What is considered a “public good?”

The “Great Recession” has forced many governments to take a look at the services they provide and determine whether or not they should continue providing those services. Many times, these discussions are centered on what are truly public goods and thus a necessary component of government operations. I think I greatly underestimated this discussion until I heard about a story out of Tennessee which sparked a national debate.
An Obion County resident had decided to forgo paying for the annual $75 fire service fee – insurance, so to speak. You see, Obion County does not provide fire services to its rural residents (outside the city limits); local municipality South Fulton provides fire protection via fee for service to rural Obion residents. This is done as opposed to a tax levy whereby all residents of Obion would receive fire services. Well, one family recently learned the consequences of not paying that fee.
On September 29th, a fire started at Lance Cranik’s house. Once detected, he quickly called 911 and was told that fire crews would respond shortly. Ten minutes later Lance found out that the fire department would not be responding because the family had not paid their fee. The fire department did show up but only to ensure that nearby houses (where their owners had paid their fee) did not succumb to the Cranik fire. The Cranik’s offered to pay the fee on the spot but were rejected and thus, lost nearly everything, including family pets. The irony of the situation was that this was not the first time the Craniks forgot to pay their fee and were victims of fire. A few years back a chimney fire threatened a son’s home. The fire department responded anyways and the family paid up the next morning.
The situation has sparked a national debate on whether or not the fire department (or at the very least – the responding firemen) did the right thing. Unfortunately, it is not a black and white issue. I wonder what would have happened if the firemen decided to respond despite the order not to and a fireman was injured? Isn’t it likely that the workman’s comp claim would be denied? Others challenge that it is like car insurance – since when does Allstate allow individuals to buy insurance after an accident?
This debate has been raging in Obion for the last 20 years. County Commissioners voted on 10/18 to hold a referendum in February 2012 to determine whether or not this service should remain as a fee or to implement a fire tax. At a basic level, this is a discussion of public goods. “Public good” was first coined by Paul Samuelson in 1954 as “…[goods] which all enjoy in common in the sense that each individual’s consumption of such a good leads to no subtractions from any other individual’s consumption of that good…” (Wikipedia, Public Good). Simply put, a public good is a good that is non-rivalrous and non-excludable. Is it possible for a fire to be excludable? In rural areas where there is a distance between properties it is possible.
With the budget constraints that many jurisdictions are facing, excluding services such as fire protection, are certainly decisions that many are contemplating. There is a fine line here – who’s responsibility is it?

Reassessing the Cost of Labor

As I was considering what to write about in this blog this past weekend, I started thinking about Labor Day and its meaning. I was a little embarrassed that I didn’t understand all of the origins behind this national holiday – typically, it has been seen as an end to summer. After a little Google search (God bless the Internet), I found out that it had some origins in my hometown, Chicago. While Labor Day was first recognized in NYC in 1882, it became a federal holiday in 1894 following the deaths of a number of workers during the Pullman Strike (a nationwide conflict between labor unions and railroads which originated in Pullman, Illinois). The holiday pays homage to the strength of the trade and labor organizations.

Armed with this new knowledge, I thought it would be fitting to talk about the cost of labor organizations in government today. We keep hearing about the cost of labor agreements (salaries and benefits) and their effects on government operations. One example is seen in the City of Vallejo, CA where the town became the first city in California to ever declare bankruptcy. One of the reasons attributed to this filing was the cost of police and fire contracts. As the City was dealing both with its bankruptcy and a $20 million shortfall in the budget year, officials had to factor in 7.5% salary increases for police officers. Many cities are finding that city revenues are not supporting payroll demands.

On the flipside of the Vallejo example, we see an arbitrator settle a police contract dispute in Chicago. When the City walked away from negotiations after the union rejected its 16% over 5 years contract offer, many were taking bets on what the arbitrator would come back with. On one side, some felt that the arbitrator would give officers more (the last arbitration in 2005 gave officers a 4%/year hike); on the other, with the economy and city finances in such a state of flux, many felt it was like trying to get blood out of a turnip. In the end, the arbitrator came back with 10% over 5 years, the lowest in any 5 year period since 1981. In a time when unemployment is just under 10%, is this really all that unreasonable? Let’s look at some of the facts.

According to a World at Work Survey, the average annual salary increase for 2010 is 2.5%. This is close to the Society of Human Resource Management (SHRM) estimates of 2.68% increases for 2010 in the United States. SHRM further reports that 13% of US companies (across all jobs) project salary freezes for 2010. Lastly, in February, President Obama recommended a 2% salary increase for federal employees for 2010 (FedSmith.com). To me, this suggests that we need to examine the annual increases that we provide via contracts, their terms, and their alignment with the national market.

Using Furloughs as a Means to Balance Budgets

Times are tough. The Center on Budget and Policy Priorities estimates that the FY2011 total budget shortfall facing states will reach $140 billion.  Here in my hometown of Chicago, Mayor Daley announced this week that we are facing a historic deficit of $654 million. And to pile on top of that the State of Illinois has had its bond rating downgraded to a level that provokes the term “junk bond” in the same sentence.  Revenues are simply not supporting expenditures.

In recent years, we have witnessed many different methods for balancing budgets. The one that threatens our profession the most is the use of furloughs on select portions of the workforce.  In response to questions regarding pending staff raises, Illinois Governor Quinn gave non-union staff (2,700 out of over 50,000) 24 furlough days, or a 9.2 percent pay cut.  This brings the state a savings of $18 million on a year when we have a $13 billion deficit. And Illinois is not the only one doing this.  States and municipalities all over the country are reducing non-bargaining unit workdays of staff. But what is the effect of these actions?

The demoralizing effect alone is amazing.  Contrary to the myth, government work is difficult, requires long hours, and is at times, a thankless job.  We do it because we believe in the services we provide; we believe in creating good government.  Many of the people I talk to who are subject to furlough days are unhappy; they have decided not to put forth the extra effort to achieve an end result. Trying to get your job done on the days that you are at work is difficult because the person that you need to talk to is likely on a furlough day. Many are considering employment outside of government.  And for what?  To save 1% on a budget deficit when what legislators should really be considering is how to even out revenues and expenditures? Legislators do not want to raise taxes when their offices are on the line.  They don’t want to face the difficult question of reducing services either.  Utilization of furlough days is only delaying the inevitable: we need a fundamental and structural change in how we budget and spend government dollars. In the meantime, we threaten to scare off the talent that we have.