Saturday, July 23, 2011

How We Got Here And Why We Aren’t Going Anywhere Fast

Governor Malloy’s “shared sacrifice” was never evenly – some might say “fairly” -- distributed. Progressive Democrats, in fact, do not believe in shared sacrifice. Their credo includes, on the tax side, a progressive income tax in which the “rich,” defined as anyone making more than $200,000 per year, pay the lion’s share of governmental “investments.” SEBAC negotiator Dan Livingston is typical of the genus.

In a progressive regime, the majority of people “invest” relatively little in their government and prudently vote for Democrats, who collect little from them in tax payments (AKA “investments”) while showering them with benefits. Whatever name one chooses to put to this lopsided getting and spending process, it is not “shared sacrifice.”

Nationally, the wealthiest 1 percent of the population earns 19 percent of all income and pays 37 percent of the federal income tax, a figure that excludes payroll taxes for Social Security and Medicare. The top ten percent pay 68 percent of the tab. The bottom 50 percent, those below the median income level, earn 13 percent of the income and pay 3 percent of the tax.

Combining payroll and income taxes, a Brooking Institution study offers the following breakdown: The richest 1 percent pays 27.5 percent of the combined burden, the top 20 percent pay 72 percent, and the bottom 20 percent pay just 0.4 percent. The bottom quintile is low because an earned income tax credit reimburses some or all of their 15 percent payroll tax. In Connecticut, low income groups pay little or no taxes and will be eligible shortly for a newly instituted income tax credit.

The opposite of a progressive tax, a flat tax, which does provide equity in tax collections, would more fairly share the sacrifice; nearly everyone would pay the same tax rate, all exemptions would be eliminated, the simplification of the tax code would facilitate payments, and a majority of the citizenry would be invested, both as tax providers and consumers, in their government.

Mr. Malloy began his journey as governor promising transparency in government, an end to budget trickery, and shared sacrifice. On the route to government as usual, he bumped into a General Assembly dominated by caucus leaders who for years had been politically wedded to union causes, a group of union negotiators who failed miserably in selling Mr. Malloy’s Plan A to rank and file union members, and a gang of crying mayors who winked at the glowing tax faggots so long as they were assured they would not be burned at the stake. Mr. Malloy also entered into an amusing spitting contest with New Jersey Governor Chris Christie, who is turning out to be much the better demagogue.

The Opaque Budget process

Transparency in government was the first casualty of what Democrats in the General Assembly call the “budget process.” Minority Republicans in the General Assembly were from the first cut out of the process, which should not have surprised Republican leaders in the legislature, and the budget was fashioned, per usual, behind closed doors.

There were reasons why the legislative closed shop should not have surprised Republican leaders in the General Assembly. Over a period of twenty years and more, Republicans had lost their primacy of place on the budget chessboard. Republican presence in the legislature is light. The Republican Party in Connecticut lost the last of its budget bargaining chips upon Mr. Malloy’s election to office, more than 20 years after the last Democratic governor, Bill O’Neill, had abandoned ship, leaving in his wake a deficit of about $1 billion, a modest deficit by today’s standards.

Mr. O’Neill was supplanted by maverick Independent Governor Lowell Weicker, the father of Connecticut’s income tax. Mr. Weicker was followed in office by Republican governor John Rowland, who spent a year in jail for having failed to provide “honest services” to the citizens of Connecticut. Mr. Rowland was succeeded by his politically bland Lieutenant Governor, Jodi Rell, a lady more sinned against than sinning regularly lampooned by both the Democratic opposition, the state’s left of center media and recently self described “turd in the Republican Party punchbowl” Mr. Weicker as an inoffensively pleasant do-nothing placeholder. Both Mr. Rowland and Mrs. Rell were moderate Republicans.

After Mrs. Rell came the Democratic deluge. While weary taxpayers gave the boot during the mid-term elections to Democratic big spenders in federal, state and gubernatorial office across the fruited plains, progressive Democrats in Connecticut hung in there. Republican gains in Connecticut’s General Assembly were modest. Before leaving his position as Republican Party Chairman, Chris Healy noted that Republicans had gained 15 seats in the House and 2 seats in the Senate. Republicans also held 100 of the top positions in the 169 towns in Connecticut but lost the governorship and all constitutional offices.

Upon Mr. Malloy ascension as governor, the state, so it was said, had lost its “firewalls,” Republican governors who presumably stood in the way of the Democratic General Assembly spending machine crying “Stop!” In fact, with the righteous wind of an income tax at their backs, spending in the General Assembly quickly accelerated, tripling within the tenure of three post-income tax governors. By the time Governor Dannel Malloy arrived at the fire, Connecticut was engulfed in spending flames. The state had accumulated a biennial budget deficit of more than $4 billion. Something had to be done.

