By Larry Jones
April 25, 2011

Wisconsin Governor Scott Walker and Vermont Governor Peter Shumlin, in testimony before the House Committee on Oversight and Government Reform, provided different views on what is actually causing the fiscal crises that most state and local governments are experiencing. Walker told Committee Chairman Darrell Issa (CA) and other panel members that governors across the nation are facing major budget deficits. "In fact, according to the Center on Budget and Policy Priorities, 44 states and the District of Columbia face shortfalls in Fiscal Year 2012 totaling more than $111 billion and ranging from two to 45 percent of their total state budgets. In Wisconsin, we are currently facing a biennial deficit budget of $3.6 billion," he said.

To address the state's deficit problem, Walker told panel members he was implementing major reforms in the collective bargaining system to require public employees to help pay for their pension and health care benefits. Under the new system, state and local governments can ask their employees to contribute 5.8 percent to their pension plans and 12.6 percent to their health insurance premiums. "These reforms will help them balance their budgets. In total, our collective bargaining reforms save local governments more than $700 million each year." However, union leaders in Wisconsin, who fought against the reforms, claim that unions are not to blame for the state's deficit problems and stripping union workers of their collective bargaining rights will not save the state any funds.

In contrast, Shumlin said the fiscal crises "…are the result of the greatest economic recession since the Great Depression. While we can save a debate over the cause of this recession for a different day, there is no doubt that my state and others like mine are facing significant budget shortfalls because our revenues are down and the need for services is up." The most significant factors driving the state's budget shortfall are rapidly rising health care costs (Vermont is currently spending $5 billion annually), corrections, and state pension and retiree health care obligations.

Shumlin said he does not blame the state's current financial problems on state workers and pointed out that it is puzzling to him that the focus of the current debate over state budgets has not been on bringing people together to solve common problems, but on division and blame. To address the state's budget shortfall, he explained how he negotiated an agreement with employees that include: a three percent cut in salary for all state employees (a five percent cut for high-income employees) for two years, higher retirement ages for state employees and teachers, increased contribution rates, and a reduced level of health benefits. He also pointed out that changes in Vermont's teacher pension plan are already making a significant difference. The state's annual actuarially required contribution decreased by almost 25 percent immediately and long-term unfunded liabilities were reduced substantially. State employees agreed to similar changes several years ago.

tially. State employees agreed to similar changes several years ago.

Both Shumlin and Walker told panel members that they do not support a proposal sponsored by some Republican members that calls for extending the protection of federal bankruptcy laws to the states. The Conference of Mayors and other state and local groups believe such legislation could drive up state and local borrowing costs.

During the hearing, Issa discussed the importance of the Public Employee Pension Transparency Act, H.R. 567, a proposal he is co'sponsoring with Rep. Devin Nunes (CA) that would require state and local governments to submit annual reports to the U.S. Treasury Department providing detailed information about their pension plans, including unfunded liabilities determined on the basis of a Treasury rate of about four percent instead of seven percent or eight percent, which are the more commonly used rate of return on investments. State and local groups oppose this legislation because it is unnecessary and would impose another burdensome unfunded mandate on state and local governments.