Dems shouldn't sign off on $200 mil debt for roads...or $350 mil

Tomorrow’s the day of an important meeting of Wisconsin’s Joint Finance Committee, where the 16 members on the committee will decide whether or not to borrow more money to keep certain road projects on schedule. This has been an ongoing issue since the state budget was being debated this Spring and Summer, and came to a head when the Wisconsin Department of Transportation gave a list of project delays that were the result of an earlier budget compromise among Republicans to cut road spending as a method of reducing total borrowing from the $1.3 billion Governor Walker want to put on the credit card in the state budget.

The budget only allowed for $500 million to be borrowed with no strings attached, but another $350 million was listed as “contingent borrowing” that could be released if Gov Walker’s DOT would ask for it on a later date and JFC would sign off. The DOT made that request last week, setting up tomorrow’s meeting, and I’ll let the Legislative Fiscal Bureau’s paper explain more from there.

This authority is "contingent" because these bonds may be used to restore funding to either [the major highway development or state highway rehab] program in 2015-17, but only at the Committee's discretion and subject to following conditions: (a) approval of the bonds must be initiated by a request from DOT under a 14-day passive review process; (b) debt service on the first $175 million in approved bonding must be paid from the general fund; (c) debt service on any subsequent approved bonding may be paid from either the general fund or the transportation fund, as determined by the Committee; (d) the use of no more than $200 million may be approved by the Committee in 2015-16; (e) the total amount available for approval by the Committee will be reduced by the amount that actual transportation fund revenues in 2015-16 exceed the amounts projected in the budget, subject to a maximum reduction of $150 million; and (f) the ability of the Committee to approve the use of this bonding will sunset on June 30, 2017.

I want to focus on a couple of provisions there, starting with (b), because that means that at least $175 million of this borrowing would not be paid back by the Transportation Fund (i.e. with gas taxes, vehicle registration, etc.), but instead through the General Fund (i.e., with income taxes, sales taxes, etc.), and could crowd out future investments in schools or local aids or a number of other items that the General Fund pays for.

In addition, the mix of major highway development vs. state highway rehab is a legitimate question. Freeway expansions and rebuilds in South Central and Northeastern Wisconsin delays would be closer to staying on track if the Walker Administration’s preference to have $125 million of the $200 million borrowed go to major highway development goes through. However, the state highway rehab fund would only get $75 million of that added borrowing, and the LFB paper notes that this amount would mean those roads would likely deteriorate.

In its October 5 letter and in communication related to this request, the Department noted that state trunk highway conditions are generally in a state of decline, such that a large portion of these highways "has either reached the end of its useful life or will do so in the next 5 to 10 years." As a consequence, even at a [2014-15] base level funding ($807.3 million annually), DOT estimates that statewide road conditions, currently reported as 83% in "fair and above condition," would drop to 68% in this condition over a 10-year period (the remaining roads would be considered in "poor and below" condition). Under Act 55 [the State Budget]'s $50 million annual reduction to this program, DOT estimates that statewide road conditions in fair and above condition would fall to 66% over a 10-year period (if inflationary increases to program funding are provided in future years). If the Committee approves contingent bonding equal to $75 million per year for this program in 2015-17 (this request and DOT's intended request for 2016-17) and maintains funding at this level in future years (while also providing inflationary increases in future years), a slight improvement in this percentage, to 69%, would be expected.

So even if Gov Walker gets all of the extra borrowing OK’d, two- and four-lane state roads will get worse. That’s not really the best way to go.

Another provision I want to mention is Part (e), which says up to $150 million in borrowing for Year 2 would be automatically reduced if Transportation Fund revenues go over what’s in the budget this year. But JFC Co-Chair John Nygren apparently doesn’t want to wait that long, because he said today he is circulating a motion among JFC members to approve all $350 million of borrowing in one pull tomorrow, with a $200 million/$150 million split between Year 1 and Year 2 of the budget.

Nygren’s proposal seems to be a hasty decision to unnecessarily borrow it all, but apparently Johnny is in fear of voter anger should this issue come up again next year as the 2016 elections loom. No word on how Nygren’s measure would be paid back when it comes to General Fund vs. Transportation Fund (all $350 million could conceivably be in the General Fund), nor do we know if there are provisions to reduce the borrowing in Year 2 if good Transportation Revenue figures do well in this fiscal year.

The added expenses that this borrowing would cause to current and future budgets should not be ignored. The LFB says that approving the Walker Admin’s desire of $200 million for this year would add $14.3 million in debt service costs in the next fiscal year, and likely similar amounts for several year afterwards. Adding in another $150 million would likely add around another $10 million a year on top of that, and either amount raises the structural deficits that already exist in the 2017-19 General Fund and Transportation Fund budgets. And the mix of that final $175 million in borrowing between General Fund and Transportation Fund is also something that JFC would have to determine, possibly as early as tomorrow.

But as I've mentioned earlier, much of this borrowing is avoidable. The appendix to the 2014-15 Annual Fiscal Report showed that Wisconsin’s Transportation Fund ended the year with a balance of $203.8 million, instead of the $63.8 million projected in the budget. In addition, some of that higher balance was due to stronger-than-expected Fuel Tax and Registration Fee revenues, which means the base will be higher for this year, and those figures will likely go over what’s budgeted in 2015-16 as well.

With that in mind, why not turn down the Governor’s and DOT’s request for $200 million in borrowing, use that extra $140 million in cash in the Transportation Fund, add $60 million in expenses to this year, and push off any decisions on borrowing to the next fiscal year? Sure, this would require actual approval by both houses of the Legislature instead of just an up-or-down vote tomorrow from the JFC, but it’s a lot more fiscally responsible and gets more of the road projects pushed through and completed. Seems like a win-win to me, if doing it the right way is the goal.

And if I’m a Dem on JFC, I’m not signing off on ANY additional borrowing tomorrow. I would demand that this extra cash be used, and match it with a small (possibly even seasonally-based) increase in the gas tax to pay for the rest, and make the Transportation Fund more solvent in the process. If 2/3 of the 12 Republicans on JFC can’t agree to borrow the money that Governor Walker and DOT requests, there is no way the Dems on JFC should give these dingbats any cover by allowing it to go through. Play some hardball and make the GOP have to make some real choices as the snow starts flying, more potholes appear, and 2016’s road construction season looms closer. This also allows for Dem leverage and input if the $200 million in requested borrowing is turned down, and a new highway funding bill has to be figured out if more road work is to occur.

Lots to be looking for tomorrow at that JFC meeting. Let’s see if this state will break out the credit card yet again in the Age of Fitzwalkerstan (even if we don't have to), or if any deals and changes get made.