In the 11 months since Wisconsin Governor Scott Walker abolished collective bargaining rights for government workers, Wisconsin cities, towns, and school districts have saved millions of dollars. There’s an important lesson here for California as its cities start to go bankrupt. In Wisconsin, writes Steven Malanga for the LA Times, Walker’s changes immediately took hold.
The state’s teachers union, Wisconsinites learned, had used its power to collectively bargain for healthcare benefits to demand that local school districts provide coverage through a nonprofit insurer affiliated with the union. Once the state ended bargaining on healthcare, school boards began competitively bidding out their health insurance.
By the opening of the new school year in September, just two months after the budget bill went into effect, 23 districts had rebid their contracts, saving $16 million, or an average of $211 per student. The MacIver Institute, a Madison-based think tank, estimated that if all the state’s districts were able to negotiate similar deals once their contracts with the union-affiliated insurer expire, schools could save $186 million…
In mid-August 2011, barely a month after the changes went into effect, the Milwaukee Journal Sentinel reported that the city would save as much as $36 million in its next budget from “healthcare benefit changes it didn’t have to negotiate with unions” as a result of the new state legislation.
Malanga contrasts this with the experience of some troubled California cities:
Californians should understand those fiscal pressures. Average annual pay for a local government employee in the state rose by 60%, to $61,185 (excluding benefits), between 1999 and 2008, according to the Little Hoover Commission on California State Government Organization and Economy. That’s about 70% more than the increase in private sector wages in the state over the same period. Average pay for cops and firefighters climbed 69%, to $89,056, again excluding benefits, in the same period.
Benefit costs have soared even more than wages. The annual cost of funding pensions in California’s 20 largest municipalities has grown from $1.3 billion in 1999 to $5.1 billion last year, according to a study by Stanford University professor Joe Nation. That’s an annual growth rate of better than 11%.
Faced with such increases, municipalities in California haven’t had nearly the flexibility to mend their budgets that officials in Wisconsin have.
In San Jose, where the average cost of employing a city worker, including benefits, has soared to an extraordinary $142,000 annually, Mayor Chuck Reed had to fight long and hard for a ballot measure to reduce pension costs that was passed by voters in June. In the three years before the vote, the city had to lay off about 2,000 employees and cut back on parks, libraries and other services.
In Stockton, which declared bankruptcy in June, for every dollar the city spent on salaries, it spent another dollar on employee benefits. Facing unsustainable employee costs and an intransigent police union that was demanding the city pay retired officers about $300,000 for unused sick and vacation time, Stockton cut a quarter of its public safety forces and still couldn’t meet its obligations.
In the end, math matters and as a general rule, the sooner you make your peace with arithmetic, the less it’s going to hurt. Moderate and mild reforms work pretty well if the reform process starts early enough; wait long enough, though, and the steps needed to get the finances straight become savage and painful. Ask the Greeks. Or ask the citizens — and the municipal employees — of California’s bankrupt cities.