Mr. Malloy’s solution to Connecticut’s debt problem did not differ markedly from that of Mr. Weicker or the two Republican governors who followed him. Mr. Rowland’s campaign pledge to repeal the income tax did not survive his first week in office. While governors in Connecticut’s neighboring states of New York and New Jersey held the line on taxes, Mr. Malloy, following a campaign in which he was hoisted into office by a slender margin of 6,500 votes and during which he seemed to spurn the imposition of more taxes as a first response to Connecticut’s red ink immediately increased a host of taxes by $2.6 billion and pledged to wrest about $2 billion in savings from state unionized workers.

There Will Be Time, For Visions And Revisions That Time Will Soon Erase

Very nearly all the decision makers in Connecticut – union leaders in SEBAC, the coalition of unions charged with contact negotiations, Mr. Malloy and his negotiating team, many liberal lawmakers in the General Assembly and Malloy administration well-wishers in Connecticut’s left of center media – were agreed that Plan A was favorable to unions.

Plan A assured $2.6 billion in tax increases, imposed a wage freeze on state workers for two years, after which the unionized workers were guaranteed wage increases of 3 percent for the following three years, and launched a medical benefit plan that cut costs and, so it seemed to some – one of the chief sticking points among union workers who gave a thumbs down to Plan A – reshaped benefits so that the new medical benefits package could in the future accommodate Connecticut’s Sustinet Plan, a state version of President Barack Obama’s universal health care plan.

Should Plan A be rejected in a final union vote, Mr. Malloy had at the ready an alternative Plan B that, said the same cheering section vigorously promoting Plan A, would be devastating to state workers. On the question of further tax increases, should state workers be so foolish as to vote down Plan A, Mr. Malloy had already crossed a Rubicon: He had pledged to all and sundry that he would not make up cost savings lost through a rejection of Plan A by further tax increases. Savings lost through a perverse refusal to adopt Plan A would be recovered through draconian layoffs and agency reorganizations.

As a lure to union members who might foolishly vote down Plan A, Mr. Malloy sweetened the pot by reducing the “shared sacrifice” of union workers by $400 million. Mr. Malloy’s number crunchers found an extra $400 million in budget receipts and used it to offset union contributions to the so called “shared sacrifice” the governor had demanded of both taxpayers and state workers. An artificial surplus of about $1 billion had been tucked into the budget, a portion of which Mr. Malloy used to finance an ambitious upgrade of the newly unionized UConn Health Center. Democrats did not propose to share their new found funds equally between tax payers and union members by splitting with taxpayers the $400 million Mulligan the Malloy administration had given outright to union members, possibly hoping the additional funds would induce members to vote in favor of Plan A.

The Democratic dominated General Assembly, Republicans dissenting, pre-approved the budget before the Malloy administration had secured union concessions because, some speculated, individual legislators did not wish to leave their fingerprints on a budget deal gone sour.

Were he alive and singing in these unhappy days, Robert Burns, author of the lines

The best laid schemes o' Mice an' Men,
Gang aft agley, (Often go astray)
An' lea'e us nought but grief an' pain,
For promis'd joy!

might have felt vindicated as a philosopher and poet; for, sure enough, the incomprehensible happened, and state union members rejected Plan A, after which Mr. Malloy rolled out the guillotine.

Plan B, everyone agreed, was a horror. It enforced real cuts in spending but likely was never intended as more than a pistol held to the head of rank and file union members to induce them to vote for the much milder Plan A, which included two years of wage freezes followed by 3 years of 3 percent wage increases, a two year increase in the retirement age and a doubling of the pension penalty should workers decide to retire early. Plan A also included an insurance feature mandating doctor visits and screenings, in exchange for which the state offered a pledge not to lay off current workers, all mild adjustments by most people’s reckoning.

When a minority of union workers rejected Plan A, Mr. Malloy was more or less forced by the weight of his rhetoric to pull the trigger on the pistol.

Plan B, a veritable spook on a stick, was unveiled; the usual culprits remonstrated with benighted union workers. Senator Edith Prague, a longtime union enabler in the General Assembly, said she thought those who had rejected so mild a plan were mad. Papers that in the past stood idly by as the state budget doubled and then tripled, insisting that Connecticut had a revenue rather than a spending problem, began to shriek like so many righteous Robespierres for the heads of union members. The Speaker of the House, Rep. Chris Donovan, put a temporary hold on his run for the U.S. Senate in the 5th District and returned panting to the legislature, where he encouraged union leaders to prevail upon the rank and file to make whatever adjustment might be necessary to adopt the discarded Plan A. Mr. Malloy said he was hopeful something could be done. Flagging spirits began to revive. Slowly, Plan A rose from the ashes.

When the Kabuki curtain opened towards the end of July, painted smiles were on every face. Union leaders, with a wink in the direction of rank and file members they were supposed to be representing, changed the by-laws governing contract negotiations – “drastically,” according to Chris Keating of the Hartford Courant.

Under the old by-laws, “14 of the 15 unions – representing 80 percent of the membership – needed to approve any changes to ratify changes in health care and pension benefits.” That is why Plan A, although approved by 57 percent of those voting, was rejected under union by-laws. Under the new and revised by-laws, imposed upon the membership unilaterally by the very negotiators who had failed to induce a sufficient number of workers to vote in favor of Plan A, “only 8 of the 15 unions – representing 50 percent of the membership [would be] needed to approve any changes,” according to Mr. Keating.

