Why Wisconsin matters to global financial markets

February 24, 2011

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Martin Hutchinson

WASHINGTON — It’s hard to see how a bucolic Midwestern lakeside college town can matter much to the global financial markets. Yet while Madison, Wisconsin is no Athens or Tripoli, it has become ground zero for a pitched battle between public sector unions and cash-strapped governments over collective bargaining. If the state’s governor can end the practice he may set a precedent for fiscal reform that spreads nationally — and to Washington.

Employee pensions and healthcare are the major long-term fiscal problem for most states and the federal government. Trouble is the traditional negotiation between public sector unions and politicians is fraught with moral hazard: Politicians who are often buoyed to public office through the support of the unions are only too happy to make short-term promises to them that create huge fiscal difficulties in future years.

Wisconsin, whose economy is nearly as big as Greece’s, faces a problem typical of U.S. states: a substantial budget shortfall and a long-term actuarial deficit in state employee pensions and healthcare. Republican Governor Scott Walker’s proposed legislation addresses both problems. He would make state employees pay half their pension costs and 12.6 percent of their medical costs, both below the percentages prevailing in the private sector. While painful, state employee unions appear willing to accept those terms.

The reason Walker’s budget proposals have sparked raucous street protests in Madison is his proposal limiting state employee collective bargaining to pay but not benefits. Whereas private sector wage negotiations involve two parties whose interests are clear and diametrically opposed, in public sector negotiations this is not the case. Indeed, state employee unions may form a substantial part of the governing coalition which elected the politicians with whom they are negotiating, leaving taxpayers out in the cold.

True, Walker’s proposals are imperfect; they don’t include police, fire and state patrolmen, who in principle should also be subject to the same disciplines as other public employees. He also proposes that pay rises above inflation should require a referendum; that’s draconian, as state employees should reasonably expect to share in their state’s prosperity. But as Walker’s proposal offers a solution to the state’s budget problems without endless tax increases, what happens in Wisconsin may not stay there.

Comments

Your statement that Wisconsin faces a “long-term actuarial deficit in employee state pensions” is absolutely false. In fact Wisconsin’s state pension is 99% funded for the next 30 years, and it is a model for how to run a successful pension. Recent boasts have come from the state of Virginia suggesting that their budget is no longer in a deficit situation because of tough fiscal measures enacted by their Republican governor, However,the fact is that Virginia has a $17 Billion state pension deficit. Wisconsin entered 2011 with a $121 million budget surplus. Within 30 days Walker enacted legislation that removes $117 million from potential income and turned back $900 million in federal dollars and many many thousands of jobs. Wisconsin’s projected 3.6 billion biennial deficit is based on state agency requests a 5-10% above their 2010 appropriations. Walker could bakace the budget by accepting the federal support and freezing agency budgets at their 2010 levels.

Posted by Really44 | Report as abusive
 

Wrong. Martin Hutchinson simply does not know what he is talking about. Wisconsin’s pension system is 99% fully funded, one of the soundest in the world, and our statewide health insurance plan for retirees and state workers is also sound. I am a 33 year Wisconsin state worker retiree. This bill is about taking away bargaining rights, not about solving our deficit problem (which began, by the way under a tax cutting Republican governor 15 years ago). Walker’s budget bill also consolidate broad powers in his hands, while removing legislative oversight in all areas, from state Medicaid through conservation and natural resources. It is a power grab, pure and simple.

Posted by blockhead | Report as abusive
 

Public employees are taxpayers as well. Wisconsin was predicted to be substantially in the black by the end of the fiscal year before Walker began making gifts to the business community, gifts capped by a large reduction in taxes.

“Imperfect” doesn’t really come close to expressing how brazen it is to attack unions who are the governor’s political opponents while rewarding those unions which supported his candidacy.

Posted by Owkrender | Report as abusive
 

“He would make state employees pay half their pension costs and 12.6 percent of their medical costs, both below the percentages prevailing in the private sector. While painful, state employee unions appear willing to accept those terms.”

What private sector jobs pay 50% of pensions. Most get a 50% patch of your first 6% of your salary contribution. So you get 3% of your salary max. So assuming you put in the min. 6% and the company pays 3%, you paid 66.6% of your “pension”. If you up that because lets face it, 6% isn’t going to cut it, lets say to 10%, you now may 76.9% of your “pension”.

I’m not for breaking the union and ridding them of collective bargaining but paying 50% for a pension is a pretty good deal.

But, the other question, in factoring if this is a good deal, does this factor in that many govt workers get less in Social Secutiry benefits?

Posted by BobLHead | Report as abusive
 

Bottom line: there are budget problems in states. The author states that taking away collective bargaining and the other measures the the WI Governor is advocating is “dranconian.” The man is controls by multibillionaire libertarina think tanks and he is taking advantage of the situation by declaring war on workers and unions. But the media will carry his water because we have no independent media anymore.
This should scare ALL Americans. This is not about budgets. This is about making sure the top 1% and the investor class can control all of us. To destroy public education would be a nice side efffect for these people. Keeping the population ignorant is helpful if they want to destroy all government services. When will Americans wake up?

