1. It's funny to see the media constantly call it a "$693 million deficit." That meme comes from a line in the report which talks about how the budget requests have General Fund dollars exceeding projected revenues of $693 million. But the problem with that analysis is that it doesn't take into account the carryover money that is projected, which is just under $105 million. In fact, the numbers break down as follows.
2017-18 starting balance $104.8 million
2017-18 ending balance -$145.4 million (-$250.2 million)
2018-19 ending balance -$588.2 million (-$442.8 million)
2. These figures list appropriations as actually going down in Fiscal Year 2018, but the reason why is something I touched on before- a large debt swap that recently took place which avoided a giant balloon payment scheduled to hit in May 2018. The Walker DOA even made note of that reason in their summaries.
The FY18 Request amounts include $280.0 million GPR that is appropriated to cover debt service for the pension obligation bonds. The request is a decrease of $383.0 million over the prior year. Due to the bond requirements, the FY17 Base appropriation is significantly higher than projected expenditures, resulting in a large offsetting lapse. The lower FY18 appropriation results in a smaller offsetting lapse. If the appropriation is removed from the FY17 Base and FY18 Request, the Change Over Prior Year would be $232.7 million, or 1.4%, over FY17 for GPR only.And that makes a lot more sense. However, I will also note that those increases aren't going to meet all needs out there, as the Walker Administration asked to have 0% increases for most agencies, outside of entitlements that can't avoid growth.
3. Let's talk about why the deficit was higher than the $513 million that I predicted it would be, and to me, this is the real story of this report. Because even the Walker Administration admits that revenues are going to fall short of what the Legislative Fiscal Bureau estimated in January.
2016-17 projected General Fund revenues
Jan LFB estimate taxes $15,655.7 million
Nov DOA estimate taxes $15,440.2 million (-$215.5 million)
Jan LFB estimate other revenues $538.7 million
Nov DOA estimate other revenues $510.2 million (-$28.5 million)
TOTAL CHANGE IN ESTIMATE -$244.0 million
In addition, the Walker Administration projects that tax revenues will only increase by 2.9% in Fiscal year 2018 and 3.0% in 2019, below the 3.7% a year I projected as a "good case scenario." So why isn't the situation even worse than a $588 million shortfall? Because the Walker Administration also revealed that there were some adjustments to the Fiscal Year 2016 amounts, which goes along with the footnote on last month's Annual Fiscal Report, which said the numbers were not yet finalized at the time. So here are those adjustments.
Adjustments to FY 2016 post-AFR
Change in Departmental Revenues +$12.1 million
Change in total expenses -$5.3 million
Net change to balance +$17.3 million
So this allegedly raises the year-end balance for FY 2016 to $331.0 million, which gives enough cushion for a $105 million projected carryover at the end of this Fiscal Year, even with the huge revenue shortfall. We'll see if it holds in a couple of months when the LFB comes back and gives its revenue estimates for the next 3 fiscal years, ahead of Governor Walker's budget submittal.
Bottom line- not a good situation, especially when we aren't even considering the $880 million in additional funding or borrowing that needs to be accounted for to make the Transportation budget balance. Stay tuned, because I have a haunting feeling that the downside risks to this budget picture are more likely than a positive surprise.