Tuesday, October 13, 2015

A preview of Thursday's hue year-end budget report

Thursday features the release of Wisconsin's Annual Fiscal Report. This is the report that goes over all of the finances and fund for state government, and covers the fiscal year that ran from July 1, 2014- June 30, 2015 (click here to look at the 2014 document). It'll go a long way toward determining the state of the Walker/WisGOP budget, and if there might be a bit of flexibility available to soothe the blows from this budget...or if the inevitable additional cuts and tax increases will have to come sooner than later.

Let’s start with the estimates the LFB had on the General Fund Balance when they made their revenue projections back in January:

2014-15 Starting Balance +$516.9 million
2014-15 Projected year-end balance -$283.4 million

However, the Walker Administration said they would take steps to correct this in-year imbalance, so there was no budget repair bill required (unlike when there was a smaller in-year deficit projected in 2011). So let's look at how we may get there.

We know that 2014-15 total revenues came in $71.4 million over what was expected, so that gives a little cushion. In addition, the estimation is that the Potawatomi would have paid the state $49 million. That’s a 2-year payment slammed into 1, as the Potawatomi refused to pay back any of its winnings in 2013-14 pending Gov Walker’s contemplation of a new casino for the Menominee in Kenosha that the Potawatomi said would violate its compacts with the state. Once Gov Walker’s refused to build that casino in February (to curry favor with fundies in Iowa. How’d that work out?), the Potawatomi did the “2 payments in -1 deal” for 2014-15.

Other state non-tax revenues are based at just under $505 million, and we’ll assume that didn’t change, so on the revenue side, it looks like this.

Tax Revenue +$71.4 million
Potawatomi +$49.0 million
TO MAKE UP -$162.0 million

Now, we’ll take the projected differences on the expense side. The -$283.4 million figure already assumed the following, so these don’t count:

Reduction in appropriations -$4.4 million
Lower-than-budgeted sum sufficient expenses -$82.0 million

So to start to get rid of that last $162 million, the Walker Administration proposed a reduction in “Compensation Reserves” (a separate line item for raises in salaries and fringe benefits that isn’t accounted for in expenses), which dropped from a budgeted $133.06 million to $35.0 million in Walker's projected budget, for a savings of $98.06 million (sorry workers).

The rest have to come from additional lapses (past the sum-sufficients), so that means another $64 million in lapses on top of the $324.4 million that were already assumed in the original budget. I don't know if the $108 million in debt payments that the Walker Administration skipped this Spring gets them to that figure, but either way, that lapse amount isn't an unprecedented number, as the 2012-13 budget lapsed nearly $750 million, mostly due to Act 10 "savings"). But the $388 million needed in lapses is still above the $345 million lapsed in the 2013-14 fiscal year. This lapse figure is the largest unknown quantity in this Fiscal Report, and will determine just how far ahead or in the hole we were when the new budget began on July 1.

We will also get a look at the status of the Transportation Fund, also a big deal given the growing call for releasing more funds to reduce delays on state highway projects. Here's what that's looked like in the last 2 years, and what it was projected to do in this current budget.

2012-13 ending balance $153.5 million
2013-14 ending balance $101.5 million (-$52.0 million)
2014-15 projected ending balance +$63.8 million (-$37.7 million)
2015-16 projecting ending balance $24.5 million (-$39.3 million)
2016-17 projected ending balance $21.2 million (-$3.3 million)

And remember, those Transportation Fund deficits aren't including the borrowing that has also been part of the last 2 budgets, and doesn't include the $350 million in additional borrowing that Gov Walker is asking his fellow GOPs in the Legislature to release. If there is more than $63.8 million to carry over into the next budget, it might cut the amount of extra funds that would need to be loaned out. On the flip side, if the numbers come in lower, there isn't much cushion that exists in the current budget, and it makes added debt or higher taxes even more of a requirement if more road projects want to be completed.

One last note I want to being up is the misuse of certain budgetary terms. Technically, spending more than you take in for revenue is s DEFICIT. For example, in the 2013-14 fiscal year, we had a DEFICIT, because this cash balance shrunk from $759.2 million to that $516.9 million (a little more than $242.3 million if you get past the rounding). And in the 2014-15 fiscal year, we will have a DEFICIT, as our balance will be much smaller than that $516.9 million, if not outright negative. So if you hear any talk from GOPs on Thursday of a SURPLUS with the release of the Annual Fiscal Report, they are lying. And with $1.1 billion in lapses built into this budget, if the revenues start off slow in Fiscal Year 2016 (we should see the first three months of the year shortly), we will likely be looking at additional budget cuts on top of the austerity that has already been imposed.

So be ready on Thursday, as the spin will be likely to be flying fast and furious once the AFR comes out.

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