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Analysis: Government Employee Political Clout Obstructs Budget Reform

The Legislature returns today after a two-week break to take up perhaps the greatest challenge facing state government since 1983: an estimated $1.5 billion budget shortfall. Making this all the more difficult is the apparent inability of lawmakers to adopt what most struggling private-sector workers and small-business owners view as modest reductions in state employee pay and benefits. That failure was highlighted in three separate events just before the break.

The first was a package of bills in the Senate that would increase state and school employee payroll contributions to their pension system by 3 percent, cap pension "service credits" at 30 years, and create a somewhat less generous defined benefit system for new school employees. Gov. Jennifer Granholm has proposed a similar measure that also contains a modest early retirement pension boost for certain employees. All told, these reforms would have saved $251 million in the next fiscal year and $3.3 billion over the next 10 years. 

The Senate had been expected to vote on the package in March, but according to a MIRS News report, four members of the Republican majority may be balking at the school pension reform: Senators Roger Kahn of Saginaw, Mike Nofs of Battle Creek, Randy Richardville of Monroe and Nancy Cassis from Novi. (An April 2 Michigan Capitol Confidential report contains much more detail on this development, including the information that three of these Republican Senators have been recipients of political donations from the MEA school employee union.)

Senate Republicans also came up short on another reform measure: an amendment to the Department of Corrections budget that would require the department to open the management of one prison to competitive bids and privatize it if this would save money. The provision was originally adopted, but a short time later stripped out of the bill — both actions on a voice vote only. According to MIRS, unnamed Republican senators had complained to the sponsor that they were concerned that a prison in their district might be the one selected for privatization.

Most likely, these politicians feared becoming the targets of the politically powerful prison guards union. Michigan's corrections employees are among the most politically powerful interests in the state, covering their bases on both sides of the aisle with support in various forms for both Republican and Democrat politicians.

For example, the Michigan Corrections Organization, a union subsidiary of the SEIU, endorsed Republican Mike Cox in his 2006 campaign for Attorney General, and its president has also bragged that when Gov. Jennifer Granholm closed the state's only privatized prison in 2005, she was keeping a promise made to the union during her first campaign for the office in 2002. The MCO currently has townhall meetings scheduled with Republican Senators Mike Nofs and Roger Kahn (two of those mentioned above as likely opponents of school employee pension reforms), and in the past has held similar meetings with Republican members of the House, including Representatives Brian Calley of Portland and Kenneth Kurtz of Coldwater.

Prisons are third-largest spending item in the state budget, after public schools and Medicaid. Although this proposal would have privatized only one prison, studies have shown that doing so can generate savings throughout the system, not just in the privately-run institution. This is because competition causes the nonprivatized prisons to become more efficient, and perhaps also because they learn from their privately managed counterparts. If the results from other states reported in one study were applied to Michigan, then privatizing just 5 percent of our prisoners could save up to $180 million, or nearly 10 percent of the $1.95 billion corrections budget. Policy experts from the Mackinac Center and the Reason Public Policy Foundation have written and testified on this effect in past legislative hearings on prison issues.

All this explains why politicians tend to feel "safe" recommending privatizations of specific prison services like food — which does not change incentives in a way that generates system-wide savings — but may calculate that it's too politically risky to get behind privatizing an entire prison, because the union will view doing so as an "escalation."

The third event signaling trouble ahead on closing Michigan's budget gap was the failure of two attempts in the Senate to forestall a 3 percent state employee pay raise that will now go into effect on Oct. 1. The Democrat-controlled House failed even to vote on the measure, which would have saved $77 million in the coming fiscal year. Under the Michigan Constitution, the raise previously approved by the Granholm administration had to be rejected by a two-thirds majority in both the House and Senate before a deadline that passed while lawmakers were taking their 18-day spring break.

On the first attempt, Senate Republicans again had trouble getting their full team onto the field, as Sen. Bruce Patterson of Canton expressed confusion regarding whether the Legislature had the authority to prevent the pay hike. On a second vote, a unanimous Republican caucus agreed to reject the pay hike after the confusion was cleared up (according to Patterson, in part by a blog post written by Mackinac Center Labor Policy Director Paul Kersey).

Only one Democrat went along with this cost-cutting measure: Sen. Mickey Switalski of Roseville.

Michigan has the ninth-most heavily unionized state and local government workforces among the states. In a recent article about the rise of public-sector unionism, New York professors Fred Siegel and Dan DiSalvo described how government employee unions are "bankrupting states and municipalities" because they "achieve influence on both sides of the bargaining table by making campaign contributions and organizing get-out-the-vote drives to elect politicians who then control the negotiations over their pay, benefits, and work rules."

In Michigan, one can add preventing the legislature from adopting reasonable public employee pay and pension reforms to that list.

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.