Posted by Maggy519 | Report as abusive
 

Yup. Nothing counts more than the almighty dollar and who it serves. Bureaucrats and politicians take precedence. Right behind their corporate bosses, of course.

Nothing new about class warfare. What’s new is Republicans admitting it is a guiding principle.

Posted by Eideard | Report as abusive
 

In one sense Walker’s stance is typical of the modern Republican Party platform….attack the middle class. Trickle down economics is still the GOP mantra, and trickle down economics was the fundamental principal of fuedalism.

In another sense, the attack on government is essential to protect what little is left of individual freedom. The bigger government gets, the more it wants to dictate. America has long since abandoned it’s fierce devotion to individual rights and their collorary, individual responsibilities. The Patriot Act, the most misnamed law ever passed, put the final nail in the cofgfin of the Bill of Rights. Obamacare amply demonstrates that totalitarianism is now the law of the land. The Tea Party wants, like Shakespear’s Brutus,to bring back the Republic. To do so mandates that big government be attacked. it is unfortunate that the Tea Party is a group of naive fools who have not thought out the full consequences of their actions as they blindly hack at anything in reach.

Posted by dhiorth | Report as abusive
 

As has been noted, WI’s pension is not in danger. Technically it’s 97% funded (not 99% as other posters have stated).

http://downloads.pewcenteronthestates.or g/The_Trillion_Dollar_Gap_final.pdf

Also, the Democrats have agreed to ALL FINANCIAL PORTIONS OF THE BILL. That’s right, anything with a price tag on it has been agreed to. The problem is the Governor is demanding things like:

Stripping unions of their collective bargaining rights (no fiscal gain for the state)

Selling state power plants in closed, no-bid sales with zero legislative oversight (no fiscal gain for the state)

Handing off control of the state’s Medcaid requirements to an unelected body (DHS). (no fiscal gain for the state)

37 new positions that are political appointees (no legislative oversight, no fiscal gain for the state)

Please do not perpetuate the claim that this bill is done for fiscal reasons. The Democrats have already agreed to all of the financial concessions in the bill, and the fact that the Governor refuses to negotiate shows what his true motives are.

Posted by Kumicho | Report as abusive
 

Frankly, one can use data to put a positive spin on any position. The fiscal reality of State operating budgets and their consequential impact on economic growth is the underlying issue. As the public sector portion of GDP grows supported by operating deficits or budgetary slights of hand, the capacity for of economy to create sustainable employment shrinks. Claiming the pensions are 99% funded is another actuarial slight of hand. Another case of… So long as someone says it, it must be true.

As current events around the world highlight, governments that do not act in support of the majority, will not survive. Public employees unions have feasted at the trough of political cohersion and fragmented local decision making since the New Deal. So, here’s the “New Deal”, the public has spoken. Game over.

Posted by Ad1156 | Report as abusive
 

Frankly, one can use data to put a positive spin on any position. The fiscal reality of State operating budgets and their consequential impact on economic growth is the underlying issue. As the public sector portion of GDP grows supported by operating deficits or budgetary slights of hand, the capacity for of economy to create sustainable employment shrinks. Claiming the pensions are 99% funded is another actuarial slight of hand. Another case of… So long as someone says it, it must be true.

As current events around the world highlight, governments that do not act in support of the majority, will not survive. Public employees unions have feasted at the trough of political cohersion and fragmented local decision making since the New Deal. So, here’s the “New Deal”, the public has spoken. Game over.

Posted by Ad1156 | Report as abusive
 

Walker says when he was a county administrator, the public unions wanted lay-offs rather than to sit at a table and discuss anything going “south.”
Walker is stating that to balance at the state level, he
will need to slash shared revenue to the locals….the locals will be seeing Near-NOTHING coming in—totally less than they’ve ever seen before.
So then these locals are suppose to balance THEIR budgets
with stubborn unions wishing for lay-offs…80% of local budgets are PUBLIC WORKER COMPENSATION.! I guess one worker will need to teach, plow, fill-pot holes yadda yadda.
If all the public workers are laid-off—who will do this stuff?

Enter a solution that has been taking place in Idaho.
Chinese Free Trade Zones. Chinese scout groups are also looking in OH, MI, PA to do similar. And with the growing shortages of food, and higher prices, Chinese will be hunting for farm land to move in on.

Yes, the locals in Idaho sold out to communists! Why?
Because they couldn’t make their budget deficits go away.

Let Walker protect our state and local areas. It is the American thing to do.

Posted by limapie | Report as abusive
 

The big difference I see in government employee unions and private unions is that the private unions are limited to what the company can bear. Push too hard, your company goes out of business and you are looking for work. With the government, shutting down is not an option and so the taxpayers get put on the hook, no matter how extravagant the demands. Once the union is formed, it can funnel millions to subvert the democratic system and get their boys in office so that their demands will be met. Governor Walker is on the right track!

Posted by zotdoc | Report as abusive
 

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