Monday, June 24, 2019

Sorry Chuck, the Trump economy isn't so great in much of America

I didn't watch a minute of Chuck Todd's absurd interview with President Trump yesterday, but I did see the follow-up on social media. And I took extra notice of this comment, which came right after Todd (rightfully) noted that the country's low unemployment rate is just a continuation of a 9-year trend that took up most of Barack Obama's time in office.


Yeah, you might want to look a little deeper Chuck. In fact, the US economy is slowing to mediocrity these days, and it's less than that in much of America.

Job growth in the US has slowed from the bubbly levels of 2018, with an average of 127,000 new jobs a month since January- the lowest 4-month average since August 2012. While some of that should be expected in a time of 3.6% unemployment (hard to add people when everyone that wants to work is already working), it’s an obvious slowdown in employment gains that won’t help sustain the 10-year economic expansion.

And the lower 1.58% rate of job growth doesn't tell the full story. What’s being missed by the affluent, connected Coastal media is that the allegedly strong “Trump economy” is sputtering out in much of America.

US job growth May 2018-May 2019
US total rate of growth +1.58%
15 states are above 1.58%
35 states are below 1.58%

Even more amazing, exactly ONE of those 15 states that were above the US rate of growth is located North of the Mason-Dixon line and east of the Rockies (South Dakota, and they’ve only gained 8,400 jobs in that time). (You can click here for a good bar chart that compares each state for total job growth over the last 12 months).

And worse for Trump, the Rust Belt states that gave him the win in 2016 are the ones that are falling farther behind under his presidency. In fact, the 5 states that voted twice for Barack Obama then flipped to Trump in 2016 all are short of 1% job growth over the last 12 months, let alone the 1.6% for the country.

“Rust Belt” Obama states that voted for Trump
Penn +0.9%
Ohio +0.8%
Mich +0.53%
Wis. +0.51%
Iowa +0.4%

"But Jake, isn't the stock market still booming under Trump? Aren't people's 401k's doing great?" Again, depends what you're talking about. Sure, if you look at the DOW Jones average of 30 large companies, things seem OK. But if you dig deeper into the stock market as a whole, not so much.

I'll go from the date Trump signed the GOP Tax Scam into law, on December 22, 2017, and look at the record over the 18 months that have occurred since then.

Stock market performance last 18 months
DOW Jones +8.0%
S&P 500 +9.8%
Russell 2000 (smaller-caps) -0.8%

As you can see, while the DOW and S&P by a relatively small amount, the Russell 2000 is lower today than the day Trump signed the Tax Scam, into law. It's down 12% from its peak last August 31, and after a sizable decline today, is down 5% in the last 3 weeks, and went below its (already-declining) 200 day moving average today.


A common theme with the Trump economy is that a few big gainers at the top make the overall numbers look good. But the typical American state and person is barely any better off, and they will be the ones most likely to be the first to feel the pain when the inevitable recession hits sooner than later.

It's something that's in plain sight for much of the country, but the connected, corporatist media members in the Acela Corrioor don't have a clue about it. Which is why Trump's re-election prospects may be even tougher than those Coastal media types think, as the states he can't afford to lose are falling farther behind economically.

Sunday, June 23, 2019

So what might be changed out of the budget this week?

The state budget is expected to be voted on by the full (gerrymandered) Legislature this week. But what gets voted on in the Legislature is likely to be different than what passed out of the Joint Finance Committee last week. Patrick Marley and Molly Beck had a good preview in the Milwaukee Journal-Sentinel late last week.
Assembly Speaker Robin Vos of Rochester said Republicans planned to tack an amendment onto the budget that would further limit property tax increases and require the full Legislature — not just a committee — to increase vehicle fees.

Vos and others said Republicans were also considering a provision that would change how Tesla Motors' electric cars are sold.

Vos and the others didn't say what other provisions the budget amendment might contain or say say how much of an effect the property tax provision would have on typical homeowners.
ABS - Always Be Scheming

So what might those property tax limitations look like? Given that the Joint Finance Committee already nixed Evers' proposal to allow more local governments a little more leeway to raise property taxes (and instead kept them under the same limits they've struggled with for the last 8 years), that doesn't seem likely to be the place that GOPs would try to limit property taxes even more.

But Evers' proposal to allow a 2% increase in revenue limits for K-12 public schools stayed in, and that, combined with a severe reduction in Evers' proposed bump to General School Aids, was a reason that property taxes were slated to go up under the Joint Finance Budget. At least until the GOPs on JFC decided to throw another $58 million to the state's lottery to get the property tax number down to what was in Evers' original budget.

My guess is the K-12 move will be similar to an idea Vos had 3 years ago that would have further damaged public schools on top of the money funneled away to voucher schools.
Assembly Speaker Robin Vos is not backing off a proposal to reduce the amount of property taxes school districts can raise to offset the cost of vouchers.

The Assembly on Tuesday is scheduled to take up his proposal, attached as an amendment to a bill making technical changes to the state’s new voucher program for students with disabilities.
That plan was eventually defeated. At this point, I'll step back and remind you that today, most public school districts that have a student living in their district that use a voucher to go to a private school lose the same amount of money that the voucher school gets (which makes the net cost $0).

Those public schools are currently able to make up the difference in lost state aid by raising property taxes, under the state's revenue limit. My guess is that might get changed, and given that many of the GOPs in the State Legislature got put in their seats with an assist from Betsy DeVos' pro-voucher contributions, they could allow it to happen, even if it screws their local public school.

Another possibility is that those 2% increases in revenue limits for schools would go away. That move would have risks associated with them, as it would continue the elevated amount of referenda that many have complained about in recent years. But the cosmetics of the claim of "we reduced property taxes" might be enough for Vos and the other GOPs to try.

Beck and Marley also said there will likely be a change to a provision inserted by the GOPs on Joint Finance that was allegedly to start a study on tolling and other revenue enhancers for the Wisconsin Department of Transportation. As people dug into what was written, they found that it could have set up a situation where new fees could have been put in place without approval from either Governor Evers or the full Legislature.
Under the budget provision, the state would spend up to $2.5 million on a study into setting new fees based on how many miles vehicles travel. Miileage-based systems could include traditional tolling or having drivers install devices in their vehicles that would tabulate how much they travel.

Once the study was completed, the Department of Transportation would recommend whether to impose new fees. The finance committee — which consists of 16 of the state's 132 legislators — could sign off on that plan or write one of its own.

Vos said supporters of the plan never intended to cut the majority of lawmakers out of having a say on the matter. The amendment would address that issue so the full Legislature would have to vote on any new vehicle fees, he said.
Riiiight Robbin', I'm sure the 12 members of the Joint Finance Committee just threw this in there on their own, with specific language to go around state law. Like these guys do ANYTHING without having Vos and Senate GOP Leader Fitzgerald signing off on it. Give me a freaking break.

Just like with the open records fiasco from 4 years ago, there was no mistake here. It was just that the GOP leadership got caught by the state's media.


Anyone with a brain can bet that these GOPs will try some last-minute BS to sneak in to try to goad Evers into signing off on a regressive, bad budget, or throwing the whole thing out and leading to months of delays. But given that Evers can strike out most changes to current law while keeping increased investments in a number of areas, my guess is that whatever might get out of the Legislature this week will eventually be signed with Evers, albeit with a lot of line-item vetoes included.

Stay tuned.

Wisconsin jobs and Census reports shows aging state needs new direction

We got a new Wisconsin’s May jobs report on Thursday, and it was decent. But as you'll notice, it's the same “yeah, but” that we’ve seen before.
Place of Residence Data: Wisconsin's preliminary, seasonally adjusted unemployment rate in May remained at 2.8 percent, down from 3.1 percent in May 2018. Wisconsin's labor force participation rate was 67.3 percent in May 2019, down from 68.1 percent in May 2018. The national unemployment rate and labor force participation rate in May were 3.6 percent and 62.8 percent respectively.
Note that “labor force participation” stat. It continues a trend of Wisconsin’s labor force and total number of people “employed” continuing to decline, with the labor force down 5,500 in May, and number employed down 6,000. In fact, Wisconsin’s labor force of 3.122 million is the lowest we’ve had in more than 3 years (March 2016).


