As Monk noted in the comment thread, there is evidence that Walker is simply creating a false crisis to kill the unions, and the state budget is not in such bad shape. Or it wasn't until he cut taxes upon entering office.
Two things, and then I have to go teach. 1) This speaks to the lie that is "supply side economics"--at least for many Republicans. If, in fact, cutting taxes was intended to spur the economy and then would result in increased state revenues, then there would be no problem with the state employees and the budget. After all, Walker cut taxes, so prosperity is right around the corner, right? But he didn't cut taxes to help the economy, but merely because he and so many like him hate government and want to defund it.
2) What disturbs me about this the most, besides the obvious bullshit about cutting taxes and then saying, "we have no money," is the sense that for people like Walker, this is not about negotiating with people with whom he honestly disagrees, but for whom he has concern. This is a scorched earth tactic intended to crush an enemy. For many (certainly not all) Republicans, Democrats, liberals, or any of the interest groups associated with the supposed left, are enemies not fellow Americans.