Obama and America's Public Sector Plague. Edmund J. McMahon
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professionals to their staffs between 2000-01 and 2008-09, when their enrollment was dropping by more than 121,280 pupils.
The 2009 stimulus bill included temporary increases in federal Medicaid reimbursements to states, more federal aid to school districts enrolling high percentages of poor children, and a large “state fiscal stabilization fund” designed mainly to supplement state aid to K-12 public schools. These different aid categories were ultimately fiscal pretexts, though. Money is fungible, of course, and the ultimate effect was to put a floor under falling revenues for state governments and school districts. The main beneficiaries were public employees, whose salaries and benefits equate to more than 80 percent of state and local tax receipts.
Despite the president’s rhetoric, federal stimulus aid to states wasn’t contingent on saving government jobs - most of which are being “lost” through natural attrition and nonreplacement of employees, rather than outright layoffs. The stimulus also has served the unspoken purpose of financing continued wage increases for many public sector workers who, as we have seen, already earn higher average compensation than the taxpayers who are footing the bill.
Within six months of the stimulus bill’s passage, tens of billions of dollars in temporary federal aid began flowing to states and school districts throughout the country, regardless of whether they had shown or planned any wage restraint. Most didn’t. Total state and local wages rose by $15 billion in 2009 alone, despite the recession, according to the Bureau of Labor Statistics’ Quarterly Census of Employment and Wages. While the average private sector wage was dropping along with employment on a national basis in 2009, the average annual wage for state government employees was up in 45 states, including fiscal basket cases such as Illinois, Michigan, New York, and New Jersey, according to the Bureau of Labor Statistics. The average local government wage rose at least slightly in every state, even crisis-wracked California. The stimulus helped make all of this possible.
This result ran counter to the advice of the pro-stimulus economists at the International Monetary Fund (IMF), among others. “Public sector wage increases should be avoided as they are not well targeted, difficult to reverse, and similar to [income] transfers in their effectiveness,” the IMF staff wrote in a December 2008 report.
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