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February 2017 Policy Study, Number 17-3

   

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

   

Act 10: Aftermath and Results

   

 

Governor Scott Walker’s Act 10, which was signed into law in March 2011, is seen by progressives and liberals as a radical “union-busting measure.” But when examining the actual results of Act 10, it is clear that the reform measure has not only brought Wisconsin out of the budget deficit; it has also paved the way for other reforms. As Governor Walker explained:

 

Today, thanks to these reforms, the $3.6 billion deficit we inherited has turned into more than a half-billion surplus. School districts across Wisconsin have saved tens of millions of dollars — money they have used to offset state-spending cuts and improve education instead of laying off teachers. Property taxes dropped for the first time in over a decade. Unemployment is down. Our bond rating is solid. For the first time in state history, we set aside money in two consecutive years for the rainy day fund. And Wisconsin’s pension system is the only one in the country that is fully funded.[35]

 

MacIver Institute studied the impact of Act 10 on Wisconsin and found that Governor Walker’s reform measure saved taxpayers $5.24 billion:[36]

 

The analysis found that Wisconsin saved $3.36 billion by requiring government employees contribute a reasonable amount to their own retirement. The analysis also estimates local units of governments saved an additional $404.8 million by taking common sense steps like opening their employees’ health insurance to competitive bidding. Milwaukee Public Schools saved 41.3 billion in long-term pension liabilities, and Neenah saved $97 million in long-term pension liabilities in additional to other savings.[37]

 

Analysis by MacIver Institute revealed that several school districts in Wisconsin have saved money because of Act 10. Some examples include:

 

    • Medford School District, which recently realized an 11 percent decrease in the cost of its health insurance business by opening it to competitive bidding.
    • Appleton Area School District, which switched health insurance providers last October. Local taxpayers will see up to a $3 million in savings in the first year alone.[38]

In addition, MacIver Institute’s “analysis found that over 493 different units of government in Wisconsin have saved over $1 million since 2011. Over 100 different units of government have saved over $6 million and almost 20 units have saved more than $20 million since 2011.”[39]

 

In describing the impact of Act 10 on Wisconsin, Brett Healy, President of MacIver Institute, stated:

 

Taxpayer savings of $5.2 billion is a staggering number that’s so large it’s difficult to comprehend. But make no mistake about it, Governor Walker and the Republican Legislature not only saved Wisconsinites an incomprehensible amount of money, but they also fundamentally changed government in Wisconsin forever.[40]

 

MacIver Institute noted that the “$5.24 billion in savings works out to $910 in savings for every man, woman, and child in Wisconsin, or $2,291 for every household in Wisconsin.”[41] The Institute also stated that Governor Walker and the Legislature “used the Act 10 savings to provide more than $2 billion in direct tax relief for Wisconsinites.”[42]

 

In addition to saving money for taxpayers, Act 10 has resulted in improving education in Wisconsin. Act 10, as Governor Walker wrote, “freed school districts from the stranglehold of collective bargaining rules — allowing them, for example, to buy health insurance on the open market and hire and fire teachers based on merit for the first time.”[43] The result has been that some school districts are moving toward merit-based salaries, which improves the quality of education. A recent study by Barbara Biasi, who is currently an economic researcher and Ph.D. candidate at Stanford University, explored Act 10’s impact on education.[44] Some of Biasi’s conclusions include:

 

Evidence based on teacher-level data shows that teachers responded to salary changes by moving across districts and by leaving public schools. In particular, higher-quality teachers moved from salary-schedule districts to individual-salary districts, whereas lower-quality teachers exited from individual-salary districts. These sorting patterns lead to a small increase in average quality of the teaching workforce in individual-salary districts. These districts also experienced a sizeable 6 percent gain in achievement after 2011 compared with salary-schedule districts, only in part attributable to an improvement in the composition of the teaching workforce.[45]

 

The Wall Street Journal also commented on Act 10’s impact on education:

 

The lesson is that incentives matter in education as in the rest of American life. Giving schools the ability to reward the best teachers produces better results for students. The evidence grows that Act 10 may be the most successful public-policy achievement since welfare reform.[46]

