Not What You Think

Let’s peel away the hyperbole to see what Gov. Walker really did in his first budget.

By George Lightbourn

Great people and great institutions can give us great moments worthy of Churchill. Given the size of last winter’s demonstrations in Madison and the international attention they received, it is tempting to define Gov. Scott Walker’s first budget as one of those Churchillian moments. That would be a mistake.

As the volume of protests rose along with Wisconsin’s blood pressure, it was easy to be caught up in the passion of the moment. To be sure, Walker’s budget was startling in so many ways. Yet it was hardly startling to the new governor. While much of Wisconsin yanked  its hair, he calmly went about delivering on his number-one campaign promise. He presented a truly balanced budget, as he pledged, and it was unlike anything we’d seen in our lifetime: no taxes, no gimmicks, real cuts. My goodness, did he really do that?

Just after Walker was swept into office, we wrote on these pages imploring the incoming governor to produce a real budget. “Where do you begin to chop this overgrown hedge?” we wrote. “The reality is that you need to trim it nearly to the ground if we hope to see healthy growth in the future. This will take time.”

We were wrong. It did not take time. Like so many people, we misread our new governor. He brought to the office tenacity honed on the mean budgets of Milwaukee County. More important, he came into office with political capital and he intended to spend it.

The budget he introduced — including the companion budget repair bill — made a firm, clear statement. The past was past, and he wanted no part of it. His script became familiar to all of us. “Wisconsin is broke. We need to bring spending into line with reality. We must give local governments  a way to deal with budget cuts.” Conservatives nodded in silent agreement while liberals clenched their fists and waved a bloody shirt.

The story of Walker’s first budget can be told in the usual budget jargon, using numbers and charts and graphs. However, the numbers tell but a fraction of the story and in large part mask the true picture. But let’s review the key numbers anyway.

In the decade before Walker’s election, state tax collections grew in fits and starts. Book-ended by recessions, the first decade of the millennium showed overall growth of just 10.8%, or an average annual growth of just above 1%. Remember that number.
Meanwhile, in that same 10-year period, total state spending (all funding sources) grew by 51.9%, or nearly five times faster than state tax collections. How was this possible? Simple: First, governors and legislatures routinely tapped into segregated funds and spent the proceeds. We recall the $1.1 billion moved from the transportation fund and the $200 million moved from the patient’s compensation fund (since reversed by the state Supreme Court).

Second, borrowing grew at a phenomenal rate. In that same 10-year period, state borrowing increased by 155%. It was a decade when state government overcame its shyness about the use of debt. State budgets routinely authorized exotic new types of debt and permitted bond revenues to be used to support the operational budget.

Third, budget after budget included undesignated transfers from program-revenue accounts into the general fund. Oftentimes, these transfers never fully materialized, something which wasn’t discovered until the money had already been spent.

Lastly, the federal government “gave” Wisconsin $3.4 billion of stimulus funds, $2.2 billion of which was used to offset what would otherwise have been a spending cut.
Suffice it to say that the state budget had become a biennial exercise in finding creative ways to support an ever-growing level of spending. Like the New Testament story of the Temple overrun with money-changing and deal-making, Wisconsin’s Capitol had become a building where dishonest budgets were routinely negotiated and approved.

It was against this backdrop that Walker introduced his no-nonsense budget. He set the ground rules and the Republican Senate and Assembly largely complied. When the governor signed the budget in June, spending grew by a modest 0.2% the first year and 2.5% the second year – a far cry from the average annual spending increases of more than 5% of the previous decade.

Most telling is what could be described as a moral statement in Walker’s budget numbers. For more than a decade governors, aided by willing legislators, had approved budgets propped up by a torrent of inventive maneuvers intended to make an unbalanced budget seem to balance. Yet every time the politicians promised a dollar of spending that had no money backing it up, the state’s accountants kept track. To them it was just another dollar state government owed.

Look at what happened in the decade leading up to Walker’s election: Governors signed budgets that accumulated an additional $ 2.1 billion of unfunded commitments. On average, every budget signed by a governor included $ $211 million of spending that they knew was unfunded. To the insiders who wrote the rules in the capitol, this wasn’t just the accepted practice, it was the expected practice.

Walker’s budget stopped this rise of red ink. When this plainspoken minister’s son said there would be no more winking at shady budget tricks, he meant it. His was not a negotiating posture. He was all in.

Capitol insiders, long accustomed to comfy go-along, get-along budgets, were flabbergasted. Walker was destroying Wisconsin’s schools, they said. He did not respond. He was attacking the middle class. Still no response. We would become (gasp) Wississippi! Nothing.

Clearly, those attacking the governor wanted more spending but were afraid to have their names linked to a tax increase. They read the polls. They understood the message the electorate sent last November. Incumbents had been slaughtered, especially incumbents who talked about tax hikes.

Nevertheless, while Democrats tried their best to dodge the tax question, a clear picture of what they really wanted emerged late in the budget process. Led by the Institute for Wisconsin’s Future (the architects of the combined-reporting business tax hike authorized in the previous budget), the left laid out its marker. They wanted Walker to increase spending by $2.3 billion and raise taxes by more than $1.4 billion. The difference would be made up in the usual way – by somehow pushing the problem off into the future.

And the response from Walker? Nothing.

