By James Wigderson
Special Guest Perspective for the MacIver Institute
Milwaukee County is in better fiscal structural shape than in recent years, but the budget still faced challenges from the growth in costs of employee and retiree benefits. However, as the Public Policy Forum (PPF) points out in its report on County Executive Chris Abele’s proposed budget, the county was able to take advantage of Act 10 public employee collective bargaining reforms to help bring costs under control and to achieve the county executive’s goal of no increase in the tax levy.
The PPF report said, “A multi-year effort to better manage employee and retiree health care costs – aided recently by the flexibility granted under Wisconsin Act 10 and difficult decisions to reduce the workforce – continues to produce savings that are countering the impacts of reduced state funding and other structural challenges.”
In an interview, Abele agreed with the report. “Absolutely Act 10 gives more flexibility.”
Abele said the best defense of Act 10 is the effect it has. “Your taxes didn’t go up and your services didn’t get cut. That is the best refutation to anything the unions would say.”
Before Act 10, the Milwaukee County Executive could propose savings in employee benefits in the budget, but they would have to be negotiated. Now employee benefits are no longer part of the collective bargaining process.
Milwaukee County went into this budget cycle with a structural deficit of $28.5 million. The county is facing an increase in health care and pension costs of $16.2 million, according to the PPF report.
Abele said that the question was how much of the increase in health care costs were passed along to the employees. “It either gets passed on to the employees or the taxpayers.”
With the Act 10 reforms in place, the county executive was able to propose changes in the county health plan for employees. For example, if the budget passes, the county will no longer be making a defined contribution to an employee’s flexible spending account of $500 for singles and $1,500 for families. In addition, deductibles and premium co-pays would also rise. The total savings in health care from the original budget forecast is $11 million.
As a result of health care savings, the PPF report says, “Employee/retiree health care savings bridge about 37% of the $28.5 million budget gap in the 2013 recommended budget, and bridged nearly 40% of the projected $55 million budget gap in 2012.”
The health care savings, combined with pension savings and savings from cuts elsewhere in the budget, is allowing Abele to propose a budget that has no furloughs or layoffs. Instead, the budget actually proposes $3.2 million in wage increases (including step increases).
The PPF report also says employees could save in their pension contributions, “In addition, the budget proposes a reduced pension contribution (from 4.7% of salary to 3.2%) for about 1,500 non-public safety employees who are not eligible for the pension backdrop, producing an estimated $750 savings for the average eligible employee.”
Abele has also proposed a performance recognition program that would give bonus to high achieving employees, although county supervisors (who are ineligible for the bonuses) were reportedly cool to the idea.
“How can they say, ‘We care for employees,’ when they take away half a million dollars?” he asked.
There is the possibility that the County Board could decide to erase the health care savings in the budget process, a possibility made more likely because the increased employee health care plan contributions would also affect the supervisors, too. But also looming over the proposed budget savings is possible action by the courts to permanently overturn Act 10.
Abele said in the interview, “If Act 10 is overturned, the first thing would be, we would have a very large debt increase.” He said either taxes would go up or services would be cut for everybody, not just Milwaukee County.
When asked if he had a contingency plan, he compared the situation to what the Pentagon must have been planning for a Plan B in case of a nuclear war.
“I could get to a balanced budget,” he said. “There would be massive cuts in services or massive tax increases. It would be blaming the taxpayers for problems they didn’t cause.”
He said they would have to go back to the pattern of doing cuts in services and tax increases every year because costs would go up faster.
“We have to look at structural changes if government is to be sustainable,” he said. “If we don’t change anything, there will be more taxes and less services.” Instead, Abele said, the county is pursuing providing “more service, better service, for less cost.”