Monday, March 16, 2015

A structural surplus? No way.

This seems like an unusual difference in what we've been seeing out of the state budget.
Also Monday the Fiscal Bureau, the Legislature's budget office, released one estimate of how healthy the state's finances would be in two years if Walker's 2015-'17 budget is approved as it is written.

The Fiscal Bureau estimated that the governor's proposal would leave the state with a potential $500 million surplus in the 2017-'19 budget — a sharp improvement from the shortfall Walker and GOP legislators faced this year.
Well sure, Jason Stein, there's a structural surplus for the next budget based on current law. But if you spend more than a minute reading the actual LFB document, and it assumes a whole lot of things that lead to that number- items that would be unlikely to actually be passed into law, which artificially makes the balance better look than it really is.

1. The biggest assumption is that $700 million in lapses are built into in each year of the 2017-19 budget, or $1.4 BILLION overall. The 2015-16 budget only assumes $295 million in lapses, a little less than 2%, which is a more typical amount to build into a budget. If we assume $295 million in lapses in each year of the 2017-19 budget, that turns the structural balances in those two years to the following.

2017-18 budget -$121 million
2018-19 budget -$138 million
TOTAL DEFICIT $259 million

2. But there's another item that won't stick around, and that's a projected $142 million cut in K-12 school aids for each year of the 2017-19 budget. This would reduce aid levels back to the $150-per-student cut that districts are facing for the next school year, a move that has opened up massive deficits all over the state. You can click right here to see the budget holes that exist in your school district, and compare it to all the other holes that exist around the rest of the state. Do you really believe the WisGOPs in the Legislature want to go through all of those complaints again (if they're even in charge in 2 years, which is getting less likely by the day)? Riiiiight.

I'll be generous, not even count for 2 years of inflation, and assume K-12 school funding is kept flat at the 2016-17 Walker budget levels. Add that to the lower lapses mentioned above, and this turns the budget balance into the following.

2017-18 budget -$263 million
2018-19 budget -$280 million
TOTAL DEFICIT $543 million

3. We're not even talking about the Transportation Fund, which has huge amounts of borrowing in this budget leading to added debt service and high ongoing costs for projects if those are approved of in this budget. With no planned increase in gas tax revenues or other sources (the structural deficit document doesn't plan for an added increase in the transfer from the General Fund to the Transportation Fund), where are these added costs going to be paid from? So add those hundreds of million in Transportation Fund deficits to the half a billion in deficits I've already been figured in.

Oh, and this assumes that the revenue numbers hold up in the General Fund over the next 3 1/2 months, and that past cuts to the UW System and local governments remain. As I mentioned last week, don't expect those figures to stand, either on the revenue and spending sides.

So when you hear the Walker and WisGOP honks claim this one report means they have a "balanced budget and future surplus" (and they least until the revenue numbers implode in the next 2 months), realize how much they have to stretch to get to those numbers and destroy public services in the process. Which underscores why it will never happen- because Walker is at 43% approval and plummeting since this budget and related "Walker 2016" agenda was announced 6 weeks ago. SO while the Fiscal Bureau and the Journal-Sentinel may have said today the Walker budget adds up on paper, most Wisconsinites know that it doesn't work in the real world.


  1. Thanks for the insightful analysis of the new LFB document. To your list I would add one other fiscally imprudent way the Gov. is holding down the structural deficit . Once again Walker has proposed delaying by two years the scheduled increase in the statutory reserve, which under current law is supposed to increase to 2% of general Fund spending in FY 2018. Unfortunately, another two year delay in that statute will probably be approved, and I think the main reason for doing it is an unspoken reason -- it holds down the structural deficit (because the state doesn't have to come up with additional $s in the 2017-19 biennium to finally get that balance up to a somewhat more prudent level). It's ironic that an exercise (i.e. calculating the structural imbalance) that was intended to make state budgeting more fiscally responsible has instead been inducing the Gov. to delay the long-overdue step of increasing the required balance.

    1. Valid point, Jon. Putting aside 2% I'm reserve instead of $65 mil a year would more than eat up all $500 mil of the structural surplus on its own.

      On a related note, does the $280 mil in rainy day funds get tapped in the next 2 months? I say yes.

  2. Hi Jake,

    Great job on the analytical work on the easily-missed and somewhat hidden budget items, that add up too a lot of money.

    I'll return to the issue I've harped on continuously…the tax revenue assumptions. I have stated repeatedly that the DoR is over-estimating future year tax revenues. This over-estimation is due to 1) under-estimating the response of Wisconsin businesses to the Manufacturer's & Agricultural Credit causing large scale business conversions to pass-through entities leading to a decline in corporate taxes; 2) ignoring the sub-prime bubble in vehicle purchases that leads to over-estimation of the growth of sales taxes; and 3) the use by individuals of the M&A credit to extinguish significant amounts of personal income tax liabilities. Items #1 & #2 have already begun with the DoR under-estimating their impact by 50% in recently released figures, with more to follow, assuredly.

    Remember that this is standard GOP operating procedure; the infamous Ryan budget forced the CBO to assume that taxes revenue would remain fixed at 18% of GDP without any theoretical justification, which magically made his Path to Prosperity balance despite the enormous tax cuts that the plan encompassed.

    This is the same maneuver. Walker's budget for tax revenues is actually in excess of the DoR's January estimates. Walker anticipates that tax revenues will grow 5% in 2015-2016, and 4.2% in 2016-2017. Both of these rates are in excess of the 3.7% increase in the DoR's estimate for 2014-2015 and actual 2014-15 revenues are coming in 5% BELOW that figure.

    Walker's budget counts on the same magically assumed tax revenues that has led Kansas into a fiscal train wreck.

    But maybe that is all part of the plan.

  3. "Up the Irish, up my revolution and up y**rs," some say on March 17. I say, "Why focus on Walker?" He's on automatic now, foolishly acting like Enbridge or Koch brothers really care. Obviously the do not care about him that much: Enbridge's Monaco visited Duluth
    and Enbridge co-sponsored a so-called "Green/Business" conference last year in Vancouver, BC:
    Former Enbridge CEO Pat Daniel
    went to Detroit after the Kalamazoo spill and was retired so Monaco could step in with his greenwashing, but really, no one is coming to see you, Walker (poor, Scot, a forgotten puppet on a string). A thoughtful governor would have stopped the fracsand mining and may even have understood that surplus tarsands and dropping prices and lack of storage tanks has caused a major industry problem. So, Walker to the rescue along with MN and MI. People know that pipelines are madness: My suggestion to future economists and to us all: buy a used copy of "The Economic Horror" -- a petite paperback on sale at Amazon:
    and at least stop the WI/MI pipelines and save the Great Lakes. Because there are no jobs and fossil fuels have to stay in the ground if human civilization is to survive. As bankers cut off credit for tar sands drilling and pipeline companies, these "weapons of mass destruction" (i.e., pipelines) are planted like mines in a frenzy of competition among TransCanada, Enbridge, Kinder Morgan, etc. But pipelines are a denial of the truth of "stranded assets" and with no more available storage, hopes for future price recovery are futile, unless Scott lets a refinery be built in Superior, and governors like Walker continue to let the crude times roll. This is madness.