 

CJ Szafir, Vice President for Policy and Deputy Council at Wisconsin Institute for Law and Liberty, wrote in National Review that Act 10 was beneficial for both taxpayers and education:

 

Without having to go to public unions for approval on every single change to the teacher contract, school district superintendents are able to implement better teaching methods, pay-for-performance plans, or enact administrative changes. Workplace rules and guidelines are no longer dictated in union-supported collective-bargaining agreements; instead, they are found in teacher handbooks, written by superintendents and elected school boards.[47]

 

A report from Wisconsin Institute for Law and Liberty also notes that Act 10 has led to improved relationships between teachers, superintendents, and school boards, while also providing more “flexibility” in managing schools.[48] This flexibility in managing schools has led to new opportunities for Wisconsin’s public-school system:

 

Under Act 10, teachers can work together and make suggestions to their administration about new initiatives for their school and their classroom. In many districts . . . this has had the effect of enabling schools to more effectively meet specific needs while also allowing teacher and administrator relations to flourish. For teachers with viewpoints that might have been at odds with the union, this direct line of communication is even more critical.[49]

 

Another result of Act 10 has been a decline in union membership in Wisconsin. As The Wall Street Journal reported:

 

Given a choice for the first time, workers have left the union in droves. A recent analysis by the Milwaukee Journal Sentinel found that since 2011 the state has seen the largest decline in the country in the concentration of union members in the workforce. By 2015 union members made up some 8.3 percent of workers in Wisconsin, down from 14.2 percent before Mr. Walker’s reforms. The Badger State has some 187,000 fewer union members than in 2005, and the Milwaukee Teachers’ Education Association has lost some 30 percent of its members.[50]

 

The Wall Street Journal editorial pointed out that unions in Wisconsin “still have clout but they must now operate on the same footing as other groups that represent member interests — such as trade associations — by providing services in exchange for financial support.”[51] In addition to the decrease in union membership, Governor Walker’s transformation of Wisconsin into a right-to-work state has also had economic benefits:

 

Union reforms and right-to-work laws aren’t the only drivers of economic growth, but they do attract many businesses that won’t consider operating in states without them. The reduction in union power has stabilized public finances that were spiraling upward. This in turn gives businesses confidence that they won’t be hit with tax increases year after year, à la Illinois, Connecticut, and other states where politics is still dominated by the nexus of public-union donations and government officials.[52]

 

Governor Walker’s Act 10 reform certainly placed Wisconsin in a stronger fiscal position by not only saving taxpayers money, but also providing more flexibility for local governments and school districts in dealing with public-employee unions. The economic outlook of Wisconsin is also improving, as described by Christine Smith of American Legislative Exchange Council:

 

Since assuming office, Walker has cut personal income and property taxes by more than $4.7 billion, reduced the overall tax burden by a larger amount than 43 other states in the same time period. The Wisconsin rainy day fund is 164 times bigger now than it was when Walker took office, and the fiscal year ended with a budgetary surplus.[53]

 

Smith notes that Wisconsin has improved its economic rankings within American Legislative Exchange Council’s annual Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index.[54] Wisconsin is rated among the top ten states in ALEC’s economic outlook, and it is Governor Walker’s reforms that are once again making the state more attractive for business and economic growth.[55]

 

Cato Institute, which analyzes the governors on a regular basis with its “Fiscal Policy Report Card of American Governors,” gave Governor Walker a “C” grade in 2016.[56] The “Report Card” praised Walker’s reforms:

 

Governor Scott Walker has reformed retirement plans and union rules for government workers. Act 10, passed in 2011, imposed restrictions on collective bargaining and required increases in worker contributions for health and pension plans. The changes have saved state and local governments — and thus taxpayers — in Wisconsin billions of dollars over the years. In addition, Walker signed a law requiring a two-thirds supermajority in both legislative chambers to raise income, sales, or franchise tax rates. Walker approved individual income tax cuts in 2013 and followed up with further cuts for low- and middle-income taxpayers in 2014. Wisconsin’s five income tax rates were reduced to four lower rates. The standard deduction was increased, a new deduction for private-school tuition created, and various modest breaks for businesses were passed. Walker has also approved substantial property tax relief. However, Walker has not reduced Wisconsin’s high corporate tax rate, and he only made a tiny trim to the top individual income tax rate.[57]

