Site menu:

 

February 2017 Policy Study, Number 17-3

   

The Wisconsin Miracle: Governor Scott Walker and the Historic Act 10 Reform Measure

   

Governor Scott Walker Confronts a Fiscal Crisis and an Opportunity

   

 

Politics in Wisconsin is often associated with political reform. During the progressive movement of the early twentieth century, Wisconsin was the home of “Fighting Bob” Robert Lafollette. Lafollette was a Republican who championed progressive political, economic, and educational policies on both the state and national level through his “Wisconsin Plan” or “Wisconsin Idea.” During the 1990s, Republican Governor Tommy Thompson was a leader in welfare reform policy. Today, Republican Governor Scott Walker is leading another reform effort in Wisconsin that is attracting the attention of other states and national political leaders. Governor Walker led his state through a fundamental reform in collective bargaining that has saved taxpayers billions and improved areas like education by giving more flexibility to local governments and school boards in negotiating employee contracts. Governor Walker’s reform, known as Act 10, is serving as a blueprint for other states looking for ways to control spending, lower taxes, and still achieve high-quality public services for citizens.

 

In the aftermath of the 2016 elections, Republicans not only won the White House and control of Congress; they also increased their control in several statehouses. The Wall Street Journal noted that “come January [2017] the GOP will hold ‘trifectas’— total control of both legislative chambers and the governorship — in 25 states, up from 10 in 2009.”[5] Iowa is included in this, as voters in the Hawkeye state elected a Republican-controlled Legislature, breaking the government stalemate. With Republicans controlling several legislative chambers and governorships, it appears that spending reform, tax reduction, pension reform, school choice, and other reforms will be popular measures. Certainly, many states will be looking at Governor Scott Walker as an example to follow.

 

Governor Terry Branstad, Lt. Governor Kim Reynolds, and the Iowa Legislature should consider Governor Walker’s reforms to collective bargaining as an example to follow. The Iowa Legislature faces a de-appropriation process of trying to fill a $118 million budget shortfall because of lower-than-expected state revenues. In addition, the Republican Legislature is trying to find avenues to reduce government spending and implement some fundamental tax-reduction policies that would result in growth in Iowa’s economy. The problem is that the Legislature is now confronted with this budget shortfall, and until spending is addressed any serious tax reductions will likely be tabled until a later time. One area that Governor Branstad and the Legislature could examine in terms of budget reform is collective bargaining. In his Condition of the State address, Governor Branstad outlined the need to address collective bargaining:

 

Yet, while the size of government is smaller, benefits for public employees at the state and local level have increased. Unfortunately, the cost of these benefits has grown dramatically because of our antiquated collective-bargaining system that has led to over 500 health-care plans, many of which are inefficient and way too costly for public employees and Iowa taxpayers. Under our present system, a few adverse health outcomes will destroy the budget of a city, county, or school district. By replacing this system with one comprehensive statewide health-care contract, we can spread the risk and dramatically reduce costs.[6] 

 

The Des Moines Register reported that the “federal Bureau of Labor Statistics shows that in 2015, all government and private-sector employees contributed an average 80 percent of the cost of health care premiums for single coverage and 69 percent towards family coverage.”[7] In Iowa, the Register reported that “state government’s contribution in 2015 for state employees was estimated at 99.4 percent for single coverage and 97.6 percent for family coverage.”[8] In addition, the Register noted that a majority of state-government employees in Iowa only pay $20 per month for health care.[9]

 

The Des Moines Register also recently uncovered that “more than 100 Iowa lawmakers appear to be paying hundreds of dollars less than they should for their state-provided health insurance — a potential violation of state law.”[10] According to Iowa law (Iowa Code: Executive Branch Organization and Responsibilities, 2.40), Legislators “are eligible only for insurance plans made available under group plans to non-union members.”[11] The Register also reported:

 

Data analyzed by the Register shows that 92 of 149 Iowa Legislators pay as little as $20 a month in health insurance premiums, rather than the $142 to $334 a month that those plans call for. Another 39 lawmakers pay up to $344 a month for coverage plans, rather than as much as $446 called for by their plan.[12]

 

Legislators who are not paying their fair share of their health insurance “are costing taxpayers more than $29,000 a month, roughly $350,000 a year.”[13]

 

This discovery by the Register is alarming because “the vast majority of lawmakers are enjoying non-union plans at union prices.”[14] It is yet to be determined how this situation will be resolved, and it may require some legal actions, but it demonstrates the need for reform in the area of collective bargaining. It is clear that there is an imbalance between what public-sector workers and private-sector workers pay for health insurance in Iowa. If Iowa policymakers want to truly address spending issues, they may want to learn from Governor Scott Walker and his collective-bargaining reforms.

