In two separate rallies in Trenton, teachers and then police officers, fire fighters and EMS personnel showed their support for Wisconsin teachers and for public sector unions in general. The rallies have a common theme: public sector employees apparently do not appreciate the severity of the fiscal reality facing states and municipalities around the country, and want to preserve their “rights.” Most state governments are broke and their pension plans and retiree health benefits may be underfunded by as much as $3.5 trillion.
During the Great Recession of 2008-2009, companies had to cut costs as sales declined because worried consumers reduced their spending due to the uncertainty of the financial meltdown that gripped the country. In addition, many companies lowered prices to keep their products and services competitive in the marketplace.
To cut costs, businesses—large, medium and small sized enterprises—laid off a portion of their workforce or cut salaries to get expenses to levels that would allow them to stay in business. Without quick action, many more businesses would have gone bankrupt than did during the recession.
When it comes to the public sector, however, there is very little flexibility in the workplace to deal with declining tax revenue, a consequence of a severe recession. Public sector workers are very reluctant to give up anything — wage hikes, benefits—to prevent layoffs of their colleagues. Moreover, government officials are not eager to hike taxes so public sector workers can continue to get raises and maintain their salaries and benefits.
Nevertheless, governors have to be good stewards of the public treasury because the public supposedly want state and local governments to spend on service they desire—education, aid to the poor, etc. Therein lies the rub. Both Democratic and Republican governors want to rein in public sector costs; otherwise, they will have to make substantial cuts in the workforce. Public sector unions want to “protect” their members from the harsh reality of the Great Recession’s fallout. No one can or should be immune from the new paradigm facing the public sector. Costs have to be reduced.
Although recent polls claim that the public do not want reductions in government services and are willing to pay higher taxes, we do not know how much people would be willing to pay for government services, because unlike the private sector, government obtains its revenue through coercion, i.e., taxation. In short, we know how much government costs, but we have no idea how the people value these services. Members of the public who want to pay higher taxes right now can send in their checks without waiting for their state legislature to increase taxes for everyone and thus maintain some or most of the public sector workers from layoffs.
That is why I have been advocating making all government services at the local and state level subject to a simple test. The agencies that provide the supposedly valuable services the polls claim the people want should raise their funds the old-fashioned way, through fees and other non-coercive means, such as voluntary contributions.
Schools, libraries, police and fire departments, etc., could charge individuals and families fees for services they provide. After all, the public are their “customers.” People voluntarily pay for services such as cable television, water, movies, DVD rentals, amusement parks and other forms of entertainment and artistic performances. In short, people willingly pay for what they want and have choices in the marketplace. In addition, we pay “fees” to maintain the roads and bridges with our gas taxes.
Only government relies on coercion to pay for services the public alleged values. It is time for a new paradigm to provide the public with high quality, lower cost services. The current system is imploding right before our eyes. It is time for real leadership to begin the restructuring of government throughout the country before the next financial crisis hits. The clock is ticking.