Monday, December 9, 2013

WisGOP's Dubya-like plan: "cut taxes, borrow, and mess it up for later"

It's a rather mundane spot on the Wisconsin Legislature's calendar, but the State's Building Commission meets on Wednesday, a couple of items in particular made me break off onto a tangent. The State Building Commission deals with state facilities, and has to approve of all building projects for the UW System, state offices, and state parks (among other areas) before they can break ground. And while it seems quite lame at first glance, these two items have the undercurrent of a bigger problem in the 2013-15 WisGOP budget- borrowing money without paying up-front for these projects.

The borrowing part includes the "refunding" of $600 million in previous borrowing- $375 million to pay for DOT operations, and $225 million in borrowing for the Clean Water Fund. As the glossary from the Muni Bond folks tells us, refunding bonds is
[a] procedure whereby an issuer refinances outstanding bonds by issuing new bonds. There are generally two major reasons for refunding: to reduce the issuer’s interest costs or to remove a burdensome or restrictive covenant imposed by the terms of the bonds being refinanced.
It's basically a refinancing of debt the state has already taken on, and it's not necessarily a bad thing if the interest rates have dropped in the time since you took on the original debt (much like refinancing a house). Of course, the downside is that you're often paying for this for many additional years down the line, and doing large amounts of borrowing and refinancing is a way a government can mask a budget deficit, and kick the can down the road for later.

This type of behavior was famously exposed by State Sen. Kathleen Vinehout in May 2012 when she asked the LFB to reveal how much of this type of refinancing was done in Walker's first 16 months in office, and the LFB said over $558 million in general fund money had been changed out, growing the state's interest payments in later years. This June, Vinehout sent a similar request to the LFB, and it revealed that general fund interest payments in this year's Walker budget is at 5.26%, well above the 1.11% it was in 2011-12, and above the 4.0% limit that the state targets.

In fact, the Walker budget of 2013-'15 will be the debt gift that keeps on giving, since that budget added this little gem to our already-large amount of borrowing.
Increase the bonding authorization for refunding of any outstanding tax-supported or self-amortizing state general obligation debt by $2,010,000,000, from its current level of $1,775,000,000 to $3,785,000,000. These bonds could only be issued if the debt refinancing meets the current law requirement that the true interest costs to the state must be reduced.
Yep, we're borrowing an extra $2 billion in the next 2 years, which'll help pay for the hundreds of millions in Koo-Koo tax cuts, and giveaways to manufacturers and agri-businesses that start kicking in next year.

The upshot of this can be seen in the state's most recent bond offering. I won't burden you with trying to read the whole thing, but I'll highlight this passage on Page 11 of the PDF (page 8 on the paper).
Currently, the annual debt limit is $3,506,269,230, and the cumulative debt limit is $23,375,128,200. Funding or refunding obligations are not subject to the annual limit but are accounted for in applying the cumulative debt limit. Accrued interest on any obligation that is not paid during the fiscal year in which it accrues is treated as debt and taken into account for purposes of the debt limitations. As of December 1, 2013, general obligations of the State were outstanding in the principal amount of $7,968,706,754.
Ok, so a debt near $8 billion, but what does it mean? It means we're a lot higher than we were in the month before Walker took office, and claimed the state was "broke", and had to impose Act 10 on public employees as a result.
As of December 15, 2010, general obligations of the State were outstanding in the principal amount of $6,822,771,982, and the issuance of the Bonds will not cause the State to exceed its annual debt limit.
So nearly 3 years after being "broke", the Walker Administration has ADDED $1.145 BILLION IN DEBT, and shoved off many of those payments into future years.

Oh, but we have a $760 million "surplus" from the last fiscal year (in cash only, mind you)! Break out the party hats! So what did our governor done with that alleged surplus? Did he paid off some of this increased debt or give real property tax relief past $13 or say "thank you" to the public employees that were robbed to make the surplus possible? Hell no! Instead it's been blown it on tax cuts that'll go mostly for the rich, and a refusal to save taxpayer dollars by taking the expanded Medicaid funding in Obamacare. Both of these items put Wisconsin behind the 8-ball for at least the last year of Walker's term, and will explode the state budget deficit in future years (and it's already estimated at $725 million in the General Fund for the next budget, with another large amount coming in the Transportation Fund).

But that might just be the intelligence of the WisGOP design. Because with the hands of future governors and Legislatures tied, they may have few options other than to sell off state services to keep the budget solvent. And gee, lookie at what follows the borrowing items at Wednesday's Building Commission meeting!
Information on Request for Qualifications – Asset Brokerage Services The 2013-15 biennial budget includes provisions for the sale of assets; any such sale first requires actions of the Department of Administration and the State of Wisconsin Building Commission, among others. A Request for Qualifications for Asset Brokerage Services has been prepared and released under procurement provisions of Chapter 18, Wisconsin Statutes.
Amazing how it all ties together, doesn't it? Governor Dropout may not be able to see the full picture of what his policies are leading to, but his puppetmasters sure can.

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