 

The Cato Institute “Report Card” criticizes Governor Walker for increasing spending, which is why he was given a “C” grade. Although Governor Walker’s spending can be debated and discussed, it is clear that Act 10 has achieved substantial results for the taxpayers of Wisconsin. The $5.24 billion in savings that came as a result of the Act 10 reforms led to Maclver Institute “celebrating February 11-March 11, the period between Act 10’s introduction and the day it was signed by Governor Walker, as Wisconsin Taxpayer Appreciation Month.”[58]

 

The battle over Act 10 was a clash between two political philosophies. Governor Walker and his supporters championed a reform measure that would not just bring about a long-term solution to the state’s fiscal crisis, but close the benefits gap by requiring public employees to contribute as much to their insurance and pensions as those in the private sector. It also gave more flexibility and freedom to local governments and school districts, and the trend seems to be going in the direction of actually improving education in Wisconsin.

 

The opposition to Governor Walker and Act 10 was so fierce that he even survived a historic recall attempt. However, Wisconsin reaffirmed its support not only in his leadership, but in his policies as well. As Governor Walker wrote:

 

The unions tried to make the battle over Act 10 a fight over collective bargaining “rights.” It was a powerful message. No one wants to see anyone’s “rights” taken away. Taking away “rights” gets a reflexive moral reaction from people. The unions said we wanted to take “rights” away from teachers, janitors, nurses, prison guards, garbage collectors, bus drivers, crossing guards, and snowplow operators. Most people responded: That wasn’t fair. As a result, support for our reforms plummeted. We began to recover only when we started making our case against collective bargaining with moral arguments . . . We explained how government workers paid nothing for their pensions and next to nothing for their health care, while their employers — the hard working taxpayers — did not enjoy such lavish benefits.[59]

 

Governor Walker realized that in order to win the battle for Act 10, he needed to not only make the economic case for the reforms, but also argue the moral reasons for them and not allow the opposition to make the false claim that he was trying to undermine Wisconsin’s public-sector services and education. Governor Walker utilized several examples to advocate for Act 10:

 

We explained how corrections officers and bus drivers abused overtime rules under collective bargaining to make six-figure salaries. Wisconsin voters said: That’s not fair. We explained that public workers had no choice whether to join a union and that the government forcibly took as much as $1,400 a year out of their paychecks to hand over to union bosses. Wisconsin voters said: That’s not fair.[60]

 

In writing the “Foreword” to American Legislative Exchange Council’s ninth edition of Rich States, Poor States, ALEC-Laffer Economic Competitiveness Index, Governor Walker summarized the results of his reforms:

 

In 2011, we eliminated collective bargaining for public employees and required them to contribute to their pension and pay a little more for their health care benefits. This important reform known as Act 10 has already saved our state and local governments $5 billion, but it’s more than just about saving money. Our school districts can now hire based on merit and pay based on performance . . . Five years into Act 10, graduation rates are up, and our ACT scores are among the best in the nation.[61]

 

Governor Walker also fulfilled his promises by declaring that Wisconsin was “open for business.” His policies have resulted in $4.7 billion in tax cuts and an unemployment rate of 4.1 percent. In addition, “businesses are expanding and creating jobs and more people are working in Wisconsin this year than at any time in our history.”[62]

 

Just as “Fighting Bob” Lafollette made history with his progressive reforms in the early twentieth century, Governor Scott Walker’s policies are an example for other states to follow in an era of increasingly tight budgets and a need for job creation and economic growth. Iowa policymakers would be wise to consider following Governor Walker’s example instead of capitulating to the tired argument that any spending, tax, or collective-bargaining reform would be “too radical.”

