Monday, November 24, 2014

Lower growth revisions show Wisconsin deficit may get worse

The Wisconsin Department of Revenue finally released an updated Wisconsin Economic Outlook last week. This used to be a quarterly report but the frequency of this release has been slowed in recent years, and this report was only the second of 2014, 9 months after the first one came out in January (and conveniently released after the November elections).

In the wake of this report, the good folks at the Wisconsin Budget Project noted that the DOR lowered the amount of current and future-year economic growth compared to their last report. That’s important to bring up because the budget “surplus” that was projected earlier this year was based largely on these stronger growth numbers for both the state and the nation as a whole, leading the Wisconsin GOP-run Legislature and Walker Administration to add in further tax cuts to “give back” the surplus. As the Budget Project points out
The January economic report was issued in conjunction with increased state revenue projections, which helped persuade state lawmakers to enact substantial tax cuts. But over the last 10 months the estimates of Wisconsin’s economy, i.e. the state’s “gross domestic product” (GDP), have changed as follows:

•The anticipated [U.S] GDP in 2014 is now $152 billion less (-0.9%) than assumed in January.
•The estimate for 2015 is $210 billion lower than previously anticipated (-1.1%).
•The anticipated 2016 GDP is now $234 billion less than estimated in January (-1.2%).
The higher figures were used by Wisconsin’s Legislative Fiscal Bureau to forecast a $1 billion surplus this January. But now with the lower growth in these years, the potential revenue growth for the State of Wisconsin should also be lowered, which would increase the already-large deficit that is forecast for these next two years as a result of Walker/WisGOP tax cuts and one-time gimmicks that spent out the projected surplus.

It’s not just U.S. GDP that was lowered in the DOR’s November forecast compared to prior years, but also a number of local and national economic stats. And the lower numbers for 2014 also lower the base for future years, increasing the gap (much like how Wisconsin’s revenue shortfall in 2013-14 has set off larger deficits in future years).

Personal Income forecast, U.S., Wis. Economic Outlook
2014 +4.6% in Jan, +3.6% now ($147.8 billion lower)
2015 +5.0% in Jan, +4.7% now ($207.4 billion lower)
2016 +5.3% in Jan, +5.3% now ($223.4 billion lower)

Total job growth, Wisconsin, Wis. Economic Outlook
2014 +41,000 in Jan, +39,600 now (-1,400)
2015 +48,600 in Jan, +34,200 now (-15,800)
2016 +50,700 in Jan, +42,600 now (-23,900)

That last stat kind of seems like a big deal, where the state is projected to add nearly 24,000 fewer jobs over the next 3 years than it the DOR thought it would 10 months ago. Obviously, fewer people working would likely lower revenues from the previously estimated amounts for those years, and could portend yet another reason that we could face a huge budget crisis in the coming months.

When the Wisconsin Department of Administration released its revenue estimates and budget requests last Thursday, the Wisconsin Budget Project returned with another blog post to sum up the situation.
The bottom line is that state lawmakers rushed through a package of tax cuts this year – despite early warning signs that tax revenue was starting to fall short of the projections, and that their actions were creating a severe imbalance between revenue and spending. If they are unwilling to roll back any of those tax cuts, they will have to cut more than $2.4 billion from current commitments and agency spending proposals to balance the budget this year and in the next biennium.

If lawmakers insist on making additional tax cuts, that will require even deeper cutting in the public investments that are critical to Wisconsin’s economic vitality, such as our public schools and universities.
With state revenues reflecting that lowered amount of hiring and economic activity, and revenues coming in below the DOA’s rosy scenarios are indicating, it may be closer to a $3 billion gap that has to be closed. But then again, Walker and the WisGOPs have been apt to choose politics over sensible policy, as long as it suckers enough low-info and mis-info’d voters into keeping them in power. So from that perspective, maybe these two rounds of Koo-Koo tax cuts worked.

But those reckless tax cuts and the deficits that they have led to are going to cause a whole lot of hard times to those of us outside the WisGOP “inner circle.” Not that the insider’s club at the Capitol really cares about that.


  1. I share your concern that the new DOA report may understate the magnitude of Wisconsin's revenue shortfall (though the figures are scary enough even if that's not the case).

    Thanks for referencing my last two WI Budget Project blog posts. Unfortunately, in the first of those two -- summarizing the downward revisions to economic growth forecasts -- I incorrectly described the figures in question as being state GDP estimates, but they are actually national GDP numbers. That doesn't change their importance, but I've amended the blog post to correct that mistake. In any event, the revenue estimates issued later last week confirmed our fears that tax collections in the current fiscal year would fall well short of the projections made earlier in 2014.

  2. I should have realized that as well, Jon. I have changed this blog post accordingly.

    Thanks for the note, and keep up the good work