Monday, March 27, 2006

Rock : Scott Walker : Hard Place

Scott Walker has claimed numerous times in the past that he won’t run for Milwaukee County executive again after 2004, but his tune has changed markedly since dropping out of the gubernatorial race. Just days after bowing out of the race for governor, Walker now says there is a “good chance” he’ll run again for county exec in 2008.

Xoff has predicted there’s something in store for Walker in exchange for essentially handing the Republican gubernatorial nomination to Mark Green this past Friday. I tend to agree. I think the “good chance” line is just that—a line.

To be sure, Walker cannot stay in Milwaukee County because what needs to be done there is exactly what he’s built his political reputation on opposing—an increase in taxes.

Walker is so fearful of a tax increase on his watch that he vetoed a proposal to create a committee to merely study the idea earlier this year and also suggested he would oppose any referendum to send the question to the county voters this fall (so much for letting the people decide).

Earlier this month, Walker took the bold move to come clean about the fiscal problems facing the county and ask the state for a bailout. But the plea was to no avail—state legislators quickly reminded him that there’s little money on their end, too.

The only other tactics Walker has demonstrated he’s willing to use for the impending fiscal crisis are to cut services and blame his predecessor for the problems.

With most government operations in the county already working on bare-bones budgets and, in many cases, falling behind on needed projects such as maintenance, there’s little hope for wringing more life out of the county government.

And blaming Tom Ament for the county’s woes is growing old quickly. While Walker could apparently get away with referencing Ament repeatedly when discussing the fiscal crisis in his 2006 State of the County address—four years after taking office—I can’t imagine he’ll be able to get away with the same much longer. If he runs in 2008 and wins reelection, that’ll be six years in office and counting.

So for Walker there are really three options:

  1. Get on board with or at least get out of the way of a tax increase to maintain the fiscal integrity of the county.
  2. Continue to fight any and all tax increase proposals and, if successful, ride the wave into fiscal insolvency for the county.
  3. Leave the county executive position and maintain he did everything in his power to control taxes, but the tax-and-spend liberal base in the county just couldn’t control itself.

The most likely of those options is the third, although any of them are certainly possible.

Walker came into office under a strict mantra of not only freezing taxes, but also decreasing spending and the size of the county government. Both of the other two options would involve breaking that mantra by either overseeing an increase in taxes or clearly demonstrating that the mantra is flawed.

Unfortunately for Walker and his mantra, he came into office at a time when the economy was in the dumps, which throughout history has proven to be a time when government spending and growth is most needed. Walker didn’t heed that historical advice and now the county government is on the verge of fiscal collapse.

Even the conservative hero Ronald Reagan spent big when the economy was down—the difference being, of course, you can spend on credit as an executive at the federal level, a luxury not afforded to county executives in Milwaukee.

It’ll be interesting to see what happens to Walker in the coming months. He may be moving on to a position in some administration or he may be gearing-up for another election campaign of some kind.

Either way, I just don’t see him willingly sticking around Milwaukee County much longer.

9 Comments:

Anonymous Jake said...

nice analysis of possible outcomes that appear obvious to anyone but the idealogically blind - Not an analysis we are likely to hear from right wing bloggers. Walker wanted to ride Milwaukee County to the Governor's mansion. Now that the game is over, I see him moving on and leaving behind all of these unpaid bills

March 27, 2006  
Blogger Seth Zlotocha said...

Thanks for your comment, Jake.

I agree this analysis isn't something you'd hear from the right side of the blogosphere.

But what remains to be seen is how hard they challenge it...if at all.

March 27, 2006  
Anonymous Anonymous said...

For all the questions about right-wing “analysis”, perhaps you folks should do some analysis of your own before claiming that tax increases will solve Milwaukee County’s problems.

The County raised property taxes by $6.7 million in the 2006 budget. That left only $1.5 million to spare under the state-mandated cap. That $1.5 million is a drop in the bucket compared to the County’s fiscal needs, which are almost entirely personnel-based:

• The County spends about $56 million per year to provide what is essentially free health insurance for its retired employees and, with about 1,700 current employees who are eligible to retiree with subsidized health insurance, that figure may rise to as much as $93 million in 5 years.
• Many of those same employees are eligible to have 100 percent of their 20-plus years of accumulated sick leave paid out (approximately $22 million such dollars paid out since 2001) when they retire.
• The County shorted its pension contribution by $18 million in 2006, and its required contribution will rise by at least $5 million in 2007.
• In 5 years, the County will be spending its entire property tax levy on employee fringe benefits – not including salaries - and health insurance for retirees.

