Wisconsin's Act 10: A Model for State Budget Reform?

I was up in Wisconsin this past weekend visiting my old stomping grounds. While it was nice to see friends from "the good old days," I nevertheless got an earful from a few people about Act 10, also known as the the 2011 Wisconsin Budget Repair Bill (original text here). Why is it that over three years after passing the bill, people are still up in arms about it? Because those impacted by the legislation were public-sector employees. Not only did Act 10 go after the collective bargaining power (i.e., the collective bargaining under Act 10 was limited to wages), but it lowered wages and asked public-sector employees to contribute more to their pensions and health insurance. I remember when I was living in Wisconsin in 2011, and I can tell you that the politics on this one were downright nasty, especially with the recall election. Although I wasn't thrilled with the special interest politics behind the collective bargaining exemption for police officers and firefighters, I believed and still believe that public-sector unions need to change the way they "do business" because the fiscal insolvency of higher-than-fair market value wages and benefits will bankrupt state budgets down the road. Even with the Wisconsin Supreme Court's 5-2 ruling that Act 10 was indeed constitutional and that collective bargaining is not a right, one still has to ask: What sort of effect did Act 10 have on public-sector employees? Did Act 10 actually save the Wisconsin state government money, or was it merely a smokescreen to merely undermine Wisconsin public-sector unions while "sticking it to the working man?"

When delving into answering these questions, we have to realize that some costs and benefits are more visible than others. Even with diminishing the collective bargaining of public-sector unions, there are still ways to protect public-sector employees (Malin, 2012). There are other costs, such as a decline in public-sector union membership and the public-sector employees receiving a reduction of 7 percent in their total pay package. That sort of economic effect is to be expected when dealing with such a budget cut. However, let's see what public-sector employees were making in comparison to their private-sector counterparts, which is exactly what the American Enterprise Institute did (Biggs and Richwine, 2012). What those over at AEI found was that pre-Act 10, the state of Wisconsin was offering a total pay package that was 29 percent higher than a private-sector equivalent (Biggs and Richwine, p. 21). Even after Act 10, AEI found that public-sector workers would still receive health benefits that are twice as valuable and pension benefits that are 4.5 times more valuable than those of the private sector, or for the typical public-sector worker, the public-sector premium is still $14,569 (p. 3). 

Take a look at the fiscal effect that Act 10 had on Milwaukee, Wisconsin's largest city, as a significant example. The non-partisan Public Policy Forum, which is notorious about its impartiality (Trust me on the impartiality part. I actually interviewed with them once, and they were gung-ho about it), even found in their Budget Brief for the Milwaukee Public School (MPS) System that Act 10 helped contribute to the $400M in budgetary savings through 2017 (p. 12-13). Although MPS is not out of the woods yet with its budgetary woes, MPS is starting to see some light at the end of the tunnel. You can also see this Public Policy Forum report from late 2012 that comes to the same conclusion about Act 10 with regards Milwaukee's budgetary woes. The Thomas Fordham Institute also confirms that Act 10 is helping with keeping retirement MPS' costs low (p. 11), and will save MPS $101.1M by 2020.

I can list other cities that have benefited, such as Wausau, Neenah, New Berlin, Marshfield, but let's look at the state of Wisconsin as a whole. It turns out that the unions' concerns of economic loss were unfounded, and as the current research has shown (e.g., the Education Action Group, the Illinois Policy Institute, and the Beacon Hill Institute), Act 10 has saved Wisconsin tens of millions of dollars. Even Politifact ruled that it Act 10 saved the taxpayers $3B. Politifact's ruling did come with a caveat, mainly that Act 10 is not a strict cost-saver, but simply cost-shifting from taxpayers to public-sector employees. I disagree with that caveat because if the benefits were lavish from the get-go, it's not so much cost-shifting as it is operational efficiency and wiser spending via budget cuts.

I couldn't find any studies published to date that say that Act 10 was actually better for Wisconsin's economy, and that's because there really was no economic justification for keeping those pay packages as munificent and above fair market value like the state of Wisconsin did. We have to remember that deficits were piling up when Jim Doyle was governor of Wisconsin, and as a result, Governor Walker had to make difficult, but necessary decisions to close the budget deficit. Not only was Wisconsin able to create a budget surplus with Act 10, but it was now possible for Wisconsin to stabilize public-sector employment (Kersey, 2014, p. 7), as well as lower income taxes and property taxes. By removing much of the collective bargaining laws, the flexibility offered by school districts made it possible to hire more teachers and utilize merit-based teacher pay. If Walker had not passed Act 10, Wisconsin would have most probably made cuts either in hours, benefits, and/or jobs of public-sector employees. Act 10 has managed to control both state and municipal spending, which is the type of reform that other states should emulate before their public-sector employee benefits cause their debt to balloon to the point of no return.