Special Report

Wisconsin Showdown

Newt Gingrich and Jeb Bush are right about state bankruptcy as one way to deal with rapacious government unions.

By 2.23.11

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Nationwide, state and local government workers are paid on average 45% more than private sector workers, with an average hourly wage of $26.25, and $13.56 in hourly costs for benefits, for total hourly costs of $39.81, or $80,000 per year on average. This is true in Wisconsin as well. Indeed, the Manhattan Institute's E.J. McMahon reports that for public school teachers in Milwaukee, the annual cost of family health coverage is $26,844, for which the teachers currently pay nothing.

Yet, state and local government workers are mobbing the capitol in Wisconsin because newly elected Governor Scott Walker's bill to close the state's $3.6 billion budget deficit would require them to pay 5.8% of their pension costs, and 12.6% of their health insurance costs. In both cases, that would still be only about two-thirds or less of what private sector workers pay on average, among those who even have employer-provided health insurance. And no private sector worker has pension benefits like government workers, with some retiring at age 55 or even younger, with six-figure pensions every year for life. It is the private sector workers who must pay the taxes to keep the wages and benefits of public sector government bureaucrats in the style to which they have become accustomed.

Government Unions = Conflict of Interest

The right of collective bargaining for private sector workers is not at issue in Wisconsin, though President Obama and the Democrats want to confuse the public on precisely that question. Under current law, there are plenty of market and legal checks on private sector unions to keep them from abusing the public. The ultimate limit if they push too far is that their company will be driven out of business. Though that does happen sometimes, that is only when management fails to do its job in resisting excessive union demands. Otherwise, within current market and legal checks, private sector unions actually perform a helpful market function in ensuring that employers keep up with market wages and working conditions as expeditiously as possible.

Not so for government unions, which are two words that together spell oppression. Federal, state, or even local governments cannot be driven out of business. They gain their revenue forcibly through taxes. As a result, there is no market limit to how much such unions can pirate from the public.

Indeed, public sector unions choose their own employers, by voting for the governing policymakers for each political entity -- Governors, legislators, county chairmen, etc. This creates an inherent conflict of interest, as a politician can be negotiating regarding the pay and benefits for his own political supporters at public expense. That can lead to oppressive political corruption, where there is no political limit as well as no market limit to the plunder of the public by government unions.

That fundamental, unworkable problem with government unions used to be commonly understood, which is why even an ultimate liberal like Franklin Roosevelt would not recognize them. And that is why strikes by government workers have been commonly prohibited in American history as well. These workers are providing essential public services, and they should not be allowed to deprive the public of such services. But today this common understanding of the past has been lost in too many jurisdictions. As a result, we find exactly oppression of the public in some local or even state jurisdictions.

Governor Walker's bill would limit collective bargaining for government employees to wages. Collective bargaining over working conditions is what produces public policy atrocities like requiring the layoff first of better teachers with less seniority instead of union time servers with more seniority who have lost real interest in doing a good job. Governor Walker's bill would still provide for more collective bargaining for Wisconsin government workers than allowed those so badly oppressed federal workers, whose wages are set by an act of Congress rather than collective bargaining.

Government employees work for democratically elected officials representing the will of the people, not greedy miscreants exploiting them for personal profit. This is another reason why there is no legitimate role for government unions, and there should be no collective bargaining rights for government bureaucrats. Governor Walker's more moderate bill actually greatly benefits state and local workers by terminating government collection and payment of their union dues. This gives power to the workers to each voluntarily decide if they want to pay those dues. That is like a tax cut of as much as $1,000 a year for state and local government workers. That policy needs to be adopted in every state, as taxpayer money going to government union dues is the root of all political corruption in America.

This Is What Democracy Looks Like

Wisconsin just held an election last November, and the voters granted the Republicans a 19-14 majority in the state Senate. But under Senate rules, a quorum of 20 is needed to conduct business. By refusing to even participate in Senate proceedings, and consequently shutting down the state Senate, the 14 AWOL Senate Democrats are imperiously rejecting the democratically expressed will of the people.

