Thursday, February 23, 2017

Janury revenues disappoint, meaning Walker budget may already be impossible

While our Governor was telling the Bubble-Worlders at CPAC to ignore the voters who pay their salary, we got another indication that things aren't as nice in Wisconsin as Walker claims to the clueless outsiders. That came with the release of January’s revenue figures from the Wisconsin DOR. The numbers are a bit wonky because of New Year’s and other start/end-month days falling on weekends in both 2016 and 2017, but when you include the DOR's adjustment for that variable, the numbers were mostly disappointing.

Year-over-year change, Jan 2017 vs Jan 2016, Wisconsin
Income taxes DOWN 0.9%
Sales taxes UP 6.1%
Corporate taxes DOWN 41.7%
Excise taxes DOWN 5.1%
Other taxes UP 17.6%

That 0.2% increase in total revenues is well short of what we need to stay in line with the 2.7% increase in total revenues that was projected by the Legislative Fiscal Bureau for Fiscal Year 2017. For the entire fiscal year, we are only up 2.1% with 7 months completed, but more concerning is the 20.9% drop in corporate taxes for the year. The LFB only projected a decrease of 6.5% for Fiscal Year 2017, so if we continue to have the 20.9% decrease that we currently have in corporate taxes, that’s a shortfall of $138 million.

Fortunately, sales and income taxes are in line for the Fiscal Year estimates so far. However, it is concerning that the Fiscal Bureau indicated in its relatively rosy report that income tax revenues were likely to end up on the low side for the coming months of tax season, because of tax maneuvering.
A lower growth rate in the second half of 2016-17 reflects some taxpayers accelerating estimated payments in December, 2016, as opposed to January, 2017, and an increase in refunds in the Spring months due to law changes. The law changes include increasing the standard deduction for married filers, federalizing exemption amounts under the alternative minimum tax, the final year phase-in of the manufacturing and agriculture credit, and the capital gains exclusion for Wisconsin assets. The capital gains provision was enacted as part of [the 2011-13 state budget], but its initial impact will occur in tax year 2016 due to a five-year holding period requirement.
And January’s decline in income taxes happened before those higher refunds (and lower revenues) were filed and released. Ruh roh.

One other potential shortfall in coming months may come as a result of the record warmth we just had throughout the state. The LFB wasn’t counting on that when it projected this part of the revenue report last month.
Public utility taxes are estimated at $359.7 million in 2016-17, $373.5 million in 2017-18, and $378.2 million in 2018-19. On a year-to-year basis, these estimates represent a decrease of 0.2% in 2016-17, and increases of 3.8% in 2017-18 and 1.3% in 2018-19. The gross revenues tax group comprises almost 70% of estimated collections, and gross revenues taxes are estimated to increase 0.3% in 2016-17, 5.9% in 2017-18, and 1.7% in 2018-19. Private light, heat, and power companies are the largest taxpayer group among gross revenues taxpayers, and collections from these companies are estimated to increase 0.7% in 2016-17, 6.2% in 2017-18, and 1.6% in 2018-19. This pattern is influenced by a mild winter and low natural gas prices in 2016 and a return to more normal weather patterns and some "bounce-back" in natural gas prices beginning in 2017.
Well that just went out the window in the last week, didn’t it? Sure, these are relatively small things in a budget that relies on $15.5 billion in General Fund taxes for this year. But the problem is that any shortfall for Fiscal Year 2016-17 pretty much ends any chances for the state to be able to afford Governor Walker’s cynical handouts and unfunded tax cuts.

Remember, Walker’s budget relies on $453 million being in the bank on June 30, and then it promptly takes more than $371 million out of the bank over the next 2 years. Add in reserve requirements of $75 million, and there is less than $7 million of breathing room in this budget.

It illustrates just how tenuous Walker's budget is, and combine the disappointing revenues with a whole lot of uncertainty regarding how much money will be flowing down from DC (and in what parts), and anyone who thinks Walker’s budget is going to largely remain intact is a complete SUCKER. The only question is how much patchwork is the Legislature going to have to do in the coming months.


  1. Jake- Besides the reserve requirements, what does the self-insurance proposal require the state to have in reserve?

    1. HAHAHAHA!You're funny. As I understand it, there is $0 set aside for contingencies in case self-insurance costs too much.

      In fact, Walker's budget counts on $60 mil in savings. And if it doesn't happen? OOPS! Guess we'll deal with that later, eh?

  2. I expect the coverage offered by the state's self-insurance plan coming soon may be considered a legitimate source for budget cutting.

    If you're going to be swimming in that pool and need something done, I'd get it done this year.

    I think we're seeing a permutation on "starve the beast." Between deferred maintenance and accumulating debt, they're definitely pinching the services that can be offered.

    1. Yep, we have definite fears that the "savings" is going to be via less coverage, higher premiums, and higher deductibles.

      And yes, I also see deterioration being part of the plan, especially as a source of budget cuts as the budget falls apart. Good way to sell these services off