As I wrote this post, a ninth day of demonstrations had concluded in Wisconsin over Governor Scott Walker’s "budget repair" bill (pdf) to restrict the collective bargaining rights of general state and local employees, teachers and certain healthcare, homecare and childcare providers. (Here's a summary of the bill.)

With state governments strapped for cash, similar disputes are developing in Ohio, Indiana and elsewhere.

As a budget-balancing move, Walker’s legislation is suspect, if only because the bill excludes public safety employees from the givebacks imposed on other state and municipal workers.

Another clause (Section 16.896) might also cost Wisconsin big bucks, as it permits the state to “sell any state-owned heating, cooling, and power plant or … contract with a private entity for the operation of any such plant, with or without solicitation of bids, for any amount … determine(d) to be in the best interest of the state” (emphasis added). A no-bid loophole for the operation and sale of substantial public facilities is a pretty odd provision to insert in a budget repair measure.

You may have read about the pros and cons of the Wisconsin collective bargaining bill.

Count me among those who, like Wisconsin’s public employee unions, concur in the wisdom of proposed increases to worker contributions to health and pension plans, especially in the midst of a fiscal crisis. But in my mind, the Wisconsin bill goes too far by stripping collective bargaining rights from many workers and restricting the negotiations to base wages. (According to a new USA Today/Gallup poll, 61 percent of Americans agree with me.)

Other provisions, including a reduction in the length of public employee collective bargaining agreements from two years to one and the prohibition of paycheck deductions for union dues, would have little or no immediate fiscal impact, but would exert a chilling effect on union activity.

What you probably haven’t read elsewhere is that bills like Walker’s are likely to substantially diminish the amount of investment capital available to the commercial real estate industry, including the green real estate sector. That’s because public employee retirement plans are key investors in the commercial real estate who have frequently welcomed investment in green real estate projects that yield market rates of return. 

As of February 2011, public employee pension plans held $2.8 trillion in assets, according to the National Association of State Retirement Administrators.

Historically, these plans have placed up to 10 percent of their assets in commercial real estate; post-mortgage meltdown, I’d guess that most have trimmed their real estate holdings, so a reasonable estimate of their commercial real estate commitments would be in the $200 billion range (about 7 percent of plan assets).

Many public employee pension plans, including the California Public Employees’ Retirement System, a $225.7 billion plan which held $16.6 billion in real estate at the close of 2010, have also encouraged investment in green real estate. CalPERS, for example, committed to green real estate investments and undertook a 20 percent energy usage reduction in its property portfolio as early as 2005. CalPERS has also adopted a variety of additional environmental investment initiatives.

As this suggests, cuts in public employee pension programs can be expected to shrink U.S. commercial real estate investment, including investment in environmentally sound properties. The Wisconsin Retirement System, the nation’s ninth largest, had $79.1 billion under management (pdf) at the close of 2010, including roughly $3.3 billion in real estate.  

A note for the skeptical: The Wisconsin Retirement System is well-managed.  During 2010, its Core Fund (which includes real estate holdings) yielded 12.4 percent versus a 12.2 percent benchmark; WRS’s Variable Fund earned 15.6 percent versus a 15.3 percent benchmark. Both funds have also exceeded benchmark over 5- and 10-year performance periods.

So as Walker proposes to slash public employee retirement funds, he’s also reducing investment capital for commercial real estate, a move that is likely to further weaken U.S. economic recovery. Repeat this pattern in numerous states, and the commercial real estate capital crunch, already serious, will likely grow worse. Green real estate, which has benefitted from pension investment, will also feel the pinch.

As suggested by my last column, which explored the downside of the proposed dismantling of Fannie Mae and Freddie Mac, be careful what you wish for -- 2011 is shaping up to be that kind of a year.

Images CC licensed by Flickr users Lost Albatross and DonkeyHotey.