Anti-democracy demonstrators have mobbed the state capitol in Madison to impair the state legislature's proceedings, chanting also imperiously, "This is what democracy looks like." The chant is imperious because it implies that the state and local government workers comprising the demonstrators embody superior democratic legitimacy over the vote of the people of the state last November.

What those state and local government workers are doing in the state capitol is not what democracy looks like. It is what mob rule looks like.

What democracy looks like is what the Wisconsin Tea Party should now do to the 14 AWOL Democrat state senators. The Wisconsin Constitution explicitly grants voters the power to recall and remove from office those anti-democracy Democrat state senators. The state Constitution provides:

The qualified electors of the state, of any congressional, judicial, or legislative district, or of any county may petition for the recall of any incumbent elective officer after the first year of the term for which the incumbent was elected, by filing a petition with the filing officer with whom the nomination petition to the office in the primary is filed, demanding the recall of the incumbent.

Of the 14 missing Democrat state senators, at least half would be subject to immediate recall this year, maybe more. While efforts to recall U.S. Senators under such state law provisions have been subject to legal controversy, there is no legal controversy about the authority of voters to recall state senators under such provisions.

Clearly, what Governor Walker is asking for to balance the state's budget is quite reasonable. Indeed, it is long overdue. For those anti-democracy Democrat state senators who refuse to even allow a vote on the measure by failing to show up and do their duty, the Wisconsin Tea Party should begin the process of recall under state law now. Voters whether liberal or conservative should not abide anti-democratic state senators who shut down the legislature altogether by refusing even to show up to for work.

Pending that, the state's Senate Majority Leader should declare the seats of the senators who continue to fail to show up vacant. The Senate should then proceed to adopt new proportional quorum rules based on the number of seats that have not been vacated, and then go ahead and pass the Governor's budget proposals. The Senate should then proceed to other state business.

If the AWOL senators don't like it, they can sue.

State Bankruptcy: For Everything There Is a Season

What is at stake in Wisconsin is whether public servants work for the people, or whether the people work to serve a government bureaucrat aristocracy. The recent experience in Wisconsin shows the wisdom of the proposal made earlier this year by former House Speaker Newt Gingrich and former Florida Governor Jeb Bush to allow states to file for bankruptcy.

The U.S. Constitution explicitly gives Congress the authority to provide for bankruptcy law. That is because as the Founding Fathers recognized, bankruptcy allowing those who have hopelessly indebted themselves to start over is not an immoral dodge, but good public policy. Pursuant to this authority, the U.S. Bankruptcy Code has provided the option for local government authorities, including cities and counties, to file for bankruptcy since 1934. As Gingrich and Bush have argued, the time has come to extend this option to state governments as well.

Criticism of their proposal has arisen due to failure to understand what bankruptcy means, and a rush to judgment before considering the details of the proposal. Amending the U.S. Bankruptcy Code to provide for state bankruptcy would mean foreclosure of any option of a federal taxpayer bailout for irresponsible spendthrift liberal states.

Under the Gingrich/Bush proposal, bankruptcy would be solely at the option of the governing state authorities. States could not be forced into bankruptcy by any creditors. Moreover, federal bankruptcy judges would not have the power to order a state to do anything. That would violate state sovereignty and democratic control by the voters. The federal law would specifically indicate that no judicial bankruptcy decree for any state could provide for a tax increase. That would take us all the way back to taxation without representation, which we fought a war to overturn.

States that wanted to exercise this new bankruptcy option would file a plan of reorganization with a federal bankruptcy court. The plan of reorganization would specify how the state's debt obligations would be readjusted and then paid off, including possible reductions or cancellations of outstanding obligations or debts as in any bankruptcy. The only requirement on the plan of reorganization, besides no tax increases, is that all creditors within the same class of priority would have to be treated equally within the usual established rules for all other bankruptcies.

