Friday, January 31, 2014

Walker tries Keynesianism...but can't quite get it right

There are a couple of interesting sidelights to our Governor's plans for spending one-time surplus funds. Obviously the big deal is the tax cuts he's proposing (and at a later point I'll bring up just how dumb and irresponsible those are), but here I want to concentrate on two proposals that increase spending in two areas usually associated with liberalism- investing in technical colleges and road building. Direct investment is a classic example of Keynesianism-style economics, using direct investment to produce jobs and better economic outcomes. But as you'll see, the funding that pays for these Walker initiatives come from places other than the projected General Fund surplus, and leads to further issues in the next budget.

The first item to discuss is the increase is related to increasing the skill level of potential workers in certain technical industries. Basically this'll be a $35.4 million block grant to the state's Department of Workforce Development, which will then go to expand the number of students admitted to tech colleges, and for projects between businesses and high schools and other partners in certain "high-demand fields." It also includes funding that can go toward hiring people with disabilities, and extra administration costs that DWD would have to take on.

Not a bad strategy on its face, although I'd still like to see more when it comes to dealing with the real reason for Wisconsin's alleged skills gap- the low wages that it pays to these types of workers. But what's interesting to me is where the money is coming from.
On January 8, 2014, JFC retained $32,900,000 GPR in 2013-14 and $2,500,000 GPR in 2014-15 in the Committee's general program supplementation appropriation that were related to 2013-15 amounts reserved for WEDC programs and operations expenses. Joint Finance chose to retain these monies due to surplus segregated state and WEDC fund balances that existed during the 2013-15 biennium. The amount of GPR monies that would be transferred to DWD under these provisions reflects the same amount of money that the Committee chose to retain related to WEDC. As a result of these provisions and previous actions by Joint Finance, all of the funds that the Committee chose to retain related to WEDC's budget on January 8, 2014, would be reallocated for DWD grants, services, and administrative costs associated with these proposed provisions.
That's right, the Governor wants to use left-over WEDC money to pay for these grants, instead of using the surplus funds. If I didn't know better, I'd say the guys at the Capitol are realizing that WEDC's giveaway strategy isn't as effective a job-creator as improving the talent poll, which would be a good sign if I thought it would continue. Somehow, I don't think this connection will be made on right-wing talk radio.

Also, will this same level of investment be repeated for the next budget for 2015-'17, and/or will the $35.4 million of funding be restored to WEDC? If so, there has to be money found in the next budget for both of these items to pay - in a budget that is projected to have a deficit of more than $800 million if Walker's tax cuts go through.

The second item was revealed today, as both the Assembly and Senate introduced bills at Walker's request that'll increase road spending by $43 million in the next 5 months. This is a version of what I had called for since the surplus was revealed, and certainly would help fill in needs after this harsh winter. Jason Stein has a good rundown of the plans in the Journal-Sentinel, which would go to additional state highway maintenance between now and June 30.
The additional proposed spending would mean that the roads fund would end the budget on June 30, 2015, with $41.6 million instead of the $84.6 million that is currently projected.

The fiscal bureau report also warned that account faces a $336.2 million shortfall in the next two-year budget.

On top of that, another $775 million will be needed during that period to pay for the Zoo Interchange and Hoan Bridge, though the Department of Transportation will bond for part of those Milwaukee-area projects.
So as I've mentioned before, that's over $1 billion of needs that have to paid and/or borrowed for in the next budget. It is good that the one-time shot of road spending is set up in a way that doesn't add to this structural deficit, being a true Keynesian stimulus program. But just because it's the right thing to invest in doesn't mean that the Walker Administration is choosing the right way to pay for it.

Instead of paying down some of the hundreds of millions of dollars being borrowed for road building, the Walker plan just spends more Transportation Funds. That strikes me as an odd choice, as reducing the amount of borrowing would save more money in the future with no additional debt to pay back, and would clear up flexibility for future years. And to pay for the $1 billion in extra needs between 2015 and 2017, the revenues still have to be found, either through transfers from the General Fund (which drives up the General Fund deficit even more), even more borrowing (and even more debt costs) , gas tax increases (Walker and WisGOP have been insistent on not doing this), or.....installing tolls (good luck with that one!).

So while the DWD and DOT bills do seem to offer a good short-term benefit for our economy, and in areas that I believe are more productive than cutting taxes for people who might not reinvest the funds in useful places, it could be paid for in a more responsible manner for the long-term. And taking away the one-time boost in Workforce Development and highway funds after 2015 could reveal Walker's move as an empty pander instead of one that could sustainably expand Wisconsin's economy.

As mentioned before, this plan to spend more while not raising revenues and caring about long-term implications on the budget isn't just a hallmark of the Walker campaign of the last 2 years, but also sounds suspiciously like another Dubya whose fiscal policies should have thrown in the dustbin of history.

1 comment:

  1. There is one other possible source of increased revenue to cover the cost of fixing roads, of course: increased fees for licenses and other highway use charges. I'm waiting for that to come after the election.