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Report: Weak Economy, Not Public Workers, to Blame for States’ Financial Woes

October 14, 2011

The campaign to blame public workers and their unions for growing state and local deficits and forcing draconian cutbacks and spiraling debt is misplaced, a new report finds.

Indiana Gov. Mitch Daniels’s comments to Politico are representative of the growing demonization of public workers:

We have a new privileged class in America. We used to think of government workers as underpaid public servants. Now they are better paid than the people who pay their salaries.

But a report from the University of California Berkeley Labor Center finds that the growing state budget squeeze is mainly the result of the bursting of the housing bubble and the ensuing decline in real estate prices – not public sector wages and benefits, which, on the whole, do not exceed those in the private sector.

Say report authors Sylvia Allegretto, Ken Jacobs and Laurel Lucia:

Budget deficits were primarily caused by the housing crisis and subsequent economic downturn, which resulted in a decline in revenues as the economy contracted.

From Ohio to Florida, right-leaning elected officials have used the economic crisis as an excuse to go after basic workplace rights for teachers, public safety officers and other workers on the state payroll – most prominently in Wisconsin where Gov. Scott Walker pushed a sweeping bill that stripped collective bargaining rights for nearly all public workers last year.

But the report – The Wrong Target: Public Sector Unions and State Budget Deficits – finds that strong public sector unions do not add up to higher deficits or bloated pay and compensation packages:

The average share of the budget spent on compensation for the 10 most highly unionized states was 19.6 percent, compared to 18.7 percent in the 10 least unionized states.

The most important factor in getting states’ budgets back in the black is new job creation and resolving the housing crisis, say Allegretto, Jacobs and Lucia:

Solutions that focus on cutting state and local budgets can be expected to further weaken the economy. Federal aid is essential to maintain the public infrastructure while the economy rebounds. Federal action is also needed to address the housing crisis, which continues to provide a drag on the economy and state and local revenues.

Read the whole report here.