SKARBECK: Deficits turn up pressure on unions, politicians

Ken Skarbeck
January 8, 2011
Back to TopCommentsE-mailPrintBookmark and Share

Ken Skarbeck InvestingOne sure bet this year is that Americans can expect to see a number of high-profile battles across the country between municipal or state governments and public-employee unions.

A combination of financial distress and political change has stoked this approaching firestorm. Recent election gains by Republicans and rising taxpayer ire have put public unions on the defensive.

Indiana has already in 2011 introduced “right to work” legislation that would bar unions from forcing workers to become members and pay union dues as a condition of employment. As many as nine other states plan similar legislation, while 22 states already have such laws in place.

Advocates (generally Republicans) of right-to-work laws argue that unions drive up wage costs for businesses and hinder economic development. Opponents (generally Democrats) say right-to-work laws will lead to lower wages and benefits and reduced worker rights. Successful passage of these laws would likely weaken the power of unions in the long run, reduce money flowing into their coffers, and weaken their political influence.

The political media delights in endless debate over “hardball tactics” pursued as mandates by the party who wins an election. But the reality today is that financial considerations are swirling to the point where budgetary realities will overwhelm politics. The can has been kicked as far as possible down the road and it will take brave leaders, both Republican and Democratic, to make the difficult decisions to rein in budgets and increase taxes.

Last October in France, union workers rioted over the government’s proposal to raise the retirement age from 60 to 62. French President Nicolas Sarkozy stood firm, arguing the increase was necessary to save the country’s pension system. The law passed.

It is unlikely we will see the kind of labor unrest experienced in Europe. Yet, there have been reports that, during the recent blizzard, some New York City union snowplow operators skipped routes to protest cuts to the city’s budget. In addition, a confrontation between a New Jersey teacher and Gov. Chris Christie has become a YouTube classic.

As states and municipalities wrestle with budget deficits, we can expect to see more public assets being shopped for cash. Locally, Indianapolis is nearing the decision to sell its water and sewer utilities, raising $435 million for infrastructure investments. The city also entered a 50-year lease on its metered parking spaces that will generate $20 million upfront. In 2006, the state received a whopping $3.8 billion on a 75-year lease of the Indiana Toll Road when infrastructure values were at their peak. Prices for public assets today are not nearly as juicy (or irrational).

Elsewhere, the clock keeps ticking. Illinois is down to days to decide how to plug a $13 billion deficit and Pittsburgh cut a deal to direct parking tax revenue into its pensions just eight hours before the underfunded plan was to be taken over by the state of Pennsylvania.

On the plus side, the economy seems to be gathering some strength. If it can keep its momentum, stronger growth will eventually boost state revenue, particularly as employment rates increase. In the meantime, a combination of painful spending cuts and tax increases will and should be considered by legislative bodies across the country.•


Skarbeck is managing partner of Indianapolis-based Aldebaran Capital LLC, a money management firm. His column appears every other week. Views expressed are his own. He can be reached at 818-7827 or ken@aldebarancapital.com.


Post a comment to this story

We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
You are legally responsible for what you post and your anonymity is not guaranteed.
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
Subscribe to IBJ
  1. Aaron is my fav!

  2. Let's see... $25M construction cost, they get $7.5M back from federal taxpayers, they're exempt from business property tax and use tax so that's about $2.5M PER YEAR they don't have to pay, permitting fees are cut in half for such projects, IPL will give them $4K under an incentive program, and under IPL's VFIT they'll be selling the power to IPL at 20 cents / kwh, nearly triple what a gas plant gets, about $6M / year for the 150-acre combined farms, and all of which is passed on to IPL customers. No jobs will be created either other than an handful of installers for a few weeks. Now here's the fun part...the panels (from CHINA) only cost about $5M on Alibaba, so where's the rest of the $25M going? Are they marking up the price to drive up the federal rebate? Indy Airport Solar Partners II LLC is owned by local firms Johnson-Melloh Solutions and Telemon Corp. They'll gross $6M / year in triple-rate power revenue, get another $12M next year from taxpayers for this new farm, on top of the $12M they got from taxpayers this year for the first farm, and have only laid out about $10-12M in materials plus installation labor for both farms combined, and $500K / year in annual land lease for both farms (est.). Over 15 years, that's over $70M net profit on a $12M investment, all from our wallets. What a boondoggle. It's time to wise up and give Thorium Energy your serious consideration. See http://energyfromthorium.com to learn more.

  3. Markus, I don't think a $2 Billion dollar surplus qualifies as saying we are out of money. Privatization does work. The government should only do what private industry can't or won't. What is proven is that any time the government tries to do something it costs more, comes in late and usually is lower quality.

  4. Some of the licenses that were added during Daniels' administration, such as requiring waiter/waitresses to be licensed to serve alcohol, are simply a way to generate revenue. At $35/server every 3 years, the state is generating millions of dollars on the backs of people who really need/want to work.

  5. I always giggle when I read comments from people complaining that a market is "too saturated" with one thing or another. What does that even mean? If someone is able to open and sustain a new business, whether you think there is room enough for them or not, more power to them. Personally, I love visiting as many of the new local breweries as possible. You do realize that most of these establishments include a dining component and therefore are pretty similar to restaurants, right? When was the last time I heard someone say "You know, I think we have too many locally owned restaurants"? Um, never...