Governor gives Wisconsin Democrats an ultimatum

MADISON, Wisc. (Reuters) - Republican Gov. Scott Walker on Monday gave absent Democratic lawmakers an ultimatum to return to Wisconsin within 24 hours and vote on a proposal to reduce the power of public sector unions or the state would miss out on a debt restructuring.

Walker stepped up the pressure on 14 Senate Democrats who fled the state to avoid a vote on the bill as he prepared to unveil on Tuesday a two-year state budget that he said cuts $1 billion from funding to local governments and schools.

What began as one small state trying to rewrite the rules of labor relations has blown up into what could be the biggest confrontation with American labor unions since then President Ronald Reagan fired striking air traffic controllers in 1981.

For the second time since the controversy erupted, President Barack Obama weighed into the debate on Monday criticizing the Wisconsin plan without mentioning it by name.

"I don't think it does anybody any good when public employees are denigrated or vilified or their rights are infringed upon," Obama told the nation's governors gathered in Washington.

Wisconsin's Walker immediately issued a response, saying: "I'm sure that President Obama simply misunderstands the issues in Wisconsin."

Pro-union demonstrators continued to occupy the State Capitol building on Monday after some of them refused to leave on Sunday night. Capitol police, who had allowed the protesters to stay in the building for more than a week, on Monday prevented more from entering even though it was a week day.

So far the police have been tolerant of the protesters and no arrests have been made.

Walker's budget proposal brought out the biggest protest crowd since the Vietnam War in Madison over the weekend.

A new poll released on Monday suggested that if the 2010 election could be replayed the Wisconsin governor might lose. The Public Policy Polling survey found that if the election were repeated the result would flip with Walker's Democratic opponent Tom Barrett getting 52 percent and Walker 45 percent. Walker won with 52 percent in November. The shift came mainly from union households.

The Wisconsin proposal would require public sector employees to pay more for pensions and health care, strip some of their unions of bargaining rights except for wages up to the rate of inflation and require yearly recertification votes.

The proposal was approved by the state Assembly last week but is stalled in the Senate because the 14 Democrats have fled the state to avoid a vote.

The proposal includes a restructuring of the state's debt that Walker said would save $165 million. Walker said this restructuring deal was in doubt if the Democrats did not return.

"Failure to return to work and cast their votes will lead to more painful and aggressive spending cuts in the very near future," Walker's said in a statement.

Under Walker's proposal, Wisconsin's general obligation bonds would be restructured and that would push debt service payments due by March 15 into future years.

Democrats differed from Walker's estimate, quoting on Monday a report from state fiscal analyst Al Runde saying that the restructuring Walker wants would add more than $42 million of interest payments over the long term.

In an interview broadcast on Sunday, Walker said he hoped to delay sending layoff notices to state workers if the legislature makes progress on fixing the budget deficit, according to website wispolitics.com.

But to postpone the layoffs, Walker said it will be necessary that his budget repair bill, including the move to end collective bargaining, go into effect by April 1.

There has been speculation that Walker would send out layoff notices to more than 1,000 state workers if no progress was made soon on the budget.

(Additional reporting by Stefanie Carano in Madison and Wendell Marsh in Washington; Editing by Greg McCune)