Joel Kotkin calls for a truce between public sector workers and local governments. The recovery hasn’t been strong enough to allow state and local governments to sustain the rising burden of pension and health benefits without putting enormous pressure on other core local government functions, like public safety and K-12 education. So either public sector workers have to restrain some of their wage and benefit demands, at least in the short term, or they must risk driving local governments to bankruptcy. Kotkin references the fact that a number of state governments have been devolving a number of responsibilities to cash-strapped local governments. And as Daniel DiSalvo has explained in a report for the Manhattan Institute, there has been a structural decline in retail sales tax revenues, due to a shift from goods to services and from physical to online retail, as well as in revenue from taxes on gasoline, alcohol, and tobacco. One way or another, local governments are going to have to go through some kind of serious restructuring.
by Reihan Salam