Friday, January 23, 2015

LFB confirms- Wisconsin budget deficits now, and for the future

Here’s my quick reaction to the newly-updated revenue figures from the Wisconsin Legislative Fiscal Bureau that were released this afternoon.

As predicted, the LFB found the November estimates from Scott Walker’s Department of Revenue to be too rosy for this current fiscal year, which means we have to fix a larger budget hole over the next 5 months.
Based upon the November report, the administration's general fund condition statement for 2014-15 reflects a gross ending balance (June 30, 2015) of -$132.1 million. Our analysis indicates a gross balance of -$283.4 million for 2014-15. This is $151.3 million below that of the administration's report…..

The factors that cause the $151.3 million variance are as follows. First, based on economic forecasts and tax collections to date, the estimated tax collections of this memorandum are $173.5 million below the projections of the November 20 report. Second, departmental revenues (non-tax amounts deposited into the general fund) are projected to be $2.7 million less than the estimate of the administration. Third, it is estimated that net appropriations will be $24.9 million below the amount reflected in the administration's report. The primary reason for this difference is a reduction of $18.4 million in debt service payments.
In other words, this would have been worse if it wasn’t for the fact that our falling deficit and stronger dollar are putting interest rates at 2-year lows, which means we pay less in debt service (thanks Obama!).

Looking ahead, the LFB is slightly more positive on revenue growth than the relatively-optimistic figures from the DOR. A lot of this is due to the expectation of strong growth continuing in the U.S. for 2015 and 2016, with the LFB paper quoting Global Insight forecasts of 3.1% GDP growth and 2.83 million more jobs for this year, and 2.7% GDP growth and 2.49 million more jobs next year (thanks, Obama!).

The LFB predicts revenue growth of 4.7% in Fiscal Year 2015-16, and 3.8% in 2016-17, which puts total tax revenues modestly above the DOR’s estimates for those two years (by $110.9 million in ’15-’16, and $65.9 million in ’16-’17). However, this still leaves a massive budget hole, based on the budget requests made by the state’s many departments.

2015-17 projected budget, based on LFB revenue est.
2015-16 Starting balance $65 million (required reserves)
2015-16 proj. revenues $15,651.3 million
2015-16 proj. expenses $16,636.4 million
2015-16 TOTAL DEFICIT $920.1 million

2016-17 Starting in the hole -$920.1 million
2016-17 proj. revenues $16,191.4 million
2016-17 proj. expenses $17,243.6 million
2016-17 TOTAL DEFICIT -$1,052.2 million

Plus $65 million required reserves

Yes, the $2.3 billion plus in deficit are lower than the $3.5 billion I was predicting earlier this week, but it's still a whole lot to make up, and we aren't even mentioning the additional troubles in the Transportation Fund. Given the strong economic expectations and the LFB’s estimates of significantly higher tax collections in early 2015 due to a “bounce back” in investment income in 2014 (the LFB says this, along with the lower withholding rates should lower tax refunds and increase revenues), I’d say the risk is to the downside for revenues. Remember, it just takes a small revenue shortfall in this fiscal year to balloon the shortfalls in the future years, due to the lower tax base.

Somehow I’m guessing our governor won’t mentioning these new deficit numbers on his weekend trips to Steve King’s race-bashfest in Iowa or the Koch Brothers’ soiree in Palm Springs. But unlike the star-fucking Wisconsin media, let’s see if some in the national poitical reportage start to take notice of these numbers, and start asking real questions, as Scott Walker’s and WisGOP’s “fiscal responsibility” doesn’t seem to be working out the way they are claiming it to be.

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