Pension
pact a coup for Thompson
'Dr.
No' wooed unions with sweet deals
By Bruce Murphy
Milwaukee
Journal Sentinel,
May 4, 2003
Early in Gov. Tommy G. Thompson's tenure, he was still working to
overcome his legislative reputation as "Dr. No," a roadblock to
new programs. Public employee unions were particularly suspicious, and they
had tremendous electoral power in a state where one of 11 employees worked
for government.
The icebreaker came in 1989, when Thompson signed a bill giving higher
benefits to veteran public employees who retired early.
"Politically, that bill was huge for him," said Ed Huck,
executive director of the Wisconsin Alliance of Cities, which generally
opposed such plans. "It changed his persona, especially with the
unions."
The culmination of that kind of deal-making was the 1999 pension bill,
which added some $5.5 billion in benefits that will burden state and local
taxpayers for decades, while sweetening the retirement of Thompson,
legislators and several hundred thousand retirees and public employees.
"The legislation is a microcosm of all that's wrong with (state
politics)," said Rep. Glenn Grothman (R-West Bend), who opposed it.
"It's an example of how we got into this current fiscal mess."
Thompson had won office in 1986 with promises to slash spending and
government employment, but the governor soon began adding employees, while
working to build rapport with union leaders.
"He told us early in his tenure, back in the 1980s, he was open to a
retirement benefit increase," said Dennis Boyer, coordinator of
government relations for the American Federation of State, County and
Municipal Employees.
A key official pushing for this was Marty Beil, head of the state
employees union.
By 1994, union support had become more important to Thompson, who was
running for a third term. He was offering himself as a vice presidential
candidate for 1996, and wanted a margin of victory that would look
impressive, Capitol observers say.
In September 1994, Thompson told a meeting of leaders of the state
employees union that he would back an increase in the annual pension
multiplier for employees. "All of you are going to be extremely happy
with the pension bill," he promised.
Thompson made similar overtures to the state teachers union, a group he
had always targeted as an enemy. Union leaders were suspicious but well
aware that Thompson's wife was a teacher who felt that her profession
deserved better compensation.
Thompson's overture to Beil and the state employees union worked: They
backed Thompson in 1994 and again in 1998.
Beil, in turn, had a huge impact on the pension system, said Judy Klusman,
the former Republican representative from Oshkosh and co-chair of the
Legislature's Joint Survey Committee on Retirement Systems.
"Beil and the Thompson administration would decide what the deal
should be, and they would give it to the joint survey and expect us to
rubber-stamp it," Klusman recalled.
Beil did not respond to numerous messages requesting comment.
But Klusman said public employees already had a Cadillac plan. On several
occasions, she helped kill proposed changes.
"She stood up for her convictions against both parties and the
unions," said Huck of the Alliance of Cities. "She had guts."
Klusman survived the 1998 election, despite being targeted by the unions.
However, after the election, she met with Assembly Speaker Scott Jensen
(R-Town of Brookfield), and learned that she would lose her retirement
committee post.
"He said the administration wanted him to remove me," she
recalled. "So ended my ability to say no."
Mark Bugher, who held several posts in the Thompson administration,
denies such a request was made.
Either way, the path had been cleared.
'The governor wants it'
The unions proposed a plan awarding pension sweeteners only for years of
service prior to 2000. Not offering the added benefits for future years
would lower costs and give the rewards to current employees.
Even with the proposed 10% increase in the pension multiplier (from 1.6%
to 1.765% of final average salary for each year worked), the average
employee would have had to work 37 years to hit the legal ceiling of 65% of
final average salary.
Fewer than 400 of some 250,000 employees had such seniority. So the
unions did not propose increasing the ceiling to 70% of final average
salary.
That was added after the politicians began refining the plan, Boyer said.
Because elective and executive officials earned 2% per year and would see
their multiplier increase to 2.165% under Act 11, it was possible for a
handful of long-term veterans, including Thompson, to hit 70% under the new
plan. The two other key decision-makers, Jensen and former Senate Majority
Leader Chuck Chvala (D-Madison), lacked such seniority.
