Unions under fire as states try to curtail benefits

Thousands of Wisconsin's public employees have descended on Madison to protest Gov. Scott Walker's proposal to raise their benefit contributions and limit their collective bargaining ability.

Protests have also erupted in Columbus, Ohio as a bill proposing to eliminate collective bargaining for state workers and public university employees makes its way through the state legislature.

Both states are seeking the flexibility to change employee benefits, and they're not alone.

Health care and pension costs are soaring, making it even harder for public officials nationwide to close massive budget gaps.Forty-four states and Washington, D.C. are facing a total shortfall of $125 billion for fiscal 2012, according to the Center on Budget and Policy Priorities.

In many places, public officials have little leverage to lower these costs because they are set in union contracts. If benefits were removed from the collective bargaining process, states and localities could change them without having to negotiate with the unions, a process that can drag on for months or even years.

"It gives state and local officials more control over the costs of employing government workers," said James Sherk, senior policy analyst in labor economics at The Heritage Institute, a conservative think tank.

Many state and local governments have been leaning on their employees as they look to cut costs and balance their budgets during the Great Recession. Workers, to varying degrees, have made concessions -- taking furloughs or pay freezes and upping their contributions to their health care and retirement benefits.

State officials have long floated so-called right-to-work proposals that would curtail or eliminate union power. But this year, they are getting more traction because Republicans -- who are generally not big fans of unions -- have gained control of more state capitols and governor's mansions.

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For instance, a bill that would end collective bargaining for teachers is currently working its way through the legislature in Tennessee, where Republicans captured the governor's office and took a commanding lead in the house.

And in Indiana, which banned collective bargaining on the state level in 2005, lawmakers are considering a bill to curtail the power of teachers' unions, which are at the local level.

Gov. Walker's controversial proposal

Under Wisconsin Gov. Walker's plan, many state and local workers would pay about 5.8% toward their pension and about 12% of their healthcare benefits. They currently pay little toward their retirement benefits about about 6% of their medical premiums, Walker said.

Walker says these changes would help the state save $30 million in the last three months of the current fiscal year. Wisconsin is facing a $3.6 billion budget deficit for the biennium that starts on July 1, according to the state's Department of Administration.

Even more controversial, Walker is looking to limit collective bargaining for most public employees to wages only. Local law enforcement and fire employees, as well as state troopers and inspectors would be exempt.

That means health care and pension contributions would no longer be subject to contract negotiations, giving state officials greater freedom to raise them.

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A bill in Ohio, meanwhile, would not only eliminate collective bargaining but would also make fewer police and firefighters eligible to participate in unions.

Additionally, the Ohio bill would make all public workers pay at least 20% of their health insurance premiums and would eliminate tenure as a consideration when making layoffs. And it would require pay be based on merit for most workers.

Ohio is facing an $8 billion budget shortfall for the coming fiscal year. Gov. John Kasich supports the bill as a way to help stabilize the budgets of the state and localities.

"We need to give our cities, towns and school districts the tools to combat one of their biggest costs -- the cost of labor," said Rob Nichols, his press secretary.

Thousands of teachers and public employees have flocked to Columbus to protest the bill.

"Students need their teachers to focus on them and their classrooms, and allowing the union to represent teachers allows them to do what they do best -- teach," said Philip Hayes, a teacher in Columbus and member of the Ohio Education Association, which sent nearly a thousand school workers to a rally on Thursday.

Concessions from public workers

Given state budget woes, workers' pay and benefits are "an obvious place" to cut back, Sherk said. If employees don't make concessions, state officials will have to cut elsewhere to balance the budget.

"It means there are less tax dollars to fund government services," he said.

But union leaders say that public employees have been giving plenty throughout the recession. Many states have effectively cut pay by instituting furloughs and workers have been contributing more to their benefits.

In California, for instance, workers agreed last year to contribute 10% of their pay to their pensions, up from 5%, said Steven Kreisberg, director of collective bargaining for the American Federation of State, County and Municipal Employees. Ohio public employees made $250 million in concessions in 2008, including an increase in their health care contributions.

"Public employees, through their unions, are making sacrifices," Kreisberg said. "Any argument that workers are not willing to make concessions is clearly not demonstrated by the facts." 

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Government shutdown: What's at stake

It's difficult to predict how the current government would respond to a shutdown, because each federal agency is responsible for crafting and updating its own "shutdown plan."

Those plans are not made public. But the past offers some clues.

The last time the federal government went dark was for five days in November 1995 and another 21 days, ending in January 1996, during the Clinton administration.

