Friday, January 20, 2017

Assembly GOP claims there's a bunch of money to cut taxes. There isn't

Just as I predicted, Assembly Republicans came out yesterday claiming all of the benefits of higher predicted revenues in future years, while not dealing with the higher costs. They based this BS out of a rigged request that they gave to the Legislative Fiscal Bureau, which was released yesterday.

Basically the Assembly GOP asked the LFB to make these assumptions.

Use the revenue predictions for FY 2016-17 of $15,503.6 million in tax revenues, and have that be a two-year “base” for this budget.

Then use the difference of the FY 2018 and FY 2019 revenue figures, and add in the projected year-end balance of FY 2016-17 to find out how much extra we have to “play with” in this budget.

Ass. GOP math- “extra” money
FY 2017-18 $16,033.4 million ($529.8 “extra”)
FY 2018-19 $16,616.0 million ($1,112.7 “extra”)
Proj. end balance FY 2016-17 $427.2 million

And sure enough, the AssGOPs sent out a press release yesterday saying “See, there aren’t any budget problems, we’re in great shape!”, and used the memo as an excuse to propose a tax cut/road funding package that they will work on as part of the next state budget.

Um, a few problems with the AssGOPs’ thinking.

1.In the real world, you don’t get to take all the benefits of higher revenues and then ignore higher costs. Just because I might (key word: MIGHT)be getting a raise it doesn’t mean I have all of this “extra money” that I can magically blow and/or not need over the next 2 ½ years. My house payment/rent, taxes, gas, food, entertainment, loans, and lots of other things are also likely to go up….or I need to spend more to pay them off.

Well the same thing works in budgeting. The LFB memo that counted on a “Trump Boom” to raise revenues also is counting on higher inflation now, and in the future.
The consumer price index (CPI) increased by 1.3% in 2016. IHS Marki! expects the CPI to increase by 2.5% in [State Fiscal Year] 2017, 2.1% in 2018, and 2.5% in 2019.

Although a strong dollar is expected to depress the price of imports, the CPI is nevertheless expected to slightly increase due to higher oil prices and wage inflation from a tighter labor market. Overall, the rate of core (excluding food and energy) inflation, which was 2.2% in 2016, is forecast to remain steady at 2.2% in 2017, 2.1% in 2018, and 2.2% in 2019. Food prices, which grew only by 0.3% in 2016, are expected to increase by 1.2% in 2017, 2.4% in 2018, and 3.0% in 2019. Energy prices, which fell by 6.3% in 2016, are expected to grow by 8.1 % in 2017, 1.3% in 2018, and 4.0% in 2019.
If anything, this number has been understated in Fiscal Year 2017, as this week’s CPI figures from the Bureau of Labor Statistics showed that US prices rose by 1.4% in the last 6 months of 2016, an annual rate closer to 3.0% than 2.5%.

So let’s play the same game the AssGOPs played and assume that total costs projected by LFB for FY 2016-17 increase at the rate of inflation, and I’ll even be kind enough to figure that FY’s 2016-17 higher inflation won’t drive up this year’s projected costs.

Wis General Fund costs with inflation 2016-19
2016-17 total costs $15,950.8 million
2017-18 total costs $16,285.7 million (+334.9 mil)
2018-19 total costs $16,692.9 million (+742.1 mil)

Well, there goes more than half of your “$2 Billion to play with”, AssGOP.

And of course, if they’re going to throw $300 million a year away on a tax cut to “offset” $300 million in higher taxes that would partly fill the $880 million deficit in the Transportation Fund (enabling themselves to stay in the good graces of DC lobbyist Grover Norquist), there goes another $600 million for this General Fund budget. Equally freaky is that the AssGOPs gave no detail what that tax cut would be, nor do we know the form that the Transportation Fund tax hike would be (Gas tax? Registration fee? “Hybrid tax”?).

So let’s see where we stand after accounting for inflation and this unnamed tax cut.

“extra revenue” $2,070 million
MINUS Inflation $1,077 million
MINUS tax cut/shift $600 million
MINUS Gen Fund Reserve Requirement $145 million

That $348 million is barely more than what LFB says we’re projected to carry over into the 2017-19. And over two years $348 million accounts for somewhere around 1.5% of the total budget, leaving very little breathing space in case the Trump Boom never happens and revenues fall short.

Now gander over to the budget requests for all state agencies, and you’ll notice a few standouts on the list with requested increases well beyond the 5% of inflation that we are slated to have over these two years.

Biggest % increase in Gen Fund budget requests over 2016-17 base
Elections Commission +56.4%
Historical Society +27.2%
District Attorneys +24.9%
Supreme Court +10.2%
Public Defenders +9.5%
Educat. Commun. Board +9.2%
Dept. of Justice +6.4%
Health Services +6.0%
Corrections +5.6%

And while the DOJ, Health Services and Corrections are on the low end of this “request above inflation” list, they are also two of the largest agencies in Wisconsin, which means they need more money to fill in that small percentage.

Extra Funding requested above inflation
Health Services $77.6 million
District Attorneys $17.8 million
Corrections $12.2 million
Public Defender $7.6 million
Historical Society $6.7 million
Others $5.1 million

Note that the UW System and the K-12-based Department of Public Instruction are NOT on this list, meaning that merely giving these people an increase of 5% to cover inflation could be spun as a “generous giveaway,” while still not coming close to reversing the damage of a decade-plus of cuts that those institutions have taken on. So now we’re down to around $220 million.

I’m not even bringing up the current gaps that exist, such as the Veterans Trust Fund (do we really want to keep taking $12 million a year from Veterans Homes then covering up the bad consequences of not keeping those homes up?), or the need to cut the cord on the money-leaking Local Government Property Insurance Fund. Maybe we don’t need to be carrying over all of that $427 million to the next budget, and pay our bills now…...unless you’re not all that confident in seeing 2017's revenue shortfall being limited to $150 million or in actually seeing the $312.5 million of Medicaid savings actually happen.

Now, the state does catch a break with a large decline compared to 2017's base funding that needs to be set aside for the Wisconsin Department of Administration, due to a debt swap last year which pushed off a $363 million balloon payment that was to be made in May 2018, and spread it out over the next 20 years (plus interest). But that doesn’t change what will actually be spent to pay off that debt in FY 2016-17 (it was offset by hundreds of millions in lapses, so net was $0), so there’s no benefit to the state’s bottom line in this analysis. And it goes to another problem that the AssGOPs refused to mention- rising debt payments in this budget and future years as the result of can-kicking and related Walker/WisGOP budget tricks. Wisconsin’s debt is at an all-time record $8.07 billion, and more funds will be needed to be set aside and shelled out in the coming budgets as those debts come due.

So maybe it’s not such a great idea to try to use the hope of a Trump Boom to cut taxes on revenues that haven’t been realized yet, and instead keep some funding around if/when that Boom doesn’t happen, so another budget hole doesn’t open up in the next 24 months. And especially given that we don’t know what Commander Cuckoo Bananas and the rest of the GOP Clown Show might do to domestic spending and money coming down from DC in the coming months, I’d think having some money lying around would be a wise insurance policy, in case the state is left to pick up some of the burdens of Trump/Ryan Fantasyland economics.

Of course, that would require forethought and a mentality where governing properly trumps cheap political headlines and trying to pull another over on the rubes. And that isn’t anything that today’s WisGOP will ever be interested in, so expect more gimmicks and prayers in the coming months, and expect our job growth and quality of life to continue to decline as a result.

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