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EXCLUSIVE: Analysis finds Wisconsin's Act 10 saving taxpayers big

By   /   May 22, 2012  /   No Comments

By M.D. Kittle Wisconsin Reporter

MADISON — While a lightning rod for controversy and recall, Wisconsin’s Act 10 has paid significant dividends to taxpayers, according to a new analysis by the Beacon Hill Institute for Public Policy Research, at Suffolk University in Boston.

Act 10, which curbed collective bargaining for most unionized public employees, in the whole has saved taxpayers more than $1 billion, according to The Economic Impacts of the Wisconsin Budget Repair Act. The study is slated for release this week by Beacon Hill Institute, a prominent free market think tank.

What the analysis found is that without the law, which in part requires covered public employees to contribute more to their benefits and holds wage increases to the rate of inflation, Badger State governments would have been forced to raise taxes or make deep job cuts to meet budget expenses.

As it was, Gov. Scott Walker and the Republican-controlled Legislature pushed through reforms and reductions that filled a $3.6 billion budget shortfall, although organized labor asserts Republicans balanced the budget on the backs of public employees.

The measure drew the ire of organized labor and the Democratic Party, with tens of thousands of protesters packing the Capitol. Ultimately, it was the Walker-led reforms that launched a recall campaign in which the governor in two weeks must defend his term at the polls, facing Milwaukee Mayor Tom Barrett in a historic gubernatorial recall election.

The Beacon Institute analysis argues the law may have been controversial, even divisive, but there’s no disputing its benefit to taxpayers.

“The cost-saving measures prevented painful tax increases that would have damaged the state’s private economy resulting in slower job and income growth,” said Paul Bachman, BHI director of research. “Moreover, the provisions avoided further painful layoffs of school teachers and other public employees.”

There have been numerous media reports of school districts and municipalities that have balanced their budgets or hired more educators by employing the so-called tools of Act 10.

Municipalities will realize annual cost savings of between $775 million and $1.2 billion, according to the analysis.

Lower taxes ‘at what cost?’

BHI also found that, by not raising taxes to cover the $3.6 billion budget gap, the state prevented the loss of 11,500 to 14,000 private sector jobs “by keeping more money in the hands of households and businesses.”

More so, the cost savings, according to the institute, helped spare as many as 6,500 public sector jobs that faced the budget ax in the absence of the Budget Repair bill.

The public-sector shed 17,900 jobs between March 2011 and March 2012, according to the Bureau of Labor Statistics.

Bachman said the public-sector cuts could have been a lot more severe without reforms to state collective-bargaining laws.

Keeping taxes in check boosted real disposable income in Wisconsin by as much as $1.03 billion, overall. The increase, according to the report, takes into account lower disposable income levels of the about 445,000 public-sector workers in the state, Bachman said.

That’s a point not lost on John Matthews, executive director of Madison Teachers Inc., the union for the state’s second largest school district.

“If people aren’t going to pay higher taxes as they were, they do have more money in their pocket, but at what cost to society?” Matthews said. “When my water is not clean and I get sick, I’m going to ask what the hell is going on.”

But supporters of Act 10 have argued that asking public employees to contribute more to their health insurance premiums and something to their pensions is on many occasions still much less than what private-sector employees are paying.

Economic spur?

The BHI study found budget reforms freed up as much as $350 million in investment in the state.

A correlation? Perhaps. The State Department of Revenue data shows tax revenue is up this year — at least a sign of an improving economy.

Individual income tax collections topped $928 million in April, up 3.6 percent from the same month last year, according to the state Department of Revenue. On the year, income tax collections neared $5.5 billion, up 4.5 percent compared to the first four months of last year.

General sales and use tax collections soared 9.5 percent in April, to $356 million, and were up 4.8 percent in the first four months, to $3.16 billion.

Budget reforms also spurred Wisconsin’s first decline in property taxes in more than a decade.

The Walker administration has reported property taxes had risen 43 percent since 1998, asserting that the average taxpayer would have paid an additional $700 over the current biennium without the budget reforms.

The property tax decrease is largely attributable to state imposed revenue caps, according to the nonpartisan Wisconsin Taxpayers’ Alliance.

Walker’s spokesman Cullen Werwie stuck to message when asked about Act 10’s reported savings to taxpayers.

“Governor Walker’s reforms have improved government services, controlled property taxes and helped the private sector create jobs,” he told Wisconsin Reporter in an email, noting an administration report based on Bureau of Labor Statistics data that shows Wisconsin’s economy created more than 23,000 jobs last year.

State Sen. Glenn Grothman, R-West Bend, who helped in the narrow passage of Act 10, said he believes the benefit of the tax savings is dwarfed by the ability of school districts to control their workforce, promoting better employees and getting rid of the worst employees.

“The schools are able to can bad employees and tell mediocre employees they have to do better. How can you operate a business without that?” Grothman said.

The American Federation of State and Municipal Employees Madison office declined to comment on the story, having not seen the study.

But Matthews of the Madison teachers union said Act 10 took a system that has worked well for 40 years and blew it up in smoke. It’s a collective-bargaining system, Matthews said, that required the best and brightest to constantly improve, to the ultimate benefit of Wisconsin’s classrooms.

“When we’re trying to encourage the best and brightest to teach our kids, we’re not going to do that,” he said. “Who in their right mind is going to take a job based on wages (that are) $10,000 less?

“We have young teachers who can’t qualify to get mortgage for a home. This makes no sense.”

Bachman said Beacon Hill Institute analyzed state and local data, including most of the state’s technical colleges and 400-plus school districts. The institute extrapolated data from the more limited pool of municipalities, using models to reach savings estimates.

“We are confident that the true savings fall within the range of our estimates,” the analysis states.