich, a Republican, had backed the state law, S.B. 5, saying it was necessary to help balance a budget facing serious shortfalls. Voters rejected the legislation by an almost 2-1 margin.

Unions spent big money for this victory, which they think reflects a resurgence in their power. Democrats are also hoping the vote is a sign that the state might swing blue next year. This is all short-term thinking. Scrapping of this very modest reform is bad news for Ohio.

The Buckeye State’s public pension funds are awash in red ink. According to a 2011 study by Dean Baker of the Center for Economic and Public Policy Research, the Ohio teachers’ fund had an actuarial funding ratio of 60 percent, and the Ohio police and firefighters’ fund was slightly better at 65 percent. Even the most solvent plan, for Ohio school employees, is at 82 percent with $4.5 million in unfunded obligations. If the stock market tanks, those grim numbers will look even worse. If public-sector employees continue enjoying gold-plated benefits, paying far less into the system than private-sector workers, taxpayers will suffer.

This is not just Ohio’s problem. The same scenario is being played out in state after state. Virtually everywhere across the land, pension-plan balance sheets don’t add up, a problem exacerbated by Wall Street’s turmoil. Wisconsin happens to be one of the few states that is on the path toward fixing the problem. It would be a pity if other states are deterred from necessary reform by Ohio’s experience.

Even though the Tax Foundation ranks Ohio just 18th in the country in terms of individual tax burden, the state is ranked among the worst in terms of business climate at No. 46. Neighboring Indiana, on the other hand, had a top-10 rating for its attitude toward business. This has real consequences. A firm looking to relocate will avoid a state where the corporate business and unemployment taxes are high. Tax revenue in states hostile toward business will decline while the cost of public employees grows. Because state budgets must be balanced, lawmakers face pressure to raise taxes, driving away commerce even more in a vicious downward spiral.

Cutting spending is the way out of the trap. Public-sector unions make that difficult when they insist on benefits that far exceed what taxpayers can afford to pay. The fundamental problem with collective bargaining for the public sector is that the people who actually pay the bills - the taxpayers - never get a seat at the table. Deals are hammered out between politicians and unions, who are not necessarily adversarial toward one another. This results in deals that are fiscally unsustainable, and we end up with Greece at a national scale or municipal bankruptcies at the local level. The task for reformers like Mr. Kasich just got a lot more difficult.