Monday, October 14, 2013

More on the silly property tax giveaway

Now that I'm back at home, I have a little more time to reflect on WisGOP's relatively meaningless attempt to reduce property taxes on schools. And others have, too.

First is the revelation from One Wisconsin Now that shows this bill was only drafted last week, after Mary Burke entered the Governor's race. Heck, it still doesn't have an official bill number (just a drafting number), and it indicates to me that this bill was rushed in a lame attempt to grab headlines and get a talking point. Then again, "Ready! Fire! aim!" and picking politics over developing policies that work is kind of a Walker trademark, so I suppose we shouldn't be surprised by such a silly move.

The Legislative Fiscal Bureau still has yet to say what the effect of giving away $40 million this year and $60 million next year will have on this budget, and the next one. As it stands, this $100 million would put the state into a deficit by the end of 2015, which would be illegal under state rules, although it is possible that the Walker Administration is correct that the year-end surplus for 2013 will be higher than previously predicted, so they'd technically be able to get away with it. But if this is true, there's another conversation to have, because we need to back up and see if this is the proper way to take advantage of this one-time upside budget number.

I'm not the only one asking for legislators to take a step back and look at the big picture. The Wisconsin Budget Project points out that there are a lot of other directions that the Walker Administration and the Legislature could take, but aren't.
•What is the source of the increased revenue? Is it from a sustained upturn in revenue projections, or primarily from a one-time surplus?

•Will this proposal increase the state’s structural deficit? If it will, would it make more sense to use the revenue for fiscally responsible purposes, such as reducing bonding or increasing the required minimum balance (which lawmakers have promised to do in the statutes, but every two years they postpone for two more years)?

•If the larger surplus results in part from reduced spending, do those spending projections take into account the probable $52 million reduction in the federal share of Medicaid spending?
And as I mentioned earlier today, this measure won't do anything when it comes to helping schools meet the cost and space constraints in their system, because while there is an added $100 million in state spending being proposed, there is ZERO being added to the districts' revenue limits, which means they can't spend another dime in this year, and are extremely limited in doing so next year.

The lack of increased revenue for schools is one of the many points brought up by State Senator (and hopefully future candidate for Governor) Kathleen Vinehout.
Schools are limited in what they can spend by state imposed revenue limits. Many frugal school boards don’t tax to the extent they are allowed. But as state money shrinks, board members are left with few options.

Local school boards are now preparing budgets for the next school year. Many members told me the “tools” the Governor gave the districts are not working. Costs are increasing faster than boards can make cuts. Especially hard hit are rural schools. Many districts have combined classrooms, cut electives, have multi-certified teachers, share staff with neighboring districts, share sports teams and long ago got rid of much support and administrative staff.

School boards now have no choice but to levy to the maximum allowed by law. Meaning possible big property tax increases for residents.

Enter the Governor’s new “property tax relief”.
And as Sen. Vinehout brings up, this added $100 million and the previously-approved small increase that was already in the budget for 2013-15 still doesn't come close to recovering the $800 million a year that was cut out of school aids in Gov. Walker's first budget. We are not better off econimically, our property taxes are still going up, and we've had an entirely unnecessary 3 years of teacher-bashing and anger as a result of Walker's and WisGOP's horrible education policies.

So while I severely doubt this will happen, I'd encourage the State Legislature to take the time to discuss if a one-time, minimal property tax limitation is the proper way to handle this $100 million. I certainly don't see a need to have it be part of a special legislative session, especially since we're already in a regular Legislative session, and slamming this through and making school boards and DPI staff have go through a large amount of adjustments and extra work in the next 3 weeks seems to be unnecessary. Why not let things play out for the 2013-'14 school year, and if the budget battle and debt limit is decided in the next week or two, THEN come back and propose the ntire $100 million of relief for the next school year? Or use the surplus funds to make decisions on meeting other priorities.

But wait, that would entail responsible governing and not playing cheap, cynical games. And God knows Scott Walker would never choose good governance over talk-show type stunts designed to get a short-term bump from low-information voters. Which explains why we have this silly, symbolic move being brought up.

LATE EDIT: The Department of Administration released its year-end fiscal report, and it says the projected cash surplus ended up at $759 million, which is $89 million above the previous projection. That pretty much pays for the $100 million giveaway, but still leaves the $545 million structural deficit in the next budget....and possibly higher if revenues don't pick up like people project it to.


