Wednesday, March 11, 2015

The budget numbers may fit, but they won't work

As Gov Walker's approval slides in light of more people waking up to how failed and extreme his policies are, I noticed that the GOPs who Chair the Joint Finance Committee tried to throw Scotty and the Fitzwalkerstanis a lifeline.
The co-chairs of the state's budget-writing Joint Committee on Finance, State Senator Alberta Darling (R-River Hills) and State Representative John Nygren (R-Marinette), issued the following statement regarding the Legislative Fiscal Bureau memo on the projected general fund balance in Governor Walker's proposed budget for the 2015-17 biennium:

"Governor Walker's proposed budget keeps our finances in the black, end of story. The non-partisan Legislative Fiscal Bureau confirms the gross general fund balance of the governor's 2015-17 budget bill would be $123 million with a net balance of $58 million. This is a far cry from the supposed $2 billion deficit Wisconsin Democrats have repeated many times.

"Governor Walker's budget plan provides a solid fiscal starting point as we begin the budget process in the Legislature. The numbers don't lie. We are proud our reforms are working. Wisconsin is on the path to economic success and prosperity, and we're looking forward to using the governor's budget as a base to continue our common sense reforms."
And if you look at the budget figures, what they're saying is true on the surface- Walker's budget numbers do add up on paper.
On November 20, 2014, the Department of Administration submitted the statutorily required report to the Governor and the Legislature on the 2015-17 condition of the general fund based on the administration's revenue estimates and state agency budget requests. That report showed a gross general fund balance of -2,149.1 million and a net balance (after consideration of the $65 million statutory reserve) of $2,214.1 million.

Under the Governor's 2015-17 budget bill, the gross general fund balance would be $123.0 million and the net balance would be $58 million.
But the fact that Darling and Nygren are trying to spin that Walker's "balanced" budget is somehow OK is laughable (as laughable as the scenario that they claimed a $535 million surplus off of last September), and a sign that voters aren't buying what WisGOP has been selling in recent months.

I'm going to even humor the GOPs and give me the assumption that revenues hold up for the last four months of this fiscal year to give a sufficient base to start from (something I think will be very unlikely). With those numbers in place, let's keep in mind what had to be done in order to get the 2015-17 budget numbers to allegedly add up.

1. An assumption of sizable revenue growth based on a continually growing economy and jobs being added. In its estimates from January, the LFB estimated general fund revenues to grow by 4.7% in 2015-16 and 3.8% in 2016-17. This is largely based on the projection of more than 5 million more jobs being added nationwide and a booming housing market being part of big GDP growth.

However, other steps the Walker Administration are taking to make the budget balance make it highly unlikely that Wisconsin will get their share of that growth.

2. The $300 million cut from the UW System, and related lack of outreach requirements to the rest of the state.

3. A $150 cut in per-pupil aid to public schools for next year, leading to deficits across a huge amount of Wisconsin school districts, which will likely mean more cuts to services and compensation.

4. $15 million in cuts to Senior Care, and the subsequent offloading of Wisconsin Seniors onto Medicare Part D.

5. Shared revenues largely remaining at the diminished levels we've seen for the last couple of years.

6. And as the LFB just re-figured, nearly $1 BILLION in unspecified lapses over the 2 years of the budget, including $699 million in the second year of the budget.

7. As previously mentioned, no real salary or benefit increases for state workers over the next 2 years.

Those cuts in services, combined with the lower wages from the just-signed work-for-less legislation and the limited raises for state workers makes it less likely that we will see the job growth and higher revenue figures that the Walker budget counts on. You don't get to have this both ways- with budget cuts usually comes some kind of cut in revenues due to lower growth.

And I'm not even talking about the added debt that Walker is planning to take on- $1.3 billion in borrowing for roads in this budget alone. This does not count as a "deficit" for state budget purposes (it would if it was the Feds), but it is money that will have to be paid back, with debt service crowding out future road projects and other Transportation-based aids. There are also the first payments in this budget that result from the skipped debt payment that the Walker Administration is pulling in order to desperately try and balance 2015's deficit-ridden budget without a budget repair bill.

My guess is that the WisGOPs are trying to pull this meme of "balanced budget" out right now because there is more bad economic news to come in Wisconsin, especially with huge downward revisions in total jobs for 2014 coming out last week. The "gold standard" Quarterly Census on Employment and Wages coming out next week is likely to show Wisconsin in the bottom end of job growth yet again, and you can see that the belief that things are going the wrong way in Wisconsin would get a new piece of evidence.

Combine that with Gov's Walker's tanking job approval ratings, and you can see why Nygren and Darling tried to repeat their Big Lie of 2014 by deceiving on the true nature of Walker's bad budgets.


  1. The "intellectual" (if I can call it such) dishonesty is stunning. Darling and Nygren will do anything to prop up Walker, and I wonder what they expect from it. There won't be any ambassadorial appointments for them, no matter how many Wisconsinites they deceive.

