by Lowell L. Kalapa, Tax Foundation of Hawaii

The Gordian knot that seems to be confronting public officials is how to keep the state and county governments solvent while avoiding either having to make deep cuts in public services or, on the other hand, raising taxes and fees that will infuriate the tax paying public.

Although elected officials claim that they have done their best to pare spending, reducing expenditures for essential programs and services and eliminating others which they deemed to be of lesser importance, the shortfall continues to plague the state ledger despite also raising taxes and fees. And while some would like to chalk this up to the downturn in the national and global economies, the economy is only part of the reason for the financial mess in which we find state and local governments. It has become increasingly apparent that there is a marked disparity between the public and private sector when it comes to wages and benefits and how employees are compensated between the two sectors.

Although the cry for allowing public employees to bargain for wages and benefits and better working conditions led to the constitutional amendment in 1968 to extend collective bargaining rights to the public sector, the focus was solely on bringing parity to wages in the public sector with those that were paid in the private sector. Indeed, those public employees in the lower paying jobs were paid substantially less than their private sector counterparts. However, as a result, those in the public sector were granted rather generous benefits including a defined benefit pension plan that was calculated on the highest and best three years of compensation, fully paid health care benefits in retirement for the employee and the spouse of the employee regardless of whether or not the spouse had worked for government, and cost-of-living adjustments in their pension income once they retired.

Over the years with each negotiated contract, wages in the public sector improved to the point where, in many cases, public employees were receiving better wages than their private sector counterparts. This is largely true for those who are a part of the line staff and not so true for those in higher positions. But all public employees still enjoy what is considered rather generous retirement and health benefits. While many public employees may take umbrage at this point, it is, nonetheless, true.

Until now, the state and counties have been able to meet the negotiated settlements arrived through the collective bargaining process because they either had the resources or could find ways to raise the additional resources needed to fund those contracts. That is no longer true as not only are the state and counties suffering from the slumping economy, but the private sector as well. With the private sector cutting back on the number of jobs and/or cutting back on the number of hours it can provide for employees, the tax revenues necessary to fund public sector contracts is not readily available.

Up until now it has been politically unpopular to propose, much less discuss, reform of the civil service system and collective bargaining in the public sector. During the past few years, the Speaker of the House has introduced a number of proposals to rein in provisions governing the civil service system, all to no avail as his colleagues have been afraid to even take up the issue for fear of retaliation from the various public employee unions.

But the time has come given the fact that there is nothing left in the larder with which to underwrite the collective bargaining demands. Changes must also be made to the system to encourage increased productivity, provide compensation incentives to those who perform above what is expected and to be able to discipline those employees who stand in the way of progress. It should not take years to release an employee who is not performing his or her job. After all, it is taxpayer dollars that are paying for that employee.

While many elected officials will not want to cross the paths of organized labor, organized labor needs to recognize that the limits have already been stretched as far as possible in tapping the economic base and that if the community is to survive, as a whole, both public and private sector, there has to be a mutual understanding that there are limits to what the economy can be expected to pay for government services and programs.

Elected officials need to wake up and realize that without reform of the civil service system and collective bargaining they will be forever caught in a fiscal crunch.

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