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Vol. 75/No. 6      February 14, 2011

States fire workers,
cut wages, benefits
(front page)
Public workers across the United State face mounting layoffs and cuts in wages and social benefits as state governments seek to reduce billion-dollar budget deficits. One option under discussion would allow states to declare bankruptcy, under which union contracts could more easily be declared null and void.

Some 44 states and the District of Columbia are projecting budget shortfalls totaling $125 billion for fiscal year 2012, which begins this July, according to a report by the Center on Budget and Policy Priorities. This figure is expected to keep rising. “At least 22 states are already projecting shortfalls totaling $70 billion more for fiscal year 2013,” the report notes.

Unlike the federal government, states cannot print money to cover these deficits. Federal “stimulus” funds given to states and cities over the past couple of years that postponed some layoffs and cutbacks are now ending. Nearly 400,000 jobs of state and city workers have been eliminated nationwide since August 2008.

In Texas, the government plans to cut another 9,300 jobs this year; in Georgia, 14,000 more are on the chopping block. New York governor Andrew Cuomo projects laying off more than 10,000 workers and freezing wages. California’s and Nevada’s governors are demanding pay cuts of up to 10 percent and 5 percent respectively.

In addition to slashing the workforce, the capitalist rulers are taking aim at social programs vital to working people, with funds for education and health care taking the hardest hits.

Governors from both the Democratic and Republican parties are planning “bone-deep cuts” to Medicaid, a program that provides health care for people with low income, notes the New York Times. Arizona governor Janice Brewer, a Republican, is seeking to remove 280,000 adults from the program. In California, newly elected governor Edmund Brown, a Democrat, is proposing to save money by limiting the number of doctor visits allowed in a year along with limits on prescriptions each month. South Carolina officials want to eliminate hospice care.

In New York, the Cuomo administration is proposing $2.85 billion in Medicaid cuts, including slashing programs for those suffering from severe mental illnesses and drug problems. This figure will likely double with the loss of federal matching funds. A projected $1 billion cut in state education funds for New York City will eliminate more than 21,000 jobs. Mayor Michael Bloomberg is pressing to gut union-won seniority rights as these layoffs are carried out.  
Bankruptcy option for states
Under the U.S. Constitution, states cannot declare bankruptcy. Since the 1930s some cities and counties have had this option.

Bankruptcy laws have been used by corporations to gut wages and benefits won by workers while ensuring the wealthy owners of debt get paid. When General Motors declared bankruptcy in 2009 it secured billions of dollars in federal bailout funds. Through concessions from the union it now has fewer workers, a two-tier wage for new hires, and in some cases wages for long-time workers cut in half.

Among those leading the effort for the state bankruptcy option is former House Speaker Newt Gingrich. A January 27 Los Angeles Times column he authored with former Florida governor John Bush argues that this would allow states “to reorganize their finances free from their union contractual obligations,” allowing states “to terminate some, all or none of its government employee union contracts and establish new compensation rates, work rules.”

House Majority Leader Eric Cantor says he opposes changing the law allowing states to go bankrupt. At the same time, he emphasized, “There will not be a federal bailout of the states.”

Without declaring bankruptcy state officials “already have options for putting the squeeze on their unions” with mass layoffs, wage freezes, and involuntary furloughs, said a January 24 Wall Street Journal column by E.J. McMahon of the Manhattan Institute. He argues that state bankruptcies “could create more problems than it solves.”

As workers’ wages and benefits are being cut, bondholders still get paid. New York “has a trustee that intercepts tax revenues and makes some bond payments before the state can get to the money,” reports the New York Times. California has a similar “continuous appropriation” for debt payments, guaranteeing bondholders get interest payments regardless of budget deficits.

New York will have about $54.3 billion in debt at the end of this fiscal year on March 31. That’s up from $14.4 billion in 1990.  
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