On June 16, with the state Senate about to vote on the budget, Jon Erpenbach, the titular head of Wisconsin’s Senate Democrats, explained what was behind the hysteria. From the floor of the Senate, this respected, camera-friendly lawmaker from Middleton revealed that the real problem was that Walker was attempting to wrestle ownership of state government away from – well, away from its owners. Erpenbach and others saw state government as a condo association, belonging to a select group of owners.

Erpenbach was one of those owners, and he chose this June afternoon, when all of Wisconsin was listening, to expose, point by point, the real motivation behind the Walker budget. When he finished his remarks and sat back in his leather chair, he looked up into the gallery to see a protester, a young woman who had inexplicably clamped her neck to the gallery railing with a bicycle lock. Somehow, her odd gesture fit the moment.

What did the senator tell the world that June afternoon? With a reptilian calm, Erpenbach laid out a bizarre interpretation of Walker’s motivation: Walker wasn’t balancing a budget; instead he was leading, “a hostile takeover of Wisconsin.” The governor, he explained, sought to “get rid of local and state employees.” And why would he do this? To make it “easier for corporations to come in and take over those jobs.” To prove that he had thought this all the way through, Erpenbach told the Senate, “Multinational corporations can’t improve their bottom line overseas, so they’re turning to the states.”

While it might be easy to dismiss Erpenbach‘s theory, he put his finger on the essential element of Walker’s budget. This budget is about ownership. Empowered by an increasingly restless electorate, Walker clearly saw that he could not produce an honestly balanced budget by working with Jon Erpenbach and the rest of state government’s old ownership group. He had to blaze his own path. This was his budget and he was willing to allow his political future rise or fall on his fresh approach.

Walker anticipated a backlash. However, he could not have anticipated its magnitude. When he introduced his budget repair bill, my wife and I were out of the country in an intentionally remote location. On the few occasions we did reconnect with civilization, the BBC and Sky Channel consistently led with stories about Scott Walker and the protesters in Madison. Across America, all eyes were fixed on Wisconsin.

But they were reporting on the hyperbole, not the reality. Let’s stop and take an honest account of the more contentious elements of the budget. Was the backlash due to Walker asking public employees to contribute more toward their pension and health care? Unlikely, since state employee unions quickly conceded the governor was right and agreed to contribute. Moreover, polling suggested that 80% of the public, including a majority of union households, supported the governor’s idea.

How about Walker’s budget for schools? Democrats accused him of “destroying public education by starving it” and “making educators public enemy number one.” Yet that couldn’t account for the reaction. True, education budgets were nicked, but overall cuts amounted to a tiny 4.2% of school budgets in the first year of the two-year budget; there was a slight increase in the second.

Talk of 2,000 or more teacher layoffs quickly gave way to reality. Only Milwaukee and Kenosha — two districts where unions have yet to agree to changes in pension or health insurance — are likely to see noticeable teacher layoffs. Other districts have accommodated the cuts with minimal effect on classrooms. This is hardly the destruction of education.

How about social services? Democrat legislators point out that Walker cut $500 million (in projected spending) from Medicaid. But the reality is that the governor added $1.2 billion to the new Medicaid budget, the largest increase anywhere in the budget.

Even the outrage over Walker’s collective bargaining changes cannot fully account for the intense backlash. After all, Wisconsin public employees, even without collective bargaining, have civil service job security that any private sector union member would envy.

No, at the heart of the backlash is Walker’s audacity in reclaiming state government. Stated simply, he killed business as usual and seemed indifferent to the protestations of Erpenbach and the other former owners of government. Never had Wisconsin seen a governor so deaf to the dealmakers.

The unexciting truth is that Walker’s budget represented nothing more than a course correction. The two-year budget he signed into law increased state general fund spending by 2.5%, hardly the scorched-earth budget that has been described as “right-wing social engineering.” Local governments will be raising property tax bills by 1.2% the first year and 1.3% the second year. Again, these are relatively modest increases, requiring belt-tightening, to be sure, but they are still increases, not decreases. Many industries have been forced to make major cuts to their budgets and to their workforces. Neither has happened in state government.

There have been no state employees laid off, and under the Walker budget, furloughs are a thing of the past. All state workers retain their defined-benefit pensions, enviable health insurance and generous post-retirement health coverage.

The noisy defenders of the status quo would have us believe that Walker’s budget is the defining moment in the future of Wisconsin. Well, as a state, we can put down the paper bag and stop hyperventilating. This is not the end of life as we know it; it is just a balanced budget. Perhaps it has been so long since Wisconsin has seen an honest budget that we no longer know what one looks like.

Last November, we at the Wisconsin Policy Research Institute implored governor-elect Walker to submit an honest budget to the people of Wisconsin. “This is a different era in Wisconsin — an era that calls for a lot less flash and a lot more competence,” we wrote. And that is what he brought to the process: competence. He gave Wisconsin a budget devoid of gimmicks, devoid of false promises, devoid of tax increases (either explicit or hidden). It is a simple, honest budget, one true to the values of Wisconsin.

We should not allow the insiders to define this budget as something it is not. Historians will not write about this as a defining moment for Wisconsin. No, Walker has simply produced a budget with numbers that add up. It is a budget built of competence. We will be fortunate if it serves as a model for governors to come.

George Lightbourn, who served as secretary of administration for two governors, is president of the Wisconsin Policy Research Institute.