Which is why I keep pointing out that our low unemployment rate is misleading, because it doesn’t reflect any kind of significant job growth. If you impute the participation rates from May 2018 and May 2019 to get an “adult population” figure, it shows that Wisconsin has 29,000 more people of adult working age. At the same time, more than 10,000 fewer of those people identify as “employed”. That sounds like a place that is in decline, not one that’s “booming.”

On the payrolls side, we finally did get some growth, albeit not much.
Place of Work Data: Wisconsin added 19,600 private-sector jobs from May 2018 to May 2019, and 15,000 total non-farm jobs over the same time period. From April 2019 to May 2019, Wisconsin added 1,800 private-sector jobs and 1,700 total non-farm jobs.
I guess it beats having fewer jobs in May, and April’s total was revised up by 2,600 (meaning we only lost 500 jobs that month) but Wisconsin is still down 2,500 jobs for all of 2019 (200 in the private sector). And job growth of 0.5% over the last 12 months when the country has added jobs at a rate more than 3 times faster (1.6%) isn’t good at all.

Part of the slow growth issues in Wisconsin was further illustrated by this week's report from the US Census Bureau which looked at ages and demographics of all US states and counties. And while parts of the country are growing younger (including a Census Bureau definition of "Midwest" that seems to be more like the Great Plains), Wisconsin is growing older, particularly up North.


The Wisconsin State Journal went deeper into these numbers, and the divide among different parts of the state was even more noticeable.
Wisconsin is now the 13th oldest state in the nation, which has an overall median age of 38.2, up 1 year from 2010.
According to the Census, four out of five U.S. counties were older on average in 2018 than in 2010.

In this decade, the median age has increased in all but two Wisconsin counties — Grant and Menominee, which is the youngest at 31.1 years. Iron County remains the oldest, with a median age of 55.2 years....

There are now a dozen Wisconsin counties where half the population is over 50.

Many of those counties have seen an influx of retirees at a time when younger people are moving to urban areas.

“It’s kind of a triple-whammy,” [Dan] Veroff [of the UW-Madison Applied Population Laboratory] said.
And this is the real reason for the low unemployment that Wisconsin Republicans keep trying to prop up - aging Boomers drop out of the work force, and are not replaced by younger people staying in the state, so the unemployment rate "drops" without any growth under it.

We've had 8 years of trickle-down in Fitzwalkerstan that hasn't helped anyone except for a connected few, and it's led many people with talent to either leave Wisconsin, or not come here. As shown by last week's stats from both the Wisconsin jobs report and the Census Bureau, we need to have policies that encourage workers and others to come to the state, to reverse the lower job growth and declining labor force in recent years.

To do that, it requires higher wages and stronger community investments that increase the availabilities of services and stability. In other words, exactly the opposite of what we've seen with the regressive, cronyist WisGOP agenda that has been in place since 2010.

Saturday, June 22, 2019

Much of rural Wisconsin has fallen further behind 2010s, but keeps voting for failed GOP policies

Earlier this month, we had a release by the "gold standard" Quarterly Census on Employment and Wages (QCEW) that gave a complete picture of what looking at the biggest gainers over the 8 years that Walker and WisGOP controlled all facets of state policy, the state had cumulative private sector job growth of 233,101 (+10.26%).

But not all areas in Wisconsin did so well, including many of the places that are supporting Scott Walker and other Republicans in strong and increasing numbers. Remarkably, despite 8 years of US economic expansion, 11 of Wisconsin's 72 counties had fewer private sector jobs at the end of the Walker era than when they started, and 2 more had fewer than 100 jobs gained between December 2010 and December 2018.


Out of those 11 counties that lost jobs during Walker’s tenure in office, most had job growth bottom out during Walker’s first term, and slightly recovered over the last 4 years. But a handful were unfortunate enough to lose jobs in BOTH 4-year terms.

Wisconsin counties losing private sector jobs 2010-2014 and 2014-2018
Crawford Co.
Green Lake Co.
Price County
Iron County

Despite that reality, I’ve noticed Congressman Sean Duffy (R-Real World) giving this line a lot in recent months.



Odd that he says that, and not just because his Northern and Central Wisconsin district has taken on a lot of the record closings of dairy farms for the state. 26 of Wisconsin’s counties are part of Duffy’s district, and based on the most recent QCEW, many of those areas are losing jobs under Donald Trump's presidency.

Counties in Sean Duffy’s district that lost jobs
Lost private jobs in 2018
Ashland Co.
Clark County
Iron County
Jackson Co.
Juneau Co.
Langlade Co.
Lincoln Co.
Oneida Co.
Polk County
Price County
Washburn Co.
11 of 26 counties

Lost private jobs in 2017
Bayfield Co.
Chippewa Co.
Florence Co.
Forest County
Oneida Co.
Price Co.
Sawyer Co.
Taylor Co.
8 of 26 counties

Fewer private jobs in Dec 2018 vs Dec 2016
Forest Co.
Florence Co.
Oneida Co.
Price County
Washburn Co.
5 of 26 counties

There are also several additional counties in Duffy’s district that added less than 100 jobs in those years, which isn’t exactly “booming” growth. But then again, Duffy’s pretty much stopped being a rep of Wisconsin’s 7th District and is clearly trying to grift himself into a Trump-related job.

In addition, there are 5 Wisconsin counties that had decent growth from 2010-2014, but then lost jobs in Walker’s second term. All of these are ended up in the bottom 30% of job growth out of all Wisconsin counties for the last 8 years.

Job loss 2014-2018
Washburn Co -0.55%
Oneida Co. -1.84%
Waupaca Co. -2.38%
Marinette Co. -3.60%
Trempealeau Co. -5.81%

Remarkably, Trempealeau County swung from voting 56% for Barack Obama in 2012 to 54% for Donald Trump in 2016. Scott Walker also went from 52% support in that county in 2014 to 54% in 2018, despite losing 4% of support in the state overall, and the Assembly district that represents the county has flipped from Democrat to Republican at the time.

Now, Trempealeau is an unusual circumstance, as they relied heavily on frack mining as part of their strategy for job growth (how’d that work out for ya?) But Walker also grew his support in 3 of the other 4 counties that lost jobs during his second term (and only lost 1.2% in Waupaca vs 4% for the state). So what’s the cause and effect here? Is the talent leaving these rural places for higher wages and better opportunities, and what’s left behind more likely to be Republican voters these days?


I can somewhat understand if people in these areas wanted to take a chance on Trump (even if I don’t forgive it), but why stick with Walker when things got noticeably worse over his second term in office?

Likewise, it’s noteworthy that the strong growth in anti-Walker Dane County allowed the state's job market to be merely subpar instead of disastrous during Scotty's Reign of Error. Maybe rural Wisconsin needs more leaders and politicians that think like Madisonians do, and less like what ex-reality show characters like Sean Duffy and Donald Trump do.

Friday, June 21, 2019

The Wisconsin budget, by the numbers so far

Before the gerrymandered GOP Legislature gets to vote on the budget, the Legislative Fiscal Bureau released their summary of what the budget looks like now, after it has passed the Joint Finance Committee.

What we have isn’t all that much different than what we had when the budget began, except that more money is projected to be carried over (due to the one-time effects of moving money around due to the GOP Tax Scam) and some proposed spending has been cut and/or transferred. In fact, the deficit built into year 2 isn’t much different at all.

2019-21 budget
2019 carryover $691.5 million
2019-20 Ending balance $937.9 million
2020-21 Ending balance $105.3 million

JFC budget
2019 carryover $947.7 million
2019-20 Ending balance $829.5 million
2020-21 Ending balance $122.6 million

The structural picture is a similar story – slightly better than where we were. But not by much.

Evers Budget
2021 carryover $105 million
2021-22 Structural balance -$847 million
2022-23 Structural balance -$1,113 million

JFC budget
2021 carryover $123 million
2021-22 Structural balance -$670 million
2022-23 Structural balance -$737 million

The JFC did cut a decent amount of overall spending in their deliberations, but a lot of that was giving back what the Feds would have covered woth Medicaid expansion. General Purpose Revenue (State tax dollars) didn't end up going down by much at all, especially once you account for a $900 million reduction in state aid to K-12 public education.