How much of these liabilities do you two honestly think can be covered even if the County raises taxes to the maximum allowed by law?

At what point do you folks begin to understand that even if Scott Walker had happily raised taxes to the max, the County cannot legally raise taxes enough to cover the cost of benefits and liabilities for employees and retirees? And at what point are taxes on a population that by every statistical category is less well off than state and federal averages high enough? At what point do you start to realize that seeking revenues from other sources besides tax dollars is not “pimping out” services, it’s wise business practice?

Milwaukee County’s problem is not revenue – it takes in over $1.2 billion dollars in revenue per year, most of that in the form of state and federal aid. That’s nearly 5 times as much revenue as Waukesha County takes in while it has only 2 and a half times the population. Milwaukee County’s problem is the amount of money it spends on and has promised to its employees and retirees. Even the proposed $30 million in additional revenue through a sales tax increase will not cover these expenses. If it is segregated to fund only parks operations, it will not do a thing to cover the County’s personnel liabilities. If those funds are used to replace property tax levy currently spent on parks, the parks are no better off and it’s still not even enough money to cover the tab.

Everyone in the County understands this problem; unfortunately some don’t particularly care and just hope taxes can be raised to keep the good times going. Their analysis, like yours, is not just flawed – it’s non-existent.

March 28, 2006  
Blogger Seth Zlotocha said...

Thank for your comment.

You're right that health care is an issue that needs to be taken seriously. This is true for all sectors, private and public, and not just in Milwaukee County. It would be nice to see leadership on the issue coming from the federal level, but so far that has yet to happen.

I wish Scott Walker and other critics of government employee health plans (which, ironically, benefit politicians like Scott Walker, too) would get on board with legislation like the Wisconsin Health Plan to tackle the overall health care issue. Unfortunately, it has been nearly a year since the plan was announced and it has yet to come before the legislature for a vote.

Simply making government employees pay more for health care isn't going to solve the health care problem in the future because it doesn't address the two main causes of the problem: cost and the (rising) number of uninsured. We need to think bigger than that when it comes to health care reform.

In terms of the proposed sales tax increase, $30 million would actually help the county immensely, as it has in places like Washington County. Some supervisors would prefer a half-penny increase to generate $60 million per year--that would probably be enough to help offset property taxes.

The real issue before us is how to avert a fiscal crisis in Milwaukee County. Unless there is a major overhaul of the health care system in Wisconsin and/or the country, there isn't any way to avoid a tax increase of some kind in Milwaukee County.

I do support the commercialization of some public areas run by the county (in fact, it was the idea of Tom Ament, not Scott Walker), but this won't generate enough revenue by itself.

There has been no viable comprehensive solution proposed to solve the revenue problem in Milwaukee County that doesn't involve increasing taxes, if only slightly through something like a quarter-penny sales tax. While we can and should diversify our revenue streams through ideas like commercialization, a tax increase still needs to be part of the solution.

Figuring out creative ways to diversify revenue streams is exactly the point of the committee proposed unanimously by the county board to study the revenue problem in Milwaukee, but unfortunately Walker decided to veto it because he was afraid it would come to the conclusion that some sort of tax increase is necessary.

This is exactly the point of my post--Scott Walker cannot stay in Milwaukee because the reality of increasing taxes, even slightly, doesn't fit with the political reputation he has built.

If Scott Walker thinks he can solve the fiscal problems of the county without a tax increase, I'd like to see him stick around and do it. I just don't think he trusts that he can.

March 29, 2006  
Anonymous Anonymous said...

Seth:

You are welcome for the comment and while I appreciate your desire to find a solution to the health care problem, with all due respect you seem to still not get it.

Neither Scott Walker nor the County Board can determine state or federal health care policy, despite what District Council 48 believes. One of their representatives claimed at a hearing that the solution to the County’s rising health care expenses was to pass a resolution supporting socialized insurance. Seth, when President Bush says “Hey that’s great. Paper shredder.”, what positive impact will that have on Milwaukee County’s budget? Shouting at the feds and the state to fix their policies is NOT fiscal policy and it is NOT leadership. It IS how many local governments end up in trouble.

