In two weeks, Rep. Patrick McHenry of North Carolina will become the first chairman of the new House oversight subcommittee on TARP, Financial Services, and Bailouts of Public and Private Programs. In the meantime, he is thinking about New Jersey Gov. Chris Christie, who was on 60 Minutes this Sunday talking about the need to cut state spending and trim state employees and their pensions.
“You look at his stuff—and, granted, he puts his good stuff on YouTube—but he is so blunt about what the state’s facing,” says McHenry. “There’s one video I’ve seen where he’s talking to a teacher. And the teacher’s like, ’We work so hard.’ ” McHenry does his best imitation of the pathos in the teacher’s voice. “Christie says, ‘You know what? You don’t have to do it.’ “
McHenry sits back, holding out his hands in a “can you believe this?” gesture. “You watch that, and you think—that’s a governor. And that’s a teacher. The teacher always wins, man!”
It’s a popular Republican belief—in New Jersey, in D.C., everywhere else—that the success of the governor of New Jersey is proving that spending cuts and austerity are no longer the stuff of Heritage Foundation daydreams. Christie is balancing some fee increases with painful cuts, and selling this by dressing down Democrats and union leaders.
There’s a debate to have about Christie, how effective he is, and how truly popular he is. There’s no debate anymore that Republicans want to follow his model. In January 2011, some number of Republican congressmen are planning to issue an ultimatum to states: There will be no additional aid, and you have to balance your budgets.
“I’m going to introduce a resolution when the new Congress begins, stating that the House will not bail out state budgets,” says Rep. Jason Chaffetz, R-Utah. “The message is: States, don’t think the federal government is going to bail you out. Pay attention to this now.”
McHenry is one of several congressmen who’ll be empowered to demand transparency from states, especially on the shortfalls in their pension funds. This is something that public-employee unions see as a coordinated attack on their members, but Republicans say the unions are going to lose.
“The potential here,” says McHenry, “is that we’re facing a generational shift based on economic realities, based on our expectations for government, on what government does, and how government delivers services.”
For evidence of this, Republicans can look at polling in Christie’s state. According to the Nov. 11 Quinnipiac Poll, a survey that’s conducted in the state every few months, voters who were asked about how to bring the budget in line favored service cuts over tax hikes by a 36-point margin. On every budget question, voters agree with Christie. Seventy-eight percent of voters want public workers to have their wages frozen, 63 percent want them furloughed, and 54 percent of voters are in favor of just laying them off.
Personally, Christie is fairly popular. He was elected with slightly less than 50 percent support; he hovers around 50 percent support. The important thing is that he’s stayed at that level by making cuts and warning that he needs to make more on the backs of public workers. Support for a public worker wage freeze is up seven points since Christie was inaugurated. The belief that the teachers’ unions are “playing a negative role in improving New Jersey’s educational system” is up from a nine-point margin when Christie was inaugurated to an 18-point margin now.
That convinces Republicans that they can take on unions and win. It warns union leaders that they can lose. After 60 Minutes ran its segment on the “day of reckoning” (a Christie term) facing states that didn’t cut back public employee pensions, the American Federation of State, County, and Municipal Employees blasted the “one-sided report” and union president Gerald W. McEntee argued pensions weren’t such a big part of the problem. “The challenge can be met if state and local governments began contributing just 1.5 percent more of their budgets toward their pension funds in the years ahead.”
Republicans intend to prove this wrong. In December, when it had no chance of passage but plenty of time to draw attention, Rep. Devin Nunes, R-Calif., introduced the Public Employee Pension Transparency Act. (It was co-sponsored by Paul Ryan and Darrell Issa, the incoming chairman of Budget and Oversight.) That legislation would require public employee pension plans to change the way they report their finances. The reason? Republicans believe that these pension data are based on rosy assumptions that aren’t relevant anymore.
They also believe they called the pension funds’ bluff. On Friday, Dec. 17, the president of the National Association of State Retirement Administrators e-mailed members to warn that the introduction of Nunes’ bill marked “the beginning of a series of coordinated articles, reports and continuous media coverage falsely asserting state and local governments are a financial wreck and are not accurately accounting for the fiscal condition of their pension plans.”
What could the pension fund people and the public sector unions be so worried about? Right-leaning Reuters columnist James Pethokoukis laid it out for them. If the states aren’t bailed out, they’re going to have to start cutting budgets. If there’s total transparency about pension funds—and voters are already in the mood to shave the benefits and numbers of public workers—then that’s where you can cut. Republicans might even be able to pass legislation that would allow states to declare bankruptcy, which would move the pension debate from politics to court, zapping all of the unions’ leverage. “From the Republican perspective,” wrote Pethokoukis, “the fiscal crisis on the state level provides a golden opportunity to defund a key Democratic interest group.”
How would that work, exactly? House Republicans aren’t talking about it yet. But Newt Gingrich, who those Republicans take seriously, laid it out clearly in a Nov. 11 speech to the Institute for Policy Innovation.
“I also hope the House Republicans are going to move a bill in the first month or so of their tenure to create a venue for state bankruptcy,” said Gingrich, “so that states like California and New York and Illinois that think they’re going to come to Washington for money can be told, you know, you need to sit down with all your government employee unions and look at their health plans and their pension plans and frankly if they don’t want to change, our recommendation is you go into bankruptcy court and let the bankruptcy judge change it, and I would make the federal bankruptcy law prohibit tax increases as part of the solution, so no bankruptcy judge could impose a tax increase on the people of the states.”
So: Patrick McHenry will run a key subcommittee with oversight over all bailouts, present and potential. He thinks Republicans have an opening to fix a “potentially explosive” situation with pension funds. Is he onboard with the state bankruptcy idea? He holds his cards close.
“It ain’t easy,” he says, “but we have to face reality.”