In Illinois, we have gotten used to being kept in the dark about collective bargaining with government worker unions. Recently, a bill to open up the process and require that tentative agreements be made open to the public before they are signed failed in committee.
Fiscal instability is not only an issue nationally - driven largely by health care spending - but at the state and local levels as well. A new GAO report illustrates the magnitude of the fiscal challenges facing states, and identifies the (unsurprising) culprit:
The [simulation] show[s] that [state and local] health-related costs will be about 3.8 percent of GDP in 2013 and 7.2 percent of GDP in 2060...[t]he model projects that the [state and local] non-health-related costs will be about 10.5 percent of GDP in 2013 and about 7.7 percent of GDP in 2060.
The ever-growing burden imposed by health care spending means that, by 2060, the national state and local fiscal gap will be around 4 percent of GDP - in nominal terms, that's about $5 trillion based on CBO projections. Because health care costs - enshrined in promises to government employees and retirees, as well as Medicaid spending on the poor - will drive this growth, which is unlikely to slow down (health care spending on current employees and retirees is governed by contracts, which makes it difficult to pare back; Obamacare's Medicaid expansion ensures that, in the states that undertake it, many more residents will be covered making it more difficult to slow down its growth) other state and local outlays will fall on the chopping block. This phenomenon of "crowding out" is nothing new; because localities operate with limited funds (revenue must be raised through taxes, bond issuance, or from federal grants), each slice of the pie has to get smaller.
Indeed, the GAO report also acknowledges that wages paid to state and local employees will likely fall as a share of GDP (this phenomenon may ironically increase retirement promises that localities make to employees).
Leave it to California's union-friendly Democratic leaders (OK, that's all of them) to take a reasonably good idea and turn it into a way to increase the size of government and pad union members' paychecks. Senate President pro tem Darrell Steinberg of Sacramento has introduced a bill based on the concept of Social Impact Bonds. Such bonds -- popularized by British conservatives who sought to impose market pressure on government services -- seek private investment to fund public services provided by non-profits. The return on investment is based on measurable standards. California's version of this concept, as I detail in my latest Bloomberg column, leaves out the non-profit aspect of this. It's basically a plan to circumvent voter approval for more borrowing to fund existing bureaucracies. No matter how poorly government performs, the state's leaders want even more of it.
A new report from the California Public Policy Center concluded that "The total outstanding government debt confronting California's taxpayers is bigger than is generally known." The total outstanding debts soar above $800 billion when all forms of debt are accounted for. The study also shows that if the state's retirement systems used a realistic rate of return on their investments (4.5 percent), then the unfunded pension liability soars to $1.1 trillion. California's Democratic leaders -- and only Democrats are leaders here these days -- insist that the pension problem is behind them. They are looking for new ways to raise taxes so that they can keep the spending train going. Even the state's Democratic "moderates" have no appetite for pension reform. Things are going to get worse here before they get better.