DOT budget part 2- How it'll drive our deficit higher

This is the second part of my analysis of the Wisconsin Department of Transportation's budget request, and its plans to use General Fund tax dollars to fund items in the Transportation Fund.

The first part I want to bring up relates to funding of transit. Transit systems are currently given state assistance through the Transportation Fund, and while it appears the DOT budget request plans to keep Transit in the Transportation Fund (unlike what Gov Walker has requested in his last two budgets), General Fund money will be used for the state's funds. The argument the DOT gives for doing so goes like this.

The purpose for transit operating aids in Wisconsin is defined in section 85.20(2), Wis. Stats., in part to promote the general public good. While this statutory purpose was defined years ago, it has never been more evident than today. With changing demographics, lifestyles, and societal influences, transit services have grown beyond transportation and mobility to truly serving the general public good –jobs, economic development, education, commerce, and health. Therefore, it would be seem that funding for state aids serving the general public good should come from general public revenues.

Transit services do not however provide any revenues to the state’s Transportation Fund. User fares go toward the costs of the service and the systems themselves pay few state Transportation Fund revenues. Funding transit services with Transportation Revenues, therefore, directs fees paid by users of other modes of transportation to a service serving the general public good. Funding transit operating aids from the state’s general fund, rather than the Transportation Fund, would further strengthen the concept of and relationship between user fee revenues and investments in transportation infrastructure.

In other words, since transit operators generally don't pay much if any Transportation Fund taxes (city bus systems generally are exempted from paying gas taxes), they don't need to be getting Transportation Fund dollars. Hmmm.....

With this in mind, the DOT budget request asks for $275.8 million in added General Fund money, with almost all of that increase being used to fund transit and some intriguing new transit proposals that are in the budget request (such as $30 million to help transit systems buy new vehicles, and $20 million to establish new routes and/or re-establish ones which had to be cut in recent years). But this may prove quite difficult to fully fund, as the General Fund pays for a lot more than just Transit Aids, which means yet another agency has to try to muscle in and get a piece of what are already very limited funds (you’ll see how limited in a bit).

The other spot involving General Fund money paying for Transportation involves a transfer from the General Fund into the Transportation Fund, where the money can be used for any Transportation Fund program. This number was set at 0.25% of General Fund taxes in 2011 (item Number 5 in this document has more info on it), and $110.3 million was added on top of that in the last budget. Now, the DOT budget request wants to up the amount even further, and in doing so gives an ominous warning about future General Fund revenues.

Amend s. 16.5185 Wis. Stats. to increase the transfer from the General Fund to the Transportation Fund from an amount equal to 0.25 percent of the moneys projected to be deposited in the general fund designated as “Taxes” in the summary in s. 20.005 (1), to an amount equal to 1.00 percent.

The effective date of this change is June 30, 2016….

Under current law gross state revenue for the Transportation Fund from all sources, not including proceeds from the sale of GO and TR bonds is expected to fall 2.6 percent in the 2015-2017 biennium compared to the 2013-2015 biennium. Available state revenue is expected to drop 4.3 percent compared to the 2013-15 biennium. As a result, the Department is proposing an increase to the existing continuing General Fund transfer first authorized in 2011 Wisconsin Act 32.

Why would state revenue drop 4.3% compared to this current budget? Is the revenue picture even worse than the LFB has indicated it is? Are there some other kind of tax giveaways to come or funds being blocked off that lowers the amount of funds available for use? That’s the kind of statement that leads to more questions than answers, and it gives me another reason to give a look at what the Department of Administration will hint at when it releases its summary of budget requests and revenues later this week.

What we do know is that between the proposals that would use of GPR funding for Transit, and the increased transfer of General Fund money for the Transportation Fund, this means the total amount of General Fund money being used by the DOT would be upped to $548.36 million over the 2015-17 budget. That's up $275.8 million above the adjusted base amount in the budget, and $476 million above what the LFB estimated for a transfer when it estimated the structural deficit back in May. So let's add that $476 million to the $2.1 billion General Fund deficit that is already in existence for the next budget, so that puts us around $2.5- $2.6 billion in the red for this upcoming budget in the General Fund. In addition, if the warnings of a state revenue drop are correct, then that deficit will blow much higher, because the $2.5 billion deficit not only assumes all budget requests would be paid for, but it assumes revenue growth of 2.9%. RUH ROH!

The options to dig out of this budget mess were limited even further this November. That’s because the constitutional amendment approved by voters on November 4 disallows any transfers back from Transportation to the General Fund if the General Fund runs short or if the Transportation Fund is overfunded. So the General Fund is now unable to be bailed out if the Transportation Fund’s tax and fee increases (mentioned in this post) get more money of out Wisconsinites than expected, or if costs end up lower for the many road projects that are proposed. That’s a huge reason why I voted NO on that issue, and the siloing off of those funds could come home to hurt the state’s finances in a big way over this next budget, if the DOT budget request is any indication of where the state truly stands.

This is why we need to be vigilant over whatever numbers come out in these coming months, because the hints from the DOT's budget request and plans to transfer funds from the General Fund to the Transportation Fund indicates a huge budget deficit, likely worse than the situation Scott Walker faced when he took office in 2011- and the "tools" of Act 10 have already been used up. Keep your eyes peeled and be ready to follow the bouncing balls in what is sure to be a budget built on rosy assumptions and a lot of shell games.