And as if this staged re-vote on Plan A were not surety enough that Plan A finally would be accepted, some news reports indicated union leaders were prepared to allow only those votes of union members who had voted against Plan A to be tallied under the revised by-laws, these to be added to the 57 percent of members who had under the old dispensation voted for Plan A. Those who had voted down Plan A would be given a chance to change their votes to affirmative. Those who voted affirmatively under the now abandoned by-laws would not be given the opportunity to change their “yes” votes.

Having been stung once, union negotiators and Malloy officials were determined to leave nothing to chance. Plan A MUST pass.

Unsurprisingly, Mr. Malloy hit pay dirt when SEBAC leaders announced that a deal had been struck on July 23. The plan soon to be submitted to the union membership differed from Plan A only in incidental matters. An impenetrable secrecy shrouded talks between union leaders and the agents of the Malloy administration.

Following the announcement, the State Employees Bargaining Agent Coalition “posted a notice announcing it was taking strict control over its Facebook page, an indication the unions already were trying to take control of messaging once a new tentative agreement is announced,” according to a report in CTMirror.

Outside the closed shop discussions in the course of which SEBAC leaders assisted Malloy administration officials in pushing through the union rank and file a re-do vote that was almost certain to pass frustrations swirled.

The frustrations were understandable said Matt O’Connor, one of the SEBAC negotiators in a Wall Street Journal report. "There may be issues individual unions want to raise with their leaders, but all of the actions by leaders of coalition are all in accordance with our bylaws."

Those would be the by-laws that Mr. O'Connor’s associates at SEBAC unilaterally changed in order to produce an approving vote by the rank and file, who were now prevented by the censors at SEBAC from participating in facebook messaging.

Mr. O’Connor adamantly insisted, according to an Associated Press report in the Times Union, rather in the manner of a Lady Macbeth protesting too much, that neither Mr. Malloy nor his agents played any role in a by-law change without which a re-do vote on Plan A would not have been possible:

"'We didn't give the governor anything,’ O'Connor said. ‘This was a decision made by union leaders based on reviewing the entire ratification process, hearing from the 45,000 members of our unions, applying lessons learned from this experience and following some very basic principles of union democracy. It certainly wasn't about the governor.’"

Of course, the secrecy surrounding the discussions would make it nearly impossible for anyone to verify Mr. O’Connors somewhat implausible version of events. We are to suppose that SEBAC negotiators who dramatically violated every rule of union democracy to achieve a result desired by Mr. Malloy, virtually all pro-union Democratic legislators in the General Assemby and Connecticut’s left of center media “didn’t give the governor anything.”

Following the by-law changes, rank and file discontent boiled over in the pages of the Wall Street Journal:

“Some union members said they're planning to vote against any new deal out of principle. Meanwhile, members of at least two bargaining units are urging their colleagues to disband.

"’AFSCME is a national union and has a lot of power, so it would be nice to stay with them, but if they're not listening to us, then we're going to have to find another union,’ said Jeri Herskowitz, who works in the judicial system.

“She said members of her local have started a process to jump ship and join the United Public Service Employees Union out of Ronkonkoma, N.Y.

"’In the past week, numerous workers in Connecticut have contacted us to leave their union and join ours. We're going to have to move very quickly to make this happen,’ said UPSEU President Kevin Boyle.

“Correction officer John Boyle spent part of the day Tuesday near the Donald T. Bergin Correctional Institution in Storrs offering union members information about joining the National Correctional Employees Unions, which was formed out of Massachusetts. Mr. Boyle, who plans to retire in August, said he is also spearheading a class-action suit against union leaders. He hasn't filed any court papers.

"’Union leaders sold us out, they got caught, and now they're going to have to face us in court,’ Mr. Boyle said.”
No Exit

Such is life in the tax-me, sue-me, flee me state. Mr. Malloy has imposed on his state the highest tax increase in its history, larger even than the tax increase previously imposed by Mr. Weicker in the state’s first post-income tax budget. In the absence of Plan B, which contained real spending cuts too Draconian for the refined tastes of big spending eastern seaboard Democratic politicians, spending will go up. State revenues will spike owing to the tax increases. But over the long term, in the absence of dramatic spending cuts, revenues will continue to shrink, because businesses from which the state draws its revenue will continue to flee the state when they cannot bribe it for tax dispensations, moving jobs and taxpayers to less high tax and regulatory environments elsewhere.

The exodus has already begun. Two days before the union-Malloy deal was announced with much fervor on the front pages of Connecticut’s newspapers, many of which find their own resources shrinking, a report surfaced in a business journal indicating that job additions in Connecticut were anemic: Connecticut has added only 1,800 jobs since the start of 2011, compared with a gain of 14,100 for the same period last year.

And last year was not a banner year.
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