Wisconsin Provides a National Model

After three weeks of demonstrations in Madison, Wisconsin Governor Scott Walker, a newly-elected Republican, will soon be able to sign a bill limiting public sector collective bargaining and raising public employees’ health and pension contributions. This could be a model for other financially-strapped states to follow.

Wisconsin’s Democratic state senators have spent the past three weeks hiding in Rockford, Illinois, rather than providing the three-fifths quorum necessary for a vote on the budget bill that included these provisions. But with Wisconsin’s budget deficit at $3.6 billion over the next two years, restructuring is essential to avoid higher taxes, and Mr. Walker is leading the way.

On Wednesday, in an unexpected move, the Wisconsin Senate convened a conference committee on the bill, and then stripped it of two crucial budget elements-a $165 million bond restructuring, and the sale of state power plants. Then, the bill was sent to the full Senate for a vote.

By removing these two provisions, the bill no longer qualified as a budget bill, and could be passed with a simple majority, without the votes of the absent senators needed for a three-fifths quorum. The bill passed 18 to one, with Republican Senator Dale Schultz of Richland Center voting against it.

Today the bill goes to the Wisconsin Assembly, which is expected to pass it and send it to the governor for signature.

The bill requires public sector employees to pay 5.8 percent of their salary towards pension contributions and 12.6 percent towards health insurance premiums, saving $330 billion through mid-2013.

Union representatives told Mr. Walker they didn’t mind paying the extra contributions to pension and health insurance plans. But they did object to ending collective bargaining for wages and salaries for amounts above the rate of inflation, with the exception of police, firefighters, and state troopers.

Plus, the bill ends salary deductions for union dues for state employees, so that unions would have to collect dues from individual members-as do other organizations. To add insult to injury, the bill allows government workers to stop paying dues altogether and remain members of collective bargaining units. This means that some union members might be tempted to drop their membership, slowing the flow of dues that pay union officials and their staffs and that are used for political contributions.

The American Federation of State, County and Municipal Employees, the largest public employee union, spent $90 million in the 2010 electoral cycle, so political contributions are a significant issue.

Why the battle over collective bargaining, and why now? After all, Indiana governor Mitch Daniels ended public sector collective bargaining by executive order in 2005, and it didn’t make the national news. About a dozen states don’t even have collective bargaining for public sector workers.

And prominent Democrats are on the record against public employee collective bargaining. Former AFL-CIO president George Meany, back in 1955, said “It is impossible to bargain collectively with the government.” This is because the government has monopoly power, and its funds come from taxpayers.

The battle over the Wisconsin bill has made national headlines both because of declining union membership and the hefty contribution of public sector pension liabilities to the dire fiscal situation of individual states.

The percentage of Americans who belonged to unions declined to 11.9 percent in 2010, down from 12.3 percent in 2009. With only 6.9 percent of private sector workers belonging to unions in 2010, organized labor sees government workers-with a 36.2 percent unionization rate-as the main source of union membership and dues.

In some cases private sector workers abandoned unions because the government now regulates, in excruciating detail, workers’ wages and working conditions. Why pay dues to the Carpenters when the Labor Department’s Occupational and Health Administration and Employment Standards Administration can terrorize your employer far more cheaply and effectively?

In other cases, unionized firms went out of business and abandoned America. Some unions bid up compensation packages so firms became unprofitable and closed or moved offshore.

All told, this is not a pretty picture for union officials, who might have to make career changes of their own if membership declines further.

Moreover, the bill for public sector pensions, with deficits now estimated at around $2 trillion to $3 trillion, is becoming larger and causing more of a drag on state budgets, still hurting from the recession. States face lower tax revenues and higher Medicaid and unemployment insurance payments.

Americans see public workers retiring early - 55 is not uncommon - and getting paid generous lifetime pensions, increasingly rare in the private sector. With unemployment high, people cannot afford the tax increases to bring the pension bills into balance.

California faces a $27 billion budget deficit, Illinois sold $3.7 billion of bonds last month to pay public employee pensions, Ohio’s deficit is $8 billion, New York’s is $10 billion...the list goes on.

These deficits are why, all over America, taxpayers are watching Governor Walker’s efforts to put Wisconsin on a path to solvency.

This piece originally appeared in RealClearMarkets

This piece originally appeared in RealClearMarkets