31 December 2010

Breaking the Bank

A bill in the Indiana legislature would allow local governments to declare bankruptcy. Given Governor Mitch Daniels is backing this plan, I expect it to pass. Best of all, the bill gives an emergency manager the ability to renegotiate labor contracts, and approve or veto contracts, expenses, loans and hiring.

As I see it, there are two main benefits to this bill.

First, the ability to renegotiate labor contracts will enable cities to get out of fiscally oppressive union labor contracts.  Given the sheer audacity that public unions have exhibited of late, either in asking for pay increases or in refusing pay cuts in this recession, this power will be very useful.

Second, cities will be able to attain budget cuts that weren’t possible before.  The political process in most cities usually ensures continual budget growth.  Yes, there are the occasional exceptions to this rule, but more often than not, governments seek to expand their budget, and most spending cuts are merely nominal.

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