Tuesday, May 10, 2016

$101 mil in unpaid debt = Wisconsin budget even more messed up than I thought

I certainly was skeptical on the future of Wisconsin's budget, as there are $726 million in unspecified cuts lurking in the 2016-17 Fiscal Year just to have the budget balance. But I also had looked at the revenues through March, and didn't think there would be any need for any changes to the budget in this fiscal year, which ends on June 30.

And then this piece of news dropped late this afternoon.
Gov. Scott Walker's administration has put off a debt payment for the second year in a row, this one totaling $101 million, which will cost taxpayers about $2.3 million in interest.

The state was supposed to retire about $132 million in debt on May 1, according to the nonpartisan Legislative Fiscal Bureau. Instead it reduced that amount by $101 million, which will help the state end the current biennium on June 30, 2017, in the black.

However, it will also increase interest on the debt payments by $2.27 million over the next eight years, in addition to pushing principal payments into future budget cycles. The fiscal bureau put out a memo Tuesday based on an earlier estimate that the deferral would total $50 million, but the Walker administration confirmed later in the day that the total was actually $101 million.
That is a bad sign, because it's basically the equivalent of not paying off your mortgage in favor of paying a lower amount for the next several years and paying more costs in the long run. It's a "hope and pray" kind of strategy that isn't done by anyone that's on firm economic footing.

So why did it happen? Let's see what Walker spokesmodel Laurel Patrick has to say.
Walker administration spokeswoman Laurel Patrick said the restructuring reflects "prudent fiscal management" that was done to take advantage of historically low interest rates in a process used under previous administrations. She didn't respond to a request for an explanation about why the state would rather pay more money in interest in the future rather than pay a lower amount now.
ARE YOU FUCKING KIDDING ME WITH THAT SHIT? This isn't a refinancing of debt, where some form of debt is traded in for lower interest rates and costs over time. This was $101 million that would have been paid off and be off the books . What the Walker folks are doing is the equivalent of begging their creditors to restructure their debt because they can't pay them right now.

As the LFB paper on the skipped payment explains, the amount of principal on the debt doesn't change, it's still $101 million. It's just that it's paid off over 8 years, with interest added in, which means that more money will have to be used in each of the next 8 fiscal years to pay this off, including $13.1 million next year. This will raise the structural deficit in all of those years, and will crowd out spending on other needs.

The bigger red flag to me isn't the damage done to future year budgets, but what this skipped payment means for this year. If you flash back to January's revenue estimates from the LFB, this was the projected state of the state's General Fund for the two years of the 2015-17 budget.

Cash balance 2015-17 budget
2015-16 +$284.0 million
2016-17 +$135.2 million

So if we have to push $101 million in payments into the future just to make 2015-16 balance, we must be WAY behind that $284 million number. There'd be no reason to skip the debt payment and take on extra costs if you had $284 million to spare- you'd carry over the lower balance past the November 2016 elections and hope that things improve by the time budget season in early 2017 rolls around (or you repair the 2016-17 budget then). There's no reason to make a move to alert the public to your failing budget unless you absolutely have to, which tells me that April revenues (a key month due to the large numbers of tax returns that are filed) had to have been AWFUL, and we are likely in a revenue shortfall.

And the skipped payment and revenue shortfall also means that the 2016-17 budget will likely have to make several adjustments, barring an unforeseen economic boom. As you can see, a deficit of nearly $150 million is baked into that year's budget, and that's including those $726 million in lapses I mentioned above. Now add in a revenue shortfall, which means projected revenues for 2016-17 will also likely be lowered, and that deficit goes higher. Which means we are likely staring at a "shortfall-cut-shortfall" pattern that has plagued ALEC states like Kansas in recent years.

I knew Wisconsin's budget was jacked up under Walker and WisGOP. I just didn't think we'd see the deficits appear this year. In a way, it's a good thing, as we will know the mess in front of us before the voters go to the polls in November, which means maybe we can kick out some of the GOP vandals that caused these problems and put a block on some of this ALEC fiscal madness in the next budget. But that's the only good thing that comes out today's news of another skipped debt payment, and it proves Chris Walker at Political Heat correct- the claims Scotty is making of a "Wisconsin Comeback" are cherry-picked and bogus.


  1. Kansas here we come. It would be nice if the Wisconsin media would start pointing out the reality of the path we're on.

  2. As always, you're the best. If I could read the tea leaves, this is also the reason for the increased volume of "Faculty!" from Walker, et al. They know another huge UW hit is coming (among other hits) and need to start lining up scapegoats now.

    1. That's one reason, but the main one was building in an unprecedented $716 million of lapses into FY17 so as to: (a) defer the time of reckoning so the media doesn't make the obvious link between the tax cut binge (particularly of 2014) and financial woes; and (b) create a vast structural deficit to "fix" next year with ideological cuts for 2017-19.

  3. Thanks Chuck, great post yesterday showing how absurd Walker's claims were on "high-paid faculty." I especially like how the 2.8-to-1 fac/studrnt ratio is based on independent study.

    Geoff- There is no doubt that the setup is there for more cuts in 2017-19. What's odd is that half of this year's lapses are apparently from a thing where pension bonds have $388 mil set aside and $376 mil of it are supposed to be unspent and lapsed (Thanks Emily!).

    The problem? That lapse won't likely repeat in 2017-18 or 18-19, but it's built into the structural budget. Uh oh