Imagine if Dane County lost the payroll of Dean Health Systems and its 2,700 employees?

Or if Marathon County suddenly absorbed the closing of its Kraft Foods cheese plant and those 150 jobs?

Those are the kind of economic impacts communities across the state could face under Gov. Scott Walker's proposal to increase health insurance and pension payments for some 343,000 school teachers, state and local government employees.

A report by the liberal Institute for Wisconsin's Future (IWF) released Monday estimates the cuts in take-home pay will cost the state $1.1 billion in reduced economic activity annually.

Those figures are based on an assumed 8 percent cut for those affected by the proposal, which would not apply to most police and fire workers.

The Walker plan would also result in 9,000 private sector jobs being lost, the report says.

"This decrease in consumer spending and the subsequent loss of jobs in Wisconsin is the last thing we need as the recession grinds on," says report author Jack Norman, IWF Research Director.

The IWF figures are based on data from the Wisconsin Department of Workforce Development. Using traditional economic calculations, the report estimates a loss of some $600 million a year in production in the private sector. The idea is that if people have less money to spend, then business will end up selling less and producing less.

The Walker plan would also increase the state unemployment rate and reduce sales tax collections as cash-strapped consumers spend less, according to the IWF.

Officials with the Walker administration declined to comment on the report but have said immediate spending cuts are needed to help close a budget gap.

The state is facing a $137 million shortfall in the current fiscal year and a $3.6 billion hole in the next biennium. The changes proposed to public worker pensions and benefits would save the state an estimated $30 million immediately and $300 million over the next two-year budget cycle.

Norman says the Walker budget repair plan is based on a flawed belief that public sector employment is "somehow different" from employment in the private sector. He notes that when any worker loses income they cannot afford to spend as much at the grocery store, furniture outlet or local car dealer.

"Under Walker's view, cuts to public employees are painless to the rest of the state's residents," he says. "In fact, reducing compensation for state and local employees carries a large and hidden cost."

Steve Deller, a professor at the UW-Madison Department of Agriculture and Applied Economics says it's difficult to estimate what the economic impact might be since so many factors are involved.

 But Deller says the across-the-board nature of the cuts make them especially regressive. He calculates a state worker making $30,000 might see a 12.9 percent cut in take-home pay while Wisconsin teachers who makes about $51,000 a year would see their paycheck shrink 7.7 percent.

"It all hinges on that health insurance payment," he says.

Deller did his own analysis using a 10 percent pay cut estimate for public workers resulting in about $490 million in lost income. He estimates 12,900 private sector job losses as a result.

"What is perhaps being overlooked is that there is lost state and local government tax revenues associated with this economic impact," he says. "Again, based on this worse-case scenario, we are looking at a loss of about $111.8 million in state and local government revenues."

 

 

 

 

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