Thursday, September 11, 2014

No, we're not going to grow our way out of Walker's deficit

A meme that righties have been trying in light of the state's future budget deficit has been, "There's no need to worry because we'll add enough revenues to grow our way out of the hole." Anmd if you don't know your economic history and are relatively low-info, you might give that theory the benefit of the doubt. State Sen. Dave Hansen decided to check it out, and exposed that theory as bullshit.
According to the Legislative Fiscal Bureau average annual revenue growth since 1993 has only averaged 3.3% and since 2011 annual revenue growth has fallen from 4.7% to -1.0%, suggesting that it is highly unlikely the state will see the required 6.5% annual revenue growth needed to overcome the state’s nearly $1.8 billion deficit.

Since 1993 the state has seen annual revenue growth over 6.0% just six times. All but two of those years occurred between 1993 and 2000 with the state seeing revenue growth of 6.1% in 2004-05 and revenue growth of 6.4% in 2010-11.

“While we would all like to see our economy take off, history suggests revenue growth meeting the 6.5% growth needed to resolve the budget crisis is unlikely to happen,” said State Senator Dave Hansen (D-Green Bay).
Actually, I have a slight quibble with Sen. Hansen's numbers, as based on the projected budget needs from the LFB, it's actually 6.4%, but that's still a lot to make up.

FY 2014 tax revenues $13,948 million
Ending FY2014 balance (all other numbers the same) +$443 million
Tax revenues needed for $0 balance in FY2015- $14,841 million
Tax revenue increase needed in FY2015 - +6.40%

As Sen. Hansen noted, the only time in the last decade that Wisconsin has had an increase in revenue that reached 6.4% was in 2010-11, under the Doyle/Dem budget. This included strong job growth in 2010 that was above the levels of any of the 3 years during the Age of Fitzwalkerstan, and also included income tax increases on the rich (funny how those things work). Of course, that’s a revenue increase we only found out about after Walker claimed the state was “broke” and had to “repair” that budget, leading to the “bomb” of Act 10. Interesting that they demanded immediate action back then but are letting things play out this time.

After 2010-11, you have to go all the way back to the dot-com Clinton year of 1999-2000 to find a higher increase in tax revenue in one year in Wisconsin. So “growing our way out of the hole” is not a likely result. This means spending cuts will have to occur over the next 9 ½ months. And the Walker Administration is out of options for the short-term.

· Local governments and school districts have made their budgets based on a certain amount of state aid for 2015, which is accounted for in this year’s state budget. These local budgets will be approved in the next 8-10 weeks, and communities such as Appleton and Chippewa County are adding wheel taxes and other fees just to stay afloat in light of previous state aid cuts and higher costs from the polar vortex winter. These communities’ budgets would become massively messed up if the state took some of these previously-agreed-to aids away. So that’s not a likely solution.

· The state could cut some of the $144 million of General Fund money it is projected to send to the State Transportation Fund. $107.5 million of this was added on by the GOP-led Joint Finance Committee during budget negotiations (see Page 5 of this document), as a way of removing a projected Transportation Fund deficit in this budget. But removing the transfer to the Transportation Fund would likely put it under major pressure, and Steven Walters in Urban Milwaukee notes that Assembly Speaker Robbin’ Vos is already fearful that there is no way that transportation needs can be funded, and that’s assuming some kind of transfer continues. Cutting this $144 million transfer would also make the possible $1.1 billion Transportation Fund deficit in the next budget even worse.

· An employee increase of 1% of salary (WOO-HOO! 1%) and related fringe benefit costs are already “baked in the cake”. Kinda hard to take those back when workers are already getting them (it’s been in place since July 1), and when health plans and other benefits are starting up annual enrollment in the next month. If there are any personnel costs to be cut by the state, it would likely be through delaying hiring (in a time of large turnover and needs), and/or the return of furloughs.

With those three options being very tough to navigate, that means we are likely to see lapses above the $317 million already built into the budget, along with additional cuts to state services. Which is why Dem State Senators sent a letter to DOA Secretary Mike Huebsch this week demanding to see what the Walker’s Administration’s plan would be when it comes to making these cuts. Obviously, that’s a political stunt by the Dems, since this “Unintimidated” administration doesn’t have to do anything about this deficit in the FY 2015 until after this November’s elections (and therefore, won’t do anything about it). But it’s a good stunt, because the people should know that it is extremely unlikely for the state to solve this budget problem relying only on revenue growth. So don’t let the right-wing propaganda machine try to BS you into thinking this budget deficit isn’t a big deal and that there’s plenty of time to correct it. This deficit is likely to be more than $400 million this year, and after that’s fixed, there’s probably a whole lot more to make up in the next 2 years, since we'll be starting from a lower revenue base, and any one-time cuts or revenue moves in FY 2015 won’t carry over to the next budget.

Along with trying to buy votes, I firmly believe that part of the idea behind the Koo-Koo tax cuts of 2013 and the additional Stupid Tax Cuts of 2014 was that the Walker folks and his puppetmasters planned to have a budget crisis for the 2015-17 budget. Doing so would enable them to try some other privatization scheme or steal from workers’ pensions or some other crookedness. But they weren’t counting on the numbers in FY 2014 to come in low, leading to a budget deficit appearing before the election, and now they’re flailing around trying to spin their way out of the hole that they've put us in.


  1. Actually it's worse for FY15, since as the law stands it cannot end with a closing balance a penny less than $65 million. So the amount of revenue growth needed in FY15 looks to be about 6.9% at this time.

    But Senator Hansen's note of the 6.5% revenue growth requirement was with respect to the $1.8 billion structural deficit for 2015-17, not FY15.

    FY15, FY16, FY17 appropriations are forecast at $15,843m, $15,732m and $15,744m respectively, so a total of $47,319m.

    With a revenue base of $13,948m/yr x3, the gap is $5,475m. To make up that gap we have +$443m cash in hand, +$166m of base modifications in 2015-17 (effects of laws currently on the books expiring and/or commencing), plus whatever extra is gathered by 3 years of growth. So the growth needs to get us another $4,866m over three years.

    ((1+x) + (1+x)**2 + (1+x)**3) x $13,948m = (3 x $13,948m) + $4,866m, solve for x, x = 5.6%.

    For, it should be noted, three years running (which has never happened in the last 20 years), and also presuming that inflation is zero in FY16 and FY17. Two years of net zero (or lower) inflation has not happened since the end of the Great Depression (which, it should be noted, was unkind to government revenue growth).

    So to believe that we can sit back and grow our way out of Walker's deficit requires one to believe not just in one thing that hasn't happened in at least 20 years but also another thing that hasn't happened for 75 years; that an unprecedented boom in revenue should coincide with the inflation rates of a Depression.

    Pull the other one, Scott.

  2. Yeah, I haven't even touched on the spending side. Between the Medicaid shortfall of at least $93 million (and a higher base for future years) and the $95 million that the Board of Regents asked for in the next budget, that's another $188 million right there.