Evers Budget
$83.76 billion total
$38.39 billion General Purpose Revenue

JFC budget
$81.67 billion total
$37.70 billion General Purpose Revenue

And in the Transportation Fund, the amounts aren't that different, although how you get there is (Evers wanted to increase the gas tax, GOPs on JFC chose to significantly increase title fees and some registration fees instead).

Evers Budget
2019 carryover $87.06 million
2019-20 State Revenues $2.033 billion
2019-20 State Expenses $2.004 billion

2020-21 State Revenues $2.131 billion
2020-21 State Expenses $2.217 billion

2019-21 Borrowing $338.25 million
2021 Ending Balance $30.64 million


JFC budget
2019 carryover $97.06 million
2019-20 State Revenues $1.994 billion
2019-20 State Expenses $2.035 billion

2020-21 State Revenues $2.059 billion
2020-21 State Expenses $2.062 billion

2019-21 Borrowing $326.25 million
2021 Ending Balance $53.04 million

However, Robbin' Vos is making noise about changing some of these items in the final package when the Assembly votes on the full budget next week, so stay tuned. But those are the numbers as they stand today.

Wednesday, June 19, 2019

Fed won't cut yet, but Wall Street's counting on it down the road

Despite some hope from coked-up traders for a rate cut, the Federal Reserve kept interest rates the same on Wednesday. However, the Fed did mention that recent developments allowed it a bit more flexibility, ad they opened the door for stepping in if the economy gets worse.
The Federal Reserve on Wednesday left a key interest rate unchanged and signaled it’s unlikely to cut borrowing costs in 2019, but the central bank also left itself wiggle room by saying it would “closely monitor” the economy in light of waning inflation and growing “uncertainties.”

After a two-day meeting, the Fed held its benchmark fed funds rate steady between 2.25% and 2.5%. The Fed said the labor market “remains strong” and the economy continues to expand at a “moderate” pace….

Still, the Fed also acknowledged “uncertainties” have increased in the past month and a half, alluding to a widening rift between the U.S. and China on trade that’s hurt American manufacturers, farmers and exporters. Hiring in the U.S. also slowed sharply in May.

At the same time, inflation has tapered off and is running below the 2% level the Fed considers healthy for the economy. The central bank cuts its forecast for inflation in 2019 using its preferred gauge to 1.5% from 1.8% — well below its 2% target.
It’s worth noting that the Fed also said it “will act as appropriate to sustain the expansion,” which may be a way to get President Trump to back off of his criticism, as Trump wants lower rates and a more Bubblicious economy for the next 16 months.

The Fed still projected real GDP growth of 2.1% for 2019, but lower inflation would likely make things feel more stagnant, especially since much of the lower inflation would likely come from declining food and gasoline prices that will lead to more layoffs in those industries.
Meanwhile, the everyday economy still seems to be slowing down in the 2nd Quarter of 2019. An example is the recent housing numbers from the Census Bureau, which didn’t seem like much to me.
Building Permits
Privately owned housing units authorized by building permits in May were at a seasonally adjusted annual rate of 1,294,000. This is 0.3 percent (±1.3 percent)* above the revised April rate of 1,290,000, but is 0.5 percent (±1.4 percent)* below the May 2018 rate of 1,301,000. Single-family authorizations in May were at a rate of 815,000; this is 3.7 percent (±1.2 percent) above the revised April figure of 786,000. Authorizations of units in buildings with five units or more were at a rate of 442,000 in May.

Housing Starts
Privately-owned housing starts in May were at a seasonally adjusted rate of 1,269,000. This is 0.9 percent (±12.9 percent)* below the revised April estimate of 1,281,000 and is 4.7 percent (±8.9 percent)* below the May 2018 rate of 1,332,000. Single-family housing starts in May were at a rate of 820,000; this is 6.4 percent (±9.5 percent)* below the revised April figure of 876,000. The May rate for units in buildings with five units or more was 436,000.

Housing Completions
Privately-owned housing completions in May were at a seasonally adjusted annual rate of 1,213,000. This is 9.5 percent (±13.7 percent)* below the revised April estimate of 1,340,000 and is 2.8 percent (±9.1 percent)* below the May 2018 rate of 1,248,000. Single‐family housing completions in May were at a rate of 890,000; this is 5.0 percent (±12.7 percent)* below the revised April rate of 937,000. The May rate for units in buildings with five units or more was 319,000.
And yet I was reading things about how “great” this report was. Really? Compared to where we were 4 months ago, home building is still worse off, and not by a little.

Seasonally-adjusted change from January 2019-May 2019
New building permits
Jan 2019 1,317,000
May 2019 1,294,000 (-1.7%)

New housing starts
Jan 2019 1,291,000
May 2019 1,269,000 (-1.7%)

Housing Completions
Jan 2019 1,261,000
May 2019 1,213,000 (-3.8%)

And as you see above, those housing completions tanked in May after having a rate of more than 1.33 million for the 3 months before it.

The bond market sure seemed to think things were slowing, as interest rates dropped across the board, and the benchmark 10-year note fell another 3 basis points to end up below 2.03%. It also keeps us well into rate inversion, which as mentioned before, has meant recession within 12-18 months over the last 30 years.


I think the Fed recognized that because we aren’t plunging below 1% growth, they did not need to panic people about the overall economy (which an immediate rate cut would signal). But the Wall Streeters seemed to like the admission that later rate-cut action may well be taken, so they pumped up stocks more this week. As a result, the disconnect between a stagnant Main Street and a higher Wall Street is likely to grow even wider, if that’s possible.

GOP couldn't end up raising property taxes, so more of your tax dollars will prop up the Lottery

After weeks of debate and maneuvering, it turns out the GOP's changes to the Wisconsin state budget didn’t change anything when it came to property taxes.
In Senate Substitute Amendment 1 (SSA 1) to SB 59 and Assembly Substitute Amendment 1 (ASA 1) to AB 56, the Joint Finance Committee modified a number of the Governor's provisions affecting property tax levels. For counties, municipalities, and technical college districts, modifications included deleting the Governor's recommended changes to county and municipal levy limits and technical college revenue limits. The Committee modified the current law levy limit Page 2 adjustment for fees for covered services by deleting storm water management from the list of covered services. However, the effect of this modification would not have a measurable effect on county and municipal levies. Also, the Committee increased funding for the lottery and gaming property tax credit by transferring $30.2 million GPR in 2019-20 and $28.4 million GPR in 2020-21 to partially fund non-personnel lottery costs. As a result, an additional $58.6 million is available for property tax relief through the lottery and gaming credit. For school districts, several changes would be made under Joint Finance that would affect statewide school levies, including: (a) providing a revenue limit adjustment of $175 per pupil in 2019-20 and $179 per pupil in 2020-21; (b) setting the low revenue adjustment amount at $9,700 per pupil in 2019-20 and $10,000 per pupil in 2020-21; and (c) providing a base funding increase for general school aids of $83.2 million in 2019-20 and $246.7 million in 2020-21.

As a result of the preceding changes, gross property tax levies are estimated to increase on a statewide basis by 2.7% in 2019(20) and by 2.5% in 2020(21), and net tax levies would increase by an estimated 2.9% in 2019(20) and by 2.8% in 2020(21). These tax changes would result in tax bills for a median-valued home estimated at $2,927 in 2019(20) and $2,975 in 2020(21). These represent increases of $56 (2.0%) in 2019(20) and $48 (1.6%) in 2020(21), which would match the tax bill estimates under AB 56/SB 59.
As it was, property taxes were slated to go up on their own over the next 2 years because of higher property values and more building in the state.
Increases in statewide property values have occurred each year since 2013, including increases of 3.2% in 2017, and 4.0% in 2018 for a median-valued home. The median home value is projected to continue to increase by 4.0% in 2019 and 2.9% in 2020. Comparatively, total statewide equalized values are projected to increase 4.8% in 2019 and 4.1% in 2020.