As a result, the government closed 368 National Park Service sites, along with national museums and monuments, according to a Congressional Research Service report.

In addition, 200,000 passport applications went unprocessed, and toxic waste cleanup work at 609 sites stopped, according to the same report. The National Institutes of Health stopped accepting new clinical research patients, and services for veterans, including health care, were curtailed.

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A shutdown would also result in the furlough of hundreds of thousands of federal employees, but the government would keep essential services -- like air traffic control, and the national security apparatus -- in full operating mode.

And yes, the mail will still be delivered.

Still, a large number of federal workers would be asked to stay home.

"When we go into a funding hiatus, this restricts activities ... and agencies are going to trim back the number of people who actually show up at the office," Denise Fantone, director of strategic issues at the Government Accountability Office, told CNNMoney the last time a shutdown seemed likely. "The first thing any agency is going to do is pull out their list of essential personnel."

While on furlough, federal employees won't receive a paycheck, nor would government contractors. Federal employees will eventually receive back pay, but contractors won't be so lucky.

The longer the shutdown goes on, the trickier it gets for agencies to define "essential personnel."

During the last long-term shutdown, the Social Security Administration kept enough staff in place to ensure benefits were paid out, but new claims weren't being processed. As the shutdown wore on, the agency recalled workers to start processing new claims.

What has to happen

With Congress in recess this week, lawmakers will have only four working days to pass a spending bill before the current temporary measure expires.

The good news, if you can call it that, is that Congress has come down to the wire many times before and has usually managed to pass a funding bill.

The starting point for negotiations is a bill approved by the House just before dawn on Saturday that would cut $60 billion in federal spending for the current fiscal year.

But that bill would set spending below levels acceptable to Democrats. President Obama said last week he would veto the House measure should it reach his desk.

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If lawmakers can't strike a long-term deal that both Senate Democrats and conservative House Republicans will go along with, Congress might resort to passing another short-term measure that would fund the government while negotiations continue on a deal for the rest of the fiscal year.

Typically, lawmakers pass 12 appropriation bills for the president's approval. Those bills give federal agencies the legal authority to spend and conduct business.

This year, not one of the 12 has been approved by the Senate, and Congress has instead relied on short-term measures called "continuing resolutions" in order to fund the government. 

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Chintzy T-shirts and fake pockets hot in 2011

Some companies are taking creative approaches to use less cotton.

"T-shirts may get thinner," said Chris Callieri, principal with A.T. Kearney's retail and consumer practice.

Callieri said some of his clients are playing around with the "density" of cotton fabric, to see how they can use less of it. "But you have to be careful with that approach so that it doesn't affect the quality of the garment," he said.

Another creative tweak is using "fake" pockets.

"You can reduce the size of a garment, but add embroidery and buttons. This can reduce cotton costs as well," Callieri said.

The cotton crunch is also bringing back the go-to fabric of the 70s, polyester.

But before you break into a sweat at the idea of shiny disco shirts and skin-tight trousers hanging at your neighborhood Macy's (M, Fortune 500) this summer, Callieri said retailers are experimenting with blended fabric, such as a poly-cotton mix, to replace pure-cotton offerings.

The cotton crunch is hitting the bedding and linen industry particularly hard since consumers generally favor 100%-cotton sheets.

"What has more cotton than the bedsheet that you slept on last night?" said Andrew Tananbaum, CEO of Capital Business Credit, which provides financing to suppliers who cater to bedding and clothing retailers in the U.S.

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But companies are now warming up to using blended fabric.

Tananbaum said high thread count poly-cotton blended sheets are about 30% cheaper than comparable all-cotton sheets. The lower price could convince cotton purists to at least try the product and save some money.

"Instead of paying $100 for an 800-thread count all-cotton sheet set, you pay $70 for the same thread count." he said. "So it's cheaper, but the quality is still the same."

Another subtle way retailers will look to keep prices steady is by repackaging cotton products differently. While it won't seem like consumers are paying more, the repackaging will still come at some cost to them.

The most obvious example is with multipacks of cotton undershirts and socks that could shrink from five a pack to three a pack, said Marshal Cohen, chief retail analyst with NPD Group.

Ultimately, Cohen said the bottom line for consumers is that retailers can try to shield them from price increases through these methods but they won't be able to do it forever.

"No one knows when this trend is going to stop. Maybe the only thing that will stop it is if consumer demand for cotton items cools." said Phil Flynn, senior market and commodities analyst with PFG Best.  

