Earlier this month, Daniel DiSalvo of the Manhattan Institute and CCNY published a concise guide to how state governments have been responding to structural deficits:

This spring’s budget battles have produced three models of reform. One is the structural reform enacted in Wisconsin, Ohio and Indiana, which seeks to reassert the authority of elected officials and government managers over government workers’ unions.
Even Democrat-dominated Massachusetts is flirting with such changes. Its statehouse recently voted overwhelmingly (111-42) to remove public-employee health care as a subject of mandatory collective bargaining.
With such newfound authority, states hope they will be able to make changes that will shore up state finances over the long term.

As Philip Longman and Sylvester Schieber recently argued, curbing the power of public sector unions won’t change the basic dynamic that encourages state and local governments to make unsustainable deferred compensation commitments. But it might make a difference at the margin, e.g., by limiting the political influence of public workers. Though I support rolling back collective bargaining rights for public workers, I’m increasingly convinced that it is more important to roll them back as they relate to work rules rather than compensation. Giving public sector managers more autonomy, and creating stronger accountability mechanisms, seems like the best way to raise public sector productivity levels, which is ultimately the best way to restrain spending. At least in theory, Wisconsin, Ohio, and Indiana are best placed to achieve productivity gains.

New York, New Jersey and California have adopted a second model. These states have refused to raise taxes and instead enacted austerity budgets, which cut public services and require government employees to make greater contributions to their benefit plans.
But they have studiously avoided tinkering with union privileges, fundamentally restructuring pension systems, or otherwise undertaking longer-term reforms.
While this approach has mitigated confrontations between Democratic governors and their union allies, it does little to address the structural flaws in current arrangements that made the recession so hard on these states’ budgets.

My concern is that the gains made by reformers in this camp will be very easy to reverse once tax revenues recover and the apparent urgency of budget cuts goes away, if only temporarily.

A third model is represented by Connecticut and Illinois. Both states have raised taxes — Illinois’ 67 percent tax increase was the steepest in the state’s history — along with asking for concessions from public employees.
Both have avoided making structural reforms. Connecticut’s Democratic Gov. Dan Malloy says he wants to “spread the pain around.”
Surprisingly, the budget plans of Connecticut and Illinois have generated heated union opposition. Malloy is currently in a standoff with his state’s unions over concessions.
If they don’t give in to his demands, he is threatening to lay off 4,700 state workers starting next week. Democratic state legislators in Illinois have sought to shore up the most underfunded pension system in the country (spending on which will consume 18 percent of the state’s budget in 2012).
They have called for major benefit cuts for future workers, greater contributions from current ones, and even toyed with the idea of cutting benefits for current retirees. The state’s public-employee unions are outraged. They’ve begun to fight the proposals with a million-dollar ad campaign.

These states, of course, are in the worst shape of all. Analogies between state governments and the federal government are inherently problematic, but it’s worth asking if the federal government will pursue strategy one, two, or three. My guess, rather depressingly, is that it will be three that wins out, but the lack of borrowing constraints will delay the crunch.