The Balance of the Budget Under Collective Bargaining

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Today, the RI Center for Freedom & Prosperity released a major study that I coauthored with Penn State business professor Dennis Sheehan about the effects of collective bargaining in the public sector on the cost of government.  Using both statistical estimates and reviews of specific contract provisions and budgets, we found that the state government’s cost of labor is $96–299 million too high, with an additional total for all municipalities, school districts, and fire districts coming in at $228–825 million.

Our “best estimate” for the combined total excess for the whole state is $888 million, or 21%.  This is money that state and local governments should be able to use for other purposes, including tax relief.  In this sum, we see the primary reason that state and local governments never seem to have enough money to accomplish basic objectives like maintaining buildings, roads, and bridges and why our taxes are still among the highest in the country.

There is a lot to the report, and we’ll be laying it out in detail and building on it over time.  The ultimate conclusion, however, can be seen in the following chart.  We chose Portsmouth for our most-detailed analysis because it is the median town for taxes and population and also makes a good amount of the required information publicly available.

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portsmouthRI-unionexcess-FY16

One way to understand this chart is to take the two largest segments as the baseline budget that the town must have to do everything it currently does, with market-rate employee compensation in green and the budget for everything else in dark blue.  Right now, every wedge on the chart in between those two goes toward employee pay and benefits.

If the report’s “low-end estimate” of excess compensation is correct — that is, if we use our most conservative methodology — the second-darkest blue wedge could shift from employee compensation in order to pay for other expenses or to provide tax relief.  At the other end, if even our “high-end estimate” of excess is accurate, nearly one-quarter of the town’s entire budget could be shifted away from paying employees.