Wednesday, November 21, 2018

We can't get everything in the next budget, but DOT is likely the bigger problem

I'm on the road with family, but wanted to give a little context for the detailed headline you may have seen yesterday that proclaimed "State officials predict $1 billion budget shortfall if all spending plans are approved despite higher tax revenue."

That figure comes from yesterday's release of the Wisconsin Department of Administration's summary of budget requests and revenue estimates. This comes out every 2 years on November 20 (after the elections, conveniently), and gives a big-picture idea of what might or might not be achievable in the upcoming budget.

Despite the fact that he and all other Republicans in statewide races were given the boot by Wisconsin voters 2 weeks ago, Scott Walker's DOA still lays on heavy spin to claim things are great in Wisconsin going into the 2019-21 budget. This is just a small taste of the crap they dish out in this document (on our dime, no less).
The fiscal condition of the State of Wisconsin is the best it has been in at least a generation. The state completed fiscal year 2017-18 with a positive General Fund balance of $588.5 million. As a result, the state entered fiscal year 2018-19 with the second largest opening balance since the year 2000. The 2018-19 gross ending balance is estimated to be even larger, $622.6 million which is $440.9 million higher than previously estimated in the final Chapter 20 schedule.
Wait, how did we go from $181.7 million to $622.6 million left over at the end of this budget? The first reason is that Walker's DOA expects tax revenue to rise strongly next year.

Projected General Fund tax revenues, 2017-19
2017-18 (actual) $16,144.2 million
2018-19 (projected) 16,816.0 million (+4.2%)

That's an increase of $137 million compared to what the Legislative Fiscal Bureau estimated for the 2018-19 Fiscal Year back in January. But it is worth noting that we beat the LFB projections for revenue by $19 million for the last fiscal year, and while the 4.2% rate of growth is more than the 3.4% growth the LFB predicted for this year, it's also not much more than the 4.0% growth we had in 2017-18.

Then on the spending side, Walker's DOA says that costs should come in $84 million lower than what was expected in January. This is largely due to savings in Medicaid, which the DOA says is projected to spend at least $149 million less in state tax dollars than budgeted due to lower caseloads (fill in the blanks as to why) and various cost-containment measures. Ironically, the cost savings are somewhat offset because of a larger expected deposit in 2019 for the Budget Stabilization Fund, because of the larger-than-projected revenues.

Walker's DOA claims tax revenue will keep rolling in for the 2019-21 budget as well.
Projected General Fund tax revenues, 2019-21
2018-19 $16,816.0 million
2019-20 $17,412.1 million (+3.5%)
2020-21 $17,801.7 million (+2.3%)

This is despite few projected changes in tax policy (other than a couple of pre-election proposed Walker tax gimmicks that would cut revenues by $52.9 million), and despite Wisconsin already being maxed out on the number of people working (at 3.0% unemployment), and likely to continue to have the slow population growth that has plagued it throughout the Age of Fitzwalkerstan (at least in the short term).

But hey, maybe they're assuming new Governor Evers will actually get Wisconsin into the top half of job growth for the US for the first time since 2011, and they just didn't want to admit it (tricky, tricky guys!).

DOA also claims that the US economy will keep growing at 2.7% for 2019, 2.1% for 2020 and 1.6% for 2021. Color me skeptical on all of these economic assumptions, given the demographic issues in this state and the fact that 2/3 of economists in a survey last month said that they expect the US to be in recession in the next 2 years.

Now let's go over to the spending side.

Projected General Fund expenses 2019-21
2018-19 (projected) $17,264.3 million
2019-20 $18,248.2 million
2020-21 $19,687.9 million

That's a $1.4 billion increase for 2020-21, well above the rate of revenue increases, even with the rosy projections from Walker's DOA.

So put it together, and it means the budget would look like this, if you assume the revenue and expense increases for 2019-21, along with what is carried over from the end of this Fiscal Year.


While there is a minor decline in 2019-20, you can see the real imbalance is in 2020-21, which is a $1.35 billion deficit for that year alone. Now understandably, all of these spending requests will not be funded. You can bet the ALEC crew in the Legislature will be especially unwilling to fund public education to the level and manner that Evers requested in his current job as State Superintendent of Schools, which is about half of that $2.4 billion in added spending in 2021 vs 2019.

But there are also some items that need to be paid for. Health Services is supposed to rise by $430 million by 2021 just to continue with the same services they have today, Corrections would need to increase by $93 million in those 2 years, and the UW System asked for $83 million more. It's also worth noting that these requests do NOT include road projects from the Transportation Fund. That's projected to be another $1 billion or so more than what we will have to take care of Scottholes and try to get delayed projects back on track.

So to review, we will have some budget constraints in the next budget, and the Walker DOA is hoping for economic growth that may not happen, and that may make it worse. However, I also wouldn't panic about the "$1 billion deficit" headline about the General Fund (because that is largely based on a wish list) as much as I would be worried about the looming deficit and rising debt in the Transportation Fund. DOT is the bigger hole that Walker and WisGOP have put us in at this time, and the one with more immediate needs.


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