California was counting on $2 billion dollars or so in cost savings generated by Governor Arnold Schwarzenegger's mandatory 3 day a month furlough program for state workers. The Service Employees International Union was having none of that sort of thing on its watch, so they sued. In the process, the SEIU managed to have the program declared "illegal" by Alameda County Superior Court Judge Frank Roesch primarily because, near as we can tell, savings wasn't coming out of the general fund, but separate state funds designed for the relevant agencies. Off-budget savings, it seems, don't count. We are fairly sure this will dim ever-so-slightly the brightly glowing esteem in which Zero Hedge readers hold unions generally. Still, resort to the courts to lock in the porky bits in state budgets is not just a time honored tradition, it is a political tool with teeth and it could mean fiscal doom for more municipalities than just California.
In 1988 Illinois settled a class action lawsuit with the ACLU in which the ACLU had represented, literally, "all the children in the Department of Children and Family Services ('DCFS') system." As part of the settlement Illinois agreed, among other things, to "maintain an acceptable level of child-protection and foster-care services...." What does that mean? Well, good thing you asked.
In June of 2009, Illinois governor Pat Quinn proposed a "doomsday budget" to narrow (slightly) the state's then $9.2 billion deficit. $460 million in cuts were slated to the DCFS, which had a $1.3 billion dollar budget, about one third of which is picked up by the federal government. The ACLU was having none of that sort of thing and slapped the almost two-decade old consent decree stapled to an Emergency Motion to Enforce Consent Decree in front of Federal Judge, John Grady.
Grady enjoined the Quinn administration from making the cuts and required the state to apply to the judge 14 days before any changes at all to permit the ACLU to make motion to have them obviated. Quinn withdrew the budget. The ACLU's Associate Legal Director Benjamin Wolf did a victory lap. "The Judge made clear that this state's budget will not be balanced on the backs of its most vulnerable residents- children in foster care."
Some months later, Quinn proposed to cut $16 million from the DCFS as part of a newer (but less dramatic sounding) "Tough Choices" budget. In essence, the budget proposed that DCFS employees take twelve furlough days over the year combined with a 10% reduction in grants. ACLU's Benjamin Wolf isn't having any of that sort of thing either, going so far as to say that he doubts any grants at all could be cut without violating the decree.
As if this were not enough, several federal laws effectively forbid states from cutting budgets, and many mandate that spending levels not dip below their massive boom time peaks. Maine discovered this little quirk back in November of 2009, when, in response to its efforts to trim the two largest agencies in the budget, Health and Human Services and Education (for a combined 80% of the total) a staffer pointed out that the American Recovery and Investment Act of 2009 kills the state's federal stimulus money if it permits funding to sink below 2006 levels. As might be expected of a "Recovery" law that forbids budget cuts, there is no back tracking below the budgetary high water mark. Even state-only funded services in Maine are locked in to spending high water marks by, you guessed it, an age old consent decree entered as a condition for settlement of a class action suit filed against Maine's state mental health services agency.
Consent decrees signed to dismiss large class action suits were a popular way to placate the flood of plaintiffs suing state agencies in the 1980s and 1990s. States were considered inexhaustible ATMs owing to their ability to simply raise property taxes at will to track the appreciation of real-estate within their reach. And what could happen to real estate prices, after all? Locking in a budget you had just fought to pass probably looked a lot like a no-brainer to beleaguered municipal lawyers facing the well funded and well armed plaintiff's bar. But even the plaintiff's bar could not possibly hold a candle to the pile of cash locked up in consent decrees by, for instance, the ACLU. The ACLU and groups like "Children's Rights," cut a literal swath across the country with class action suits that handcuff states into fat budgets for their most expensive agencies. Progressives have managed to keep the "lock-out changes" button illuminated on the state budget WOPR board for decades.
And don't even think about reducing state spending on Medicaid programs like "dental screening." The American Dental Association could be heard celebrating from geosynchronous orbit when the Supreme Court opened the door to widespread federal enforcement of consent decrees for Medicaid dental mandates in Frew v. Hawkins.
If you thought elected officials in your state were running the budget show, you might be in for a surprise. Likely as not the federal courts are more powerful budget authorities than the state's legislature or executive. A few consent decrees can easily cripple any attempt to pass a balanced budget requirement in a state legislature, and overturn the act itself in federal court if it does happen to pass. Tennessee, for instance, was shacked by three consent decrees, all of which were administered by federal judges. Before even writing budget legislation, the governor of Tennessee had to persuade two federal judges, who were the de facto managers of the state's health care system, that any changes were a good idea.
The most damaging consent decrees to state budgets tend to be related to staffing levels. A number of state agencies settled all manner of employment and discrimination claims by entering consent decrees freezing staff levels. Often state employee unions were among the most active consent decree wielders. These decrees tend to lock up not only staff levels, but salaries (through "constructive termination" clauses that equate even modest pay cuts with termination and thereby trigger staffing minimum clauses) and pension benefits as well. As you might expect, with the maze of agreements executed by state governors who have been out of office for a decade or longer, it becomes quite difficult to predict what will happen when a private plaintiff stumbles across a 10, 20 or 30 year old consent decree. Who has standing? Who interprets the requirements? Since there is no comprehensive list of decrees... well... who knows?
Want a taste of the future? Try this:
"The Judge made clear that this state's budget will not be balanced on the backs of its most vulnerable residents- [the unborn|children|the elderly|endangered species|cats|dogs|ferrets|trees|teachers|students|the homeless|low income housing residents|Medicaid recipients|Medicare recipients|Native Americans|the disabled|the underbanked|women|minorities|single mothers|married couples|the unemployed|hard working taxpayers]."