Howls of outrage greeted Senate Majority Leader Mitch McConnell’s suggestion that Congress should resist further funding of insolvent state and local governments because the money would be used “to bail out state pensions” that were never affordable except “by borrowing money from future generations.” Instead, Sen. McConnell suggested, perhaps Congress should pass a law allowing states to declare bankruptcy.
New York Gov. Andrew Cuomo immediately countered that the bankruptcy of a large state would lead to fiscal chaos, and called McConnell’s suggestion “one of the saddest, really dumb comments of all time.”
Indeed, the lesson of the 2008 Lehman Brothers bankruptcy was that a bail-out would have been far preferable, less costly as well as less disruptive to markets.
But McConnell is correct that many states are fiscally underwater because of irresponsible giveaways to public unions. About 25 percent of the Illinois state budget goes to pensions, including more than $100,000 annually to 19,000 pensioners, who retired, on average, at age 59. These pensions were often inflated by gimmicks such as spiking overtime in the last years of employment, or by working one day to get credit for an extra year.
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In New York, arcane Metropolitan Transportation Authority work rules result in constant extra pay — including an extra day’s pay if a commuter rail engineer drives both a diesel and an electric train; two months of paid vacation, holiday and sick days; and overtime for workdays longer than eight hours even if part of a 40-hour week. In 2019, the MTA paid more than $1 billion in overtime.
Cuomo has thrown out rulebooks to deal with COVID-19, and recently mused about the need to clean house: “How do we use this situation and …reimagine and improve and build back better? And you can ask this question on any level. How do we have a better transportation system, a …better public health system… You have telemedicine that we have been very slow on. Why was everybody going to a doctor's office all that time? Why didn't you do it using technology? … Why haven't we incorporated so many of these lessons? Because change is hard, and people are slow. Now is the time to do it.”
Cut red tape, reform entitlements
Perhaps McConnell and Cuomo are not that far apart after all. While bankruptcy makes no sense now, since states can hardly be blamed for COVID-19, federal funding could come with an obligation by states to adopt sustainable benefits and work practices for public employees.
Why should taxpayers pay for indefensible entitlements? How can Cuomo run “a better transportation system” when rigid work rules prohibit him from making sensible operational choices?
Taxpayers are reeling from these indefensible burdens. The excess baggage in public institutions is hardly limited to public employees. The ship of state founders under the heavy weight of red tape and entitlements that have, at best, only marginal utility to current needs.
Bureaucratic paralysis is the norm, whether to start a new business (the U.S. ranks 55th in World Bank ratings) or to act immediately when a virulent virus appears (public health officials in Seattle were forced to wait for weeks for federal approvals).
Well-intended programs from past decades have evolved into inexcusable entitlements today — such as “carried interest” tax breaks to investment firms and obsessive perfection mandated by special education laws (consuming upward of a third of school budgets).
Partisanship blocks reform
Government needs to become disciplined again, just as in wartime. It must be adaptable, and encourage private initiative without unnecessary frictions. Dense codes should be replaced with simpler goal-oriented frameworks, as Cuomo has done. Red tape should be replaced with accountability. Excess baggage should be tossed overboard. We’re in a storm, and can’t get out while wallowing under the heavy weight of legacy practices and special privileges.
McConnell and Cuomo each have identified the madness of tolerating public-waste-as-usual. But toxic partisanship drives them apart. Nor would ad hoc negotiations work to restore discipline to government; too many interest groups feast at the public trough.
The only practical approach is for Congress to authorize an independent recovery commission with a broad mandate to relieve red tape and recommend ways to clean out unnecessary costs and entitlements. This is the model of “base-closing commissions” that make politically difficult choices of which states lose military bases.
Recovering from this crisis will be difficult enough without lugging along the accumulated baggage from the past. A streamlined, disciplined government would be a godsend not only to marshal resources for social needs, but to liberate human initiative at every level of society. That requires changing the rules. But change is hard, as Cuomo noted. Broad trust will be needed. That’s why the new framework should be devised by an independent recovery commission.
Philip K. Howard is founder of Common Good. His latest book is "Try Common Sense." Follow him on Twitter: @PhilipKHoward.