The only thing Walker and the County Board control is how much money they spend, which is directly related to the one thing they really control: how many people they employ and what those people are paid. The culture of Milwaukee County is to protect the employee. Many employees, hundreds if not well over a thousand, were hired into entry-level positions more than 20 years ago which they never left. An entry-level position is supposed to exist so that an employee gets a few years of experience and move on, to be replaced by another low-skill, inexpensive employee. That has not happened at Milwaukee County. Instead that person stayed for 25 years, had their position reclassed to something that pays more when they hit the top of their pay scale (eliminating the entry-level position in the process), and built up 20 to 25 years worth of sick leave and vacation time that they’ll be paid for – in many cases at 100% - when they retire. At age 56.

Worse, the County employs literally hundreds of individuals in positions that either should not exist or that could easily be contracted out to private providers. Ask your County Supervisor how many tomato peelers and sewing technicians the County employs, and be sure to ask not only what their hourly salary is but their health care cost and pension benefit as well. The benefit of using private contract employees is that the County bears no long-term liability for that employee. In most cases these employees still receive benefits, and those costs are covered by the County under the contract, but they do not accrue tax-payer funded sick-leave, vacation, and pension benefits that must be paid out for weeks and years after the employee moves on.

An additional $60 million for parks, while nice, will not cover the outstanding liabilities which growth with inflation and interest. Neither would reaping a few million from Starbucks and Pizza Huts in every park. If health insurance for retirees costs $30 million more in 5 years than it does today, half your increased revenue is gone. The unfunded liability for the pension system is $357 million. You going to put a $30 sales tax into effect?

These problems are not Walker’s making. A $357 million unfunded pension liability does not happen in 4 years. Thousands upon thousands of retirees – most under 65 – are going to enjoy unsustainably expensive health insurance thanks to people besides Scott Walker. Walker did not take the politically suicidal step of suggesting a massive bailout from the state while running for Governor because the problem can be solved with a half cent sales tax.

I’m sure the idea of contracting out workers and eliminating guaranteed pensions goes against your liberal beliefs. But guess what? The County is simply at the point where it HAS to choose between two options: providing services, such as parks, golf courses, cultural programs, the zoo, and non-mandated social services such as GAMP; or continuing to pay for exhorbitant employee and retiree benefits. It simply does not have the money or the revenue base to do both. The first set benefits the taxpayers and the citizens, the second set really only benefits the employees.

To which group are Walker and the County Board ultimately responsible, Seth?

It is indeed time for Walker to stop blaming the past, even though that is where it belongs, and come up with a plan. That is his job and that is what a leader would do. But the really sad part of this is that Walker is in for it no matter what he does. No matter what he does, either choice he makes will be ripped to pieces by the County Board and people like you who don’t want to make that choice and who find it easy to sit back and take shots without ever offering a proposal of your own. If Walker proposes contracting out, he’s torn up by the unions and a sympathetic County Board. If Walker proposes service cuts, he’s still torn up by the County Board because hates the poor or is a racist.

March 29, 2006  
Blogger Seth Zlotocha said...

And what happens if Walker proposes a tax increase? He'll be labeled a "RINO" by the same people who put him in power more quickly then they got him there. Liberals aren't the only ones putting pressure on Walker, or any other politician for that matter.

Your argument seems to be that firing county employees and replacing them with private contract workers is the only viable answer.

This hinges on your assertion that there is a $357 million unfunded liability for the pension system that couldn't be covered through any increases in revenue.

Where are you getting this $357 million figure? Is this supposed to be for one year or over an extended period of time?

Before we continue the conversation further, I think it's best we're on the same page with our evidence.

And just to get one thing clear--I'm a blogger, not a policymaker. I do my best to analyze policies that are proposed based upon the facts available to me and my ideological beliefs.

I do my best to be civil and evenhanded with my critiques, although I don't ever dismiss that I have political leanings of my own.

But unless you're willing to suggest that people should not critique policies and decisions made by politicians unless they're able to also propose a viable and contrete alternative (in other words, unless they're a policymaker), then we should leave the comments about me just sitting back and taking shots at Walker out of it.

Besides, in this case I did happen to suggest an alternative--raise taxes and search for other revenue streams through avenues like commercialization. You just didn't like it because it seems you think that's not enough.

Which brings us back to the $357 million figure. Get me the info on that figure and we can continue the conversation.

I like discussing issues like this with well-informed, smart people like yourself, regardless of their ideological stance. That's my whole point for starting this blog. I trust it's the same reason you visited it.

March 29, 2006  
Blogger Seth Zlotocha said...

Interesting tidbit as I look into this further, it appears Walker decreased funding for the retirement system in the 2006 budget.

The 2005 retirement system budget amount was for $35,370,000, which was intended to cover the current year and the annual amortization of the system's unfunded liability.

