Charles M. Arlinghaus: An interesting proposal from the union is worth a look

By CHARLES M. ARLINGHAUS

This week there are modest silver linings in economic news and a new idea from the state employees union.

Unfortunately, the news on the state budget for a few years now has been one bad thing after another. This week, we were treated to what passes for good news in the current climate. Things are bad, but the short term isn't as dreadful as we feared. The two-year projection is still horrific, but all hope is not lost.

The current budget covers two years and fixes any shortfalls from the one just ending. The federal government let us move $18 million ahead and spend it in FY2009 instead of 2010. In addition, revenues, while hundreds of millions below what we had planned a few years ago, were nonetheless $17 million less bad than we feared. That helps, too.

Spending freezes and deferred payments reduced spending by $65 million more than we thought just two months ago. This reduces the amount we have to withdraw from our reserves to $85 million or only $20 million if the court changes its mind on the state raid of the medical malpractice fund.

State revenues continue to fall short of budget, but tax collections through September were not nearly as bad as we feared. The bad news is that they are coming in below the budgeted amount by as much as $30 million to $40 million for the year.

There is one bit of good news from business taxation. Business taxes are the single largest part of our revenue structure, and the 2009 shortfall comes largely from their collapse. While overall taxes are on pace to be below budget, business taxes are on track to come in about $15 million ahead of the budgeted amount. They're listed as "below plan" largely because the month-to-month guesstimate is weighted differently than historical averages for technical reasons.

With the budget still out of balance, state officials are still looking for ways to cut spending. A legislatively mandated cut of $25 million in state employee costs is the focus of attention and a contentious contract issue.

To date the debate has been whether to achieve the two-year savings from furloughs (mandatory unpaid leave) or through layoffs of as many as 750 employees. Last week, the State Employees' Association suggested most of the savings could be achieved by keeping unfilled positions open longer. The administration has suggested the union is barking up the wrong tree.

The state's recent experience suggests the union is onto something here. There are more than 1,000 vacant positions in government. This isn't unusual. Over the last 10 years, more than 1,000 people leave state employment each year, and a thousand new ones are hired. At any given time, there are 1,000 openings, 8 or 9 percent of the total number of authorized positions.

The total number of vacancies went up a few hundred because of 18 months of a flexible hiring freeze. In the first 16 months of that "freeze," about 250 positions paid from the general fund were filled by waiving the freeze, but that's a few hundred less than might normally have been filled. Because the budget anticipated spending money on those positions and at least some of the other vacant slots, not filling them saves money.

In its report to the legislative fiscal committee, the administration has said that $13.34 million was saved in the general fund in a little more than one year (about 80 percent from hiring, 20 percent from other reductions). And that's despite making exceptions to the freeze that cost more than $10 million in annualized expense.

Can the state save $12.5 million each year to reach its goal by keeping vacant positions open longer as the union suggests instead of through layoffs? We can certainly get part of the way there. The savings will be less than the $13 million from last year, but a more aggressive freeze that doesn't make hundreds of exceptions can also help close the gap.

Some additional vacancies are found outside the general fund, the focus of the $25 million cut. Those savings should not be ignored. When some of the dedicated funds, such as the liquor fund, save money, general fund spending may not decline, but the savings return to the regular state budget as revenue. Part of balancing the budget in 2009 included millions from so-called other funds. In your own home, $10 you save on snowplowing is 10 additional dollars you can spend on groceries.

The budget is still a precarious house of cards. No one thing will fix it. Any idea for making reductions is important. The union's suggestion to more aggressively manage vacancies and new hiring is a good one.

Charles M. Arlinghaus is president of the Josiah Bartlett Center for Public Policy, a free-market think tank in Concord.