Tuesday, December 30, 2014

Here comes the bill for 2014's WisGOP tax cuts

Governor Scott Walker has been doing a whole lot of talking about property tax bills being lower in much of the state this month. But it’s quite an ironic and cynical pose to strike, because right-wingers like Walker have constantly shot their mouths off about how “there is no such thing as a free lunch” when it comes to tax policy. And the people in Wisconsin are going to find out the hard way in this next state budget cycle, because Walker’s and WisGOP’s election-year giveaways will now come with a big cost in 2015.

It is likely that any property tax decreases on this year’s bills are largely due to a reduction in the tax levy for the state’s technical colleges, which is a result of $406 million being added to those schools earlier this year. On the surface, that’s a good thing, as it moves more of that technical school funding off of the property tax and onto a statewide. Except there are two problems with how Walker and the WisGOP Legislature did this.

1. That $406 million was not funded with a corresponding increase in taxes, and is not being paid for by a one-time dip into surplus funds. In fact, it was part of a larger package of income and corporate tax cuts, which means that this $406 million a year is adding to the state’s budget deficit. Given that the state’s budget deficits are on track to end up above $2 billion, if Walker keeps this property tax relief for tech colleges on the books, he’s going to have to find some added source of revenue (aka tax increase) to make up for the extra $812 million of the next two years, or cut funding by a sizable amount elsewhere.

2.The tech schools won’t be able to use much of this extra funding to actually increase services, give pay raises to employees, or other measures that could help the state’s talent pool. That’s because the extra $406 million came with some new strings attached- most notably a revenue limit that is similar to K-12 school districts.
Replace the current limit that applies to each technical college district's tax levy with a revenue limit that would apply to the sum of the district's tax levy and the property tax relief aid received by the district under Item #11. As under the current levy limit, tax levy would be defined to exclude taxes levied for the purpose of paying principal and interest on valid bonds and notes, other than noncapital notes issued on or after July 2, 2013. Beginning in the 2014-15 school year and for each school year thereafter, specify that no district board could increase its revenue by a percentage that exceeds the district's valuation factor. As under the current levy limit, valuation factor would be defined as a percentage equal to the greater of either: (a) zero percent; or (b) the percentage change in the district's January 1 equalized value due to the aggregate new construction, less improvements removed, in municipalities located in the district, as determined by the Department of Revenue.

Specify that the current law levy limit provisions related to excess levy, referendum approval needed to exceed the limit, and carry forward of any under levy, would be modified to apply to the proposed revenue limits.
So in order to expand offerings of tech college services and expand the labor pool in these jobs (which Walker constantly claims he wants to do), that means even more state funding has to be pumped into the Tech College System to produce these classes and reduce wait lists, since the $406 million can’t be used for anything but property tax relief. And with the state’s budget woes (reiterated with weak revenue numbers that came out last week), good luck finding a place to pay for that.

This week’s Wispolitics.com interview with Gov Walker also indicates that Scotty seems to be stuck in a tough spot when it comes to funding the state’s transportation needs. Apparently last month’s DOT’s proposal of tax increases and big transfers from the General Fund doesn’t seem to be going over very well.
Transportation Secretary Mark Gottlieb in November released a budget proposal that called for $751.4 million in new taxes and fees. That included increasing the gas tax by 5 cents a gallon along with a 10-cent a gallon hike on diesel.

Walker said some alternatives could include diverting sales taxes collected on auto purchases to the transportation fund instead of the general fund.

The governor also said his administration will consider paring back projects to help address the shortfall in the transportation fund with some $650 million needed to meet current commitments.
Diverting sales taxes on auto purchases seems to be related to the 2.5% “new car tax” that the DOT proposed, which was mentioned on Page 70 in the PDF of the DOT’s budget request. The new car tax is projected to raise $379 million for the Transportation Fund over the next two years, but if Walker is talking about also moving the regular 5% sales tax into the Transportation Fund, that’s a double-whammy, because it reduces the money available to the General Fund. As I’ve mentioned earlier, the DOT budget request already is counting on $550 million in General Fund money just to balance its books in the next budget, so maybe this is some kind of offset of that transfer of funds. Either way, such a plan would simply be replacing one pot of money for another, and would still cause budget problems for the state and result in higher fees for the average Wisconsinite.

And Gov Walker mentions in that same interview that raising the gas tax, even by the relatively small amount the DOT proposed, might not be in the cards, given how the average Republican elected in Wisconsin hates raising anything that could be construed as a tax (other than reducing the Homestead Credit and other low-income assistance. They’re cool with that). But you’ve got to pay for these projects in some way, so it’s either pay up at the pump, or borrow even more funds in the next budget. Right now, neither of these strategies are necessarily bad, given the plummeting price of gas would make a tax increase relatively invisible and the low yields on the 10-year note in recent months. But it also goes against GOP “fiscal conservative” dogma that believes in striking no-tax, no-debt poses over responsibly paying to maintain and improve infrastructure.

So this upcoming budget is where one-time tax-reduction gimmicks and other one-time Walker/WisGOP deals like Act 10 are now running into the continuing reality of unpaid bills and low economic performance. It will be very intriguing to see what kind of stunt these guys try to pull to patch together a budget that is nowhere near balanced, and with a whole lot of magic bullets already being used up. Especially watch for the old shell game of shifting taxes from one level (the state) down to another, and then playing dumb when things fall apart for local governments and institutions.

Somehow, this tune seems fitting when it comes to Scott Walker's talk on taxes and "cutting government," and how a whole lot of rubes will feel when the cost of these tax cuts becomes apparent.

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