Wisconsin has emerged as the latest battleground over which policies are best for the nation’s future. Who will determine the size of government? What will control the explosion of debt that threatens the foundations of prosperity and freedom?
Gov. Scott Walker’s legislation would, among other things, change the nature of collective bargaining for government employees:
· In the absence of a referendum, any general employee (non–public safety) is limited to bargaining over a percentage increase in total base wages no greater than Consumer Price Index inflation.
· Elections for union representation take place annually, with the effect that a union is decertified at the end of the collective-bargaining-agreement term unless it is reelected as the bargaining representative for the bargaining unit.
· In addition, no collective-bargaining agreement may be for longer than one year and no agreement may be extended.
· For non–public safety employees, automatic payment of dues is eliminated and no one may lose his job for non-payment of union dues.
Walker’s legislation would also require greater (but still well below private-sector-level) employee contributions to retirement systems and health benefits.
The bill simultaneously addresses two key issues: ensuring that voters determine the size of the government that they must fund, and addressing the debt that threatens the state’s future. These same issues are central to the federal debate in Washington and in many other states:
Reforming collective bargaining is crucial because it does not work well in the public sector. Unlike the private sector, there are not naturally opposed interests. Instead, elected officials have proven to be too willing to trade increased wages and benefits for union political support. Voters’ interests should not be trumped by political incentives and union payoffs.
Fixing incentives requires aligning political terms and collective-bargaining agreements. Benefits are often not paid for until years after they have accrued, making it too easy for elected officials to grant benefits and kick the can down the road. Collective bargaining should be limited to that which is visible now (wages), and no increase should exceed the change in the cost of living. (Unlike private-sector bargaining, there is no pool of increasing profits to share with employees who may have helped secure them; there are only increased taxes.) Further, it balances the ease of electing a union and that of decertifying a union. The governor’s approach turns the two processes into one annual event and keeps agreements short so that they cannot overlap elected terms of office.
Controlling the debt explosion requires getting pension and health benefits under control — exactly the same issues that face the federal government:
· According to the Pew Foundation, Wisconsin has the fourth-largest unfunded pension liability per resident. The unfunded pension liabilities are over $77 billion.
· According to the Tax Foundation, for the past three decades Wisconsin’s state and local tax burden has consistently ranked among the nation’s highest. The state and local tax burden (as a percentage of income) currently ranks ninth nationally.
· It would take a 326 percent increase in the current $4,194 taxpayer burden per capita to eliminate the $13,690 unfunded liability per resident — making the overall tax burden 41.3 percent of income.
· Alternatively, to immediately close the shortfall would require raising the sales tax from 5 percent to 99.8 percent!
Of course, not all the current shortfall would need to be eliminated in the first year. But unless future growth in the shortfall is eliminated, no feasible plan for controlling the state budget can emerge.
From afar, the issues that have generated so much attention in Wisconsin may appear unique to that state. Upon review, they are the same issues that dominated the November election and the debate in Washington: What is the right size and scope of government, and how can the debt be brought under control?
Correction: The statement that the Pew Foundation estimated a $77 billion pension shortfall for Wisconsin misattributed the source and size of the unfunded pension shortfall in the state.
The Pew Foundation in fact said at the time its study was done (2008) and using a discount rate of 7.8 percent that the state’s pension was nearly fully funded.
More recent data and a more realistic discount rate of 4 percent results in a pension shortfall of over $60 billion, according to a 2010 AEI study by Andrew Biggs.