The Housing Bubble, Not Unions, is Major Predictor of State Budget Gaps

Feb 23, 2011Mike Konczal

Despite what governors like Scott Walker say, there's little correlation between union membership and troubled state budgets.

Amid all the public debate about how states are being bled dry by militant public unions, you wouldn't know that we just had a major housing bubble across the country followed by a financial system near-collapse and the most prolonged downturn since the Great Depression. Chris Hayes addressed this opportunism of those ignoring of the housing crisis to push long-standing right-wing priorities in the opening segment of The Rachel Maddow show last night, and I think it's worth looking deeper.

John Side posts some graphs of state budget shortfalls against public union density on his site The Monkey Cage:

And:

A commenter summarized the general finding:

I just coded the data "TheRef" posted to distinguish between states with no collective bargaining law and states with some sort of law (0=no law, 1=anything else) and used this to predict the 2011 shortfall as a percentage of budget. I have no idea if this coding is appropriate, but it should provide a rough estimate.

While the relationship was positive (like the r coefficient in the post) it explained less than 2% of the variance (R^2 = .017). This is actually less explained variance than that explained in the above post (.19*.19 = .04), though this could be due entirely to the linear compared to categorical nature of the predictors. Just to note, the unstandardized beta was 3.08.

Interesting, if not that significant. You know what is interesting, significant and recent? A multi-trillion dollar housing bubble.

I'm going to do the same graph with Total Shortfall as Percent of FY11 Budget from the CBPP (table four) as well as negative and near negative equity as percentage of mortgages, Q3 2010 from CoreLogic. Negative equity is correlated with all kinds of other bad things like unemployment, but from my point of view it's a good first approximation for how the housing bubble devastated a community. The more the bubble popped, the more people were hit by falling house prices, the more negative equity grows as a percent of mortgages. (Especially since Case-Shiller took their data to subscription only, and even then, I'm not sure there's a particularly better state-level approximation -- thoughts?)

Graph:

Significant (t-stat of 3.53), and it's significant with or without that outlier in the upper-right corner (Nevada). The mechanisms for how this contributes is important -- is it unemployment? Is it that state governments with a larger housing bubble got more confident and spent as if all those property taxes were on their way? Are there other important, causal mechanisms? These are all good and crucial questions for us to answer, ones we should take up when we finish scapegoating teachers.

Mike Konczal is a Fellow at the Roosevelt Institute.

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