This originally appeared in the August/September issue of the BBJ:

Fix what’s broken

The State’s Legislative Fiscal Bureau has determined that tax collections are short of projections by $1.6 billion which has sent the Governor and Joint Finance Committee back to the drawing board to develop a budget for the next biennium. The Governor is calling for 16 days of unpaid leave for state workers along with 1,100 layoffs (if contracts can’t be renegotiated) and rescission of the two percent pay increases that were granted to nonunion workers.

Cuts to shared revenue and school aids are almost certain to be a part of the budget-balancing recipe which means that local units of government will have to rethink their next budgets as well. Property tax increases are inevitable as are significant staff and program cuts.

This is all very painful but necessary medicine in this unprecedented economy but, at a time when bold and creative solutions are more likely to be given an appropriate hearing (i.e., "Never let a good crisis go to waste."), why is there still no talk of revamping the state pension system? The state has nearly 600,000 people covered by a defined benefit plan with assets of more than $90 billion and is collecting roughly $1.3 billion a year from employers. The City of Green Bay, Brown County and the Green Bay Area School District are paying a combined total of more than $26 million a year to the fund.1

The vast majority of public employers are paying 100 percent of this cost through labor agreements which, decades ago, eliminated any employee share. Trying to "take back" this benefit at the bargaining table is virtually impossible under Wisconsin’s Municipal Employment Relations Act because any attempt to do so would lead to arbitration and arbitrators have consistently argued that, when eliminating or reducing a benefit, the employer must provide a dollar-for-dollar quid pro quo. Therefore, if you want to cut a million dollars’ worth of pension costs all you have to do is create a new benefit, or supplement an existing one, at a cost of one million dollars.

That’s not the approach I am suggesting here. Indeed, as a former labor negotiator I can appreciate labor’s argument that these benefits were achieved through good faith negotiation and should not be removed, therefore, by legislative fiat. Instead, why shouldn’t the legislature mandate that all public employees hired after a date-certain, say Jan. 1, 2010, be required to invest in their own retirement? An employee who historically may have had a 12 percent contribution made on his/her behalf could, under this new provision, be required to match a certain portion. For instance, the employer would be mandated to pay only six percent while the employee could match up to an additional three percent.

This would still represent a very generous benefit, would grandfather existing employees, would get new employees to appreciate the benefit more and would save public sector employers throughout Wisconsin 25 percent of their current costs upon full attrition. Using the numbers above there would be a $325 million annual savings statewide and our three largest local public employers would save about $7 million a year. Granted, these savings would be phased in over 30 plus years as existing employees retire but the initial savings would be substantial and would grow each year. Furthermore, the new employees would have foreknowledge of this benefit and would make their employment decision accordingly.

The private sector has made extraordinary changes in the way it funds retirement over the past couple of years and it is foolish for us to treat our nearly one hundred billion dollar system as if it is off limits. Maybe then we can look at abolishing the nonsensical sick leave payout for new employees as well.

1 2006 Employee Trust Fund Annual Report (most recent available)