 

Governor Branstad, Lt. Governor Reynolds, and members of the Iowa Legislature who agree that collective bargaining needs to be reformed should be prepared for a massive political fight. Although Iowa is a right-to-work state, any attempt to reform collective bargaining will be seen as a direct attack on labor unions, and the same arguments used to attack Act 10 in Wisconsin will be used in Iowa. Policymakers in Iowa must be prepared both in terms of the economic argument and the moral argument. “If we want to win the policy debates of the twenty-first century, we need to stop allowing our political opponents to claim the moral high ground that we should be occupying ourselves,” argued Governor Walker. In addition, Governor Walker noted:

 

For example, most Americans believe that conservatives care about balancing budgets, while liberals care about putting more money into classrooms. It was the unions and the Democrats who were ready to see us cut a billion dollars from classrooms, and lay off thousands of teachers, just so long as they could continue to fill their coffers with involuntary union dues. We stopped them and protected students and teachers from disastrous cuts.[63]

 

Governor Walker even acknowledged that the Wisconsin fiscal crisis of a $3.6 billion deficit was not just a bad situation for the state; it created such a difficult situation that he could use it to convince members of his own party to support Act 10:

 

Reforming collective bargaining was the right thing to do, with or without a deficit. But even with a Republican majority, there is no way Act 10 could ever have passed if it had not been for the magnitude of the deficit. If I proposed going after collective bargaining today, when Wisconsin enjoys a nearly half-billion surplus, there would be a mutiny among Senate Republicans.[64]

 

Hopefully, Iowa will not have to wait until we are hit with a major budget crisis before policymakers consider collective-bargaining reform. The $118 million shortfall that the Legislature had to fill was painful enough, and it is time that Legislature considers some long-term spending reform. Perhaps Iowa’s next Governor could appoint a special commission to consider and evaluate state programs and recommend cuts and or reductions, but following in the direction of Wisconsin in reforming collective bargaining is a priority.

 

Iowa already has one of the highest pay gaps between public- and private-sector workers in the nation, and collective-bargaining reform is one way to level the playing field. In addition, The Des Moines Register’s report of some Iowa Legislators not paying the full cost of their health plans is disturbing and is reason enough for collective-bargaining reform. President Franklin D. Roosevelt, the creator of the New Deal and today’s welfare and administrative state, even warned about the dangers of public-employee unions getting too much power in government.[65] As President Roosevelt stated:

 

All Government employees should realize that the process of collective bargaining, as usually understood, cannot be transplanted into the public service. It has its distinct and insurmountable limitations when applied to public personnel management. The very nature and purposes of Government make it impossible for administrative officials to represent fully or to bind the employer in mutual discussions with Government employee organizations. The employer is the whole people, who speak by means of laws enacted by their representatives in Congress. Accordingly, administrative officials and employees alike are governed and guided, and in many instances restricted, by laws which establish policies, procedures, or rules in personnel matters.[66]

 

These are the dangers and powers of public-employee unions, as described by Heritage Foundation:

 

    • Leverage over Government: Granting unions a monopoly over work done in government gives unions enormous leverage over budgets and taxes. Unions use this power to raise taxes and get more of the budget spent on them.
    • Inflated Government Pay: Government unions win above-market compensation for their members. The average government employee enjoys better health benefits, better pensions, better job security, and an earlier retirement than the average private-sector worker, although cash wages are typically not inflated at the state or local level.
    • Forced Union Dues: In the 28 non-right-to-work states, unions negotiate provisions that force government employees to pay union dues or get fired. This brings government unions billions of dollars.
    • Politicized Civil Service: Government unions have the power to elect the management they negotiate with, so they spend heavily to elect politicians who promise them concessions.[67]

This is why it is crucial for policymakers in Iowa to consider reforming collective bargaining, look to states such as Wisconsin to learn from their ideas and policies, and work to provide a better economic future for Iowa.  If Iowa policymakers do consider collective-bargaining reform, it must be made clear that although Act 10 saved Wisconsin billions, it does not mean that other spending and tax reductions should be ignored.

 

   

 

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