In 2006, however, Walker dropped this budget item nearly $8 million to $27,400,000, which would cover the cost of the current year but not the unfunded liability.

Why would he do this?

According to the budget, "The County Executive proposes that this action is necessary to facilitate a debate within the County over the future of the ERS."

So he underfunded a liability that the county is just going to need to now pay more for in the future because he wanted to start a debate?

March 29, 2006  
Anonymous Anonymous said...

Seth,

I apologize for the arrogant tone of the previous two messages. But my
arrogance stems from experience, because I am pretty familiar with
Milwaukee
County’s budget problems, having experience working for the County. And
no,
it was/is not as a flunkie for Scott Walker.

Of course you have the right to speak on policy options and I wouldn’t
have
it any other way. And as a blogger of course you do not quite have the
professional responsibility to get all the facts exactly correct. But I
think you would agree that everyone, from the common citizen blogger to
the
paid professional journalist, should become as intimately familiar with
the
facts as possible before making assertions on how to fix things. This
is the
great dilemma in our governmental structure: we want citizens to voice
their
opinion but it’s nearly impossible for those citizens to both have a
social
life and known everything there is to know about the issues on which
they
speak. And I absolutely agree with you on the peril Walker faces in
getting
labeled a “RINO”, since I’m unquestionably a RINO myself.

For the record, the $357 million unfunded pension liability is from the
Pension System’s June (maybe July, can’t remember for sure) 2005
actuarial
report provided by Mercer. I am sure you can get a copy if you call the
County’s Employee Retirement System. You should also request the latest
annual report that values the system as of December 31 of the previous
year.
If you can get it, the figure is also in the County’s official
statement
made to the rating agencies for its bond sales this year. That figure
represents the total pension costs for which the ERS is liable for all
current employees and retirees minus the system’s assets. That means
payments to all current employees and retirees until they die. If I
remember
correctly the system is currently about 70 percent funded, while an 80
percent funding level is considered “healthy”. That amount has to be
made up
through a combination of contributions by the County and investment
income.

As you’ve probably read in the Journal Sentinel today, the County is
now
suing Mercer for what happened when the pensions were enhanced. From
what I
understand of the history, the case has merit. But aside from Mercer’s
failures, the fact remains that the County Executive and County Board
fell
into the same trap as many other state and local governments in the
late
1990s and 2000: buoyed by a strong stock market that had their pension
systems flush with funds, and sympathetic to employee unions who gave
them
so much support, they decided the good times would last forever and
radically enhanced their pension benefits. Again, it was not just
Milwaukee
that did this, it was other places like San Diego and many other
cities,
counties and states.

Firing employees, union or otherwise, is not an option I propose
gleefully.
But again, look at the County’s finances. The 1950 budget – fringe
benefits
- you quote totals $163 million. And that’s with a pension contribution
shorted by about $11 million. Property taxes were $232 million. So the
County is using 75% of its property tax levy just to provide fringe
benefits
for its employees and health insurance for its retirees. It hasn’t paid
a
single employee's wages and social security, it hasn’t bought a single
bag
of seed for the parks, it hasn’t paid a single long-term care nurse, it
hasn’t changed the oil on a single bus, it hasn’t bought a single
Kevlar
vest, and it hasn’t fed a single animal at the zoo; and already 75% of
its
reliable revenue is gone.

Contracting out staff, not firing people wholesale, is the answer for
precisely that reason. A full-time IT worker or BHD nurse doesn’t just
earn
a salary. They also accrue sick time and vacation time, which is a
long-term
liability that must be paid at some point in the future. The rate at
which
those benefits accrue is far beyond what most similar employees earn in
either the private or public sectors. They also accrue long-term
pension
benefits that must be paid at a higher rate than what they are even
earning
now. Around 1,700 of them are currently eligible for FREE health
insurance –
with premiums that rise between 5 and 15 percent per year - when they
retire. Remember if they retire at 57, they get that insurance for
maybe 30
years, since the County has a supplemental plan for those over 65 who
are on
Medicare. If you can attend the next Finance Committee hearing, I
really
urge you to listen to the report on health care expenditures and ask
some
follow-up questions.

