Value of Governor’s “Tools” in Dispute
To help balance the biennial state budget, Governor Walker is proposing drastic cuts in aid to local governments, including counties, municipalities, and school districts. Cuts proposed by the Governor over the biennium include:
• $834 million GPR to public K-12 schools;
• $100 million GPR in shared revenue to counties and municipalities;
• $64 million in segregated fund state support for local recycling programs;
• $48 million in segregated fund state support for local transportation aid;
• $10 million GPR for mass transit aid; and
• $8 million GPR for juvenile justice at the local level.
In both the biennial budget bill and the 2011 budget adjustment bill, the Governor has proposed a number of policy changes that he says will allow local governments to reduce costs by an amount that will more than make up for reductions in state aid. The bulk of these “tools,” as the Governor refers to the policy changes, hinge on implementing restrictions on collective bargaining rights, which would allow local governments to unilaterally require public employees to pay more for their retirement and health insurance benefits. (The budget adjustment bill is currently being challenged on a number of legal fronts and has not yet gone into effect.) He has also proposed repealing certain mandates for schools and other local governments.
Governor Walker has said the tools he is giving local governments to reduce employee compensation will allow governments manage cuts in state aid without cutting services, and in fact sometimes even come out ahead. In his press release, the Governor claims that “overall, counties, municipalities, school districts and other local governments will realize more savings than reductions in state aid.” However a recent analysis by the League of Municipalities analysis shows the opposite. Why the discrepancy?
Governor Walker released a spreadsheet showing the amount local governments could save by cutting employee compensation, compared with the size of each government’s cut in state aid. Overall, his spreadsheet shows that 324 of 423 school districts would be able to cut enough to make up for reductions in state aid, and that “counties and municipalities potentially could see up to $110 million in savings beyond the overall reduction in aid.”
Almost immediately, local governments disputed the Governor’s assertions. In dozens of articles in newspapers across the state, local government administrators have said that even after cutting employee compensation, they will need to reduce staff and services to compensate for cuts in state aid. The Governor’s proposed biennial budget restricts the ability for local governments to increase property taxes to make up for cuts in state money.
Last week, the League of Wisconsin Municipalities released an analysis that refutes the Governor’s claim. The League surveyed 28 large cities in Wisconsin, and found that by making the cuts in employee compensation recommended or required by the Governor, the cities were able to save an amount that added up to only 61% of the cuts the Governor is proposing in calendar year 2012.
First of all, unlike the League of Municipalities, Governor’s analysis does not include the effect of the proposed elimination of state support for local recycling programs ($64 million over the biennium) or transit aids ($10 million). It’s not clear why the Governor did not include these programs in his tally of cuts to local governments.
For other differences between the Governor’s analysis and the one done by the League of Municipalities, it’s helpful to look at the numbers for a particular city. Let’s take the example of La Crosse, which has indicated that by making the changes recommended by the Governor, it could cover about 62% of the cuts in state aid – in other words, close to the statewide average. The analysis done by the League of Municipalities includes links to supporting documentation for each city, which is helpful for understanding the circumstances for individual municipalities.
By looking at the detail sheet for La Crosse, we can see that in 2012, city employees are scheduled to pay 10% of the costs of their health insurance premiums. Increasing that share to the 12% – the level suggested by the Governor – would save La Crosse less than half the amount estimated by Walker, who assumes that local government employees are currently paying a smaller share of health insurance costs.
In addition, the League of Municipalities analysis more fully accounts for the fact that savings obtained by reducing fringe benefits for city employees supported by utility or enterprise funds may not lapse back to the city’s general fund. A footnote in the Governor’s analysis indicates that it has assumed that 7.5% of payroll could be coming from other funds. However, the League of Municipalities analysis shows that in La Crosse, that figure is closer to 20%. The bottom line is that La Crosse would have an estimated shortfall of over $600,000 even after making cuts in employee compensation.
The Governor seems intent on remaking the relationship between the state and local governments, and between local governments and their employees. His stance that local governments can make major cuts to personnel costs without reducing overall staff and service levels may in fact hold true for some governments. But others will not be able to take full advantage of the “tools” proposed by the Governor and will be disproportionately negatively impacted due to circumstances beyond their control.