Wisconsin, US and the other American budget crisis

Wisconsin, US and the other American budget crisis

Surrounded by his cronies, his political opponents in hiding across the border, the embattled state leader signs a law stripping certain labour unions of key rights. Outside the chamber, thousands of protesters call out, “Shame! Shame!" and chant, “This is what democracy looks like!" The leader takes to television to explain that the new law was necessary to stave off fiscal catastrophe. The next day, the opposition return from exile and march on the capital, vowing before cheering crowds to have the leader removed from office.

Also read | Eric Schurenberg’s earlier coulmns

A scene from Tripoli? Cairo? Athens? No, it’s Wisconsin—the lake-sprinkled north central American state better known for dairy farms and polite, slow-spoken people than for political melodrama. But this is post-Great Recession America and Wisconsin has become the unlikely opening act in an intensifying national showdown between careless old promises and the harsh realities of yawning budget deficits. “As Goes Wisconsin…" read a recent The New York Times headline, leaving readers to fill in the rest: “…So Goes America."

If that’s the case, American local politics is about to get… well, for starters, a lot more theatrical. The people of Wisconsin showed up in tens of thousands to protest governor Scott Walker’s budget Bill, which, among other things, stripped public employees’ unions of many collective bargaining rights. A few thousand of the protesters—some dressed whimsically as Vikings, or Uncle Sam, or cats (don’t ask me to explain)—occupied the elegant old state building’s public areas, refusing to leave even at night. Meanwhile, Wisconsin Democrats, the state legislature’s minority party, fled to neighbouring Illinois, rather than come to work and vote on the governor’s Bill, which they knew they couldn’t defeat. (In the end, Walker and his allies in the legislature used a procedural trick to pass the most controversial elements of Walker’s budget, even with the Democrats absent.) When the Bill finally was signed and the Democrats returned this weekend, both sides vowed to have members of the other side removed from office for either failing to show up for work or using procedural tricks to pass a law in the other party’s absence.

The Wisconsin opera buffo has proven irresistible to political comedians. Satirist Stephen Colbert, for example, deadpanned on his TV show that he hoped the democracy protesters in Wisconsin wouldn’t bring down the government, as they had in Tunisia and Egypt. After all, he said, “Wisconsin is an ally of ours. It’s our only bulwark against Minnesota."

The fiscal crisis facing the states, however, is no joking matter. The recession of 2008 and 2009 ballooned the US federal deficit to over $1.6 trillion and turned government spending into an explosive political issue. It hit state and local ledgers at least as hard. State, city and county governments account for about 45% of all government spending in the US, paying for education and roads, public safety, courts and prisons and a host of other governmental purposes, and their employees make up more than one in every 20 people in the US workforce. They raise money by taxing citizens’ incomes (in most states) and business’ sales; both sources of revenue crashed during the recession. Unlike the US federal government, however, states can’t make up their shortfalls by borrowing massive amounts from the public: most are required by their constitutions to run balanced budgets.

That leaves states with little choice but to lay off state employees, and drastically curtail government services. The pain has been widespread. In Texas, for example, where governor Rick Perry must close a $27 billion gap, the education department faces nearly $10 billion in cuts. Camden, New Jersey, cut its police force in half, despite having the highest crime rate of any American city. California’s new governor Jerry Brown, battling a $26 billion shortfall, warns that as many as 17,000 teachers could lose their jobs statewide from an education system already ravaged by 30,000 layoffs in 2010.

Undoubtedly the most crushing burdens local governments face—and the flashpoint for the confrontation is Wisconsin—is the cost of pensions and healthcare for employees. In the flush decades of the 1980s and 1990s, politicians found it all too easy to placate state employees and their unions by promising overly generous pensions, knowing the Bill would not be due for decades.

Now it’s time to pay, and states don’t have the money. Measured across all 50 states, the shortfall between the benefits promised employees and the money actually set aside for the purpose is a staggering $1 trillion. New Jersey governor Chris Christie, for example, has made pension reforms—such as raising the age at which employees could claim their pension, and increasing the amount employees have to contribute to their pension out of their own pocket—the centrepiece of his attempt to stabilize his state’s term finances. “Pension reform is the only way to solve our state’s fiscal crisis." It’s a line that usually generates applause—except, of course, among public employees—and his willingness to tackle pensions is one reason his name often comes up as a potential Republican nominee for Presidency in the 2012 elections.

Compared with their private counterparts, public employees can look forward to fairly lavish pensions. Wisconsin, where pensions replace 57% of the average retiree’s working income for his lifetime, beginning as early as age 57, is hardly the most generous. In Colorado, for example, the average state employee can expect to collect 90% of his working salary in pension income, with annual increases for inflation. By comparison, few private companies offer any pension at all; of those that do, very few come close to the generosity of public plans. This disparity between private and public pensions has led to a condition waggishly known as “pension envy". Conservative governors like Christie and Walker have been quick to exploit this resentment to win votes.

Fighting unions is a dangerous business in American politics, however. Democratic politicians have begun to cast their defeat in the Wisconsin statehouse as a victory in disguise, because it has galvanized Democratic supporters, worried that Walker and others are using the state budget crisis as a cover to break public employee labour unions. “This is one of the uglier examples of the tyranny of a temporary majority, and I think it’s going to backfire badly," governor Martin O’Malley of Maryland, told The New York Times. Democratic political groups say that they raised $750,000 in the two days after governor Walker signed the Wisconsin Bill, and they plan to use the money to fund TV ads supporting the recall of the Republican legislators who voted for Walker’s Bill.

In the end, though, every US governor—Republican and Democrat, pro-union or anti-union—will have to come to terms with his or her state’s fiscal crisis. Not every governor will have the votes or the stomach to try to strip power from their state employees’ unions—although the governors of Ohio and Indiana, emboldened by Walker’s success in Wisconsin, have already introduced Bills doing just that. But all US political leaders at the state level will have to find a way to pull back from the irresponsible pension promises their predecessors made to state employees in more prosperous times. If Wisconsin is any indication, don’t expect the employees to take that lying down.

Eric Schurenberg is editor-in-chief, CBS Interactive Business Network, and former editor of Money

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