Thursday, July 30, 2015

Structural deficit improves, but still relies on accounting tricks

Now that Governor Walker has vetoed parts of the 2015-17 budget, signed the rest of it, and gotten out of town on the campaign trail, the Legislative Fiscal Bureau has re-crunched the numbers to take a look at how this budget and the next one shapes out. And on the topline, these numbers seem to be an improvement over the 2017-19 structural deficit that was reported in the budget that made it out of the Legislature earlier this month, and has some more breathing room in the current budget.

Net balance, 2015-17 budget, from Legislature
FY 2015-16 +$73 million
FY 2016-17 +$22 million

Net balance, 2015-17 budget, after guv vetoes
FY 2015-16 +$96 million
FY 2016-17 +$66 million

Structural deficit 2017-19 budget, from Legislature
FY 2017-18 -$92 million
FY 2018-19 -$204 million

Structural deficit 2017-19 budget, after guv vetoes
FY 2017-18 -$27 million
FY 2018-19 -$183 million

In addition, the structural deficit figure is lower than the $490 million reported earlier this month related to an accounting trick being done on per-pupil school aids (you may remember that Walker proposed cutting this by $150 a student in his original budget, a move that was reversed by the Joint Finance Committee after large amounts of complaints). As the LFB mentions:
Of this [per-pupil] amount, $127 million would be paid on a one-time delayed basis on the second Monday in July of 2016, but would be considered as moneys appropriated in 2015-16 [school year]. Aid for 2016-17, equal to $211 million, would constitute base year funding for the 2017-19 biennium. Thus, $127 million should have been removed from each of 2017-18 and 2018-19 in the July 7 exercise.
Of course, the structural deficit also assumes that those per-pupil aids will stay at that 2017 level for the following two years while most other costs go up, so…good luck with that.

What this "lower" structural deficit doesn’t take into account is Walker and WisGOP's biggest budget trick of them all. The Wisconsin Budget Project explains more in their excellent summary of the recent projections.
The latest calculations continue to understate the magnitude of future challenges because the budget bill assumes an unrealistically large amount of funding that agencies will lapse to the state treasury over the next four years – including $741 million in the 2016-17 fiscal year, and almost that much in each year of the 2017-19 biennium. As I explained in a July 8 blog post, the assumption that state agencies will lapse more than $2 billion over a 3-year period is a convenient way to make the structural deficit look relatively manageable, compared to many of the past structural deficits. However, it also means that the structural deficit figure by itself is no longer a very good indicator of the state’s future fiscal challenges, because that figure leaves out the immense challenge of lapsing so much funding year after year.
There’s also $349 million in lapses baked into the 2015-16 budget AFTER the large amounts of cuts that are already being felt across state agencies (like last week's layoff of 83 workers at UW Colleges). By comparison, while Wisconsin’s Annual Fiscal Report from last October says the Fiscal Year 2014 budget ended up lapsing $345 million, there were no major cuts in appropriations in that budget, so it had more ability to have lapses from job vacancies and other measures.

The FY 2013 budget did lapse nearly $750 million, but that was due to two reasons that do not apply today. The first was Act 10 “savings” and large amounts of retirements of higher-priced, veteran workers in light of that union-busting measure, and the second had to do with $263 million being ADDED to the budget after it was signed into law, which artificially increased the lapses. The 2012-13 budget actually overspent its planned amount by $54.4 million, but was bailed out by a one-time bump in revenues at the same time (a bump which was promptly blown on two rounds of Koo-Koo/Walker tax cuts that have put the state in the fiscal bind it has today).

So unless there’s another Act 10 or shocking economic boom coming, bet on this budget and the next one continuing to be wracked with deficits and likely service cuts…unless the leadership in Wisconsin can be changed.


  1. Jake,

    It must feel lonely knowing that you, John Peacock, and Menzie Chinn are about the only writers in the state calling attention to the weaknesses in the assumptions in Walker's budget. As you know I am still wondering about the revenue assumptions which are another area that could undermine the state's finances. Since the DoR has only released the through-May revenue collection figures, last year is really not yet complete. I've been wrong before about this, but everyone needs to remember that the Wisconsin tax code has been dramatically changed in the past couple years and continues to change into the next biennium. The revision of withholding tables, the tax exemption being extended to manufacturing and agricultural businesses, and other business tax changes are leading to changes in taxpayer behavior which are as yet still unclear and incomplete. The precipitous decline of corporate income collections, and the enormous increase in LLC business entity registrations, indicate to me that past patterns of tax collections cannot be relied upon to forecast future tax revenue streams. I would not be surprised at all to see "unforeseen" deficits at this time next year that might make the cuts of the last budget go-round seem minor in comparison.

    Dr. Morbius

  2. And on another topic…

    The UW-Extension's program for dealing with their cuts is the most short-sighted, counter-productive, program of political appeasement since the Munich Agreement. It is catastrophic blunder that will come to haunt UW-Ex.

    First, chopping nearly one-third of their administrative staff is not going to turn out well. Academics have a particularly biased view of admin. staff, believing that student hourlies, part-time staff, and faculty members can fill in for experienced seasoned staff. Students have tests and vacations, part-timers are usually looking for a full-time job and faculty will disappoint you every time in this regard. "Oh you need to show your I-9 documents? you need a visa, you're an H1-B student? you'll need to go to the admin center about 75 miles from here to get that fixed".

    Second, NOT impacting instructional programs, NOT closing campuses, is well-intentioned but means that the students, parents, and politicians will be held harmless--only those losing their jobs, and those left behind who will be counseled to "do more with less" (until, I suppose, they are to do everything with nothing) will feel any discomfort. I would have closed UW-Manitowoc and UW-Barron County at least someone would see that there is no free lunch for politicians.

    Finally, and most disastrously, the Chancellor of the 2-year campuses better think of what her response will be to the cuts next year. Since the GOP legislators have said that there are too many admin. staff, and she has just confirmed that they, the politicians know best in the administration of a campus by following their advice, what will she say when she is told: "why are you teaching literature, sociology, psychology, arts, or the humanities, those don't lead to jobs--just cut those--and it will be fine. We told you what to do last time, you did it and everything's fine now, so you'd better follow our advice this time too."