Since total values are expected to increase faster than the median home value, the estimated property tax change on a median-valued home is less than the estimated rate of change of statewide tax levies. Under the preceding assumptions, statewide net levies are estimated to increase by 2.4% in 2019(20) and by 2.1% in 2020(21) under AB 56/SB 59. In comparison, the estimated net tax bill on a median-valued home is estimated to increase by 2.0% for 2019(20) and by 1.6% in 2020(21) under the bill. Tax bills are estimated at $2,927 for 2019(20) and $2,975 for 2020(21) under AB 56/SB 59.
And those increases may be underestimated, as the most recent home sales report from the Wisconsin Realtors Association shows prices are going up even more than that.
The median price of homes sold in Wisconsin was $203,000 in May — believed to be the first time it has topped the $200,000 milestone for the entire state.

A report Monday by the Wisconsin Realtors Association shows the state median hit that level with a big assist from a 13.1% rise in the median price of houses sold in southeast Wisconsin, where real estate agents say good suburban Milwaukee listings are in short supply.
Nonetheless, a general rise in home prices has been underway in Wisconsin since 2012, and that upward trajectory finally pushed the monthly state median past the $200,000 mark….

The median price of Wisconsin homes sold in May jumped 9.1%, to $203,000 from $186,000.
Somehow, I don’t think people in Wisconsin are getting 9.1% raises, so this may not necessarily be great news in the long run. It certainly is likely that situation will drive up assessed values and property taxes this year as a result.


The property tax increase under both the Evers budget and the JFC's changes is less than what we would have had under the situation Governor Walker left us in. The big reason why Evers’ budget reduced property taxes is because he wanted to put a lot more state money into K-12 public education, which counteracted some of the effect of the projected increase in property values.
Compared to current law estimates of $2,943 for 2019(20) and $2,988 for 2020(21), the estimated tax bill on a median-valued home would be $16 less (-0.5%) for 2020(21) and $13 less (-0.4%) for 2020(21) under the bill. The most significant factor leading to the overall change in the estimated tax bill for the median-valued home varies by year. The Governor's proposal to related to schools would have the greatest effect on the tax bill in the biennium. These provisions would result in estimated reductions to the school tax on the median-valued home of $25 in 2019(20) and $32 in 2020(21), after factoring in the current law credits in that year.
But given that Republicans in Joint Finance took out $900 million of Evers’ proposed increase to K-12 General School Aids, there was a potential for significant property tax increases without any other moves.

In addition, this other shell game will continues to grow under the GOP budget, which often ends up raising property taxes for the nearby public school district.


So the GOPs were now having to face having to be responsible for higher property taxes as the budget stood last week. So that explains this back policy choice on the last day of deliberations in the JFC, which was the final piece of a 22-part motion on taxes.
22. Increase GPR Funding for the Wisconsin Lottery. Provide $30,200,000 GPR in 2019-20 and $28,400,000 GPR in 2020-21 to support the Division of Lottery, for the purpose of increasing total GPR funding for the lottery to $70,200,000 in 2019-20 and $68,400,000 in 2020-21. Create two new annual GPR appropriations under the Division of Lottery for: (a) vendor fees ($17,826,000 annually); and (b) general program operations, excluding personnel and advertising expenses ($4,393,300 in 2019-20 and $2,593,300 in 2020-21). Provide an additional $7,980,700 GPR annually in the existing retailer compensation appropriation. Reduce SEG appropriations for vendor fees, general program operations, and retailer compensation by these amounts and make a corresponding increase in the SEG lottery credit appropriation to reflect the higher amount available for property tax relief.

So because they didn't want to be seen as having higher property taxes, the GOPs threw $58.6 million in tax dollars into the lottery at the last minute.

What a petty reason for bad policy! If they wanted to keep property taxes down, why didn’t they add that $58.6 million to schools or localities without raising their revenue limits by that amount? The same effect of “no additional property tax increase” would have happened, and we wouldn’t be adding to the Lottery shell game either.

I'd almost say Evers should veto this move out of general principle. But because he can't veto the expansion of the voucher program (the GOPs have basically made it an entitlement), property taxes WOULD then go up, and shameless GOPs would then blame the Gov for allowing taxes to go up. Pathetic stuff, really.

Tuesday, June 18, 2019

Both in the US and the UW, less college aid = more out-of-staters, less middle-class opportunity

I wanted to draw your attention to a couple of recent reports which tell the same story - cuts in state funding to public universities changes outcomes and leads to less opportunities for in-state students.

The first report I'll talk about is from the National Bureau of Economic Research, which mentions that national research universities like UW-Madison (a member of the Association of American Universities (AAU), as is all but 1 other Big Ten school) don’t suffer as much when state aids are cut, because of its research and donor base. But “non-research universities (which is pretty much any other UW campus outside of Milwaukee) get hurt quite a bit.
At the AAU universities, there is essentially no link between appropriations and instructional expenditures, of which the number of faculty and their salaries is the largest expense, suggesting that there are few adjustments in class size or faculty hiring in response to changes in appropriations. At the other extreme of non-research universities, there is a significant and positive elasticity for instructional expenditures: a 10% decrease in state support ties to a 2.93% decrease in instructional expenditures, implying that the quantity and quality of instruction offered to students varies directly with state appropriations.
One intriguing part of the report has to do with how these public research colleges react to funding cuts at the state level. The NBER says that there is a clear correlation between those cuts and an increasing reliance on foreign and out-of-state students that pay higher tuition.
In addition to tuition price changes, public universities can adjust total tuition revenues by changing the quantity and composition of students. Note that to increase revenue, an institution must add (or substitute) a student for whom the net revenue will exceed marginal cost, leading to an emphasis on recruiting out-of-state domestic and foreign students. The ease (or difficulty) of drawing revenue generating students depends in large part on institutional quality and the overall supply pool. Expansion in demand from abroad, particularly the increased capacity of families in China to pay for a college education, and growth in the college-age population in states where in-state options are limited (Bound, Hershbein, and Long 2009 and Bound, Braga, Khanna, and Turner 2018), generates a potential pool from which universities can expand on the extensive margin….

These changes in tuition revenue are— by construction—the combination of price changes and changes in relative quantities. Focusing on the undergraduate level, the relative importance of price and quantity changes differs for in-state and out-of-state students. For in-state students, price effects dominate, with in-state charges responding markedly to changes in appropriations. As shown in Table A2, the elasticity of in-state price response is -0.265 for the AAU institutions, -0.164 for research universities, and -0.187 for non-research universities. This result is consistent with much of the literature that indicates that appropriation changes have a significant impact on tuition decisions (Baum et al. 2018). Not only is the elasticity somewhat larger at the AAU universities, but the greater baseline levels of in-state tuition for the research-oriented places produce greater changes in the absolute level of in-state tuition at the research universities. A 10% decrease in state appropriations is associated with an $840 increase in tuition at an AAU research university, relative to an increase of about $340 at a broad-access non-research institution. Note that these differences in price responses may well reflect differences in the price elasticity of demand in the respective student markets, as the research universities draw more affluent students who are likely to be less price elastic than students at the broad-access non-research institutions.

Yet, even as in-state charges adjust markedly, out-of-state charges do not move to a significant degree in response to changes in tuition. We interpret this as consistent with a greater price elasticity of demand of out-of-state students who typically have choices which include other out-of-state options of similar quality (both public and private), along with a discounted home-state university option. For public research universities, we also see some adjustments in the composition of students. In the most recent decade, there has been a strong shift to foreign students, particularly among those institutions that are nationally strong but not ranked among the most competitive, while a small number of nationally ranked universities are able to attract domestic out-of-state students. Indeed, this is the focus of Bound, Braga, Khanna, and Turner (2018), who show that public research universities that were disproportionately hurt by state funding declines were more likely to turn to full-fee paying students from abroad. Leveraging variation in state budgetary cycles, the paper examines the sharp rise in undergraduate enrollment, mostly from China, over the period between 1996 and 2012. Instrumental variable estimates highlight that a 10% decrease in state funding was associated with a 16% rise in foreign enrollment at public research universities, with little change in the enrollment mix outside the research sector.
With this as a backdrop, let’s look at how this has worked out in Wisconsin. We’ve had state aid cuts to the UW System since 2011, but we've also had a freeze on in-state undergraduate tuition since 2013. So what has happened to the money available to our System’s schools since then, and has it changed the student body at all?

