Magazine | March 21, 2011, Issue

It’s Not Just Wisconsin

And it’s not just Republicans, either

The knock-down, drag-out fight in Wisconsin isn’t about how much public employees will pay toward their pensions and health-insurance premiums. As union members have loudly insisted, they are willing to make concessions this year on those items, so long as Gov. Scott Walker will leave their collective-bargaining rights alone. The reason both sides have dug in is that they understand the long-term stakes: By reforming collective bargaining, Walker stands not only to achieve cost savings this year, but also to reassert the state’s control over runaway employment costs for years to come — and to allow local governments to do the same.

While the proposal that has shut down Wisconsin is the highest-profile (and most sweeping) move this year to reform the government’s relationship with public employees, it’s not the only one. Around the country, many governors and mayors are pushing reforms to state and local governments’ relationships with their employees, giving lawmakers more freedom to change the terms of employment and decide which workers to retain — which means more freedom to cut spending while preserving the quality of public services.

From the acrimony in Madison, you would get the impression that it is universal for public employees to have strong collective-bargaining rights. Because Walker is trying to narrow the scope of collective bargaining, Paul Krugman of the New York Times accused him of trying to make Wisconsin “less of a functioning democracy and more of a third-world-style oligarchy.” The truth is that collective-bargaining rights for public workers vary widely from place to place; only 26 states have a comprehensive public-sector collective-bargaining law like Wisconsin’s.

States without collective bargaining for public workers, and those in which the subjects to be included in collective bargaining are restricted, found it easier to cope with the recession. For example, they could respond to declining tax receipts and weak income growth in the private sector by freezing public employees’ wages. Collective-bargaining jurisdictions had to wait until their employees’ contracts expired to seek such freezes — and then plead with the unions to allow them.

The usefulness of limited collective bargaining is nowhere better demonstrated than in the federal government. Despite Pres. Barack Obama’s publicly stated support for the Wisconsin protesters, most federal workers lack the right to collectively bargain for wages or benefits. Rather than try to strengthen the hand of federal workers, Obama has used this situation to his advantage — proposing a two-year freeze on federal civilian workers’ salaries.

It’s not surprising that some states with strong collective-bargaining rights for public workers are taking steps to emulate the federal government and states with no or limited collective bargaining. It’s not just Scott Walker doing this — and it’s not just Republicans.

Some of the proposed reforms follow the Wisconsin model of narrowing the scope of collective bargaining. Under Walker’s proposed “budget repair” bill, most state and local employees in Wisconsin won’t be allowed to bargain collectively for health or retirement benefits, and the new state law will force them to pay a higher percentage of those costs than before (though in the case of health care a lower one than federal employees pay). They will be allowed to bargain collectively only for wage increases up to the rate of inflation as measured by the Consumer Price Index, unless voters approve bigger raises. Police and firefighters would retain more expansive collective-bargaining rights.

In Ohio, Gov. John Kasich has, with considerably less fanfare, been pushing Senate Bill 5, which would significantly restrict the scope of public employees’ collective bargaining in that state. While workers could still bargain for wages, hours, and terms of employment, other important matters would be excluded, such as health benefits and contributions to pension funds. State workers would have to pay 15 percent of the cost of their health benefits, and local governments would be required to charge workers at least 15 percent.

#page#The bill would also eliminate automatic pay increases based on longevity — public employees would get raises only for merit or upon receiving promotions. School districts would be freed from requirements to hand out longevity raises and specific sick-leave schedules; for all local workers, the amount of accruable vacation time would be capped. All public workers would be forbidden to strike, and police and fire workers (already barred from striking) would lose their ability to force municipalities into binding arbitration of contract disputes.

Effectively, these changes are designed to reduce the generosity of public employees’ benefit packages, or at least to allow localities to reduce that generosity if they so choose. A study from Ohio’s Office of Collective Bargaining estimates that the longevity-pay and health-insurance provisions alone would save state and local governments $1.3 billion per year — before you count any additional savings that lawmakers achieve with their strengthened bargaining position. Needless to say, the bill has generated strong opposition from public-employee unions, though without the drama of the scene in Madison.

As they did in Wisconsin, Republicans assumed complete control of Ohio’s state government in the 2010 elections, meaning they can pass the bill if they hold their party’s members together. Already, they’ve had to water down the bill somewhat — an earlier version abolished collective bargaining entirely for state employees — but the revised version stands a strong chance of enactment.

Next door in Indiana, Gov. Mitch Daniels was rolling back public employees’ collective-bargaining power before it was cool. Indiana is one of 24 states without a comprehensive collective-bargaining law, which allowed the governor to abolish collective bargaining for state workers with an executive order on his first day in office. (Former governor Evan Bayh had established collective bargaining for state workers, also by executive order, in 1989.) Indiana teachers are given the right to collectively bargain by law, and one item on Daniels’s 2011 legislative agenda is to narrow this privilege.

