June 30, 2011

Nonprofits' Stake in Controversy Surrounding Public Sector Unions

The controversy over the role of public sector unions and the compensation and benefits they secure for their members has been one of the most striking aspects of the fiscal shakeout in recent months. Not likely to end soon, this controversy, and how it plays out, will have a significant impact on the resources available to nonprofits funded by state and local governments.

By: Daniel Stid

The controversy over the role of public sector unions and the compensation and benefits they secure for their members has been one of the most striking aspects of the fiscal shakeout in recent months. This controversy is not likely to end anytime soon. How it plays out will have a significant impact on the resources available to nonprofits funded by state and local governments to deliver social services.

The basic dynamics of this issue have been obscured by some high political theater in state capitals. Many Republicans report being shocked—shocked!—to discover that public sector unions' electoral backing of Democratic candidates is reciprocated in staunch support for the compensation, benefits, and bargaining rights of those unions' members. And many Democrats have been in turn shocked—shocked!—to find that Republicans actually have the temerity to seek to undermine the bargaining power and political influence of one of the Democrats' core constituencies. Taking the rhetoric from both sides at face value, you'd almost think that the aggrieved parties have forgotten Mr. Dooley's dictum that politics ain't beanbag. But of course they haven't, which is why they are having this fight.

As the initial smoke from the political conflict clears, we can begin to see that the underlying issues are more complicated—and just what is at stake for nonprofits that rely on government funding. For one thing, it turns out that it is not just red state Republicans that are pushing back on public sector unions. Democratic leaders in decidedly blue states like New York, Maryland, Massachusetts, and Connecticut are as well—with less fireworks and more pragmatism, to be sure, but they are pushing back nonetheless.

They are doing so because—as Willie Sutton said when asked why he robbed banks—that is where the money is. The Center for Budget and Policy Priorities recently estimated that 44 percent of state and local government spending goes to compensation and benefits for public employees. This doesn't take into account the postponed contributions these governments are supposed to be making each year to public employee pension and retiree benefit funds, liabilities that by some estimates now run up to $3 trillion.

The problem is especially acute for local governments, which tend to spend a much higher percentage of their budgets on employee compensation and benefits and supporting their retirees. Manhattan Institute Senior Fellow Steven Malanga noted last week in The Wall Street Journal that, for many larger cities, the "the local government pension squeeze" is draining coffers at unfathomable and unsustainable rates. In Providence, RI, for example, 50 percent of the annual tax revenues in the city's budget are now being paid out to the city's pensioners. The New York Times ran an illuminating front page story last week on how the electoral influence of public sector unions on politicians of both parties becomes even more intense as you go from the state down to the local level. When the lion's share of available public funding is going to current public employees and retirees by dint of their vested stake and political influence, then the nonprofits delivering services to marginalized populations that are being underwritten by public funding will be left struggling with other hungry claimants over what remains.

These dynamics are calling into question two ostensible truths about public sector unions, one held by the left, the other by the right. Many on the left argue that the fight over public sector pay, benefits, and collective bargaining rights is a struggle that progressives everywhere should rally to join. In this view there are clear and direct lines of justice running from labor's showdowns of yore in places like Harlan and Flint to the current dust-ups in Madison and Trenton.

But if progressives want to stake out their frontlines in this way, then they are going to be dividing their own ranks. The brute fact is that there are clear tradeoffs between pay and benefits for teachers, police, and prison guards on the one hand, and the money available to support services for homeless families, foster youth, and low income seniors on the other. That states have to balance their budgets makes this tradeoff a zero-sum game. Insofar as this leaves nonprofits delivering public services at the behest of the government that they are not being fully reimbursed for, the onus is on the nonprofits to find other, private sources of funds to make ends meet.

But many on the right need to acknowledge that one of their basic beliefs on this topic is quickly becoming something of a myth as well—namely, that public sector unions wield unchecked and thereby illegitimate power relative to their private sector counterparts. Public sector unions, this argument runs, unlike unions bargaining with corporations, can influence and even effectively elect "the management" with whom they negotiate through their political activism and campaign spending. And because state and local governments cannot move their "business" offshore or end up going out of business if labor's demands are too high, public sector unions can and often do press an unfair advantage.

However, as we have seen in the past few months, things are starting to change. State and local governments are running out of money. In the face of this cash crunch, instances of pay and benefits for public employees that are hard to justify will increasingly be questioned, along with the bargaining rights that have given rise to them. Ambitious and determined leaders are challenging and, in some instances, confronting and indeed vilifying public sector unions, wearing their resulting criticism as a political badge of honor. It turns out there is countervailing force to the power of public sector unions, represented by the likes of Governor Andrew Cuomo at one end of the spectrum and Governor Chris Christie at the other. Their position will be strengthened in the years of austerity that lie ahead. Stay tuned!

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