Wall Street Attacks By Teacher Unions Counterproductive

January 5th, 2011

Cooperative Cost-Reduction a Better Strategy

By Brian Backstrom

The latest ad campaign from the state’s public sector labor unions dusts off their old staple of attacking “Wall Street” and its “record bonuses.”  Not surprisingly, the ad sponsors include the New York State United Teachers, the NYC United Federation of Teachers, the NYC Central Labor Council, and other hanger-on groups like Alliance for Quality Education, which is largely funded by NYSUT and UFT as an echo chamber for its agenda.

This ad campaign is only the beginning of the union-led fight to oppose looming efforts by Governor Andrew Cuomo and his administration to reduce state spending to close a budget deficit of at least $9 billion in the 2011-12 fiscal year.

Keep in mind, New York faces public funding retrenchment in large part because it already leads the fifty states, or is among the leaders, in public spending on numerous categories.  For education, the U.S. Census Bureau calculates that New York spends the most money on a per pupil basis, at $17,173, which is two-thirds above the national average.

The state’s high spending on education and other areas is only part of the story.  The ability to increase spending demanded by the unions is becoming not only an impracticality, but counterproductive to the public sector itself.  The teacher unions and their allies have their sights on increasing the transfer of resources from the state’s private sector to the public sector, notwithstanding the reality that New York State is ranked 50th worst among the fifty states according to the Tax Foundation’s annual business climate index – meaning, the state has the worst business climate in the country.  Yes, the country has been in a tepid economic recovery for the last 18 months, and nearly all the states have fiscal challenges, but New York’s is among the worst because of this dubious distinction of being last in business climate.

In fact, New York’s Division of the Budget has documented New York’s worse-than-the-nation economic condition, which revealed a pattern of having longer downturns than the national economy for at least 40 years (see pp. 97-100).  DOB also documents that the state’s employment and income are “profoundly affected by the fortunes of financial markets;” meaning that a healthy, profitable and bonus-paying “Wall Street” will generate on its own more tax revenue in the state’s coffers, with the converse being true as well.  Accordingly, trying to tax this sector at even higher rates will cause more companies to locate or downsize to other states, which has been the trend in New York for decades.

The teacher unions’ appetite for higher taxes will only exacerbate this problem, and at the same time will make the broader public sector – including its own membership – worse off in the process.  The weaker the private sector business climate is for New York, the worse off public sector interests will be in terms of their ability to extract tax revenue.  This is especially true in a weakening the state’s financial sector centered in the New York City metropolitan area, that is, “Wall Street.”

New York’s state government remains dependent on the fiscal health of the downstate financial sector.  Trying to squeeze more out of it will make the problem worse, not better, for the public sector and education especially, which is the state’s largest expense.

Governor Cuomo throughout his campaign and with his inaugural address last weekend recognized the state’s perilous condition because of its weakened private sector business climate.  Saying New York State is “at a crossroads,” the Governor went on to assert in his inaugural remarks that taxpayers “cannot afford never-ending tax increases [and] this state has no future if it’s going to be the tax capital of the nation.”

The new Governor further contrasted his agenda with the unions’ demands by promising to let the state’s tax hike on higher-income taxpayers, enacted in 2009, expire at the end of the year.  Doing so will translate to the Governor’s goal to “right-size…government [which] has grown too large, we can’t afford it.”  This means education funding, at $23 billion this year, is too large to be exempt from the Governor’s effort.

Rather than running continuous ad campaigns in its attempt to squeeze more from New York’s private sector for the unions’ benefit, the teacher unions should instead heed the new Governor’s call for cooperation in solving the state’s fiscal economic problems.  Unless governments spending gets under control at all levels, the biggest-ticket public-sector programs, such as education, will face further cuts and contraction no matter how many ads the unions finance on the airwaves.

Brian Backstrom is President of the Foundation for Education Reform & Accountability and may be followed on Twitter at @nyedreform.

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