 

In 2011 Governor Walker faced with an even more severe fiscal crisis in Wisconsin. As Governor Walker wrote:

 

When I took office in January 2011, our state faced a massive $3.6 billion budget deficit and a stark choice: We could raise taxes or lay off more than ten thousand middle-class government workers to close the gap, or we could reform the corrupt system of political cronyism and collective bargaining — in which union bosses collected involuntary dues from every government employee and had effective veto power over any changes to their pay, benefits, or working conditions — that was driving our state into fiscal ruin.[15]

 

Governor Walker chose to reform collective bargaining, and it unleashed one of the largest political battles in recent history. The $3.6 billion budget deficit was not the only economic issue which confronted Wisconsin. The state was facing high unemployment at 8.1 percent.[16] One of the first things Governor Walker did when he assumed office was announce Wisconsin was “open for business,” which signaled the pro-growth policies his administration would promote to restore the state’s economic health.[17]

 

As Governor Walker and his administration were confronted with the immediate issue of solving the budget crisis, he made it clear that he did not simply want to temporarily solve the problem. Rather, he wanted to implement a long-term solution. “Democratic governors in New York, California, and Connecticut were announcing layoffs to balance their budgets, but I was adamant that in Wisconsin there would be no more layoffs and no more furloughs,” wrote Governor Walker.[18] This is similar to the situation Iowa was in when Governor Branstad announced that public employees of Iowa’s judicial branch would have to take furloughs. Governor Walker argued that although state furloughs might have saved money, they were “Band-Aid solutions.”[19]

 

Governor Walker realized that in order to achieve a long-term solution and not just a “Band-Aid” solution, his administration would have to address reforming the state’s collective-bargaining law. As Governor Walker explained:

 

Because we were facing an immediate budget gap of $137 million, we needed to do something to close the gap right away. None of the solutions they put on the table solved the problem. I asked how much we could save if we raised health-care and pension contributions right away instead of waiting until the start of the next biennial budget in July.[20]

 

The long-term solution for Governor Walker was to “pass a budget-repair bill that [got] rid of the unions, and [eliminated] collective bargaining.”[21] This budget-reform measure would address the fiscal crisis, free up additional resources for local governments, and pave the way for future tax reductions. It would also allow Governor Walker to keep his promise to Wisconsin taxpayers not to raise taxes. Governor Walker stated:

 

If I was going to keep my promise not to raise taxes, and avoid massive layoffs or cuts to Medicaid, then the only way to close the deficit was to reduce state aid to schools and local governments by about a billion dollars. The education cuts alone would be the biggest in the history of our state. Having been a local official, I knew what cuts that large would mean. We would devastate education and the legitimate services that local governments provide unless we did something dynamic to give them an option to backfill the lost money from the state.[22]

 

Reforming collective bargaining was viewed as a common-sense solution by Governor Walker and those who agreed with him in the Wisconsin Legislature. It would also help local governments, as the Governor argued:

 

Eliminating collective bargaining would give local leaders the tools . . . They could increase health care and pension contributions without having to ask union leaders . . . And if teachers and other public workers did not have to pay union dues, they could use that money to offset much of the costs of those increased contributions.[23]

 

Governor Walker understood that eliminating collective bargaining was the best solution because of his experience as a Milwaukee County executive. “As a former local official, I knew firsthand the pure frustration of putting forward innovative solutions only to see them thwarted by unions,” wrote Walker.[24] He went on to write:

 

More important, if we liberated schools and local governments from the grip of unions, they could save tens of millions more by bidding out their health insurance on the open market, eliminating ridiculous work rules, reining in overtime abuse, and implementing other common-sense reforms that unions vetoed. And they could do it all without cutting jobs or public services.[25]

 

To resolve the $3.6 billion deficit, the only plausible solution was to reform Wisconsin’s collective-bargaining system, as Governor Walker explained:

 

Someone had to pay if we were to close a $3.6 billion deficit. We could take the money from taxpayers through higher taxes. We could take the money from schools and local governments and devastate education and services without giving them a way to backfill the lost state assistance. We could take the money away from teachers and public workers through higher contributions to their health care and pensions without giving them a way to make up their lost income. Or we could take the money from the unions. I decided to take it from the unions.[26]

 

Governor Walker’s decision to take on public-employee unions through collective-bargaining reform initiated one of the largest political fights in modern times. “We knew the union leaders would put up a fight,” stated Walker.[27] “They would rather have seen us take money from the poor, lay off middle-class workers, undermine education, and decimate government services — just so long as we did not close the automatic spigot of cash that was filling their coffers,” noted Walker.[28]

 

