Florida’s public-sector purgatory

Happy Labor Day: what are your plans for being laid off? Because whatever you'd like, I'm thinking about your being laid off, or having a hard time finding work.

Let me approach this more gently: The details in the BLS "Employment Situation" table as updated 9/3/10 look depressing, less because of the unemployment rate (not that it's pleasing to the eye) than the other numbers: too many people entering and reentering the labor market for this anemic recovery to absorb. There are some slight bumps down in the number of those unemployed 27 weeks or more (the most depressing part of the recession's aftermath), but to reword Krugman, if we keep heading in this direction at the same rate, we reach 5% unemployment asymptotically–that is, in the infinite future. Or, this time to reword Keynes, asymptotically we're all dead.

Nonetheless, things aren't getting worse. The primary drops in employment are in public-sector jobs (specifically, the 2010 census). I'm one of those (good or evil) liberal Democrats or professional economists who thinks the 2009 stimulus should have been about twice its actual size (I'm the liberal Democrat type, not the economist type), but a recovery requires private-sector job growth. As a public-sector university employee, my job depends both on taxes and on students and their families being able and willing to pay tuition. To put it bluntly, I've got a stake in your having a job.

But not enough people have jobs, so we're in a sort of demilitarized zone of economics, neither advancing nor retreating on the job front. We may be facing a decade-long Japanese-style stagnation. Or, to pick another metaphor, if you were wondering what purgatory might feel like, welcome to economic purgatory.

So what to do when you're in purgatory?

My instinct is to look at a time horizon somewhere between today and forever. For me, I'm thinking brass tacks: In the realistic short term, my job and the jobs of my colleagues depend on state budgets for the next two years. (Thinking beyond that is an exercise in economic fortune-telling perhaps best conducted in very light pencil-marks.) In the realistic long term, my job depends on Medicare not completely swamping the rest of the economy.

And… things look better than you might assume on both fronts. First, the scary Medicare Cost Monster is much less scary today than it was a year ago, at least according to the Medicare Trustees Report of 2010. So I can breathe a little easier. (For those who are curious, I suspect a small Republican majority in the House and Senate in 2011-12 would not be able to repeal the structural changes that changed the Trustees Report predictions.)

Second, at least in Florida the latest state-level long-term fiscal outlook by state economists is less disastrous than the previous prediction. By "less disastrous" I mean the anticipated budget gap is not $6B for 2011-12 but "just" $2.5B. This is still a particularly frightening wad of money to think about, given that recurring state revenues are likely to be in the $24-26B range. But it's not pack the kids we're heading to the woods time. (Gary Fineout deserves kudos for talking about this new report in his blog.)

For the moment, I'm assuming this crabbed economic outlook is Florida's reality for at least 3-5 years. Or at least we can pencil in some ideas for what is likely to happen in the case where there is some additional pressure in the next two fiscal years on the order of 7-10% of total revenues, substantially from K-12 education and Medicaid, and then state and local revenues continue to be cramped compared with projected needs.

Following the obvious John Kingdon approach, a cramped-revenues outlook for several years is going to give legitimacy to a number of solutions in search of revenue problems. One side is revenues-oriented: A recurring idea that probably has no political legs as long as there are Republican majorities in the legislature: eliminating sales-tax loopholes. A second that might have legs in a closely-balanced legislature (if Amendments 5 and 6 pass in November): an interstate sales-tax compact that eventually leads to collection of state sales tax on internet sales. I suspect nominal tax increases would be very difficult no matter who is in control of the legislature. And in terms of higher ed, there's already the agreement to let universities hike tuition at steady clips until it reaches the national average.

More prominent will be ideas on the expenses side: how can you cut state (and local) expenses, or at least appear to cut state and local expenses? If Rick Scott wins the governor's race, expect to hear a lot about privatization, even though there is scant evidence that privatization saves costs in the long term. (My impression is that privatization replaces the cost of employee benefits with the cost of vendor profits.) If Alex Sink wins, expect government office space to be rearranged. I'm sure that there will be attacks on the Florida Retirement System (though it's reasonably well-funded).

These proposals will change things at the margin at most. The dominant result will probably be restricted hiring in a broad range of public agencies around the state. This is hunkering-down behavior–not the high drama of layoffs or privatization, but defensive and a logical outcome of our current predicament. If you know of an agency whose employee base has shrunk in the last few years, expect it to shrink at least a little more and not expand except to replace retiring/resigning workers. For many state agencies, the only way to expand hiring in one area will be to cut loose employees in another. That may not be true at the margins, but it would be a logical consequence as a whole.

There are all sorts of organizational consequences that flow from this, and one is some anticipated graying of the public workforce in Florida (and probably other states) over the next decade. I know that the Baby Boom is entering retirement ages, but a hiring freeze at an institutional level can trump society-wide demographics. I'm not sure whether that's good or bad, but it would put some interesting pressures on agencies when the demographics of the employees become more and more different from the population as a whole.

For now, this is moderate speculation. There may be a budget train crash in Florida next spring. Or the economy may recover more swiftly than I anticipate. Either would sweep these ideas away as irrelevant. But for now, I think crabbed, cramped, and graying are the watchwords for public agencies in Florida.