As 2019 ends, Wis reduces record debt from Walker era, but also trails in economic performance

Wanted to make a few notes after the release of Wisconsin's Combined Annual Financial Report (CAFR) for Fiscal Year 2019, and yesterday's release of the state's Continuing Disclosure of debt at year's end.

Both documents show that the last Fiscal Year did have a notable decrease in something that had generally grown during the Walker era – long-term debt, which had reached a record level of nearly $14 billion by the end of Fiscal Year 2018.

The State's total long-term debt obligations (bonds and notes payable) decreased by $450.1 million during the current fiscal year which represents the net difference between new issuances, payments and refundings of outstanding debt. Decreases in debt resulted primarily from repayments of existing bonds debt in excess of new issuances. During the year repayments of long-term general obligation debt exceeded new issuances by $450.2 million. Revenue bonds outstanding increased by $41.6million. Annual appropriation bonds outstanding decreased by $41.6million.

That’s a reflection of a lack of need to borrow in 2019 as revenues grew, and a lot of debt that was retired and not necessarily replaced. Maybe some of that was due to the state budget not being put into law until early July 2019, so there was no bill allowing more debt to be offered until after the report closed, but it's still a step in the right direction.

As a result of the added tax revenues (especially the upside surprise due to new "corporations" appearing to take advantage of the GOP Tax Scam in DC) and retired debt, the state’s GAAP deficit dropped under $1 billion for the first time in well over a decade.

The General Fund is the chief operating fund of the State. At June 30, 2019, the State's General Fund reported a total fund deficit of $(773.5) million. The net change in fund balance during Fiscal Year 2019 was $480.1 million, in contrast to $372.4 million in Fiscal Year 2018.

That decline in debt was almost all in General Obligations, which are usually paid off with everyday taxes and other charges. Interestingly, the state's debt in the Transportation Fund rose, largely a result of Walker and WisGOP notoriously increasing borrowing in recent years to avoid having to raise DOT's taxes or fees.

But at the same time, the state also paid off less debt in the Transportation Fund in Fiscal 2019, which seems to be based on when those bonds came due.

This specific type of debt involves revenue bonds that are sent out, with a portion of your registration fees paying off that debt in coming years (instead of going into road repair or other DOT services). The drop in debt payments in FY 2019 meant that the amount of funds available from registration fees to use on DOT services topped $500 billion for the first time ever, even though overall registration fee revenues declined in FY 2019.

The CAFR also gives a good illustration about how Wisconsin’s economic growth has lagged the nation as a whole over the last few years.

Wisconsin employment continued to grow throughout 2018 at a moderate pace. According to the federal Bureau of Labor

Statistics, total nonfarm employment in Wisconsin increased 1.2 percent in 2016, 0.7 percent in 2017 and 0.8 percent during 2018. This performance lagged national employment trends. Nationally, employment grew 1.8 percent in 2016, 1.6 percent in 2017 and 1.7 percent in 2018. Wisconsin employment growth is somewhat constrained due to a lower unemployment rate and a slower overall population growth than the nation as a whole.

More recently, Wisconsin's growth in employment has slowed along with national employment growth. Between September 2018 and September 2019, Wisconsin employment has increased 0.2 percent. Nationally, employment is up 1.5 percent over the same period, slower than at the beginning of the year when growth was 2.0 percent. Wisconsin's seasonally adjusted unemployment rate in September 2019 was 3.2 percent, below the 3.5 percent national unemployment rate for the same month.

Reflecting the continuing expansion, Wisconsin's state nominal gross domestic product increased 4.8 percent in 2018, tracking national growth of 5.4 percent. Wisconsin's 2018 growth followed growth rates of 2.4 percent and 3.0 percent in 2016 and 2017, respectively. These figures compare with the 50-state total gross domestic product increases of 2.7 percent in 2016 and 4.3 percent in 2017.

That's not good, and reports that have come out so far for 2019 indicate the state's economy has fallen further behind the country, both in GDP growth, and in jobs.

Which tells me that the 2020 reports on these subjects might look a bit different for Wisconsin. And not just on the economy, as the trend of DOT vs General Obligation debt might be reversed in next year's report, where DOT debt goes down due to less borrowing and more fees, and General Obligation debt might go up after Evers and Republicans in the Legislature agreed to shell out for maintenance in state buildings and infrastructure that had gone by the wayside under Walker.

We'll see whether the new investments along with the income tax cut resulting in higher state tax refunds will have an effect up or down on the GAAP deficit, and whether we have more room to do more in the 2021-23 budget to dig us out of the hole that we were put in during the 2010s.