Scott Dennison, research director for the committee on retirement, said
when he questioned a benefit that affected so few people, legislators told
him: The governor wants it; it will help Tommy.
Others who might have gained from the 70% ceiling were police and
firefighters, who also had the higher annual multiplier. But the bill made
an exception of them, leaving them at 65%. Legislators did this to save
money, Dennison said.
Another Thompson touch grabbed some $200 million in pension money partly
to help balance the state budget. Since the budget was long overdue by
September 1999, when the pension bill was suddenly introduced, this created
pressure to pass both packages at once.
Waukesha County Executive Dan Finley, who attempted to stop the pension
bill, recalled the situation.
"The pension bill was put on legislators' desks at 4:30 on a Friday
with a vote scheduled for Monday," Finley said. "We had no time to
offer public comment. There were no public hearings. It was scandalous what
they did."
Pension bills can cause long-term fiscal problems because the cost, often
minimal in the short run, is then spread over decades. The state's actuary -
Gabriel, Roeder, Smith & Co. - had been asked to do a fiscal analysis
but said it couldn't be done this quickly. So Dennison was asked to put
something together over the weekend.
Dennison told legislators he could do only rough estimates, which were
highly inappropriate for a major piece of legislation. He estimated the plan
would cost $5.7 billion.
Grothman recalled that Jensen was visibly displeased when Dennison spoke
to the Republican Assembly caucus.
"I could see Jensen's face go bright red, and he said maybe we don't
need a retirement research director," Dennison recalled.
State Sen. Robert Wirch (D-Pleasant Prairie), co-chair of the retirement
committee, also was unhappy with Dennison. "That's why he's no longer
with us," Wirch said, "because he offered that figure (of $5.7
billion)." Wirch supported the bill.
Dennison would later resign under pressure.
Buttressing Dennison's warnings were those of Dave Stella, then the
retirement administrator, who said the pension fund was already underfunded.
But legislators were told by Jensen and Chvala that the plan was fiscally
neutral.
"I remember being assured over and over this would not have fiscal
consequences," said former GOP representative Rick Skindrud.
Few legislators understood the details of the bill, including Skindrud,
who was given the title of co-author of the measure.
"Skinny never saw that thing until it was handed to him," said
Ken Opin, a lobbyist with the Wisconsin Federation of Teachers.
Final obstacle cleared
The bill passed in October 1999, five days after it was introduced.
Thompson said he wouldn't sign it until the state's actuary completed an
analysis.
Gabriel, Roeder, Smith & Co.'s November report warned that the
pension fund's on-paper surplus, then estimated at $12 billion, should be
used sparingly. The firm's report also noted that any funds used to pay for
new benefits "would otherwise have been available to reduce
contribution rates," thus lowering costs for taxpayers.
The firm was paid only $15,000 to do the report, and legislators didn't
ask it to analyze the plan's long-term costs. So the report offered no
obvious rejoinder to Thompson's declaration, upon signing the bill, that Act
11 would strengthen the retirement system.
Thompson did not respond to repeated recent attempts to discuss the
matter.
Opponents of the law suggest that had the state Supreme Court wanted to,
it could have found grounds to strike down the legislation. The general
principle underlying a pension plan is that all current and future retirees
should share in its benefits, but Act 11's sweeteners were not extended to
"inactive" members of the system, some 104,000 former employees
who had gone on to work outside the system but would eventually collect some
pension money from the plan. And attorneys for the police and firefighters
argued that the U.S. Constitution's equal protection clause was violated
since the 70% ceiling wasn't offered to them.
For that matter, the court had previously ruled against the 1987 budget
plan because it had raided the pension for money to balance the budget.
But since that decision, the court had added two additional Thompson
appointees, David Prosser and Diane Sykes. They teamed up with Jon Wilcox,
another Thompson appointee, and Patrick Crooks in a 4-3 decision upholding
the legislation.
One member of the court, who declined to be named for fear of alienating
colleagues, said "the majority wanted to throw the governor a
bone."
The court was the last possible obstacle to a classic piece of insider
legislation.
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2002 Global Action on Aging
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