Gov. Scott Walker's plans to balance the state budget by cutting spending and public workers' take-home pay will slow the state's economic recovery, according to projections by a UW-Madison economist.

An estimated 21,843 jobs will be lost over the next year or two as public agencies and workers are able to spend less in their communities, said Steven Deller, a professor of applied economics who studied the ripple effects of Walker's budget-repair bill and two-year budget proposal.

"That's not just a bump in the road," Deller said. "That's a speed bump."

Walker is trying to erase a projected $3.6 billion, two-year budget deficit through spending cuts and a requirement that public workers pay more toward their retirement and health benefits. He's also pledged to create 250,000 jobs in the next four years.

While Deller said nearly any method of closing the budget gap would carry "economic pain," the path Walker has chosen will pack a punch.

The Republican governor has repeatedly ruled out tax increases, saying they would hurt the business climate, and says the new benefit contributions will prevent the need to lay off thousands of government workers. His spokesman, Cullen Werwie, said it's the right course.

"Certainly, the impact of 1,500 people losing their jobs before June 30 alone, and another 10,000 over the next two years, which would have happened without passage of the budget repair bill, would have a much more negative effect on our economy than the modest pension and health reforms signed into law by Gov. Walker," Werwie said.

Ripple effects studied

Deller's analysis didn't calculate whether job losses would result if the $3.6 billion budget shortfall were fixed with tax increases or a combination of spending cuts and tax increases. Deller said he's had many requests to analyze the job-loss effect of tax increases but has declined since there is no concrete proposal on the table.

His projections are based on the budget repair law, which requires the compensation cuts, and Walker's proposed two-year budget, which cuts spending in areas such as medical care for the poor and elderly, local governments, schools and prisons. The budget repair bill was adopted but is on hold pending a court challenge.

In response to Deller's job loss projections, Werwie said, "We are going to continue to pursue policies that will ensure our state has the business environment that allows the private sector to create 250,000 new jobs over the next four years."

The job losses Deller projects are fewer than 1 percent of the total workforce in Wisconsin, but some said that number is still meaningful.

"Twenty thousand jobs is always significant," said George Lightbourn, president of the right-leaning Wisconsin Policy Research Institute in Hartland. But Lightbourn predicted a greater positive effect from a balanced budget that allows business owners to stop worrying about the possibility of a big tax increase.

Laura Dresser, associate director of the left-leaning Center on Wisconsin Strategy, said it is difficult to predict all the repercussions of budget cuts, but she is concerned they could hold Wisconsin back.

"It's such an anemic recovery so far," Dresser said.

Deller said his results are estimates designed to show the general economic effect and that many factors are still in flux.

For example, school layoffs would depend on the provisions of hundreds of teacher contracts being negotiated and approved in recent weeks, he said.

And other things are in dispute. Walker and school leaders disagree about how many layoffs will be needed to cope with his proposed cuts in aid to local school districts.

Planning to cut back

In the meantime, Wisconsin's roughly 375,000 state and local government employees are preparing for reductions in their take-home pay.

State workers averaged $47,000 in salary in 2008, according to a state study. While the percentage of their compensation cut varies somewhat, Deller's study assumed a 7.7 percent average decrease in purchasing power among public workers.

Many workers say there is no doubt they'll spend less money in their communities.

"We're not going to be going out to eat much. We won't be traveling as much. We'll be focusing on just the essentials," said Madison sixth-grade teacher Nichole Von Haden, 31, adding she and her husband, a private-sector worker, will sock away their tax refund this year instead of splurging on anything.

Some anticipate cutting back a little, but others said they are worried about major lifestyle changes because of the collective bargaining law that will allow government employers to rewrite pay scales.

"If we're going to lose all our seniority, we don't really know what all we'll lose," said Tammy Stovey, a veteran teacher in Prairie du Chien. She and her husband, Rich, both 49, are getting hit twice since he's a city streets worker.

If too many teachers, snowplow drivers, correctional officers and other public employees share Stovey's worries and cut back sharply on spending as a result, the economic recovery could further stall in Wisconsin, Deller said.

"It is conceivable that people overreact and really pull back in anticipation of this, and that could derail the recovery for a long time," he said.

- State Journal reporter Doug Erickson contributed to this report.

 

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