As you can see from this chart in the Legislative Audit Bureau’s recent report on the University of Wisconsin System, out-of-state tuition revenues have nearly doubled over the last 6 years, which matches the findings from the NBER paper. while tuition paid by Wisconsinites has declined since the tuition freeze was put into effect after 2013.


The LAB noted that the tuition freeze and declining demographics have caused some campuses to change its strategies in enrollment and fincancial management. Because most non-Madison UW schools don’t have a lot of out-of-state students to depend on, that drop in in-state tuition translates into a drop in available tuition revenue on many campuses.
Although tuition revenue increased in 9 of the last 10 years for UW System as a whole, increases did not occur at all UW institutions. As shown in Table 4, since the tuition freeze in FY 2013-14, 9 of 14 UW institutions experienced a decrease in tuition revenue.


Declining tuition revenues have affected UW institutions differently. Some institutions increased nonresident and graduate tuition rates to make up for declining resident enrollment. As noted, in April 2015, UW-Madison phased in a $10,000 increase in the nonresident undergraduate tuition rates over a four-year period. However, some institutions continued to rely primarily on resident undergraduate enrollment to fund operations. Some institutions took measures to improve financial stability, including managing costs and setting aside program revenue balances in anticipation of revenue decreasing. For example, UW-Milwaukee doubled its reserve balance from $4.5 million as of June 30, 2017, to $9.0 million as of June 30, 2018, in order to manage enrollment declines.
Now combine those lower tuition revenues with lower state funding across the UW System, and you can see why lower-enrollment campuses like Superior, Stevens Point, and Milwaukee have had so many problems staying afloat. Those numbers also don’t take into account the struggles that the 2-year Colleges have had in Wisconsin this year, after a ham-handed initiative to merge the Colleges with nearby 4-year schools starting in 2018-19.

In fact, the NBER says that while lower-income students have been able to get enough financial aid to cover their need, that’s not the case for working and middle-class students. And those are the ones that tend to end up in financial distress both in getting to college, and in the years after they graduate.
The overall increase in in-state tuition levels and the increased stratification in pricing structures among public colleges and universities has increased unmet need—that is, cost of attendance not covered by grants or expected family resources—markedly among moderate-income students as well as lowincome students. Comparing students entering public four-year colleges and universities between 2004 and 2016, data from the National Postsecondary Student Aid Study (NPSAS) show that unmet need increased by about $6,800 for dependent students from families in the $48,000–$75,000 income range, with increases of about $5,000 for those with lower incomes. The net effect in the short run is increased borrowing, while recent evidence from Chakrabarti, Gorton, and Lovenheim (2018) suggests that declines in state appropriations have longer-term effects on student debt, car ownership, and homeownership.
The NBER and LAB both show that the anti-UW policies at the state level aren’t doing as much to us crazy hippie liberals in Madison (sorry, outstate WisGOPs), but it is putting a big hurt on the regionalized, smaller UW schools that have more students from in-state, and have more students staying around after they graduate. And the Starve the Beast mentality is putting college further out of reach for working and middle-class students, while not changing then futures of richer students.

In other words, the whole “politics of resentment” strategy that WisGOP has had against the UW for the 2010s is causing more damage to their own constituents instead of the “elites” that they claim they’re trying to injure with these policies.

Which leads me to offer a simple solution - Allow UW-Madison to operate with few strings attached as the special case that it is, and reduce state aids to them while raising it to the other schools. Also, allow Madison to raise its undergraduate tuition, so it doesn’t have to rely so much on Coasties and foreign students paying “full-price”, and boost financial aid for all in-state students that attend UW schools.

If you want to make higher education affordable and to not financially hamstring Wisconsinites after they graduate, this seems like a good way to do it. Which means WisGOP will never go for it, because a high-level UW System that offers more opportunity at a more efrficient cost really isn't in their long-term interests.

Monday, June 17, 2019

Even WisGOPs now admit that we have to pay for buildings at UW, elsewhere

You may remember back in March when Republicans on the State’s Building Commission decided not to formally approve of any of Governor Evers’ proposed building projects, claiming the $2.5 billion price tag for the projects was too much. This meant that each individual project would be taken up by the Joint Finance Committee at a later time.

Last week, that time came. And what resulted was…most of the projects were approved anyway. And that was especially true for the University of Wisconsin System, which were a sizable amount of those projects.
The projects approved Tuesday evening include $1.03 billion in spending for the UW System. The governor’s proposal called for $1.07 billion.

The system has pushed for that funding in recent weeks, citing the number of aging facilities at campuses across the state.

Approved UW System projects include $130 million for a new chemistry building at UW-Milwaukee, $128 million for additions and renovations to the veterinary medicine school at UW-Madison, and $109 million for a health science building at UW-Eau Claire.
Granted, it is worth noting that a majority of the dollars for these UW projects would be paid for by user fees and donations vs tax dollars. But still, only two proposed UW projects were rejected from the list Evers proposed for the UW with his budget back in March – an $83.0 million tax-funded add-on to UW-La Crosse’s science center, and a $15.25 million project to upgrade two La Crosse dorms that future students would have paid for.

In addition, Joint Finance took out $90 million for “All Agency” projects (which are small projects and/or fix-ups that crop up for all departments over a course of 2 years), and directed it to specific maintenance projects at the UW. So this should stem the backlog and deterioration of buildings that happened throughout the Age of Fitzwalkerstan, and is another indication that GOPs recognized in this budget that Evers and Dems were winning the argument that continuing the Walker Way wasn’t working.


One of the few items that was cut from Evers' proposed Capital budget involved earmarks for the Alliant Energy Center in Madison ($30 million in state money), for a new tourism center for Experience Green Bay ($2 million), and a redevelopment project in Wisconsin Rapids ($3 million). However, much of that was replaced by this initiative, which was part of the mega-motion passed through JFC for building projects.
Non-State Local Project Grant Program. Provide $25,000,000 of general fund supported borrowing for a grant program to assist facility construction of non-state organizations. Require municipalities where the facility would be located to apply for funding under this program on behalf of the organizations requesting funds under this program. Specify that the state would provide no more than $5,000,000 of the total cost of a non-state, local project. Require the organization to provide a 50% or greater match for the project before initial review by the Building Commission. Specify that the Commission may require appropriate guarantees for this matter. Require the Building Commission to select grant recipients and amounts. Specify that the Building Commission would include a finding of public purpose before awarding funding for a project.
So that's a $25 million pot of money that can be used for the projects in GB or Rapids, as well as other locally-based items that might need state help. There also is $15 million to be used to set up a mental health facility in northern Wisconsin, as part of a bill passed last year which would change up how the state does juvenile Corrections (more on that mess at a later date).

So despite a lot of noise from WisGOPs a few months ago, it looks like most of the building projects Governor Evers wants will eventually be given the go-ahead. Which is yet another admission that this state has fallen behind in the 2010s in its infrastructure and its services, and it's become a noticeable pattern with this budget.

Sunday, June 16, 2019

So will this budget fix the Scottholes as it stands? Well, it's a start

Now that the Joint Finance Committee has passed the state budget forward into the full Legislature, I wanted to take a step back and see where things stood with road spending. In general, there should be more work done and the damage of several years of Scott Walker's neglect should at least be leveled off for the next 2 years if the current budget stands as it does today.

Here's a comparison of the spending levels for the last two years under Scott Walker, and then a comparison between Governor Evers' proposals, and what eventually made it through the GOP-controlled Joint Finance Committee.


You may notice that gray bar of $90 million in the 2020 JFC budget, and that it's coming out of GPR (General Tax Dollars) instead of the Transportation Fund. That funding is described as follows in the mega-bill that the GOPs on JFC put through earlier this month.
Local Roads Improvement Program -- Onetime Funding (LFB #720). Provide $90,000,000 GPR in 2019-20 on a onetime basis to a newly-created GPR appropriation that would be used to fund local government project costs that would be eligible for program funding under the current law the local roads improvement program discretionary component, to be allocated as follows: (a) $32,003,200 for county projects; (b) $22,847,400 for municipalities; and (c) and $35,149,400 for towns. Specify that notwithstanding local road improvement program cost-sharing requirements, that a required local project cost match of 10% of total project cost would apply to project submitted for funding under the GPR appropriation. Require DOT to solicit project applications for this funding, beginning in 2019-20, until the funds appropriated have been expended. Provide DOT the authority to promulgate administrative rules for this purpose.
Basically, this is a mini-stimulus meant to move repairs and projects for local communities further ahead. Given that local governments have been starved for years in the Age of Fitzwalkerstan, which is a central cause of so many of the Scottholes on local streets and roads, this seems to be a needed investment. And it's a much better idea than what Senate GOPs floated earlier, which would have targeted almost all of the money to rural counties and roads.