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Debt deal: 'History will condemn us' if U.S. punts

Conrad liked some elements. He made clear that he likes how the president's budget would get annual deficits down to 3% of the economy by 2017, down from 10% today.

At that level, the nation's total debt level is considered "stable," provided the economy grows by at least 3% every year.

The problem, Conrad said, is that the president's budget would do nothing to bring gross debt down below 100% of GDP, above which it will be for the next decade.

Gross debt includes both Treasury bonds and money owed to government trust funds, such as those for Social Security and Medicare. As debt mounts above 90%, it impedes economic growth, according to some research.

Lew, under whom the country booked annual surpluses when he was President Clinton's budget director, knows very well the perils of too much debt and is respected for his fiscal acumen.

But he stressed during the hearing that the president's budget is intended as a down payment on debt reduction.

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Indeed, both the president and Lew have said that they don't believe it would have moved the ball forward if Obama had actually included in his budget a hard-and-fast plan for comprehensive debt reduction, including Medicare and Social Security reform.

"If you look at the last 20, 30 years, sometimes putting out a proposal slows things down because it polarizes the sides as they dug in. We need to figure out a way to have a conversation that gets the parties talking together," Lew said. But, he added, "I can't give you a date or a time."

That answer did not sit well with Conrad.

"I hear the reasons for doing the budget proposal that is out there. ... But I can't accept it if I don't hear a way forward ... because it cannot be the answer that we're going to have debt over 100% of GDP ... That cannot be the answer for this country's fiscal future," he said.

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Conrad, who sat on the president's bipartisan debt commission and has endorsed that group's proposals to reduce deficits by $4 trillion by 2021, has been calling for a fiscal summit to hammer out a long-term plan for debt reduction. He wants the summit to occur before Congress faces a vote to increase the country's legal debt limit, which likely will occur by May.

He's also mindful that the window for earnest negotiations will close quickly in the run-up to the 2012 presidential election.

"The administration has a big responsibility to help us understand their vision of how this process comes together. Sometime very soon there is going to have to be a negotiation that involves the leadership of the House and the Senate and the White House," Conrad said.

Meanwhile, there were a lot of references early this week to the prospect for closed-door negotiations. The president in a press conference said "we're going to be in discussions over the next several months." Senate Republican Leader Mitch McConnell said, " we all understand there are some limitations to negotiating significant agreement in public."

And former senator Alan Simpson, who co-chaired the president's debt commission, said on CNN Monday that when it comes to a debt-reduction deal, "they'll do it in a way that's unseen by the American public." 

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Home construction rises in January

While that was better than the 540,000 housing starts economists had expected for the month, it was "all due to apartment building," said David Crowe, chief economist with the National Association of Home Builders.

Construction of buildings with five units or more, which tends to be volatile month-to-month -- gave the overall number a big boost when that category alone surged 80% in January.

Meanwhile, construction of single-family homes -- which is viewed as a more stable indicator of new homebuilding activity -- was flat. Given fierce winter storms across much of the country, it's an encouraging sign that category did not actually decline, Crowe said.

Meanwhile, the number of permits for future housing construction fell to an annual rate of 562,000 last month, down 10.4% from 627,000 in December, the Commerce Department said.

The reading fell short of forecasts, with economists surveyed by Briefing.com looking for 575,000 permits.

The decline comes after a very strong December, when permits reached their strongest level since last March.

"We had strong increases in December as builders pulled permits to avoid some oenerous regulations being imposed at the first of the year," Crowe said. "In January, we had an adjustment to that."

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Builders made a big push to get permits filed before the end of the year, to get ahead of new regulations in California and Pennsylvania that now require new homes to have fire sprinklers installed.

Crowe said he expects those laws to have only a temporary effect, with new home construction heading upward 17% by the end of 2011.  

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Home prices

"With these numbers, more analysts will be calling for a double-dip in home prices," said David Blitzer, spokesman for Standard & Poor's.

The worst-hit market during the month was Detroit, where prices fell another 2.7%. That was especially troubling considering how low that city's prices already were. In Washington D.C. prices inched down only 0.1%, making it the second-best performing city behind San Diego.

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The bleeding in some of the bubble markets seems to have slowed, with Las Vegas (-0.4%), Miami (-0.2%) and Tampa (-0.8) all recording losses of under 1%. But nine markets -- Atlanta, Charlotte, Chicago, Detroit, Las Vegas, Miami, Portland, Ore., Seattle and Tampa, Fla. -- are all at their lowest levels since they peaked during the boom.

