Wednesday, November 12, 2014

Wisconsin deficit update

We haven’t had a lot of news in the last 3 weeks about Wisconsin’s looming budget deficit, since it was magically hidden until after the elections. But if you know where to look, you can find some extra insights as to where we are. I found one such example of this information today, as the state released plans to refinance nearly $297 million of the state’s debt, with the sale to investors coming in the near future.

If you take a look at the website of this bond offering, you’ll see some updates of key financial documents. The first page you should go to is on Page 19 of the PDF, where they list the differences between the years in the 2013-15 budget as projected, as well as how it actually ended up when the state’s Annual Fiscal Report (AFR) was released for FY 2013-14 last month. What they don’t do is plug in the new numbers for the 2014-15 fiscal year that we know exists today in light of that AFR, which includes the $25.4 million in added funding that must be transferred to the Transportation Fund because it was delayed from its originally scheduled transfer in FY 2014.

Looking at those figures and plugging in the reality, we see the following.

End-year balance FY 2014- +$516.9 million
PLUS Total revenues FY 2015- $15,283.3 million
MINUS Appropriations FY 2015- $15,842.3 million
MINUS Extra transfer to Trans. Fund- $25.4 million
Net balance -$67.5 million.

Seems like not much to worry about, since that figure could be made up by a few extra lapses or tapping the state’s rainy day fund. Except that projection doesn’t match reality, and what we’ve seen so far in the first few months of FY 2015.

First of all, to get up to the budgeted tax revenue amount of $14,724.6 million, the state would have to generate an increase in revenues of 5.57% compared to Fiscal Year 2014. This is a figure nearly twice the rate of revenue growth that the state has had over the last decade, and seems unlikely to reach over the next 8 months.

In fact, the bond issue document can give us more clues as to where we stand so far in Fiscal Year 2015. Moving onto page 30 in the PDF (or Page A-14), you can see what revenues came in at for 2013-14, and what they’re expected to be for 2014-15. It also gives a year-over-year comparison for the June 30-September 30 time period for each fiscal year. Using those numbers, we can see that so far:

·Income taxes are down as a total, but if you add $55 million a month to account for lower withholdings (what, you didn’t notice that extra $5 a paycheck?), they’re up about 4.33%. The problem is that they need to be up more than 6.4% to match projections.
·Sales taxes are up just over 4.9%, slightly above expectations.
·Corporate taxes are down less than 1%, and they’re supposed to jump up by 13.7%.
·Excise taxes are down -4.36%, and they’re supposed to stay steady.
·Insurance company and miscellaneous taxes (combined) are up 9.28% instead of the 6.6% they’re projected to rise by.

So project this same trend out for the year, and here’s what I get.

Income taxes: DOWN $146.95 million vs projections
Sales taxes: UP $47.54 million
Corporate taxes: DOWN $132.71 million
Excise taxes: DOWN $28.78 million
Insurance/ Miscellaneous: UP $6.21 million
COMPARED TO BUDGET: DOWN $254.69 million.

This would still be a revenue increase of 3.74%, slightly above the 3.48% that LFB projected earlier this year. But it still means a significant revenue shortfall that would drive up the budget deficit for this year, as well as future years. If you plug that revenue shortfall back into the numbers from earlier, you see the current –year deficit grows to $322.2 million, which is well past the $79 million deficit that is required to trigger a budget repair bill.

It also starts the state off from a lower base for the next budget- helping to lead to an even higher structural budget deficit for 2015-17 than the one that was projected in May. Plugging in the lower revenue figures for the future years gives a structural deficit of just over $1.25 BILLION. And if GOPs try to play the “but…revenue growth” game, I’ll add that there is now over $1.8 billion in additional spending requested by state agencies, including the additional $695 million that the Department of Public Instruction just requested to keep schools adequately funded. The requested increase in spending by state agencies is double what $900 million in revenue growth would be over the next 2 years(using the 2.9% average), and it would push the budget deficit well over $2 billion for the next budget.

We’ll see what kind of magic assumptions Walker’s Department of Administration tries to pull next week when it releases the overview of all the budget estimates and agency spending requests (here’s a copy of the one from November 2012 for the last budget). But if these first three months of reports are any indication, we’re still way down in a budget hole and it’s going to take a whole lot to pull our way out of it.

No comments:

Post a Comment