The County Executive has proposed ways to reduce these benefits to the
board
several times in the past. All were shot down because the Board
believed we
could keep all these benefits and not cut services. He tried pension
obligation bonds as a way to fund the long-term liabilities. Those were
shot
down. He proposed reducing pension and sick-leave benefits in the
latest
round of collective bargaining with the unions, and only this year were
those proposals finally accepted. Without a massive influx of cash and
a
massive rally in the stock market, the pension system does not have
enough
money to fund its long-term obligations, even with the recent union
concessions that only affect new employees. The Executive had to force
the
issue in the last budget, which is where the language you cite comes
from.
The under-funding of the pension forced the County Board to recognize
that
even if we raise tax levy to the maximum – a measly $8 million – we
could
not maintain services and pay for all of the fringe benefits.

I’m not making this stuff up, Seth. I wish that I were. It’s all there
in
the budget and in pension reports and documents that are all available
to
the public. I agree with you that the Executive’s hard-line approach to
freezing revenues is unproductive and unrealistic; but the County’s
fiscal
problems go way beyond whether or not he supports raising property
taxes by
$8 million or even sales tax by $60 million. The problem is structural
and
it is directly caused by the County’s ringe benefit structure – the
free
health insurance, the multipliers, the backdrop, and the 100%
sick-leave
payout, which is exacerbated by the culture that keeps people around
long
after they should have left.

Again Seth, to which party are Walker and the County Board responsible:
the
County’s employees and retirees or the taxpayers?

Take it easy.

March 30, 2006  
Blogger Seth Zlotocha said...

I appreciate your apology. Just to make a couple more comments on that note, I happen to take pride in the fact that on this blog the facts are correct.

It’s probably true that I don’t always have at my disposal every single one of the facts for the issues I discuss (how many people, including the "pros," do?), but the facts I do cite are right on and always documented. (And not having every single fact on an issue doesn't mean conclusions aren't justifiable...even books don't have all of the facts for every issue they discuss.)

And I’m always searching for additional info on an issue. If that additional info I run across doesn’t fit with something I’ve posted, I always either correct my conclusions or reconcile the new facts with those conclusions. (Here's just one example.)

Most importantly, I never put up posts expecting them to be the final word on issues—quite the opposite, I hope that people do bring up other facts or a different take on the facts I’ve presented in the comments section. Much like you did for this post.

My goal with this blog is not to win arguments. Although I do support progressive policies, my goal is to see policies triumph that are the most reasonable and fair to all parties affected. This is why I have supported school vouchers and some form of concealed carry on this blog, despite the fact that those are not issues I would necessarily champion.

Which brings me back to the issue at hand. I’ll take your advice and contact the County’s Employee Retirement System for a copy of the latest actuarial report. I have no doubt the $357 million figure you cited is accurate.

You asked where I think the responsibility of the county board and the county executive rests, the county employees or the county citizens, I think the only possible answer is both. You might argue that it’s necessary to pick one, but I’m not sure that’s the case—at least not exclusively.

In a fiscal crisis, I think governments need to do to things: (1) look for ways to cut operation costs without diminishing needed services or firing existing employees, and (2) search for new revenue streams in a reasonable fashion. In other words, search for a solution that asks both sides to whom the government is responsible—employees and citizens—to help out.

In the current situation with Milwaukee County, operation costs have been cut and so has the total county workforce (granted, mostly to retirements). Perhaps more needs to be done on this end, but I don’t think it’s fair to do so until the county starts to consider other revenue streams to see how they will impact the fiscal situation. So far, the county has not done this.

While raising the sales tax has been discussed for years, the rate has not been raised (aside from the tenth of a penny dedicated to Miller Park) since 1991. And in terms of property taxes, the rate for Milwaukee County has decreased 10.2% over the past decade—which has made for the 8th slowest property tax increase of any county in the state since 1994. And in 2004, Milwaukee County ranked 44th out of the 72 counties in property tax rate per dollar of property value.

This is not to say that taxes should be raised arbitrarily simply because they’ve grown more slowly in Milwaukee County relative to the rest of Wisconsin over the past decade, but I think the current fiscal situation in the county makes a reasonable tax increase far from arbitrary. And the point of my original post is that Scott Walker can’t stick around Milwaukee County because his political reputation will not allow for a tax increase on his watch.

You may very well be right that the service and personnel cuts that have already taken place along with some sort of tax increase in the future may not be enough to save the county fiscally.

But I think the county has an obligation to the people it hired in good faith (and their families) to try to reasonably increase revenue, at the very least to see if that will lessen the amount of jobs that may eventually need to be contracted out. Although if the county can pocket that $100 million from Mercer, perhaps nothing more would be necessary.

Thanks, once again, for your comments. They’re much appreciated. I hope you continue to visit the blog and make comments on my posts in the future.

March 30, 2006  

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