BHI Study: Without cost saving reforms, public sector unions pose future liability crisis for states

(BOSTON - May 23, 2013) A one percentage point increase in the unionization of a state’s public sector workforce is associated with an additional $78 of state and local government debt per capita. Meaning, if a state’s public sector unionization were to fall from 50% to 49%, that is associated with a fall in the public debt by $78 per person living in the state. Thus states with higher public sector unionized workforces are more likely to face higher levels of state debt. These are the findings of a new study from the Beacon Hill Institute at Suffolk University.

The Great Recession of 2008 left state and local governments exposed to structural deficiencies that threaten their ability to deliver basic public services in the future. For years, state and local governments took the easy path of not raising taxes or cutting spending to accommodate generous compensation packages negotiated through collective bargaining.

The study first finds that a one percentage point increase in the unionization of public sector employees is associated with an additional $78 of state and local government debt per capita. For instance, 59.8 percent of public sector employees in Massachusetts are unionized. So, the strength of unions in Massachusetts leads to an additional $4,672.17 of state and local debt per person. With its population of 6,587,489 people, Massachusetts faces about $31 billion in debt. More than 31 percent of Massachusetts’s debt is attributable to the strength of public sector unions.

The legacy of the $15 billion Central Artery/Tunnel project may even mask that middle of the pack ranking, according to the study. If Big Dig debt were not counted, the proportion of debt related to public employment compensation would be even higher.

Second, The Pew Center on the States, in a nationally recognized study, evaluated the record of state management of pension and retiree benefit programs. BHI shows that for each percentage point of public sector employees who are unionized, states are one percent more likely to receive very poor ratings by Pew. A reduction in the power of public sector unions in Massachusetts, which claim 59.8% of public sector employees today among its membership, will lead to better management of pension and retiree benefit programs in the future.

"States which are able to constrain spending on public sector unionized workforces will likely see a fall in debt while meeting current obligations to public sector employees," writes Ryan Murphy, the study’s principal author. "State and local governments’ failure to address this issue will only lead to an enormous spike in tax rates or deep cuts in basic social services. The arithmetic does not lie."

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