However, this "one-time bonus" funding still seems to favor more rural areas, since nearly 3/4 of it will go to counties and roads. I also can't help but notice that this is the next provision in that JFC mega-motion for WisDOT.
Local Bridge Assistance Program Earmark -- City of Kaukauna. Adopt the provisions of LRB 2860/P1 to require DOT to provide a local bridge assistance program grant to the City of Kaukauna in 2019-20, notwithstanding the statutory requirements of this program. Specify that this grant would be used for Veteran's Memorial Lift Bridge and would fund 80% of the remaining project costs.
Guess who represents the City of Kaukauna? Jim Steineke, the Number 2 GOP in the Assembly. And that comes 18 months after $242 million was sent to the district of Speaker Robbin' Vos to speed an upgrade of I-94 in Racine County for Foxconn, along with $134 million of that State Highway Rehab money being sent down to the Foxconn-sin region to upgrade local roads for a project that seems likely to add a lot fewer jobs these days. OINK!

Spending tax dollars is great when it goes to our people!

This morning on the statewide "UpFront" show, host Matt Smith discussed WisDOT issues with Jerry Deschane of the League of Wisconsin Municipalities, and Deschane at least was happy to see the bleeding stop, which is something that never happened in the Walker era.
(Deschane): They address the whole system, but particularly city village and town streets, which, as you know, have been in dire straits for a long time. I think it is safe to say this is the most progress we have made on this problem in 10 years....We can make [WisDOT] as efficient as we want, but the fact is the cost of asphalt is the cost of asphalt, and we have not pumped additional resources into that part of our budget in a long time. It is time to do something. That is where we found the general consensus.
Deschane also said there was still room to improve when it came to funding transportation in the state, as the JFC's decision to throw all of the added money on everyday vehicle registrations and title transfers means that tourists are the only ones that don't have to pay more for the Wisconsin roads they use.
I will say this, this stabilizes the problem. This is a huge step forward. Long-term, I think we all need to ask ourselves, is [a] registration fee increase and title transfer fee increase, which basically both fall on the back of residents, is that the only way to solve this problem. Should there be more of a broad-based user fee, gas tax increase, something like that? I think to get to the sort of promised land you needed something that says to the people passing through "Hey, you should chip in, too. And that is a gas tax increase, but we will not get there now.

While Evers won't be able to restore his proposed increase to the state's gas tax with his veto pen, he could use it to remove some disparities that appear in the JFC bill. The biggest one to me is the fact that owners of 4 and 5-ton dump trucks are getting their fees CUT while everyday Wisconsinites would have to pay $10 more. He also might want to take a look at that earmark for Steineke and use the pen on that one.

But that's really all that needs to be fixed with the DOT's funding with the bill as it stands today. The funding levels are similar to what Evers was looking for, and it is a definite improvement over the neglect that happened over the last 8 years, and led to all of the Scottholes that riddle our state today.

Budget deficit keeps running higher, and corporate taxes keeps going down

The dividends from the Trump/GOP Tax Scam continue to come in. Just this week, another high monthly budget deficit was reported for May.
The federal government's budget deficit in May rose to a record $207.8 billion, 41.5% higher than a year ago. Most of that increase reflected the impact of calendar quirks that shifted $55 billion in June benefit payments into May....

Through the first eight months of this budget year, the budget deficit totals $738.6 billion, an increase of 38.8% over the same period last year. For the full year, it is expected to climb sharply, with the Trump administration forecasting it will top $1 trillion from $779 million last year.

The Congressional Budget Office is forecasting a slightly lower deficit of $896 billion for this year, but that would still be up 15% from the 2018 deficit….

Interest on the $22 trillion national debt is one of the fastest growing parts of the budget with net interest payments totaling $268.3 billion, up 15.6 percent from a year ago. That reflects the fact that interest rates have risen and there is now more debt to finance.

And this report in Politico from Friday reiterated a main reason for the increased budget deficit - corporate tax revenues that keep going down after they received major breaks in the GOP's Tax Scam of 2017.
Federal tax payments by big businesses are falling much faster than anticipated in the wake of Republicans’ tax cuts, providing ammunition to Democrats who are calling for corporate tax increases.

The U.S. Treasury saw a 31 percent drop in corporate tax revenues last year, almost twice the decline official budget forecasters had predicted. Receipts were projected to rebound sharply this year, but so far they’ve only continued to fall, down by almost 9 percent or $11 billion.

Though business profits remain healthy and the economy is strong, total corporate taxes are at the lowest levels seen in more than 50 years.

At the same time, overall taxes paid by individuals under the new tax law are up so far this year by 3 percent, thanks to higher wages and salaries, according to the Congressional Budget Office. Last year tax payments by individuals went up 4 percent.

And even that 3% tax "growth" is misleading, because if you dig into the US Treasury Statement that reported the deficit, you'll see all of that growth can be accounted for through higher Social Security and Medicare payroll taxes, which weren't touched by the Tax Scam, and new Trump tariffs that have been imposed over the last year.

Change in federal revenues, FY 2019 vs FY 2018 through May
Individual Income taxes +$17.2 billion
Corporate taxes -$10.6 billion
Estate taxes -$4.0 billion

Social Security/Medicare taxes +$39.4 billion
Tariffs/customs duties +$20.1 billion
All other receipts -$11.7 billion
TOTAL CHANGE +$50.4 BILLION

Last month, the Congressional Budget Office projected the budget deficit to hit $896 billion for the Fiscal Year that ends on September 30, but that projection also counted on corporate taxes to go up by $40 billion for this year. But that's not happening so far, and if it doesn't turn around in the next 4 months (doubtful), then that's going to have to be made up in some way.

As you see here, the CBO projects the deficit to level off for FY 2020 and then rise more from 2021-2023. And that's before we account for these lower corporate taxes.


On the spending side, if you adjust for the timing differences due to June 1 happening on a Saturday this year, it seems mostly in line with a $300 billion increase in spending for FY 2019 (a hidden reason behind our higher GDP growth, by the way).

Even if you figure that the deficit doesn't grow any bigger for the last 4 months of this Fiscal Year, and you adjust for the timing differences in spending, the deficit would jump to over $929 billion for 2019. And if things slow even further, we may head toward $1 trillion even sooner than the CBO thinks.

No, this GOP Tax Scam sure as hell isn't paying for itself. But if you think of it as a method to funnel more money to corporations and Wall Street stock buybacks while leaving crumbs to the average American, it's absolutely doing that.

Saturday, June 15, 2019

Deflating prices, and deflated manufacturing?

We’ve got another couple of pieces of inflation data in recent days that’ll have an impact on whether the Federal Reserve decides to give in to the wishes of President Trump and hedge funders, and cut interest rates at the Fed’s meeting next week.

On the consumer side, prices leveled off in May, indicating that inflation isn’t a problem on that side.
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1 percent in May on a seasonally adjusted basis after rising 0.3 percent in April, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.8 percent before seasonal adjustment.

The food index rose 0.3 percent in May after declining in April, with the food index accounting for nearly half of the May seasonally adjusted all items monthly increase. The energy index fell 0.6 percent in May, with the gasoline index falling 0.5 percent and the indexes for electricity and natural gas also declining in May.

The index for all items less food and energy increased 0.1 percent for the fourth consecutive month. The indexes for shelter, medical care, airline fares, education, household furnishings and operations, and new vehicles all rose in May. The indexes for used cars and trucks, recreation, and motor vehicle insurance were among those that declined over the month.
With oil stockpiles continuing to grow and futures falling nearly 25% in 50 days, I would expect those pump prices to keep dropping in June and later months (well, unless the Trump Administration keeps on stirring up tension by trying to lie their way into war with Iran, of course).