  1. The 2013 AFR is out tomorrow.

    I had a peek at the FY13 projections and it seems that the $287 million higher tax revenues than expected is, if the 3.4% projected improvement in individual income tax receipts was projected to be equal between wage taxes and capital gains taxes, then capital gains tax receipts exceeded expectations by... exactly $287 million, as it happens.

    The DJI rose 17% in FY13 vs 1.5% in FY12, and there were an extra $10 billion in dividends made last December just in case the (federal) capital gains tax would rise as the Obama-extended Bush tax cuts were expiring.

    Definitely a oneoff windfall caused by precisely nothing Walker had any influence over.

  2. Jake, GT,
    Please confirm that this "surplus" is not simply a deferral. Since the $300 million income tax deduction did not include lower withholding taxes that means that in April of 2014 WI tax refunds will have to pay an extra $300 million. I assume/hope/don't think that LFB has been directed to consider the additional expense against this pay out? GAAP accounting would come in handy here.

    1. Good point. Very good point.

      The Koo-koo tax cuts kick in in calendar 2013 while withholding rates haven't changed since 2009.

      The LFB estimates the cost of the Koo-koo is $327,800,000 in FY14 and $320,100,000,. Probably a good bet then that about $150 million was overwithheld in January-June this year, but that wasn't knowable at the time.

      So I wouldn't say that the headline "surplus" was due to intentional overwithholding so much as the budget setting things up for making $150m more appear in refund checks next spring.

      In the Governor's Budget in Brief (table 4 on page 38 of the pdf), prior to the Koo-koo tax cuts, FY14 would see a structural deficit of $191.4m. On August 1st the LFB reckoned on a FY14 structural deficit of $207m with a revised estimate of revenue of +$48m and revised appropriations of +64m.

      That does seem odd. It's conceivable that revenues-absent-tax-cuts would have been revised up by something like $520m in the space of a few months, but this seems highly unlikely. I'll have to see what they say about it.

      The GAAP-based CAFR should be out in December.

    2. Yeah, in reality what should have happened is that the revenues be lower in the last budget, but then there wouldn't be a major surplus to carry over and "justify" tax cuts for this budget, of course. :P

      What'll happen is that there will be larger refund checks, and a huge drop in revenues come February, March and April. It's cynical, but that's how it'll work. If revs are merely the same as July-December 2012 for those same months in 2013, we've got a major problem coming up.

    3. Thank you. Thought so.
      Curiously the cash flow problem probably won't expose itself until June of 2014 in the midst of election rhetoric. Walker camp can't possibly think that revenues will continue to increase- almost exponentially- enough to repair this ~$400 million swing. They must have another plan.

      The plot will thicken.

    4. July-September, (weekend-)adjusted withholding receipts (which in 2012 comprised about 60% of receipts) are up $63 million (3.8%) and sales tax receipts (which in 2012 comprised about 30% of receipts) are up $78 million (6.7%) over the same period in 2012.

      The withholding is running on pace with the projected GPR increase of 3.9% (comparing the August projection, before there was any FY14 data, with the FY13 AFR). So overall receipts seem to be a bit better than expected for the first quarter, but certainly not on the pace needed to wipe out the structural deficit. Especially if withholding/wages don't pick up soon (people can't increase their spending without seeing increased income indefinitely).

  3. Actually Geoff, Page 6 of the DOA fiscal report indicates withholding was only up 2.8% for Fy2013, which means the higher revenues were even more reliant on capital gains than you thought. By comparison, the stock market has been basically at 0% since the end of June, in this fiscal year.

    Also interesting to note- the Transportation Fund's revenues came in below expectations, and spent $300 million more than it took in. I'd like to see that fund's outlook with people driving less and Walker borrowing more for roads. I bet that deficit's even higher than $545 mil.

    1. Actually I had accounted for that in working out how it's all dependent on capital gains. 3.4% was the projection for individual income tax receipt growth (table 3, page 12), so withholding didn't meet that standard.

      Wow, the Transportation Fund is really quite up the creek, no wonder there's another $575 million in borrowing authority in the budget. But it is orthogonal to the General Fund - at least as long as the latter isn't used to prop it up. Plus another $2.4 billion in new borrowing authority for the building commission (I stopped counting after that).