Internet Explorer 11 is not supported

For optimal browsing, we recommend Chrome, Firefox or Safari browsers.

<i>The Week in Public Finance:</i> Will Weaker Unions Mean More Money for States?

The Supreme Court dealt a blow to public-sector unions this week. Whether it'll save governments labor costs is debatable.

Teacher Protests Arizona
Teachers rallying outside the Arizona Capitol in April.
(AP/Matt York)
The U.S. Supreme Court dealt a potentially crippling blow this week to public-sector labor unions when it eliminated the requirement for non-union employees to pay “agency fees” to contribute to the cost of collective bargaining and related activities.

The decision is expected to cause a drop in union membership, which has fallen in nearly every state over the past decade, and a subsequent decline in unions' revenue and power. A big question for governments is whether a weakening of labor unions will translate to lower labor costs in the 22 states that have not already adopted right-to-work laws, which let workers opt out of union fees.

Two key areas to watch, says Moody’s Investors Service Vice President Nick Samuels, are wage and benefits negotiations in the coming years. But any fiscal impact, he cautions, “is likely to happen over time.”

That’s not necessarily so, says Fitch Ratings analyst Laura Porter. Teacher strikes across several right-to-work states this past spring, she says, indicate that weak labor laws don’t necessarily halt labor movements, and even without pressure from unions, workers have the power to demand better wages and benefits. “It illustrates that once you’re in that situation [where unions are comparatively weak], you can’t do whatever you want,” she says. “There are practical limits -- market pressures to be competitive are still at work."

In general, the financial impact of right-to-work laws is unclear. Certainly, where they exist, union membership tends to be lower. In Michigan, for example, 14.4 percent of the workforce belonged to a union in 2016 -- down from about 20 percent at the start of the decade, before the state passed a right-to-work law in 2013.

But a look at state spending trends in key labor areas shows that states with weaker unions aren’t necessarily facing less financial pressure or winning more labor concessions.

Take protecting retirement benefits, which is a big focus for unions. In the five years following the Great Recession, all but 10 states reduced pension benefits for workers. Among those that didn’t, seven were right-to-work states with supposedly weaker unions. In addition, 36 states increased the amount employees are required to contribute toward their pensions. Of the 14 that didn’t, half were right-to-work states.

A look at education funding presents similar mixed conclusions.

Many states have struggled to restore funding since the recession, and the 10 states that have cut the most in education funding over the past decade are all right-to-work states. On the other hand, of the 10 states that have increased per pupil funding the most since 2008, five are right-to-work states.

To be sure, right-to-work states tend to spend less overall on education than states with stronger unions. But a new study from Stanford University suggests that’s more due to politics than unions. That research found that the states that now have collective bargaining rights have a long history of spending more on education -- even before collective bargaining rights were instituted. The study attributes this gap not to labor unions’ influence but to the fact that states with higher teacher salaries tend to be more liberal and wealthier.


In other public finance news this week:

New Jersey Heads Toward Shutdown

Even under one-party rule, New Jersey’s fiscal woes are proving to be no easy fix.

The state is heading toward its second government shutdown in as many years because party leaders can’t agree on which taxes to hike to pay for things like more education funding and higher pension payments. Making this situation even more unusual is the fact that this year’s state budgeting season has collectively been the smoothest in years, thanks in part to a better fiscal outlook.

Whereas in the past few years as many as 11 states were starting the new fiscal year without a signed budget, this year only two states appear headed down that road. And the other state --Massachusetts -- has already passed an interim budget to avoid a government shutdown.

New Jersey lawmakers have until midnight June 30 to reach an agreement or the government will enter a partial shutdown on Sunday.


How Much Will Austin Pay to Win Major League Soccer?

The Columbus Crew this week unveiled plans for a new soccer stadium. The 25-acre complex features a music performance space, parking garage, bicycle valet and up to 130 affordable housing units.

The only problem for Crew fans is that it’s more than 1,200 miles away in Austin, Texas.

The Crew currently plays in Mapfre Stadium, which is 19 years old and is the first soccer-specific stadium built for a Major League Soccer team. The team’s owner, Precourt Sports Ventures CEO Anthony Precourt, wants a new stadium but won’t build one without financial assistance from either taxpayers or private financiers -- something he doesn't have in Columbus.

So Precourt has been moving forward on plans to move. He’s -- ironically -- touting the fact that his new stadium in North Austin would be built without public subsidies. But, as University of Texas at Austin professor Nathan Jensen points out, that’s not entirely true.

Not only does Precourt’s plan include using new market tax credits (a federal subsidy that rebates 39 percent of the private investment), the proposal would also use city-owned land for up to 80 years at $1-per-year rent.

What’s more, the city would incur additional costs if it builds a transit stop at the stadium or agrees to pay the utility costs. It goes to show that there are sneakier ways than cold hard cash to eke out concessions from cities.

“We need to recognize that Austin has the bargaining advantage here,” Jensen recently wrote in an op-ed. “The current proposal would generate few economic benefits to the city and could cost tens of millions in subsidies.”

To read this regularly, subscribe to "The Week in Public Finance" newsletter for free.

Liz Farmer, a former Governing staff writer covering fiscal policy, helps lead the Pew Charitable Trusts’ state fiscal health project’s Fiscal 50 online resource.
From Our Partners