That $1.8 billion budget deficit? It could be even worse

Now that I have some time back at home, I can go over the details of yesterday's news of a looming $1.8 billion budget deficit for the state of Wisconsin. That number's above the $1.3 billion I predicted a couple of weeks ago, and I wanted to show how the Legislative Fiscal Bureau got to that point.

If you take a look at the memo that LFB Director Bob Lang wrote to Dem legislators. Lang says the deficit is directly tied to tax cuts passed by the GOP Legislature and signed by Governor Walker, beginning with the $281 revenue shortfall for the fiscal year that ended on June 30.

Information on final expenditures and departmental revenues that will also affect the ending balance for 2013-14 will not be available until the state's Annual Fiscal Report (AFR) is released in mid-October. However, focusing on the lower tax collections data, it should be noted that IHS Global Insight, Inc.'s national economic forecast has been downgraded significantly since the state's final tax revenue estimates were prepared. This suggests that collections in 2014-15 will be similarly reduced compared to the final budgeted amounts, and since 2014-15 is the base year for the 2015-17 biennium, the out-year commitment exercise would reflect lower base year revenues in 2015-16 and 2016-17. As a result, the out-year commitment number would increase by $1,124 million from previous estimates, although this is subject to revision when the AFR provides addition information on the general fund's ending balance in 2013-14.

So we'll use a version of the One Wisconsin Now whiteboard and math it out (yes, I just made "math" a verb). Since no expenditure changes are assumed (more on that in a bit), we'll assume the $281 million tax revenue shortfall means the ending balance in 2013-14 is +$443 million instead of +$724 million. From there, this is where they got the number-

2014-15
+$443 mil starting balance
+$15,003 mil total revenues (-$281 mil from earlier projection)
-$15,843 Appropriations after lapses
TOTAL -$396 million

2015-16
-$396 mil starting balance based on FY15
+$15,125 mil base revenue
-$15,732 Appropriations after lapses
TOTAL -$1,004 million
Required budgeted reserve +$65 million
TOTAL TO MAKE UP FY16 $-1,069 million

2016-17
+$15,044 mil base revenue
-$15,744 mil Appropriations after lapses
TOTAL -$700 million

The LFB estimates it at $697 million for FY 2017- maybe some debt got re-figured or something. Close enough. It leaves the amount to make up at $1.766 million.

Now, that being said, under current law the state would likely not be able to wait until the next budget to start closing the gap. Before it calculated the $1.8 billion in deficits, the LFB said the state was likely to need a budget repair bill in the early part of 2015, which would precede any 2015-17 budget work. For small amounts of deficits (around $79 million), the Department of Administration can refuse to give money to certain departments without having to go through the Legislature, but the base amount stands when you figure the next budget. But get above that $79 million, and the Legislature would have to step in.

Section 16.50(7) establishes a separate process that must be followed if there is a larger revenue shortfall. Under this provision, if at any time after enactment of the biennial budget, the Secretary of Administration determines that previously authorized expenditures will exceed revenues in either year of the biennium by more than 0.5% of the estimated GPR appropriations for that fiscal year, the Secretary cannot address that revenue shortfall by use of the budget estimate process described above. Instead, the Secretary is required to immediately notify the Governor, the presiding officer of each house of the Legislature, and the Joint Committee on Finance of the revenue shortfall.

Following this notification, the Governor is required to submit a bill to the Legislature containing recommendations for correcting the imbalance between projected revenues and authorized expenditures. Further, if the Legislature is not in a floor period at the time of the Secretary's notification, the Governor is required to call a special session of the Legislature to take up the matter of the projected revenue shortfall and to submit a bill dealing with the shortfall to the Legislature for consideration at that special session.

It is important to note that s. 16.50(7) gives the Secretary of DOA discretion as to how and when the determination of a revenue shortfall is to take place. Once that determination is made, the Governor is required to submit recommendations correcting the imbalance between revenues and expenditures. However, the statutes do not specify a time frame for either the DOA Secretary’s determination or the submission of the Governor’s recommendations.

So Mike Huebsch and company could make a move tomorrow to try to fix the $396 million deficit in the current fiscal year (which ends on June 30). But the Walker boys are claiming that things will fix themselves enough in the next 10 months that there's no need to do so. However, one Senator who's been part of many a budget deliberation said otherwise in Monday's Journal-Sentinel story.

Senate President Mike Ellis (R-Neenah) said the size of the projected shortfall likely meant that lawmakers would have to pass a budget-repair bill early next year.

"They need to come in in January and fix it," said Ellis, who is not seeking re-election.

And there might be more to fix than just $1.8 billion, because that number doesn't count several other funds are going to be in the red and in need of repair. We already know that the state's Medicaid programs were slated to spend $93 million more than expected when it last reported information in June, and the Medicaid Trust Fund ended the last fiscal year with a cash balance of -$201.7 million. There is also a $20 million shortfall in the Veterans Trust Fund that has to be fixed in the next budget, and a Transportation Fund deficit that could well reach $1.1 billion.

And oh yeah, remember two weeks ago, when the Potawatomi's withheld payment of an estimated $25 million made the Walker Administration claim that they were going to have trouble paying the bills? Well, now we know why this was an immediate problem instead of something that could be worked out, because the state is slated to come up somewhere at least $400 to $500 million short in this fiscal year, and possibly much more than the $1.766 billion that the LFB gave in their conservative estimate.

Let's like the Old Man from Neenah have the last words on this WisGOP budget disaster. This is also from the Journal-Sentinel article.

Ellis was part of a group of Senate Republicans who raised concerns that recent tax cuts went too deep and could harm the state's finances in coming years.

"A number of us were concerned, but they did it anyway," Ellis said. "But we (Republican senators) voted for it, so we can't hide behind 'I told you so.'"

No, you in WisGOP did not stand up and do the right thing, so now you must pay. Every Republican that voted for these stupid tax cuts and destructive fiscal policy must be held responsible for the damage he or she has inflicted (with the divisiveness of the "budget-saving" Act 10 and worst job growth in the Midwest) and will be inflicted (likely through more required austerity combined with higher taxes). VOTE THEM ALL OUT.

P.S.- Check out the Wisconsin Budget Project's analysis of the deficit. It's very thorough, and basically calls BS on the Walker Admin's claim that they can grow out of this mess.