Gov. Walker, GOP need second act

Governor Walker

Governor Scott Walker of Wisconson

Even though the Wisconsin unemployment rate has dropped to 4.2% and wages have finally started to move upward, there isn’t an economist or economic developer who doesn’t want a stronger base for the state’s future prosperity.

Note: Wisconsin had the fifth best growth – 5.73% — in median household income growth of the 50 states from 2014 to 2015, according the U.S. Census Bureau. It did the best in the Midwest.

The 2015 number is surprising, because the state has long lagged the nation on job creation, GDP growth, wage levels and business startups. It still does.

The canary in the mine shaft that is most alarming for Wisconsin is the exodus of more than 10,000 college graduates per year, often our kids and grandkids.

Even though good progress has been made on the state’s overall business climate, the outmigration of our educated young people for jobs in more dynamic pars of the country has to be reversed,

Despite high state income and property taxes, we are finally out of the top ten for total state and local taxes. Other positives: Gov. Walker accomplished a necessary reset in the balance of power between public employee unions and taxpayers. We are now a right-to-work state. The state income tax on manufacturing and agri-business is being phased out, a tonic for the two pillars of the Wisconsin economy. Tort reform has been passed. And regulatory over-kill has been dialed back.

Progress acknowledged, more structural change and reinvention are necessary to move Wisconsin into a top tier state for citizen prosperity. We can’t stand pat. Few say otherwise. And many are waiting for Gov. Walker to kick off some big moves. His legacy over two terms needs to more than Act 10 and holding the line on taxes.

So, what would bold moves look like in Wisconsin, if Gov. Walker and his GOP-controlled legislature decided to take on some after the Nov. 8 election? Here is a menu of big initiatives, elicited from different sources, on challenges facing the state.

• Reorganize the University of Wisconsin System along regional and cluster lines to directly connect its 26 campuses to economic development at the ground level. We need a bigger payoff from our high-ranked investments in higher education. The current Madison-centric model is neither transparent nor even-handed in applying UW talents and resources to the most needy parts of the state, such as rural areas and the central city of Milwaukee. . In addition to administrative savings, the regional groups could buy health care locally for much less than the state plan, could institute lean measures, could improve financial transparency, could consolidate overlapping courses and majors, and could coordinate directly with the tech colleges and K-12 districts. Some regions are already part way there.

• Go right at the state’s challenge with dysfunctional families that largely result from more unwanted pregnancies and single moms than any other state. That is a recipe for generational poverty. LARCs (long acting reversible contraceptives) are having a major impact on the issue in 21 other states. Foundations at the Medical College of Wisconsin and UW Hospitals have the funds to get the initiative going. A LARC program would address the issues of teen pregnancy and high infant mortality as well.

• Move swiftly to Value Healthcare. With $1.3 billion being spent on healthcare for 65,000 state employees, there are huge savings to be had by moving to Value Healthcare, the new business model at work in the private sector and local government. That means moving to self-insurance, consumer-driven plans that feature higher deductibles and savings accounts, on-site proactive primary care and value purchasing for elective medical treatments. Savings can be as much as 30%. At just 20%, one-quarter of a billion dollars could be shifted to priorities like K-12 and university education.

• Ask the state’s many foundations to invest part of their portfolios in Wisconsin startups. Five are already doing so. These would not be grants; they would be investments of a small slice of their alternative portfolios at superior returns. Startups reinvent the economy, and they create most of the net new jobs. That’s where the action is. Grants for education, the arts, the environment, health care and other social programs are wonderful, but jobs are the main platform for prosperity. The Wisconsin Be Bold Prosperity Strategy of 2010 called for investing $1 billion in state capital over 10 years for high-growth start-ups. It doesn’t look like those public dollars will be forthcoming, so the foundations may have to step up to fill the void through impact investing. Foundations serving UW – Madison alone have more than $8 billion in assets.

• Launch a program of loan guarantees for gazelles – high growth startups. Regulators have been pounding on banks to curtail loans to companies with a modicum of risk. The state could embolden banks and regulators to loosen the reins on lending to gazelles by offering partial loan guarantees, much like the federal government does with SBA loans. That arrangement has the virtue of putting seasoned bank credit officers at the point. The Wisconsin Housing and Economic Development Authority (WHEDA) has made some loan guarantees, so there is precedent. Such debt capital would help bridge the “valley of death” that is encountered by young companies as they start to take off, add staff and need working capital.

• Reform workers compensation pricing. GOP leaders could sharply improve the state’s business climate by allowing employers, public and private, to use negotiated market rates for episodes of care after a work injury. They are now forced to pay rates three times higher than market under the state-controlled pricing scheme. Providers will fight the loss of exorbitant pricing, but reform is long overdue. Another quarter of a billion dollars could be saved for business.

• Provide workplace learning opportunities for all juniors and seniors in high school. That’s how Germany competes so well. It has high wages and benefits, but offsets those costs with the most skilled workforce in the world. Most young people in Germany have a youth apprenticeship every year. They can choose from many different fields to find out what they like and where they fit. The workplace learning reinforces classroom learning. Some companies in Wisconsin, like Generac and Briggs & Stratton, are stepping up with similar programs. Their examples need to become a widespread, high profile state strategy, with every Wisconsin business stepping up. Gov. Walker could champion that cause.

• Create a high-level task force to dig into the explosion of Medicaid costs. They are smothering many other state priorities like education and public safety. It is a state-federal program, which makes reform difficult. But the progress on taming health care inflation in the private sector demands a new look.

• Make clean drinking water a high priority for the state. More oversight is needed to protect our groundwater and public waterways. Wisconsinites don’t want a Flint crisis in their communities.

As his lower approval ratings demonstrate, Gov. Walker and the GOP-led legislature need a second act. A prosperity agenda is a good place to start.

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