Daniels’s approach is in some ways the opposite of federal practice: He would allow teachers to bargain collectively only for wages and benefits, while excluding such matters as working conditions. The logic is that education costs are driven in significant part by inflexible work rules, for example requiring superintendents to honor teachers’ transfer requests in order of seniority rather than based on their performance and the needs of schools. Giving educational administrators a freer hand to assign and manage their work forces will make it possible for them to provide better services with a smaller headcount — making a given per-employee salary and benefit load more affordable for taxpayers.

Education reform has long been on Daniels’s wish list — he’s also pushing for school choice, merit pay, and tenure reform. But until 2010, a Democratic majority in the state house was able to block his agenda. He’s decided that this year is the time to move, though he will have to negotiate with Democrats to get these reforms passed: The minority can disrupt Indiana’s legislature by fleeing the state, as happened recently over a proposed right-to-work law.

While most of the elected officials training their sights on collective bargaining are Republicans, there is one key reform being pushed by Democrats in a heavily Democratic state: Massachusetts’s governor and house speaker want to significantly restrict local workers’ rights to collectively bargain for their health benefits.

Much like private firms, local governments in Massachusetts have been struggling for the last several years to control health-insurance costs. In 2007, the state sought to address this problem by establishing the Group Insurance Commission, which uses its size to negotiate more cost-effective health plans. However, municipal unions must agree in contract negotiations to enter the GIC, which is cheaper in significant part because it offers less generous benefits than most public employees have today. As a result, just 31 of the Commonwealth’s 351 cities and towns have joined. Gov. Deval Patrick and Speaker Robert DeLeo are advocating legislation that would allow cities and towns to force their workers to enter the GIC unless their unions propose an alternative insurance plan that generates equal savings. The idea is the brainchild of Boston’s mayor, Tom Menino, also a Democrat. Obviously this reform is not as drastic as those on the table in Ohio and Wisconsin, but it does show that even Democrats, when faced with the need to balance budgets, can see the unaffordable costs imposed by unrestricted collective bargaining.

#page#Elected officials are also seeking to increase their freedom to control employment costs through the reform of civil-service rules. In New Jersey, Gov. Chris Christie, for all his bluster against public-employee unions, has barely even proposed to touch the state’s collective-bargaining apparatus. (One key exception: He attained passage, by a Democratic-controlled state legislature, of a law that will cap the monetary value of binding-arbitration awards for unionized public workers.)

Instead, Christie has trained his sights on the state’s civil-service rules. Those rules do not even allow municipalities to impose furlough days, which are an important tool for governments in many states to cope with budget gaps. (Permanent layoffs are an option, but they are far more disruptive to the public, not to mention to the workers who get laid off.) Among Christie’s proposed reforms are to allow furloughs and to allow municipalities to opt out of civil service entirely.

So far, New Jersey’s Democratic legislature has been unwilling to approve a civil-service reform that Christie finds satisfactory. But he has a record of achieving compromise with legislative Democrats after acrimonious fights, so a bill is likely this year — and even more likely if Republicans take control of the legislature in November.

Civil-service reform has also been a focus of New York mayor Mike Bloomberg, who has struggled in his efforts to reform the city’s public schools because of the strong employment protections enjoyed by the city’s teachers. Famously, New York for years maintained “rubber rooms” full of teachers too dangerous or incompetent to put in classrooms but who nonetheless could not be fired. Now, as he prepares to adjust to a state-aid cut of more than $500 million, Bloomberg is pushing for reforms that would allow the city to consider teacher quality when implementing layoffs.

Currently, the city (like many other school districts around the country) must lay off teachers on a “last in, first out” (LIFO) basis. This creates two problems. One is that the city must let go of young teachers even if they are high performers, simply because of their low seniority. The other is that the most junior teachers tend to earn the lowest salaries, meaning that more layoffs are necessary to achieve a given budget savings. Next year’s budget will involve 4,700 teacher layoffs, a number that would be smaller were it not for LIFO.

This isn’t a collective-bargaining matter: LIFO is mandated by state law, regardless of what any district’s teacher contract says. Bloomberg wants Albany lawmakers to repeal the law, but New York governor Andrew Cuomo, who already has his hands full with union leaders upset about budget cuts, has stalled, saying he wants to establish a new “objective” evaluation system before reforming the LIFO rule.

Not all of these proposed reforms to collective bargaining and civil-service rules will be enacted — but some will, and the trend in 2011 will be toward less power held by public-employee unions and more tools in the hands of state lawmakers seeking to manage their employee budgets. That’s good news for taxpayers — since employee compensation makes up 43 percent of state and local budgets, a shift in power toward management means less pressure for taxes to go up or public services to be cut back.

So don’t assume that all the action is in Wisconsin. The fire in Madison has spread to Trenton and Columbus — and, with any luck, will blaze on.

– Mr. Barro is the Walter B. Wriston Fellow at the Manhattan Institute. His research is focused on state and local fiscal policy.

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