Friday, April 07, 2006

Scott Walker's Tunnel Vision

An editorial today by the Milwaukee Journal-Sentinel is right to take Scott Walker to task for his unconditional support of the revenue amendment, but it lets him off the hook on the underlying reason for his amendment advocacy.

No one doubts the fiscal problems facing Milwaukee County. The debate is over how to solve those problems.

When confronted with fiscal troubles, governments should look to both trimming back on expenditures and reasonably increasing revenue. Scott Walker’s answer so far for Milwaukee County has focused solely on making cuts without taking seriously any steps toward significantly increasing revenue.

To be sure, the Milwaukee County workforce has decreased notably in recent years in light of service cuts. Scott Walker also openly admits that remaining county employees have made considerable concessions on both health care and pension benefits.

And now Walker is planning to seek court action to nullify parts of contracts made with county employees in good faith.

What Walker has refused to consider are ways to reasonably increase revenues, which would have the positive effect of minimizing the contract demands made on employees. And there’s no way he will be able to consider such relief for county employees unless he stands up to the political ideology that has so far fed his political aspirations—an ideology that refuses to accept anything but the diminishment of government.

Walker’s support of the revenue amendment is a result of this ideology. Despite the fact that the amendment would further hamstring the county budget and take fiscal control away from the county government, including the county executive, Walker still unconditionally supports it—in fact, he has even argued that it should be more restrictive.

As a Milwaukee County resident, I’m sympathetic to taxes in the county. However, while raising the sales tax has been discussed for years, the rate has not been increased (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. 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 the current fiscal situation in the county makes a reasonable tax increase far from arbitrary.

And I also understand the difficulties the county faces in terms of its pension liability—but I question Walker’s actions on this point after he decreased funding for the liability in the 2006 budget by nearly $8 million. Rather than simply maintain the 2005 budgeting level of $35 million—which would’ve covered the costs of the 2006 liability and the costs of the unfunded liability from previous years—Walker dropped the funding to $27 million. This was enough to cover the 2006 liability, but not the annual amortization on the system's unfunded liability from past years, causing it to grow even more.

According to the text of the budget, Walker made this decision because he wanted “to facilitate a debate within the County over the future of the [Employee Retirement System].”

So if we’re to get this straight, he purposely underfunded the liability further in order to start a debate?

I think a more likely scenario is that underfunding the liability allowed Walker to use that money to cover other areas of the budget and thereby avoid needing to accept a politically-threatening increase in revenues. And it had the added effect of setting up a situation where Walker could make a strong case in the future (i.e., now) for doing away with the ERS in exchange for a 401(k) retirement plan that’s funded in large part by employees.

While more concessions by county employees may in fact be necessary, it’s simply not justifiable until Walker gets on board with exploring reasonable and significant ways to increase revenues in the county. And it’s certainly not justifiable to pursue court action to nullify parts of labor contracts in order to protect a political promise.

While Walker undoubtedly has a responsibility to do his best to protect the tax level of county residents, the county also has the responsibility to do everything that's reasonable to honor the contracts it made with its employees and their families in good faith.

Up to this point, the Walker administration has not been honoring one of those responsibilities—and the reason has everything to do with politics, not fiscal management.


Blogger Sherman said...

I agree with the point of most of Seth's comments, but I do feel compelled to say that any fiscal analyis that is based upon tax rates and not tax levies is fatally flawed from the outset.

I would also like to add that I believe that the government pension system in Wisconsin desperately needs to be overhauled. The current system worked well in a 1950's job market but is hopelessly out of date today. Do you know what it's like recruiting talented young engineers or IT professionals and trying to keep a straight face while telling them that if they leave the organization before the 10 year vesting requirement they get nothing towards retirement?

April 07, 2006  
Blogger Seth Zlotocha said...

Thanks for your comment, Sherman.

I agree that just focusing on the property tax rate alone is flawed, but the last stat I gave also considered property value, which is an appropriate measure. In terms of property rate per dollar of property value, I noted that Milwaukee currently ranks 44th in the state.

Also, when just considering growth in property tax levy, over the last 10 years Milwaukee County ranks the 8th slowest in the state in that category, too. And if you care to break it down by property taxes per capita, Milwaukee County ranked 59th in the state in 2004.

(All of these figures can be verified in the link I provide in the post.)

Overhauling the state's retirement plan is perhaps needed. I'm interested to hear what you think it should become.

April 07, 2006  
Blogger said...

Once again, you nailed it.

A big question many of us who have a solid understanding of how government can work, is when Walker will stop playing politics and start to govern. He's playing an unsustainable game with Milwaukee County and its infrastructure. It's a bit like gambling but he's not doing it with his own money. It is a scorched earth technique to governing.

There are still plenty of people who say government pensions ought to work like private-sector companies. That is, to set them up with profit sharing arrangements and 401K's. The problem there is that these same people maintain a simplistic disconnect. When government is run correctly, there is no such thing as profit sharing because there is no profit. Costs are paid for with revenues and unexpected surpluses are handled by self-limiting future revenues (taxes).

Walker's claim that he underfunded the budget to "facilitate a debate" is just a scam. Amazingly, Journal Communications has not focused on it. Rather, they continue to credit Walker with illogical comments like 'yeah, Walker's right about unfunded mandates'. Where was the JS when Ament was saying the same thing? The big difference is that Ament (a democrat) actually governed and paid for items as they came due. He didn't decide to underfund courts because they were an unfunded mandate.

This is not to say that I agreed with Ament on everything. He wanted that damn whale wall on the museum and I torpedoed it (which I don't think he'll ever forgive me for) but I compromised by supporting its placement on the courthouse annex despite my feeling that Whalen is the artworld equivalent of a velvet Elvis painter or dogs playing poker artist. It was the only way to permanently move the debate away from the Museum whose donors were irate over the potential that the museum stature would be diminished by a guy who airbrushes dolphins for a living. It's comforting to see the annex being torn down.


April 09, 2006  

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