With the New York Times celebrating the return of the absentee Wisconsin senators to victory celebrations in Madison, it is worth a few reflections on what has happened. There are two dimensions:
Wisconsin public employees will be required to contribute 5.8% of their salaries to pensions and 12.6 % to health care plans (about an 8 % salary cut) toward closing a $137 million deficit that Governor Walker inherited in the current budget, avoiding 1500 layoffs. Future labor negotiations will be limited to wages with increases restricted to the rate of inflation, and workers will have the right to not pay union dues. Over the next two years Wisconsin faces a $2.9 billion deficit, so the direct contribution is just a minor part of the solution.
The UW students have had their party, the teachers have had their public classroom, Jesse Jackson of PUSH and Richard Trumka of the AFL-CIO have had their megaphone, and the lawyers will now have their months of opportunity. But Governor Walker has done what he said he would do in the 2010 campaign and he can hope that his poll ratings will return once NBC and the Huffington Post move on to the next story and the students go off for Spring Break.
The real impact in Wisconsin will occur at the department and local level as county executives and mayors are freed to manage their employee costs and, more importantly, go about consolidating departments and fixing work practices. (Similar steps by Governor Mitch Daniels of Indiana in 2005 were central to his successful efforts to balance the budget while reducing state workers from 25,000 to 20,000, reducing union participation from 66% to 7%, and earning the gratitude of his local officials for taking the heat.)
Almost all states have budget problems which are making people like Democrat Andrew Cuomo of New York sound like Republican Chris Cristie of New Jersey. With stimulus money running out the next year or two will be brutal and the example of Wisconsin’s give-backs will be repeated broadly. Similar union-reducing steps are being taken (interestingly with minimal fanfare) in Ohio and initial efforts are being made in Iowa , Michigan, and Missouri.
But the bigger issue is the trillion dollars of unfunded retirement benefits in the states. (That is assuming an average return of about 7-8% annually; something like 4-5% would be more reasonable.) There will undoubtedly be a lot of two-tier systems with new employees having older retirement ages, lower benefits, a reduced ability to spike wages in their last years, and significant employee contributions – and more commonly a change from defined benefit plans to private sector-type defined contribution plans. The lawyers will have a heyday as governors and mayors try to take back commitments made in the union era.
Look to a broad challenge to return the the philosophy of Franklin Roosevelt who was opposed to public employee unions. And this challenge will not only come from conservatives – given limited money many liberals will look to reducing the cost of government so that their programs don’t get starved.
The battles will be fought state-by-state, but the AFL-CIO, the American Federation of State, County, and Municipal Employees, and the Service Employees International Union have made a strategic choice to draw the line in traditionally union-friendly/progressive Wisconsin. And, as President Obama would say, they have taken a shellacking.
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