The latest downturn put prices 1.6% lower than 12 months ago, slightly worse than industry expectations. A panel of analysts put together by Briefing.com had forecast a 1.5% annual decline.

The loss was "bigger than I expected," said Pat Newport, a real estate market analyst for IHS Global Insight. "I think it's still a response to the [home buyer] tax credit going away."

The credit, which paid homebuyers up to 10% of the purchase price up to $8,000, expired in September 2010. Analysts say it pushed a lot of homebuying forward, as many people rushed to buy to get in under the wire.

Despite the bad report, Newport said there are still a couple of reasons for optimism. He pointed out that existing home sales have been on the rise recently, topping an annual rate of 5 million sales in December. He added that home prices calculated by the Federal Housing Finance Agency have shown less decline than Case-Shiller. The FHFA index was unchanged in November after dropping 0.2% in October.

The FHFA index covers the entire national market and not just 20 cities, but it only includes data from homes sold that had mortgages guaranteed by Fannie Mae and Freddie Mac, the government run mortgage companies.

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That means Case-Shiller's calculations include a higher percentage of distressed properties -- foreclosures and short sales -- since Fannie and Freddie would not guarantee the exotic types of mortgages that generally go bad.

Barclay's Bank analyst Theresa Chen doesn't expect a reversal in housing market trends any time soon, since there is no end in sight to the foreclosure crisis.

"We expect softness to persist," she said, "as home prices continue to face headwinds from the large pipeline of foreclosures entering the market." 

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College students socked by budget cuts

While administrators say they're trimming less popular areas that will have a smaller impact, some students are reeling from the changes. The cuts are forcing many to alter plans, change majors or even switch schools, and some worry that the elimination of their degrees will hurt their job searches after graduation.

"I'm hoping that when I apply for jobs, they'll be able to look past the fact that my university cut my program," said Victoria Sheehan, a French major at the University at Albany, State University of New York, whose program is a potential target.

Last October when the university announced that her program was under consideration for closure, the sophomore put her plans to study abroad on hold, and loaded up with French classes to finish her requirements as quickly as possible.

While the school assured students it would allow current majors to complete their studies, she's worried that administrators might pull the plug early.

Jens Schubert had done all but his dissertation in resource economics when the University of Nevada, Reno, announced his program would be phased out. He transferred to the University of Tennessee rather than complete his program at UNR.

Because he has to repeat classes, he said the move has delayed his graduation by at least a year. But he thinks it's better than a diploma from a defunct program, which could be a strike against him in the eyes of potential employers.

"If they find out the department doesn't exist anymore it might send the wrong impression," he said. "You can't explain that because you might not get the chance."

Cutting deep

Since 2008, at least 43 states have cut budgets for public higher education, according to a 2010 report by the Center on Budget and Policy Priorities, a left-leaning think tank. State higher education spending nationwide dropped $3.5 billion in fiscal 2010 from the year earlier, according to a report from the Center for the Study of Education Policy at Illinois State University.

The University at Albany, was forced to make cuts after losing $12 million in state funding last year. Administrators looked at factors like enrollment trends, said Edelgard Wulfert, dean of the College of Arts and Sciences.

For example, the French department has had a steady decline in majors over the years and Wulfert expects that will continue. It has seven full-time professors teaching 35 to 40 student majors each year. By contrast, the communications program has the same number of faculty and 550 majors.

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Provost Marc Johnson of the University of Nevada, Reno, used a similar philosophy to explain his decision to eliminate 23 programs and sharply reduce six others. Some 350 students, including Schubert, were affected by the reorganization, but the changes helped insulate the rest of the school, he said.

"Are we narrower? Yes," he said. "But by cutting some areas strategically, we are able to maintain the current quality and size of other programs."

More pain ahead

Governors are now introducing their budgets for fiscal 2012, bringing new rounds of cuts for higher education.

In New York, Gov. Andrew Cuomo's proposed budget would reduce state funding for community colleges and universities by 10%. Gov. Brian Sandoval of Nevada proposed cutting $162 million from higher education.

And Gov. Bobby Jindal of Louisiana asked the state's Board of Regents to assess the possibility of merging the State University of New Orleans and Southern University at New Orleans, eliminating duplicate departments.

Louisiana's Board of Regents is already considering 450 degree programs for elimination across the state's 19 public colleges, universities and professional schools. That's one-third of all programs offered.

In the past high-demand programs like teaching were excluded from cuts, said Meg Casper, a spokeswoman for the board. "This go-around we have not excluded any programs." 

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