That’s good news for consumers, but it sure isn’t good if you’re in the oil industry. And oil isn’t the only sector struggling with lower prices for their products, as the Producer Price Index for May also showed a decline in growth
The Producer Price Index for final demand rose 0.1 percent in May, seasonally adjusted, the U.S. Bureau of Labor Statistics reported [Tuesday]. Final demand prices advanced 0.2 percent in April and 0.6 percent in March. (See table A.) On an unadjusted basis, the final demand index increased 1.8 percent for the 12 months ended in May.

In May, the rise in final demand prices is attributable to a 0.3-percent increase in the index for final demand services. In contrast, prices for final demand goods declined 0.2 percent.
The decline in goods prices is another hit to a manufacturing sector that has only added 5,000 jobs nationwide since February. Some of the biggest decliners were in food, and it was wide-ranging.

Change in producer price index, May 2019
All foods -0.2%
Milled rice -0.3%
Alcoholic beverages -0.4%
Pasta products -0.9%
Beef and veal -2.9%
Processed chickens -4.5%
Fresh fruits and melons -6.8%

A quick side note for us Cheeseheads- dairy products bucked this trend, increasing by 0.5% in May and 3.4% over the last 12 months. But that still didn’t stop 86 dairy farms from closing last month, as the price increases are proving “too little, too late” for many.

What’s even more concerning is that further “up the line”, prices for producers of goods are dropping even more , which means the deflationary trend is likely to continue for food and other manufacturers.
Within intermediate demand in May, prices for processed goods declined 0.2 percent, the index for unprocessed goods fell 5.1 percent, and prices for services were unchanged. (See tables B and C.)

Processed goods for intermediate demand: The index for processed goods for intermediate demand moved down 0.2 percent in May, the largest decrease since falling 0.9 percent in January. Leading the May decline, prices for processed energy goods dropped 1.4 percent. The index for processed foods and feeds fell 0.5 percent. In contrast, prices for processed goods less foods and energy inched up 0.1 percent. For the 12 months ended in May, the index for processed goods for intermediate demand decreased 0.6 percent, the first decline since falling 0.6 percent for the 12 months ended October 2016….

Unprocessed goods for intermediate demand: The index for unprocessed goods for intermediate demand fell 5.1 percent in May, the largest decrease since dropping 9.6 percent in January 2015. Two-thirds of the broad-based May decline can be traced to prices for unprocessed energy materials, which moved down 8.2 percent. The indexes for unprocessed nonfood materials less energy and for unprocessed foodstuffs and feedstuffs fell 4.5 percent and 1.9 percent, respectively. For the 12 months ended in May, prices for unprocessed goods for intermediate demand decreased 8.9 percent, the largest decline since dropping 10.8 percent for the 12 months ended June 2016.
And from mid-2015 through the end of 2016, this country basically was in a manufacturing recession, with some job losses coming in the face of lower gas prices and lower exports. Sounds a lot like today, especially with declines of 2.2% in both imports and exports for the US in April.

UW’s Menzie Chinn also noted that manufacturing output and hours worked has been falling for pretty much all of 2019.


Now Industrial Production did bump up by 0.4% in May although if you dig into that report the entire increase is due to a strange ramp up in light trucks and warm weather in the South and West causing utilities to run more. But it is still well off where we were at the end of 2018, and those lower prices aren't going to encourage MORE products to come out of factories.

So with evidence of a slowing manufacturing economy and prices stable (if not outright falling), does that mean the Fed drops rates sooner than later, and blows stock and asset bubbles higher? And will the coked-up hedge funders be let down and sell off if the Fed backs off from rate cuts next week and claims the economy is fine?

Very odd and uncomfortable data coming out these days, as I can't think that lower prices in goods-producing sectors won't lead to increased layoffs in the very near future.

Thursday, June 13, 2019

A good income tax cut comes out of Finance, but the bad, regressive taxes didn't go away

So now that the dust has settled from a frantic session of tax changes in the Joint Finance Committee, what do we have? Let's start with the first of 2 income tax cuts put through by the Republicans who control the committee, one that will net the average Wisconsinite an estimated $77 a year. Not bad, but interestingly, it's also notably less than what the Governor asked for.
The income tax cut is smaller than one proposed by Democratic Gov. Tony Evers, who tried to trim taxes on average by $216 per person this year. Evers' plan also included tax increases for manufacturers and on capital gains — ideas Republicans who control the Legislature have rejected.

"I was just excited we could do this tax cut without a tax shift," said GOP Rep. Terry Kastma of Oostburg, a member of the committee. (How DARE we do that, right Terry?

Republicans stressed that the vast majority of the tax cut would go to people making less than $150,000 a year.

Republicans in February approved a similar income tax cut for the middle class, but Evers vetoed it because he wanted to pay for it in part by raising taxes on manufacturers.
Both of these points are true. The GOP tax cut that was inserted into the budget pretty much gives a break to everyone that isn’t in poverty, and it doesn’t give any break to those above that 2nd tax bracket (whose top levels are single people making $23,520 and married filers making $31,360). This is good targeting and limiting, and makes the tax code more progressive

But it’s also much smaller than Evers’ proposed tax cut which would have given a few hundred dollars to most Wisconsinites of working, middle, and upper-middle incomes. And in addition to the not allowing Evers to reverse the capital gains tax cut (which overwhelmingly would have affected the rich), the GOP plan also continues tax cuts of more than $250 million a year for manufacturers that have not resulted in better job or wage growth as long as they have been in effect.

The JFC also took up a bill that was outside of the budget, but deals with an issue that Evers wanted to resolve as part of it. It relates to a screw-up from the Lame Duck laws of last December where the bill was no one noticed that a tax cut to offset sales taxes that were collected from online retailers was only valid for this year (I talked about that situation in this post).

Not only was that mistake corrected in the new bill, but the laws were tightened up to make sure more online businesses paid sales taxes. That extra sales tax money was then used to give an income tax cut that was targeted to the lowest two brackets.
First, the 2019 tax rate reduction would target the tax rate for the second tax bracket (currently, 5.84%), replacing the current across-the-board tax rate reduction under which each of the four tax rates would be reduced in proportion to its share of gross taxes. Second, the 2019 tax rate reduction would not be made ongoing, so the new rate for the second tax bracket would apply only in tax year 2019. Finally, the tax rate reduction taking effect in tax year 2020 would be based on estimated sales and use tax collections between October 1, 2019 and September 30, 2020, both from remote sellers and from marketplace providers. As under the original bill, the rate reduction would target the tax rate for the second tax bracket and the tax rate reduction would be ongoing and apply to future tax years.

FISCAL EFFECT OF ASA 1

As noted, the sales tax provisions affecting marketplace providers would take effect on the first day of the calendar quarter that is at least three months after publication. Assuming these provisions take effect on October 1, 2019, it is estimated the provisions will increase state sales and use tax collections by $50,300,000 in 2019-20 and by $67,100,000 in 2020-21.
WisPolitics reports that the offsetting income tax cut will be done through lowering the rates at the bottom two brackets.
*the lowest rate of 4 percent would drop to 3.89 percent in tax year 2019. It would then go to 3.76 percent in tax year 2020.

*the second lowest rate would drop to 5.21 percent from the current 5.84 percent under the budget the committee approved earlier Thursday. The bill would take that reduction to 5.08 percent in tax year 2019 and then 4.93 percent in tax year 2020.

The state’s top two brackets of 6.27 percent and 7.65 percent would remain the same.
Sounds like a winner all around. No wonder it got a rare 16-0 unanimous vote of approval in Joint Finance. So put those two income tax cuts together, and that's an income tax reduction of around $458 million over the course of the budget.

So what's not to like about today's action? Quite a bit, unfortunately. The GOP bill removed $362.3 million that would have been raised by having the state tax code match provisions from the GOP Tax Scam of 2017. Unlike prior moves to “federalize” the state’s tax code, this time GOPs went against their fellow party members in DC, and chose certain tax breaks to continue at the state level past this year.