The highest level of priority would be for bondholders, so that a state could file for bankruptcy without nullifying any outstanding bonds, which would preserve the state's ability to borrow in the future when necessary and desirable. This would also help to avoid disruption in state bond markets. Note that municipal bond markets have continued to function over many years even with the possibility of municipal bankruptcy under federal law. The great majority of state and local bonds are, in fact, municipal bonds, which have long been subject to federal bankruptcy law. Extending the option of bankruptcy to states would consequently not newly threaten municipal bonds, as critics have wrongly suggested.

The second level of priority under state bankruptcy would be for vendors and contractors to the state. That would maintain some protection even in bankruptcy for vendors and contractors to be paid who have provided goods and services to the state, or at least be paid equally and proportionally with others.

The third level of priority would be for union contracts. This would empower states to rewrite onerous public pension obligations, or to freeze salaries and pay contrary to any outstanding contractual obligations. I know this is necessary from personal experience with state government pension reform efforts, where we have been told that no reforms can affect current state workers because of outstanding union contracts.

The point of state bankruptcy, therefore, is not to dodge state debts, as critics have also wrongly suggested. It is to grant states new powers to deal with rapacious government bureaucrat unions. Wall Street bankers have already run to Congress crying that state bankruptcy would imperil their bond holdings. These bankers are another class of aristocrats, some of whom run to Congress every 10 years crying that unless they are bailed out and enabled to continue to enjoy their fat cat lifestyle at taxpayer expense, the economy will crash. What is in their future in the next Administration is the permanent end of such Too Big To Fail bailouts, rather than their institutionalization as in Obama's Dodd Frank Financial Regulation legislation. This would be accomplished through another Bankruptcy Code amendment providing for the rapid liquidation of bankrupt Wall Street banks, which would protect the broader economy. What is needed is one big Wall Street bank bankruptcy to prove the end of Too Big To Fail. I can't wait for that.

The federal judge in state bankruptcy would have the power solely to accept or reject the state's plan of reorganization. If the judge accepted the plan, it would have the force of law, reordering the state's obligations and debts as provided. If the judge rejected the plan, he would have to issue an opinion explaining why. The state could then try again.

The federal law would provide that a state's bankruptcy could be triggered by a filing initiated by the state's governor, or by the state legislature passing the plan of reorganization, which would automatically send it to the court for approval, or by the people adopting the plan of reorganization by citizen initiative, automatically sending it to the court as well.

If this were the law, Governor Walker in Wisconsin could go ahead and file his reorganization plan with a federal court, without having to wait on corrupt politicians, bought off by their government union political machines, to show up for work. Or citizens in Wisconsin, or in California, could file for an Initiative Referendum on a plan of reorganization devised by the Initiative sponsors themselves.

The Wisconsin Showdown is already spreading across the country to other states. Changing the U.S. Bankruptcy Code to allow for state bankruptcy filings would be a valuable tool to empower taxpayers nationwide to protect themselves.

What Governor Walker is doing in Wisconsin is protecting the interests of working people in the state, who are the ones who must pay the taxes for the lavish pay and benefits of public sector aristocrats, and suffer their own lost jobs and wages resulting from high taxes. Personally, I would like to see every working family making over $100,000 per year, and retiring as millionaires, whether working in the private or public sector. With the right economic policies, that is possible in America within a generation. That, indeed, is what I have devoted my entire life at this point working for. But we are going to fall farther from that goal, rather than grow closer, following the neo-socialist runaway tax, spend, deficit and debt policies advocated by shortsighted, brain dead government unions.

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About the Author
Peter Ferrara is Director of Entitlement and Budget Policy at the Heartland Institute, General Counsel of the American Civil Rights Union, Senior Fellow at the National Center for Policy Analysis, and Senior Policy Advisor on Entitlements and Budget Policy at the National Tax Limitation Foundation. He served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under President George H.W. Bush.