Some Clarification on Wisconsin's Budget

Over at The Washington Post, Nick Johnson by way of Ezra Klein clarifies Wisconsin's budget crisis (italics mine):

- Wisconsin's budget problems are real. The state has a $137 million shortfall in the current fiscal year - after taking into account the need for an additional Medicaid appropriation to get through the end of the year. The state has a $3.6 billion shortfall in the upcoming 2011-13 biennium (the two-year period that starts July 1, 2011). As always, we measure shortfalls as the gap between projected current-law revenues, and the cost of providing a continuing level of services, and that's basically what the $3.6 billion figure reflects. See here for more.

- Some opponents of the governor's budget bill want to argue that the shortfall is a fiction. This is not the case.

- The budget problems for 2011-13 were exacerbated by recent tax cuts. Note, however, that the recently enacted tax cuts don't affect the current fiscal year. To quote the Legislature's nonpartisan (and highly regarded) fiscal office, "It is estimated that, together, these three bills will reduce general fund tax collections by $55.2 million in 2011-12 and $62.0 million in 2012-13." See page 11 of this report (pdf), which also describes the tax cuts. (So, in a technical sense, the tax cuts didn't create the current-year shortfalls that in turn are creating the specific opening for the 'budget repair bill' [Which is the bill including the collective bargaining restrictions -- Ezra]. However, it is true that the tax cuts are worsening the state's overall budget picture, and it is the state's overall budget picture - not the current-year picture alone - that the guv is using to justify going after the workers.)

- The governor is likely to propose a LOT more tax cuts. In the campaign, he promised total repeal of the state's corporate income tax. (And he wasn't the only one) We were expecting to see what his proposals were next week, but yesterday he announced that he's going to postpone his budget presentation (which was supposed to be Tuesday) until March 1.

- The myths about public employees are flying fast and furious, so here's two things to remember... First, Wisconsin is among the vast majority of states that have made budget cuts hitting public employees since the recession began -- both furloughs and layoffs. And, as EPI's study on Wisconsin state worker compensation shows, public workers in Wisconsin are compensated less well than their private sector counterparts.

So I was wrong when I cited initial reports that the budget crisis was minor. However, there's a lot more going on that conservatives also need to fess up to:

1) This is not a pension fund crisis. According to the Minneapolis Federal Reserve Bank, the pension system in Wisconsin is nearly fully funded, even after the stock market collapse:

The Wisconsin Retirement System (WRS) has experienced some of the same hard knocks as other plans, including a 26 percent investment decline during the financial market collapse.

Yet the plan is nearly 100 percent funded. (A technical caveat: Its high funding ratio is due partly to the fact that it uses a different method (frozen entry age) to calculate liabilities than the one used by most plans (entry age normal), according to Dave Stella, secretary of the Wisconsin Department of Employee Trust Funds, which administers the plan. Regardless, using the EAN method, the fund would have been 88 percent funded in 2009, still close to tops in the district.)

That funding stability comes from a couple of sources. The plan has the lowest multiplier of any plan in the district (at 1.6 percent per year of employment), and the average pension today runs to $1,900 a month--decent, but hardly rich.....

For example, the system is legally required to make all actuarially required contributions, according to Stella, and it carries an enforcement stick just in case. If participating local governments choose not to fork over their calculated amounts, the plan can simply grab it out of that locale's state aid. WRS also has the authority to increase employer and employee contributions without legislative approval. It did so recently, increasing both rates by 0.6 percent....

...the only guaranteed portion of a retiree's annuity is the original amount calculated at retirement. That allows WRS to claw back previous post-retirement annuity increases when investment returns fall. It had never used such authority until 2010, when it instituted its first ever "negative dividend" of 2.1 percent (and importantly, there have been no legal challenges). Retirees who voluntarily invested in a smaller, variable fund--which took a 39 percent clobbering--also took much larger hits to their monthly checks.

Wisconsin state employees do not have a cushy plan, nor is it a source of future budget crisis. When state employees are being asked to increase their contributions, that is being done to provide tax cuts elsewhere. This is a de facto tax increase on state employees to provide tax cuts for the rich.

2) Police and fire unions are exempted from the need for annual union recertification. If Walker were serious in his claims that powerful unions are a budgetary problem, then he would not favor this exemption.

3) Despite Walker's concern over balanced budgets, he has called for over $5 billion in tax cuts. If he were serious first and foremost about balanced budgets, he would back off of these cuts. He has also called for a repeal of the state income tax.

4) As Johnson notes, Wisconsin state employees have already taken a seven percent paycut this year (if they haven't been laid off). Calls for shared sacrifice requires someone other than just the workers to do the sharing (see point #3). The 2011-2013 shortfall is due a downturn in revenues, not due to an increase in worker compensation.

5) Wisconsin workers are paid 11% less than the private sector. Remember that the pension fund is not an issue. Klein identifies what this is--a backdoor default, with workers paying the price:

The deal that unions, state government and -- by extension -- state residents have made to defer the compensation of public employees was a bad deal -- but it was a bad deal for the public employees, not for the state government. State and local governments were able to hire better workers now by promising higher pay later. They essentially hired on an installment plan. And now they might not follow through on it. The ones who got played here are the public employees, not the residents of the various states. The residents of the various states, when all is said and done, will probably have gotten the work at a steep discount. They'll force a renegotiation of the contracts and blame overprivileged public employees for resisting shared sacrifice.

Which gets to the heart of what this is: A form of default.

6) There are some other fun things Walker is pushing through in this bill, such as the firesale of energy production facilities to the private sector with insufficient oversight (italics original, boldface mine):

16.896 Sale or contractual operation of stateâowned heating, cooling, and power plants. (1) Notwithstanding ss. 13.48 (14) (am) and 16.705 (1), the department may sell any stateâowned heating, cooling, and power plant or may contract with a private entity for the operation of any such plant, with or without solicitation of bids, for any amount that the department determines to be in the best interest of the state. Notwithstanding ss. 196.49 and 196.80, no approval or certification of the public service commission is necessary for a public utility to purchase, or contract for the operation of, such a plant, and any such purchase is considered to be in the public interest and to comply with the criteria for certification of a project under s. 196.49 (3) (b).

If this isn't the best summary of the goals of modern conservatism, I don't know what is. It's like a highlight reel of all of the high-flying slam dunks of neo-Gilded Age corporatism: privatization, no-bid contracts, deregulation, and naked cronyism. Extra bonus points for the explicit effort to legally redefine the term "public interest" as "whatever the energy industry lobbyists we appoint to these unelected bureaucratic positions say it is."

In case it isn't clear where the naked cronyism comes in, remember which large, politically active private interest loves buying up power plants and already has considerable interests in Wisconsin. Then consider their demonstrated eagerness to help Mr. Walker get elected and bus in carpetbaggers to have a sad little pro-Mubarak style "rally" in his honor. There are dots to be connected here, but doing so might not be in the public interest.

Turning Wisconsin's infrastructure into a wholly-owned subsidiary of Koch Industries doesn't seem fiscally responsible. Then again, they didn't donate $43,000 to my election campaign (and do an additional end run around campaign finance law to the tune of $1 million), so what do I know?