Here are a couple of examples of items the GOP turned down.
Under the individual income tax, taxpayers may deduct business losses from their regular income, subject to certain limitations. For example, passive losses and excess farm losses cannot be deducted in the year incurred, but can be carried forward. For tax years 2018 through 2025, the Act limits the amount of business losses by not allowing excess business losses to be deducted. The Act defines excess business loss as the taxpayer's aggregate deductions for business purposes that exceed the sum of the taxpayer's gross income or gain plus $500,000 for married joint filers or $250,000 for other types of filers. Excess business losses may be carried forward and claimed under net operating loss provisions, as amended by the Act. Also for tax years 2018 through 2025, the limitation relating to excess farm losses does not apply. Excess farm losses comprise losses occurring in the same year that certain farm subsidies are received, provided the farm is not a C corporation…

12. Limitation on Deduction for Interest. Under state and federal law, interest paid or accrued by a business was generally deductible from taxable income prior to tax year 2018, with certain limitations. However, deductible interest on indebtedness allocable to property held for investment was generally limited to net investment income for the taxable year, provided interest exceeded 2% of AGI. Investment interest that could not be deducted could be carried forward to the following year. A deduction could be disallowed for disqualified interest paid involving related parties or to a taxable real estate investment trust subsidiary if the payor's debt-to-equity ratio exceeded 1.5 to 1.0 and the payor's net interest expense exceeded 50% of AGI.

In general, the deduction for business interest is limited under the Act to the sum of: (a) business interest income; (b) 30% of the taxpayer's adjusted taxable income (ATI); and (c) floor plan financing interest of the taxpayer for the taxable year. Business interest income means any interest paid or accrued on indebtedness allocable to a trade or business, but does not include investment interest or investment income. ATI means taxable income of the taxpayer computed without regard to any: (1) item of income, gain, deduction, or loss not properly allocable to the trade or business; (2) business interest or interest income; (3) net operating loss deduction; and (4) the 20% deduction for certain pass-through income. Wages are not included in ATI. For tax years 2018 through 2021, ATI is computed without regard to deductions allowable for depreciation, amortization, or depletion. Floor plan financing interest includes any interest on indebtedness used to finance any self-propelled vehicles (such as on the floor of a car dealership) and is not subject to the deduction limitation, but not on indebtedness used to finance construction machinery and equipment.
So Wisconsin businesses are still able to write off as much interest as they want at the state level, and can still write off as much of a loss as they want. These are items that were put into the Tax Scam to try to limit its cost (didn’t work, but hey, Paul Ryan tried), and closing these state loophole would have accounted for more than $307 million in this state budget. But GOPs in Wisconsin chose not to go along with it, and keep the extra breaks coming for their corporate donors.

The GOPs also didn't go along with Evers' proposals to institute a tax credit for First Time Homeowners (total cost $4.1 million), an attempt to expand the state's Child Care Credit for parents ($9.9 million). As if we don't have enough problems holding on to young families in this state, now the GOPs are turning down initiatives that would offer stability and incentives to that group.


And GOPs had already shot down Evers' attempts to expand the Earned Income Tax Credit and Homestead Credits, which continue to lose claimants and dollar amounts as it fails to keep up for inflation.
And one other item infuriated me. It started in a great way, as it required WEDC to send $30 million it had lying around to the General Fund by next January 1. That's a nice payback of the fact that we found out this week that $31 million more than previously expected was going out WEDC's door due to Enterprise Zones handed out by Walker and WEDC since Evers' election.

But is that $30 million going into schools or roads or some other kind of service that didn't get the boost Evers wanted it to? OF COURSE NOT.
Increase GPR FUnding for the Wisconsin Lottery. Provider $30,200,000 GPR in 2019-20 and $28,400,000 in 2020-21 to support the Division of Lottery, for the purpose of increasing total GPR funding for the lottery to $70,200,000 in 2019-20 and $68,400,000 in 2020-21...
And then that extra money is used in a shell game to cut property taxes through the Lottery Tax Credit. Are you seriously telling me you couldn’t have given that $58.6 million to local services or infrastructure, and still allowed property taxes to be limited? And why has WisGOP chosen to stop having our lottery be self-sufficient, especially in a time of record ticket sales?

Yes, the income tax cuts are nice and surprisingly fair, and I'd expect Evers to accept the adjustments when the budget hits his desk. But there's a whole lot else that WisGOP took out that would have made things a lot better, and it reiterates that this budget is merely a first step in correcting all of the fiscal and policy wrongs that have been imposed on this state over the last 8 years.

UPDATE- To add on to my point about the extra tax dollars being thrown into the Lottery Credit, Tamarine Cornelius of the Wisconsin Budget Project notes that it overwhelmingly favors rural areas over urban ones.

Wednesday, June 12, 2019

Budget surprises - less for low-income workers, more handed out by WEDC

There are a few months in between when the Governor of Wisconsin submits the state budget and it gets voted on by members of the Joint Finance Committee and other legislators. And in that time period, we get more information and the situation can change.

Some of this is shown in the updated revenue estimates that the Legislative Fiscal Bureau does every May. And this year’s estimates showed a lot of new money for this Fiscal Year (which allows for more money to be used immediately and/or carried over into the next budget), and a minor increase in available money for the upcoming two years (of $93 million).

But we also get information on individual provisions that change the picture. And we have a few of those in this budget. For example, since the population of the state veterans home at King has dropped by 20%, it means there is no extra money to transfer to the Veterans Trust Fund, and therefore $13 million in tax dollars may be needed instead. And we see a lot of these adjustments (often titled “re-estimates” in budget-speak) on tax provisions, as we find out how much some item is being used.

Let’s start with a few provisions which aren’t being used as much, which is a “savings” when we’re talking about the budget.

Tax credits with lower estimates than Evers budget
First dollar Property tax credit -$1.5 million
Cigarette/tobacoo product refunds -$2.9 mil
Wis Earned Income Tax Credit -$6.3 million
Homestead credit -$14.6 million

The Homestead and EITC features are intriguing, as Evers wanted to expand these credits to have it reach more lower-income people. But the Republicans shot it down in their opening vote in the Joint Finance Committee, while restoring more than $500 million in tax cuts to manufacturers. Huh...

There also are several tax provisions that are proving more costly than anticipated, which lessens the ability of money to be available for other items. And it’s not hard to notice the corporate and agricultural beneficiaries of some of these.

Tax credits with higher estimates than Evers budget
Business Development Tax Credit +$2.3 million
Aid to communities with public utilities +$3.9 million
Farmland Preservation Credit +$4.1 million
Enterprize Zone +$31.0 million

That last one jumps out at me. Enterprize zones are costing $31 million more than the Evers Administration thought it would a few months ago? Let me look into the LFB’s explanation to find out why.
5. The cost estimate used under the bill for the enterprise zone sum sufficient GPR appropriation was based on projections of credit claims under contracts between WEDC and participating businesses through October, 2018. Since that time, WEDC entered into three new contracts which allocated $106.0 million over a twelve-year period, including $3.5 million in 2018and $14.7 million in 2019. In addition, two contracts were amended to increase awarded amounts by $21.5 million, including $9.5 million allocated in 2019.

6. Based upon more recent information described above, it is estimated that enterprise zone tax credits relative to the bill will be $31,000,000 GPR higher in 2020-21 (Alternative 1). The reestimate reflects projections of credit claims for major economic development projects for which WEDC has, to date, contracted tax credit awards including recent contract amendments.
The ability for WEDC to increase the amount of the awards to these corporations on their own is part of the reason Evers wants to have his office notified of any changes to contracts with WEDC that are more than $5 million.

And that Evers budget provision could lead to a fight tomorrow in Joint Finance and in the gerrymandered GOP Legislature, as JFC recently was given the right to oversee those changes, albeit only for contracts for new enterprize zones (changes in contracts created during the Walker era can’t be pre-screened at all). There’s also an alternative in the paper that would prevent changes in contracts associated with the Foxconn project from being subjected to oversight from either JFC or the Governor.

And who needs strings with that money?

That oversight of WEDC contracts and changes seem like an important provision to watch for this week. Not only because a recent report from the Legislative Audit Bureau indicated that WEDC still can’t track whether companies are living up to their job promises in these handouts, but because the costs of these handouts are spiraling higher and taking away from the ability to fund other budget priorities.

Maybe Foxconn isn’t the only contract we need to cut the cord on when it comes to these WEDC welfare cases….