Over the weekend, Kasich has continued to repeat his faulty claim that if the provisions of SB 5 were already in place it would save over $1 billion. This projection is faulty for a couple of reasons that we’ve already discussed. First, even if SB 5 were law today, it cannot affect the current collective bargaining agreements in place. That would be an unconstitutional violation of the unions’ right to contract.
I. Kasich’s analysis of savings in 2010 is based on an impossible economic assumption.
So the entire projection is based on a legal fantasy. The bill cannot save any money right now because it cannot impact collective bargaining agreements that are still in place. So talking about what it would save in FY2010 is a ridiculous talking point because even if Kasich had already signed it into law, the bill would not create the savings Kasich is promising. His over $1 billion in savings is based on what they’d be 1) if SB 5 was already law; and 2) if Kasich could void all collective bargaining agreements and force the unions to immediately accept the terms required under SB 5. Neither has or can happen, so from the get go this “analysis” is nothing more than a propaganda budgetary fantasy.
As Joseph pointed out, the collective bargaining agreements are in place through 2012. So not only are the projected savings by Kasich for the State incredibly small, they cannot even be achieved during this biennium budget! So, Kasich’s “analysis” suggesting that this bill would have immediate savings is what would be called an impossible economic assumption of the analysis.
II. Kasich’s projection of savings is based on an improbable, essentially impossible, economic assumption of a 0% absorption rate by government NOT paying higher wages to offset higher employee contribution costs.
But wait, there’s more. SB 5 is predicted to still allow all public employee unions to collectively bargain on wages, but cannot negotiate on higher employee shares on health insurance, pensions, and other benefits.
Kasich’s entire projection of savings is based on state and local governments having a 0% absorption rate, despite the fact that the unions can still collectively bargain on wages. In other words that 100% of these increased benefit costs will be passed on to the employees with no offset by government in wages. This is a naive and foolish assumption.
Of course, labor unions are going to ask for increases in wages to offset the cost their members are going to have to contribute in benefits. It’s naive or intellectually dishonest to assume that unions will not get some offset in wage increases, thus increasing the absorption rate by government and decreasing the savings.
So on one extreme hand, you have Kasich’s assumption—that unions will not obtain any increase in wages to offset increased employee contributions to benefits (0% absorption). On the other extreme hand, you have the unions obtaining wage increases to totally offset all increases to employee contributions (100% absorption) for benefits. The latter extreme means that SB 5 would result in absolutely no savings at all, and intellectually speaking is as honest and probable as Kasich’s 0% absorption scenario.
This “absorption rate” issue is precisely why the non-partisan Legislative Service Commission determined that actual savings from the bill were difficult to project with any reliability.
The most probable result is that, at best, the savings created by SB 5 is less than half of what the Administration’s Department of Administrative Services is claiming.
III. Over a third of savings the Administration claims SB 5 would save the State, it admits the State has already saved without SB 5.
There is a third major way in which the Administration’s “analysis” of its SB 5 bill is just simply intellectually dishonest: it includes savings that are already obtainable under the current system.
Over 35%, over a third, of the savings the Administration claims SB 5 would save the State is in step increases. However the “analysis” concedes that these savings can, and already have been obtained, through the current collective bargaining law. In other words, we’re including the elimination of step pay increases in our projection of what SB 5 would save Ohio if it could be in force in FY 2010, even though those savings were already realized without SB 5. In accounting, this is called double counting.
Eliminate the savings from Kasich’s doubling counting, and the analysis shows a “savings” of only $140 million (assuming a 0% absorption rate, which, again, is highly unlikely to occur). Even then, we’re talking about savings that would only cover 1.7% of the State’s deficit. Given that half of the projected savings (assuming a 50% assumption rate by government) is far more likely, the most likely savings for the Administration, at best is less than less than 1% of the its projected deficit.
In other words, even taking the Administration’s ridiculously impossible and improbable economic assumptions at face value, there is no evidence that collective bargaining is responsible for bankrupting the state in a substantial way… according to the Administration’s own memo!
In a rush to provide a “big number” in savings, the Administration actually created a document that demonstrates that collective bargaining is not responsible for the projected deficit and that the current statutory regime has been sufficient to keep costs competitively low.
IV. The local government “savings” is even more speculative and flawed than the claimed savings for State government.
I cannot believe any media outlet that read this memorandum would actually cite the claimed savings for local government as credible and not entirely speculative.
For the record, here’s precisely how the Administration described its methodology for it’s over $1 billion in savings for local government:
Yep, they took their flawed savings figure for the State, divided that by the number of State employees, then multiplied that number by the number of local government employees.
And yet they still screwed up because they use the double counting of step increase savings. And where did they get the 300k figure? Nobody knows. They can’t say. Also, are they including full-time or part-time. Because in local government, roughly one out of every four government employee is part-time, unlike in State government in which only .01% are part-time.
Given that the Administration’s document doesn’t seem to account for this change, cannot explain where its 300k figure comes from, and falsely assumes that what is true for state government is true for local government, their figure is nothing more than guesswork being touted as a serious statistic.
It’s just junk statistics and so obviously error-riddled that it cannot, nor should not, be treated as a serious number in the debate.
I’m not suggesting that there aren’t the potential for savings for both State and local governments under SB 5. However, whatever those savings are, the Administration’s claim over the weekend is clearly erroneous and false.
From a purely objective standpoint, the basis and methodology for the Administration to make these claims is so fundamentally flawed that there should be zero confidence in their analysis as reflective of any potential savings under SB 5. The numbers are simply made up.
Using the same methodology as the Administration, it is equally valid (statistically at least) to claims SB 5 will result in no savings at all as it is to make the wild and statistically unsupported claims the Administration is touting.
It’s utter bullcrap, and the media needs to stop treating this two-page propaganda piece as serious fiscal analysis because it’s not.
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