Wednesday, August 27, 2014

Did Walker just admit to a massive budget deficit?

Another day, another Walker screw-up, and it’s not for the reason you might think.

A top story in today’s Milwaukee Journal-Sentinel discussed a letter Gov Walker and Department of Administration Secretary Mike Huebsch released relating to the proposed casino in Kenosha. In typical “Unintimidated” fashion, Walker and Huebsch released the letter 1 day before Racine and Kenosha-area Dem legislators were going to hold a press conference calling Walker out for not approving the Menominee Nation’s casino (funny how those things work with this crew).

In between a bunch of “blame Jim Doyle” whining (as if the terms of gaming compacts had been somehow changed in the year that Walker’s administration has been reviewing the casino proposal), there was this startling revelation.
The Potawatomi has failed to make its annual revenue sharing payment that was due June 30, 2014. This had already had a significant revenue impact on the State of Wisconsin.

It is still unclear how the compacts negotiated by Governor Doyle with the Potawatomi will play out. It appears the complicated provisions may have been designed to block a Kenosha casino. It is possible the impact of the Doyle compact provisions will not be fully known until early January. We do know the proposed Kenosha casino project is very likely to impact out State budget. This proposed project has already caused significant short-term revenue losses due to Potawatomi’s failure to make its revenue sharing payment. As we continue to evaluate the long-term effects on our State budget and Wisconsin’s economy as a whole, one thing is clear – taking action on the proposed Kenosha casino project prior to following the processes laid out in the Doyle compacts could cost taxpayers hundreds of millions of dollars.
Part of the reason the state and the Potawatomi are at loggerheads is because a Kenosha-based casino would likely cut into the business of Potawatomi’s casino and new hotel near downtown Milwaukee (less than 40 miles away), and they want some reimbursement as a result. As the Potawatomi noted in their own statement
According to the terms of the Forest County Potawatomi Community’s compact, the Tribe may get a reduction in, or refund of, the payments made to the State of Wisconsin should the State approve another casino within 50 miles of the Potawatomi Hotel & Casino in Milwaukee.The State may end up owing Potawatomi money should the Kenosha casino be approved. Consequently, Potawatomi put its 2014 state compact payment into a segregated / reserve account.
In other words, the tribe feels it’s pointless to send the state a payment (estimated by the Journal-Sentinel to be around $25 million) when the state would likely be paying it back to them anyway if the Kenosha casino is approved.

This is also a good example of the tribe calling Walker’s bluff, as there is little doubt in my mind that Walker held off on making a decision about the Kenosha casino in no small part because it allowed him to raise campaign funds from groups in support and opposition to the facility being built. The Potwatomi is now using their leverage by refusing to pony up to the state for Fiscal Year 2014, and Scotty and company were caught with their pants down.

But there’s a bigger issue here. How would the Potawatomi’s skipping of a year of payments to the state cause any sort of budget crisis? A quick look at the Legislative Fiscal Bureau’s information on Indian gaming shows that the state’s tribes were set to pay the state just over $53.25 million to the state in fiscal year 2013-14. Of that amount, $27.3 million goes to other state agencies (for tribal-related programs and other assistance), and $26.26 million gets sent to the state’s General Fund. So if you assume the agencies still get their money, the state has a revenue shortfall of $25 million.

But in the big picture, so what? The current budget (post-tax cuts) has a $100 million surplus already built into it, and is supposed to start fiscal year 2014-15 $724 million ahead. This $25 million short-term loss might be an inconvenience, but it’s a miniscule amount of the overall General Fund budget that’s over $30 BILLION. Heck, we’re at least $93 million in the hole for Medicaid right now, and Walker and WisGOP are tossing away $206 million in savings this year by refusing to use the ACA’s provision to expand Medicaid. How does this $25 million all of a sudden put us over the edge and in danger?

The only way this is true is if the budget was already blown up before the missed Potawatomi payment came to light. The problem is that we don’t know how much the budget may be screwed up, because the Department of Revenue has refused to release the end-of-the-year collections for Fiscal Year 2014. 4 Dem Senators needled the DOA Secretary Huebsch this week for the delay, noting that the numbers were already out this time last year, when the revenue numbers looked good for Gov Walker and the Wisconsin GOP. These Senators followed up today with a note to their Senate Dem colleagues, predicting the Walker Administration would dump the revenue numbers on Friday, ahead of the Labor Day holiday, in an attempt to bury the bad news.

The Wisconsin Budget Project was a little more sanguine, noting that a similar delay happened two years ago, but adding that the DOR has left out some data they usually provide.
Although the Senators’ letter was correct that the tax collection figures for FY 2012-13 were released sooner last year, that hasn’t been the case every year. For example, the FY 2011-12 numbers were released on September 5, 2012. For me, the bigger disappointment this year was that DOR didn’t release tax collection numbers specifically for June, as it did the prior year (in this July 12, 2012 press release). Although DOR hasn’t always issued a comparable set of June tax figures, the revenue trends this year have made it frustrating not to have any update since the May tax collection numbers.

That said, I think any questions about the timing of the revenue numbers for the last fiscal year will soon be inconsequential – once those numbers are released. I applaud the Senators for drawing attention to the fact that these are important figures to be watching for, and for asking the DOA Secretary what the state will do if there is indeed a revenue shortfall.
There definitely seems to have been some kind of budgetary shortfall for Fiscal Year 2014, and I’ve noted that the cash balance for the end of that fiscal year was nearly $546 million below what was estimated in March. Now that doesn’t necessarily correspond to what the General Fund totals might be, but if Scott Walker is claming that the Potawatomi’s missed payment of approximately $25 million is throwing the budget into turmoil, then we may be in much worse shape than we knew, and the General Fund budget holes to be closed might be much more than the $1.1 billion I’ve previously estimated.

As usual with the Walker boys, it's not the immediate issue (a missed Potawatomi payment of $25 million), but is instead the underlying issue (budget deficit) that's the real problem.

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