To borrow, or not to borrow?

As word keeps leaking out about the budget that Gov Walker is going to release tomorrow, I wanted to close in on a couple of items related to debt in the upcoming budget. Wispolitics has printed a summary of the details released last Friday afternoon, and it includes a whole lot of new borrowing for highways and other Transportation needs, but not so much for other departments. It’s the non-Transportation funds I want to talk about first.

* There will be no new bonding authorized in the capital budget. Residual bonding authority will be used in the capital budget for projects.

* This is possible while maintaining a robust capital building program because of $858 million in leftover projects to be approved from the 2013-15 Budget.

This is an intriguing change from the 2013-15 Capital Budget, which planned to borrow $1.3 billion to pay for that budget’s projects (this is separate from the nearly $1 billion in borrowing that was done for Transportation in that budget). This amount gets added to the state’s allowance of how much General Obligation borrowing it can do, with funds parceled out to various projects. Theoretically, as those projects come in under budget and/or don’t happen, these funds can be “refunded” and used on other projects.

And a check of Appendix B of the most recent bond disclosure form (for $260 million in refinancing that’ll happen later this Winter), shows that this amount of money is available to be used.

G.O. bond issuance information
Total debt authorized for projects $28.82 billion
Amount of unissued debt $4.24 billion

A sizable amount of that unissued debt is for projects that haven’t started and/or completed yet, so it will be issued in the near future, and it is largely concentrated in some departments, (the UW System has a total $1.08 billion of these funds, and the state’s Stewardship Fund has $382.5 million, for example). But it is also plausible that some of these funds could be freed up for the 2015-17 budget, and you can see where such a strategy might be drawn from.

The problem with this is that it taps into reserve funding that could be needed if the state’s needs change or its finances require more borrowing, and it could also be perceived as a back-door way to reduce funding for various state agencies, since there is a lower amount of “base” borrowing for projects in future budgets. Not necessarily a bad thing, unless you think maintenance and upkeep of infrastructure is a priority.

The other item I want to look into is the borrowing in the Transportation Fund. This is apparently the strategy Walker will do in lieu of the nickel increase in the gas tax that the Wisconsin DOT included in its budget request, and the Walker Administration’s document explains that there’s also a change in how the debt for this borrowing will be paid off.

*Pledge the motor fuel tax to the Transportation Revenue Bond program, which will increase the debt service coverage in the program and likely lead to a higher bond rating.

*This will be structured so the motor fuel tax amount will be used for program coverage while TRB debt service will continue to be paid primarily with vehicle registration fees.

* Overall level of new transportation bonding is $1.3 billion.

I’d have to see the budget document to see how this exactly would work out, because the 1st and 2nd bullet points seem to be in conflict. Right now, the debt in the Transportation Fund is paid off entirely by vehicle registration fees, to the tune of nearly $235 million for this current fiscal year. But this initiative to use gas taxes to "increase the debt service coverage in the program," confuses me as to how it is different. Is the idea that more debt is paid off than is currently planned, which would be something that reduces the debt load in the short term. But of course, this would be offset by the additional borrowing of $1.3 billion in this budget, and require more debt service in later years.

Another worry I have about this is that designating any gas tax money to pay off debt inevitably takes it away from being spent on other projects and/or aids to local communities. So it makes me wonder where those funds will be made up…if at all. Since the Walker Administration’s document claims that “there are no new taxes, fees, or increases in the transportation budget,” it seems like something has to suffer if the funds aren’t going to current revenues. Given that Walker has never been kind to funding transit (either as the Milwaukee County Executive or as Governor), it makes me wonder if that’s a target for reductions.

I suppose we’ll find out soon enough, but it is interesting to see that the Walker Administration is claiming that this budget will reduce the amount of debt and debt costs for the state’s Capital projects, reduce the amount of outstanding debt in its Transportation Fund, but also add to the amount of borrowing it does for transportation projects. Like most things with this crew, looks like we’ll have to read the fine print to figure out just how this plan is supposed to work…if it does at all.