The reform measure that Governor Walker proposed became known as Act 10. The pillars of the Act 10 reform, as described by Governor Walker’s measure, included:

 

    • First, we would limit collective bargaining to base wages capped at the Consumer Price Index, or CPI. Any increases above the CPI would have to be approved by the voters in a referendum.
    • Second, no other issues would be subject to bargaining, including benefits such as health insurance, which meant school districts and local governments would be free to bid out their insurance on the open market for the first time, saving tens of millions of dollars.
    • Third, instead of barring unions from negotiating with the government, we would require that they first demonstrate they had the support of the majority of all their members by holding an annual recertification vote.
    • Fourth, we would require teachers and other public employees to contribute at least 5.8 percent of their salaries toward the cost of their pensions and to pay 12.6 percent of their health insurance premiums — which is about half the average for the private sector.
    • Finally, we would make union membership optional (Wisconsin became a right-to-work-state), and end the state’s practice of automatically collecting union dues (which could be as high as $1,400 a year). By making dues voluntary, we would give teachers and other public workers a free choice of whether they wanted to keep the money to offset some of the increased health and pension contributions or give it to the unions.[29]

The reforms of Act 10 would impact all public employees with the exception of local police, state patrol troopers, and firefighters.[30]

 

The introduction of Act 10 resulted in a major political fight between Governor Walker, the Legislators and citizens who supported his reforms against the public-employee unions, their members, and Democrat Legislators who opposed Act 10. Public-employee union leaders and their supporters argued that collective bargaining was “a political right” and that this reform was undermining Wisconsin’s long tradition of collective bargaining. They argued that these reforms would not only hurt the employees affected, but the quality of the services they provided — especially education.

 

Governor Walker wrote that the fight over Act 10 was “ground zero” in the fight with labor unions.[31] As the Governor explained:

 

Why did they [union leaders] pick Wisconsin to draw their line in the sand? In part, it was because of our state’s “progressive” history. Wisconsin was the birthplace of public-sector unions in 1936 and the first state to allow collective bargaining for government employees in 1959. If the union bosses could not stop collective-bargaining reform in the state where collective bargaining began, they had little hope of stopping it anywhere.[32]

 

In other words, Governor Walker was opening a political battle in “Fighting Bob” Lafollette’s progressive state of Wisconsin, and his detractors were arguing that Walker’s reforms would destroy the ideas and principles surrounding the “Wisconsin Plan/Idea.”

 

But when Governor Walker began his effort to return Wisconsin to fiscal health and achieve long-term reform, he was not alone.

 

Governor Walker, along with New Jersey Governor Chris Christie and other Republicans, took on public-employee unions in order to reform not only spending and taxes, but also the pension systems that were and are crippling many state budgets. As Governor Walker wrote about his Republican colleague from New Jersey:

 

In New Jersey, Governor Chris Christie enacted a 2 percent cap on property taxes, passed public employee pension and health benefit reforms that will save taxpayers more than $130 billion over the next thirty years, balanced four budgets without raising taxes, and gave taxpayers $2.35 billion in job-creating tax cuts.[33]

 

Other Governors in states such as Indiana, Louisiana, New Mexico, Michigan, and Idaho were also pushing for similar reforms:

 

    • In Indiana, Governor Mitch Daniels inherited a two-year deficit of $800 million. He left Indiana with a $500 million annual surplus and $2 billion in reserves, without raising taxes. He ended collective bargaining for state employees, privatized Indiana’s toll roads, and created the largest school-choice program for low-income students in the country.
    • In Michigan, Governor Rick Snyder closed a $1.5 billion deficit while lowering personal income taxes and eliminating the state’s job-killing business tax.
    • In Idaho, Governor Butch Otter passed legislation in 2011 that restricts collective bargaining for Idaho schools, institutes merit pay, and eliminates teacher tenure.[34]

Act 10 created a firestorm in Madison, Wisconsin, as protestors marched on the capitol on a regular basis. The debate over the reform legislation even saw 14 Democrat Senators fleeing to Illinois to attempt to avoid a vote on Act 10. A full account of the political battle over Act 10 can be read in Governor Scott Walker’s Unintimidated: A Governor’s Story and a Nation’s Challenge and in Jason Stein and Patrick Marley’s More Than They Bargained For: Scott Walker, Unions, and the Fight for Wisconsin. Both of these books provide a thorough overview of the debate over Act 10 and its aftermath.

 

   

 

Click here for pdf copy of this Policy Study

 

All of our publications are available for sponsorship.  Sponsoring a publication is an excellent way for you to show your support of our efforts to defend liberty and define the proper role of government.  For more information, please contact Public Interest Institute at Public.Interest.Institute@LimitedGovernment.org