Wednesday, August 20, 2014

Not saying the Wisconsin budget is blown, but.....

It's been a bit quiet on the fiscal front in the last couple of months here in Wisconsin, mostly because the fiscal year ended on June 30, and they're still cleaning up any accruals and other year-end items before they release it to the public. This is itself isn't unusual, and shouldn't be cause for suspicion.

But I've been looking for clues as to what those numbers will show for the 2014 fiscal year, and from what I can tell, it doesn't look very good at all. If you take a look at what was forecast for the state's General Fund cash balance in March (after the last round of tax cuts were passed), here's what they thought was going to be the status for April, May and June.

Projected starting cash balance, April 1- July 1, 2014
Apr 1- $2.0676 billion
May 1- $2.4245 billion
June 1- $2.5256 billion
July 1- $2.0465 billion

Now look at what the reality ended up being, with the same cash balance report from last month. I'll include the differences in there.

Apr 1- $2.0694 billion (+$1.8million)
May 1- $2.1190 billion (-$305.5 million)
June 1- $2.0619 billion (-$463.7 million)
July 1- $1.5006 billion (-$545.9 million)

And the main culprits seem to be lower-than-normal receipts for the state in April (perhaps due to Koo-Koo tax cuts lowering the amount of payments coming in when people did their 2013 taxes?), and higher disbursements in May and June (related to the higher-than-expected enrollments in Medicaid that have led to the $93 million deficit we have to close?). With that in mind, would it be illogical if we're coming in over a half-billion below what we budgeted?

Now, I'm not going to claim that's what we'll see when the annual revenue numbers are released (likely on the Friday before Labor Day, since the numbers will suck), or when the state's CAFR is released in October showing the year-end numbers for both revenues and expenses. But if we are $546 million below expectations, let's go to the LFB's current projections, and see here's how that would affect the budget picture for this budget and the next one.

Budget outlook if FY 2014 is $546 million below expectations
FY 2014- Ending balance +$178 million (original plan, $724 million)
FY 2015- Ending balance -$381 million
FY 2016- Ending balance -$707 million
FY 2017- Ending balance -$1.058 billion

That's a helluva lot to make up, and means there would be a significant budget deficit to be filled for by June 30, 2015, and another billion or so to fix the 2-year budget following that (add $381 million to all those years, assuming 2015 gets filled).

What I'm saying is that you shouldn't be surprised if an exploding budget deficit emerges as an issue as the November elections get closer. Which will be the final nail in the coffin of any debate as to whether Scott Walker fiscal policies have left us any better off in any way- they haven't.


  1. Well, the Koo-Koo tax cuts were a part of the 2013-15 budget from the get-go in 2013, so there's no way that it wouldn't have been accounted for in these estimates. I would have suggested that the spend-the-surplus-we-don't-have-yet Act 145 might be in some way responsible (having retroactive tax credits) because it became law on March 25th, 8 days after the first DoA memo you point to. But Act 145 was only meant to cut revenue by $170m in FY14, and almost all of that through roughly-evenly-distributed-across-April/May/June withholding rate changes.

    But I don't think this should be read as being too significant: the DoR reported that GPR collections in April were $1,201.9m, not the $2,768m reported in the JFC memo. The April monthly statement makes it clear that that the $2,768m figure includes $985.9m of receipts by transfer from other funds. Maybe the rest is a payout from the State Investment Fund, perhaps?

    In any case, I think you're at risk here of conflating the ins and outs of the General Fund with revenues and appropriations.

    What we do know there is that unless May and June were something special in the corporate tax revenue front and/or particularly wealthy people started projecting themselves to have higher incomes than first thought, we're going to come in about $200 million under the revenue projected in the May 22nd LFB memo.

    As you've pointed out already, Medicaid GPR expenditures are projected to be $93 million higher than budgeted by the end of June 2015, from that June 27th DHS memo. That assumed that childless adult enrollment would reach 135,000 by that point, but it's already at 119,900 in July 2014 and not showing any signs of slowing down yet.

    Even if the 135,000 ultimate enrollment is accurate, and its growth is uniform from April 1st, 2014 (when childless adults became eligible) through to July 1st, 2015, that represents 15 months of the biennium but it'll represent 24 of the next one. So we're looking at at least $93m x 24 / 15 = $150m of unanticipated costs in 2015-17. "At least" because $93m covers a ramp-up, but 2015-17 should be steady-state at the higher value. If you correct for this, then we're looking at $165m additional GPR expenditures for 2015-17.

    1. You're misreading "total receipts" for Gen Fund taxes. If you want to get super nerdy, you can go to the state 'a bond sales documents, and it'll show this. They're related measures, but different.

      As mentioned, this is not a perfect comparison by any means, but it does give an indication what the reports in the next couple of months say.

  2. (cont'd)

    So we're looking at FY14 values that are $200m too low in the revenue area and $15m too high in the appropriations area. So we'll probably lose $250m of FY14's starting balance of $759m when the reports come out in a few weeks and close with a balance of $509m.

    FY15 anticipated a net loss of $559m, but starting from a revenue base $200m smaller than anticipated and with the other $78m of unanticipated Medicaid expenditures, stands to lose $837m. So we'll probably limp into 2015 before needing a budget repair bill lest the general fund balance drop to $-278m.

    The structural deficit for 2015-17 was last estimated at $642m, but add to that two years of a revenue base $200m under projections and Medicaid expenses $150m over projections and you get a structural deficit of $1,192m.

    So before the end of June 2017 we'll need another $278m + $1,192m + $1,100m (for the Transportation Fund) = $2,570m.

    Transportation Fund revenue isn't likely to go anywhere but down; GPR, if it reflects FY12 & FY13 growth rates (about 4.5%), could provide about $2,000m of that. But with the economy chugging in 2013H2 (n.b. new BLS prototype statistic), just how likely is that anyway? There's a hole and no realistic prospect of filling it with economic growth.

  3. Oh, and add more to that structural deficit, as the UW System says they need $95 million in order to pay for the initiatives that Walker and business leaders want for the next 2 years. And if you won't raise that money through tuition, it's gotta come from us.

  4. Thus the sell off of state properties. How much would MG&E pay for two newly-renovated power plants on the UW-Madison campus? (The one near the hospital is still under construction.

    1. Apparently we'll find out soon enough- unless we kick em out in 2 months.

  5. And what has this fiscal mess done to the state's bond rating, I wonder. Is that why the dorms will not be built at outlying campuses? In addition to being the chair of WEDC, Walker is of course chair of the State Building Commission. I look forward to the day that someone who understands finance is in those positions, and Walker is finally on the outside looking on.