  2. Jake,

    As you know, my concerns have been primarily with the revenue projections in the budget. Not that I am unconcerned about the spending cuts, but I believe that there is far more danger in what I see as over-estimation of probable revenues. This over-estimation would lead to a fiscal train wreck that the GOP would use to make further precipitous cuts.

    Let’s examine the DoR projections in the January 23, 2015 document sent to the JCoF.

    I was struck initially with the enormous cut-and-paste job (sorry there is no other way to describe it) from the Global Insight, Inc., national forecast that runs from page 3 until page 9, which represents half of the document’s substantive content. Fine, I am all in favor of using outside sources, but the presentation is solely the projections for the national economy. However, the transition from the national projections to projections for the state are not adjusted for Wisconsin’s experience in its ability to track those projections, either historically or for the very recent past,—the DoR is simply assuming that national growth composites apply in a stepwise fashion to the state. This result, despite our recent experience showing slower growth in state GDP, jobs, wage rates, etc. profoundly skews the estimates. Some will point to the personal income figures, which have shown better than national performance—however, I would caution that you’d better look at the components of personal income before you assume it translates into additional personal income tax revenue. So given that the DoR is simply transcribing growth aggregates from the national economic performance and assuming those to be the same for Wisconsin, and since this has resulted in overly optimistic revenue projections for the past few years, you can color me skeptical right at the start.
    The growth rate indicated for personal income taxes is estimated to be 4.09% for 2014-15; 6.74% for 2015-2016; and 5.23% for 2016-2017. Now this is despite the current period which shows (with the adjusted inclusion of the late January deposits) that total personal collection to date are -5.3% below last year with basically 60% of the collections posted for the year. As I have noted several times, there is going to be hell to pay in the tax preparation community when all those clients receive word that they are paying into the state this year, or receiving minor refunds. But I think, based on my 45 years of experience, that any tax preparer, accountant, attorney, etc., wouldn’t take that risk, and would tell people to increase their withholding to insure typical refunds, especially for high-end clients. So I am truly skeptical that, as Jake as pointed out, there is going to be a 15% swing between now and 6/30/15.

    1. I think it's worthy to include national trends as part of your 2-year outlook. But the Walker folks are pretending that somehow THEIR POLICIES would keep revenues growing, and that's absolutely not true. In fact, as you point out, we haven't gotten much of the revenue growth even with a growing national economy.

      But the withholding changes are certainly a factor in the lower revenues, and it'll be VERY interesting to see if the lower refunds actually happen, or if we're really screwed because it means rent-seeking is costing the state that much more.

  3. part 2…
    I could well be wrong, but I cannot imagine facing client after client and hearing them complain about something I could have easily (and did actually try this year) to avoid. I believe that these projections could exceed actuals by the impact of the M&A credit to the tune of over $1-billion over the biennium.

    Sales and use taxes are projected to be up 5.44% for 2014-15; 3.07% for 2015-2016; and 3.18% for 2016-2017. As I have said before sales and use taxes rise primarily based upon vehicle sales and the past several months have featured incredible sales growth for vehicles. In February, new vehicle sales in south-central Wisconsin rose nearly 31 percent, according to Reg-Trak of Waterloo. According to the same source, December new vehicle sales in south-central Wisconsin rose 22.71. January was not far off. Annual totals, on a calendar year basis, though, remained a relatively low 1.3% over calendar year 2013, reflecting several months of weak sales during much of calendar year 2014. The reason? The auto sub-prime lending bubble While some dispute the existence of such a bubble, Bank of America has just capped its lending in this field: And some industry observers have noted the dramatic fall in auto shipments recently.
    Since delinquencies are mounting, the slow down in vehicle sales is coming probably sooner than later which could drive the growth in this area much lower.

  4. part 3…Since delinquencies are mounting, the slow down in vehicle sales is coming probably sooner than later which could drive the growth in this area much lower.
    Strangest of all are the projections for corporate income tax. Corporate income taxes are projected to be down 3.33% for 2014-15; up 3.74% for 2015-2016; and down 1.03% for 2016-2017. This in the face of the cratering of corporate income tax (down 8.7% with 55% of taxes posted) as the dynamics of the M&A tax credit fully emerge, pushing all but publicly-traded manufacturers to change from a corporation to some form of a pass-through entity. Since corporate taxes are paid quarterly and calculated on the basis of realized taxable income, the chances that this will be offset through over-payments as in the personal tax withholding is extremely remote.
    This has a double impact: the corporate conversions to pass-through entities decreases the corporate tax, while the use of the M&A credit decreases the amount of personal income taxes, and decreases them for the higher income individuals who pay a good portion (as conservatives are always wont to tell us) of total personal income taxes.
    Add them all together and the case for an unacknowledged and unanticipated (looking at DoR projections) revenue shortfall of $1.75-billion over the biennium could well be made.
    Dr. Morbius