Cut costs first

IS MASSACHUSETTS government starving for revenue? If you listened to many state officials and opinion leaders, you would certainly think so. The University of Massachusetts at Dartmouth has recommended that the state authorize the opening of three casinos, as a way to raise $400 million in new revenue for the state and for municipalities. The Legislature is considering measures to extend property taxes to telecommunications equipment and create a 2 percent local option meals tax. Governor Patrick has appointed a commission to study how the state could raise more money by closing corporate "loopholes."

There are needs that are, in fact, starving for revenue -- bridge maintenance and unfunded public pension benefits notably among them. Yet every idea for raising more money has a downside. New taxes have negative effects on economic activity. Opponents of gambling say it gives rise to economic and social costs of its own. But neither of these is the most important argument against turning to new revenue sources at this time.

The most important argument is that we have to do something to cut the costs of government. To do that, we have to break through barriers to cost-cutting -- barriers put up by public employee unions. If we simply keep looking for new revenue without first attending to this problem, there will never be enough revenue to keep our bridges from falling down or to pay state workers the pension benefits we've promised them.

According to a new report by the Massachusetts Taxpayers Foundation and the Boston Municipal Research Bureau, local governments could save $100 million in fiscal 2009 alone by joining the Group Insurance Commission, which is widely respected for keeping down the cost of insuring state workers.

But more could be done to rein in costs. Currently, large private employers in Massachusetts pay an average of 75 percent of their workers' healthcare premiums. If the Commonwealth, which pays about 80 percent of state workers' premiums, reduced its contribution to the private-sector level, it could save about $66 million per year. Boston, Bridgewater, and Framingham are among several municipalities that pay up to 90 percent of the premiums for employees enrolled in HMOs. They, too, could enjoy savings if public employees contributed as much to their health coverage as the typical private-sector worker does.

The problem is that the public employee unions control state and local government. The occasional official who tries to bring government healthcare costs under control is asking for trouble. Quincy's mayor learned this lesson earlier in the year, when teachers went on strike over his efforts to get them to pay more toward their healthcare costs.

The Legislature recently passed a law that would permit municipalities to join the Group Insurance Commission. But the law is another kowtow to the unions, who retain veto power over any agreement not to their liking.

Why do the unions resist so fiercely any effort to restrain the rising cost to taxpayers of providing healthcare for public employees? The answer is twofold. First, the unions justify themselves to their members largely by pushing for what used to be "fringes," but what are now a major portion of compensation. Second, any effort by municipalities to standardize benefits across the various government trades -- education, police, fire -- makes it harder for any one union to advance its interests against those of the others.

There is only so much money to go around, and a dollar more in benefits for teachers is a dollar less for police. Each public employee union justifies itself to its members by outdoing not only the municipality against which it bargains for benefits, but also the other unions against which it competes for benefits. Curtailing this process means curtailing union power.

For years, state watchdog groups have complained about mandatory police details, the prevailing-wage law, the Pacheco anti-privatization law, the project labor agreements that keep nonunion companies from bidding on public construction projects, and Quinn Bill education benefits for police. All of these are sops to union power, and all of them inflate the cost of government to taxpayers.

Yet complaints about these matters generally fall on deaf ears. This is why the state faces agonizing choices over such issues as casino gambling and higher corporate taxes. This is also why even those new revenue sources would not be enough to solve big-ticket problems like crumbling bridges and unfunded pension benefits.

Taxpayers should say that enough is enough. Instead of its current weak-kneed efforts, the state should require municipalities to join the GIC and to increase employee contributions to healthcare as a condition for receiving local aid. It should repeal the prevailing wage law, Quinn Bill, and Pacheco Law. The new Massachusetts School Building Authority should reimburse localities for school construction projects only if the projects are put out to open bid; no more union-only contracts. Then and only then should the state start hunting for new revenues.

Casino gambling, closing corporate loopholes, and increasing taxes on meals might or might not be good ideas. But unless we first stand up to the public employee unions, all such measures will go more toward inflating already-inflated costs than toward the genuine needs of state and local government.

David G. Tuerck is executive director of the Beacon Hill Institute and a professor of economics at Suffolk University.