Borrowing costs plummet for Wisconsin after Walker's budget moves

Wisconsin went from having to pay almost a half a percentage point above top-rated general obligation debt premium on its debt to only two-tenths of a percentage point premium. That isn't bad for a few months work.

Governor Scott Walker’s moves to limit the power of public worker unions in Wisconsin may have been rewarded by investors as the state’s borrowing costs fell by more than half since the Republican took office in January.

Walker signed a bill March 11 that eliminates the ability of public employees except police and firemen to collectively bargain for benefits. The unions have said that the governor was using the deficit as a pretext to break their power.

The state today is offering about $286 million in tax- exempt debt following an “overall tightening of spreads” since January. Wisconsin’s improved premiums may be a result of Walker’s efforts to address the state’s projected $3.4 billion deficit, said Duane McAllister, who helps oversee $1.7 billion for M&I Investment Management in Milwaukee.

The state sold about $429 million on Jan. 12, with a 10- year maturity priced to yield 3.75 percent, or about 47 basis points above top-rated general obligation debt, according to Bloomberg Valuation pricing. The same security was yielding about 21 basis points above the benchmark yesterday. A basis point is 0.01 percentage point.

“The state’s addressing the fiscal challenges,” McAllister said. “We’re looking at structural changes and that’s very favorable for the market.” . . .

The business climate has definitely improved in the state:

Chief Executive magazine recently completed its annual survey of CEOs on the best and worst states for business. The 500 CEOs graded the states on taxes and regulation, the quality of the work force and living environment, among other categories. Wisconsin made the biggest jump of any state, and one of the largest in the history of the survey, rising to 24th from 41st in 2010 and 43rd in 2009. Louisiana continued its rise, moving up 13 spots to 27th on the basis of its improvements in tax climate and deregulation. Indiana moved up 10 spots to sixth.

The Wisconsin jump is especially notable because Mr. Walker and a new GOP legislature only took office in January. This suggests that Big Labor's attempt to make Mr. Walker a national political target had the ironic result of making Wisconsin more appealing to business executives. "Indiana and Wisconsin's governors have been outspoken about wanting to be more business friendly," says Chief Executive director for digital media Michael Bamberger. . . .