$1 billion deficit in Wisconsin? Yep, it's coming

You may have heard by now that Wisconsin is back to facing a large structural budget deficit, as a result of gimmicks measures that are part of Scott Walker's proposed budget.

Gov. Scott Walker’s proposal for the state’s next budget creates a larger structural deficit than previously thought, nearly $1.1 billion, in the ensuing budget cycle beginning in 2019, the state’s nonpartisan fiscal office said Thursday.

The Legislative Fiscal Bureau released the findings in a memo made public late Thursday.

It shows Walker’s plan for the 2017-19 budget, which back-loads spending and tax cuts into its second fiscal year, leaves a structural deficit of $1.1 billion that lawmakers would have to erase in crafting the 2019-21 budget.

So why are we looking at a billion dollar deficit in the next 2 years? Well, let's look into the LFB memo and see what we find. Here are a few of the explanations.

1. In Walker's proposed 2017-19 budget, the state of Wisconsin is projected to spend more than it takes in for both years, but is able to slip by as a "balanced" budget because it is slated to carry $453 million over on June 30. In that budget, Fiscal Year 2019 has a deficit of $211 million baked into it, and given that the structural deficit figures on those expenses being the same as a base, that means we start $422 million in the hole.

2. Some of it is from Walker's "welfare reform" measures, including job training programs and the indexing of the Homestead Credit, which is $80 million of extra expenses which will hit in 2019-21. Another $105 million will be needed to maintain current expenses for various child welfare and family programs, since the state is using up left-over federal money under the Temporary Aid to Needy Families (TANF) program in the 2017-19 budget, and the structural deficit picture assumes the same amount of spending on programs for 2019-21, which mean state taxes have to make up the difference.

3. Another $94 million is the result of the full funding of a proposed 2% wage increase for state employees that hits in early 2019, with the last $47 million of that raise vs the 2018-19 hitting in Fiscal Year 2019-20, then staying at that higher level. But that wage increase may be threatened, as we found out earlier this week that the availability of that funding is based on projected savings from going to a self-employed health insurance model- a model which may not even be approved by the Joint Finance Committee, nor may it result in any of the $40 million a year in savings the Walker Administration claim it will.

4. $149 million in the additional deficit comes from additional debt costs, with much of it as the result of a debt swap that I described back in August. The debt swap was done to avoid a $383 million balloon payment that would have messed up this budget, but the next budget will be paying back some of those costs as a result, and from what I can tell that it will peak in the 2019-21 budget.

5. Lastly, $166 million in the additional deficit happens because of a federal law change that hits in 3 years, as the Wisconsin Department of Revenue notes.

1. What is the Internet Tax Freedom Act (ITFA)?
The ITFA is federal legislation banning states and local governments from imposing sales tax on Internet access. The ITFA was set to expire on October 1, 2016 but the ban was made permanent on February 24, 2016.

2.Is Internet access taxable in Wisconsin?
Yes, sales of Internet access services are subject to Wisconsin sales or use tax when the customer's place of primary use is in Wisconsin.* However, the permanent extension of ITFA includes a provision that bans grandfathered states, such as Wisconsin, from taxing Internet access services after June 30, 2020. Therefore, charges for Internet access services in Wisconsin will not be taxable as of July 1, 2020.

So that sales tax reduction hits in the 2020-21 budget, and blows another hole in the budget.

So how can we reduce this billion dollar budget deficit? How about getting rid of some of Walker's stupid poser tax cuts in this budget. Let's start with Walker's idiotic proposal to cut income tax rates by 0.1% for most Wisconsinites. This is a tax cut that the LFB says will give the average person less than $1 a week, but will cost the state over $200 million in the 2017-19 budget, and likely around $200 million more in the 2019-21 budget. That's $400 million right there.

Then add in another stupid pose, where Walker plans to get rid of the part of the property tax that goes to DNR Forestry items, and instead spend and additional $179 million in tax dollars to make up the difference. Not only would getting rid of this gimmick reduce expenses by an estimated total of $370 million over the course of the next 4 years, but it also would quiet criticism from people who own land in DNR woodlands and would likely be affected by future cuts in assistance in maintaining forest lands when the state is crunched for funding in future years.

These two moves would reduce the structural deficit by $770 million, wouldn't change spending in any other areas, and not make Wisconsinites pay anything more in taxes than they do today. Get rid of few other Walker budget gimmicks like a $22 million for 2 August sales tax holidays that could well be more trouble than it's worth to institute and a pointless $20 million deposit to the rainy day fund in 2018-19, and you've pretty much closed the structural deficit by that alone, and are still increasing funding to K-12 education in the process.

Oh, and given that it seems highly possible that Congress will shirk some of its funding duties in order to try to "pay for" some stupid GOP tax cuts and/or "de-federalize" certain governmental duties, we may well need to spend more money at the state level just to maintain services in the near future. In addition, given that we are likely to have some kind of recession in the next 4 years (we are going on 8 years of expansion, the record in US economic history is 10) , doesn't it seem like a good idea to have a sizable cushion built into our current and future budget to guard against the declining revenues that inevitably occur when the economy takes a downturn?

So maybe the State Legislature should take the LFB's warning to heart, and get rid of all the Walker pre-election poser garbage, and make this budget more stable over the next few months. Because it seems more likely that not only is there bad risk of deficits for 2019-21, it's also very possible that it'll creep up for 2017-19 as well.