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A Tale of Two States: Illinois vs. Wisconsin in the Public Pension Debate

September 3, 2013 | Filed Under Budget, Democrats/Leftists, Entitlements, EPA, Illinois, Liberals, Pensions, Progressives, Public Employees Unions, Taxes, Unions, Warner Todd Huston, Wisconsin | Comments Off

-By Benjamin Yount and M.D. Kittle, cross posted from Watchdog.org

SPRINGFIELD – The dividing line in the national debate over the future of public-sector unions can be found between the Land of Lincoln and its neighbor to the north.

The story of Illinois and Wisconsin is a tale of two very different states.

Wisconsin, led by Gov. Scott Walker and majority Republicans, took on public-sector unions and won in the pursuit of balancing a $3.6 billion state budget shortfall in 2011.

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PENSION TENSION: A large crowd of union members and the professionally outraged (kids and older people bussed to the rally) demonstrate last month in downtown Chicago.

Illinois, led by Democrats with a veto-proof supermajority in the Legislature and Democrat Pat Quinn in the governor’s mansion (at least occasionally), have long coddled the public unions to which they and their campaign war chests are beholden. Consequently, the state faces billions of dollars in unpaid bills and unfunded pension liabilities for current public employees of about $130 billion.

Wisconsin’s economic prospects have vastly improved. The state’s public pension system, while not perfect, is nearly funded – at least based on much more liberal accounting standards than market-based measures. The Badger State budget now boasts a surplus of $741 million, the vast majority of that targeted for tax cuts over the next two years.

Illinois, meanwhile, continues to be buried under a mountain of debt, a broken fiscal house that has taken the state’s credit rating with it.

Pension prison

Quinn is not in a union and the state’s 177 legislators are not in a union (at least not in a lawmakers’ union), but they are a rarity in a state packed with union-represented public servants.

If you want a picture of the power of labor in Illinois, you need only look as far as offices in the Illinois State Capitol.

Nearly 97 percent of Illinois’ state workforce belongs to a public employee union. In the early 2000s, public sector unions added 10,000 members as middle managers (and higher level employees) ran from the disastrous reign of former Gov. Rod Blagojevich.

Things got so expensive that Quinn, earlier this year, pushed a bill to forcibly expel a few thousand top managers from public-sector unions.

Paul Kersey, director of labor policy for the Illinois Policy Institute, said public employee unions wield too much power.

“Government unions have all this power, but they aren’t accountable to the public for how they use it. You can vote to replace the governor who vetoes a bill at the next election,” Kersey said. “But you can’t vote on the teacher’s union boss who uses the bargaining law to make it impossible to fire a bad teacher.”

Kersey knows those union leaders won’t give up that power without a huge battle.

“We won’t be able to get government budgets under control, or improve public schools, or a host of other things, without fighting government unions,” Kersey said.

Illinois taxpayers bear the burden of their leaders’ failure to rein in the exploding cost of pensions.

“(Pension) contributions now must escalate rapidly if Illinois is to honor promised benefits: by fiscal year 2015, pension costs (and related debt service) could take up one-fourth of the state’s resources,” according to the Illinois Report of the State Budget Crisis Task Force, prepared in collaboration with Richard Dye of the Institute of Government and Public Affairs at the University of Illinois.

“Illinois will not be able to fund other priorities unless it adopts serious pension reform,” the report states.

Fitch Ratings in June downgraded the state’s bond rating after pension debt-riddled Illinois again failed to reform its public retirement system.

“As I have repeatedly made clear to the General Assembly, this will continue to happen until legislators pass a comprehensive pension reform bill and put it on my desk,” Quinn said in a statement.

Fitch’s downgrade gives Illinois the lowest general obligation bond rating of any of the 50 states, according to Crain’s Chicago Business.

Reform spells relief?

Wisconsin has seen its deficit-heavy state budget of two years ago rebound, in large part due to legislative reforms that have effectively gutted collective bargaining for most public employees.

Act 10, led by Walker and passed into law by a GOP majority in 2011, holds wage negotiations to the rate of inflation and requires most public employees to pick up part of the tab for their state pensions and a greater share of their health insurance premiums, among other provisions.

Organized labor and Democrats hate the law and have waged a long legal fight to have it struck down.

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SIGNED, SEALED, DELIVERED: Gov. Scott Walker in 2011 signed the law that reformed public-sector collective bargaining in Wisconsin.

Two years after the law’s passage, public sector organized labor is reeling in the Badger State. For some unions, the effects of Act 10 may be fatal.

The U.S. Labor Department reports the membership of Wisconsin’s American Federation of State, County and Municipal Employees Council 40 dropped from 31,730 to 2011 to 20,488 this year.

The decline for AFSCME Council 48, which represents city and county workers in Milwaukee County, was even more dramatic — a 61-percent decline in membership over two years, from 9,043 members in 2011 to 3,498 now.

State Rep. Brett Hulsey, D-Madison, has pitched an amendment – now dead – that would have restored $330 million he said was “taken from 130,000 public servants” through Act 10.

It’s difficult to dismiss the fiscal impact the reforms have had on the state’s budget. Savings to state and local governments, by some estimates, are pegged at more than $1 billion so far.

In Milwaukee alone, the collective bargaining reforms have saved the city about $20 million, according to Mark Nicolini, the city’s budget director. Milwaukee Public Schools will see savings of more than $100 million per year, according to a report released earlier this summer by the Thomas B. Fordham Institute, a conservative-leaning education think tank.

Wisconsin public school districts, on average, have seen double-digit declines in insurance premiums since mid-2011, based on findings in First Years of Freedom: Wisconsin Schools Saving Millions on Health Insurance in the Act 10 Era,” an analysis of insurance costs by EAGnews.

Last month, the Federal Reserve Bank of Philadelphia released its July coincident economic indexes for states, showing Wisconsin has had the third best economic growth in the nation. July marked the second consecutive month that Wisconsin’s growth has outpaced the national average.

Walker isn’t shy about the fiscal differences between Illinois and Wisconsin and how the Badger State got there.

“Over the past several years, we have made tough, but prudent, decisions to get our fiscal house in order,” the governor said in a press release following word that state revenue was up $71 million more than expected.

“Unlike our neighbors to the south, we laid a strong foundation for future prosperity and ongoing stability,” Walker said in a recent radio address.

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