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Saturday, August 23, 2014 |  Madison, WI: 78.0° F  Fog/Mist
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Defending the Wisconsin budget repair bill
Proposed changes address long-term problems
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In the spirit of Bill Lueders' call to tone down "The Politics of Hate" (opinion column, 5/5/11), let's take a moment to extend some peace and love -- or at least understanding -- to the most vilified person in our state, Gov. Scott Walker, and to the legislation that's stirred up the most hostility, the budget repair bill.

This bill is typically described as an effort to strip government workers of collective bargaining rights over pension benefits, which sounds extraordinarily arbitrary and unfair. No one wants their "rights" repealed by government decree.

But how many people know that even before this bill, state law actually required public employees to pay about half the costs of their pensions? The budget repair bill simply eliminates the government's ability to pick up this tab, as it has agreed to do under collective bargaining agreements with state workers.

Amending the law to ensure that existing statutes are actually implemented probably wouldn't strike the average voter as a "radical" move, but that's exactly what the bill does.

There are also sound fiscal reasons for this reform. Many readers know that Wisconsin has one of the highest per-capita fiscal deficits in the nation, and having employees pay more toward their pensions naturally reduces public spending and borrowing.

Fewer people know that there are longer-term concerns with the pension fund itself. The Wisconsin Retirement System (WRS) is in better shape than most state pension funds, but this doesn't mean there is nothing to worry about.

Professor Josh Rauh of Northwestern University, an expert on state pensions, estimates that WRS will not be able to meet existing pension obligations by 2030. That's only 19 years away, and it would be little consolation to Wisconsin taxpayers left holding the bag then if, as Rauh predicts, 37 other state funds go bankrupt first.

Walker's budget repair bill addresses this long-term concern by mandating that government workers and taxpayers contribute equally each year to keep WRS solvent.

I know what you're thinking: Couldn't we simply raise taxes to meet these growing obligations, instead of making state employees pay half? Yes, but doing so would almost certainly exacerbate the state's economic woes.

Wisconsin has been in relative economic decline for decades, with per capita income growth over the last 30 years that ranks 42nd among the 50 states. The state's per capita income has fallen below the national median and is more than 10% below that of neighboring Minnesota. Raising taxes will not help our already struggling state prosper in an increasingly competitive environment.

However, having public-sector employees pay half their pension costs just might help; in fact, there's already some evidence it has. In May the state sold $286 million in tax-exempt bonds at half the markup over the benchmark interest rate it paid on debt it placed in January, before the budget repair bill was announced.

Lower interest rates further reduce state government spending and are an indicator that the local economy is improving. An investment professional in Milwaukee has attributed this development to the state making "structural changes" that address its fiscal problems.

People don't like to find out more money will be taken out of their paychecks, as will happen for state workers when the budget repair bill becomes law. People also make long-term plans around the level of income they expect to earn after they stop working.

But even after the budget repair bill takes effect, state employees will keep their "defined benefit" pension plans, which provide a guaranteed level of benefits that remain generous by private-sector standards. The bill does not affect accrued benefit levels, only the shares of future benefit funding between taxpayers and state workers (from the current essentially 100% taxpayer share to 50-50).

In addition, about 90% of Wisconsin's private-sector employers offer only "defined contribution" plans that do not provide any guarantee on retirement benefit levels. State government workers will therefore continue to enjoy more retirement security than their private-sector counterparts.

All these factors should be kept in mind when considering whether the budget repair bill is good legislation or the right policy for addressing our state's challenges. It's fair to say that hasn't been the attitude of most protesters, who have reacted emotionally rather than rationally to the proposed changes.

If we want to get past the politics of hate, people opposed to the budget repair bill can play their part by ending the demonization of Scott Walker and elected Republicans. Democrats in deep-blue states like Massachusetts and New York are making similar reforms, or cutting state spending while holding the line on taxes.

You may not like it, but you should acknowledge that these efforts - by both parties - are responding to real problems in a serious way.

Larry Kaufmann is an economic consultant based in Madison.

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