Retirement Benefits

Dane County Judge Juan Colas overturned portions of the new Wisconsin law, Act 10, affecting local governments as part of a lawsuit filed by unions in Milwaukee and Madison. The judge determined they violated free-speech rights and the equal protection clause of the state constitution, because safety personnel unions were excluded. Now, Moody’s has opined that the state court ruling overturning portions of Wisconsin’s controversial law curtailing collective bargaining rights could negatively impact local governments if it stands, Moody’s Investors Service warned. As enacted, the new law sharply limited collective bargaining rights at the state and local government level. Concurrently, the Badger State increased pension and health care premium payments for employees and cut local aid to governments to help eliminate the $3.6 billion deficit in its two-year $66 billion budget, relying on the collective bargaining changes at the local level to offset the cuts in aid. The changes were projected to save around $1 billion annually in spending by municipalities. The law stripped non-public safety unions of their right to bargain over salary and benefit issues with the exception of base wages that were capped at growth in the consumer price index. Before passage of the law last year, those issues were subject to negotiation. In its report, Moody’s noted: “Ultimate repeal of these provisions of Act 10 would be a credit negative for Wisconsin local governments, because it would slow the process of reducing public employee benefit costs by requiring negotiations with public sector unions to achieve cost savings.” While many local governments are still obligated to pay such benefits at levels set in existing contracts, Moody’s noted that many local governments have already realized significant savings during the past year. Wisconsin Attorney General J.B. Hollen appealed the Dane County decision and is asking the court to stay the lower court ruling during the appeals process. Moody’s warns that if the ruling is upheld on appeal, “Wisconsin cities, counties, villages, and school districts will have to return to traditional bargaining in order to manage personnel expenditures, a category which represents the majority of local government spending,” Madison Teachers et al v. Scott Walker, #11CV3774, Wisconsin Circuit Court, September 14, 2012.