No, the Wisconsin deficit isn't shrinking

We got another look at the State of Wisconsin's fiscal picture in the last couple of days, but I think many are confused over the different numbers being thrown around.

When you look at the Wisconsin Legislative Fiscal Bureau’s cost-to-continue estimates, which were released on Thursday, they are based on no new laws or programs being changed, which means this is the basic “keep the lights on” estimate.

Revenues. The attached condition statement incorporates the administration's estimates included in its November 20, 2014, report. This includes both the tax collection and departmental revenue estimates contained in the November 20 report. This [LFB] office will prepare its tax collection estimates for 2014-15 and 2015-17 in January, 2015.

Net Appropriations. Net appropriation amounts incorporate: the 2014-15 adjusted base; 2015-17 standard budget adjustments; commitments enacted in the current legislative session; and amounts to reflect caseload and population changes. Included in the net appropriation figures are compensation reserve and lapse amounts contained in the November 20 report.

Gross Balances. Based upon the assumptions shown above, the condition statement reflects that the gross ending balance for the 2015-17 biennium would be -$824 million.

The breakdown of the figures shows the following:

Cost-to-continue Revenues vs expenses
FY 2015-16 -$619 million
FY 2016-17 -$205 million
TOTAL DEFICITS $824 million

At first glance, this seems to be, if anything, an improvement, as last month the Walker Administration estimated there would be a total deficit of $2.2 billion for the next budget. But there are a whole lot of added details in that DOA document that make the larger figure the one more likely to have to be closed.

For example, I’ll point to two items in the Department of Transportation’s budget request that give examples as to why the real deficit is much bigger. These proposals were not included in the cost-to-continue paper, but will cause cuts in the DOT’s funding if they’re not carried out.

In that budget request, along with the $751 million in proposed added taxes and fees that would go straight into the Transportation Fund, there are two sizable new uses of General Fund money that would go into that fund. First, $225.6 million in General Fund money was projected to be provided as state aids to local communities to help them operate their transit systems, as opposed to the Transportation Fund money that pays for these aids today. So you either add this amount to the cost-to-continue deficit, or you have $225 millon + that is in a new deficit for the Transportation Fund. The same goes for a proposed $225.2 million in extra transfers from the General Fund for the next budget. This higher transfer is not accounted for in the cost-to-continue deficit, so either add that number to the Gen Fund deficit, or find $225 million more to cut at the DOT.

So if we assume that those proposals are adopted, and that this $450.8 million will be used to fund DOT items, we now have $1.27 billion to make up for. Now add in the fact that the LFB’s cost-to-continue estimates include the Department of Revenue’s projections for taxes for the next budget. As I’ve mentioned in the past, these assumptions seem quite rosy, as current-year revenues look to be on pace to fall short of the DOR’s figures for Fiscal Year 2015. (Interestingly, the November revenues numbers were supposed to be out from the DOR yesterday, and they are nowhere to be found. I'm guessing they wouldn't be doing that if the news was good).

The LFB’s cost-to-continue paper assumed that this fiscal year’s $132 million deficit would be made up through extra lapses and other means, but if revenues fall short, it’ll take a whole lot more money to balance the budget over the next 6 months. A revenue shortfall for FY 2014-15 would be a chain-reaction that would drive the deficit for the next budget higher, because the state would start off from a lower base, and need to make up even more revenues to close the gap not only for that year, but in the following budget. For example, let’s assume Wisconsin only grows revenues by 2.5% for the 2014-15 fiscal year, and then the 2015-17 budget has the same percentage increases in revenue growth as projected by the DOR. Here’s what you get.

If 2.5% revenue increase for 2014-15
2014-15 revenue shortfall $346.5 million
2015-16 revenue shortfall $355.8 million
2016-17 revenue shortfall $370.0 million

2014-15 deficit $478.6 million
2015-16 deficit $974.8 million
2016-17 deficit- additional $575 million
TOTAL DEFICITS TO BE MADE UP $2.028 BILLION.

Now add back the $450 million in funding that would have to be found for the Transportation Fund uses of General Fund money that I mentioned earlier, and the deficit will be back near $2.5 billion.

Remember, this is merely to keep things running as is- without adding in the effects of inflation on costs, or any additional state services beyond what we have, or more aids to local government, or using those aids to reduce roperty taxes. This means you shouldn’t count on a repeat of the $406 million in “property tax relief” that Gov Walker keeps touting, because that gimmick has not been paid for, and makes up $812 million of the deficit in the coming budget.

So don’t be fooled by any spin about the budget picture “improving” in Wisconsin after the release of the Cost-to-Continue document. There are already a laundry list of unmet needs that exist due to the first four years of the Age of Fitzwalkerstan, and a whole lot of bills that need to be paid but aren’t accounted for. Combine that with the likelihood that state revenues will come in below the already-slumping estimates, and you have a formula for a budget crisis that goes far beyond when Scott Walker claimed the state was “broke” in 2011. Forget tax cuts, we’ll be lucky to keep the lights on.