Walker Admin's brings back budget lie of "What if?"

This is how zombie lies start, and then continue to live when you have a media that won’t call out bullshit.

[Wisconsin Department of Administration] Secretary Mike Huebsch says should state revenue projection come in higher than anticipated, Gov. Scott Walker's top focus would be cutting taxes…..

The Legislative Fiscal Bureau typically re-estimates state revenues for the upcoming biennium in May if it sees evidence they need to be adjusted. Lawmakers have already suggested any additional revenues should go toward things like boosting K-12 funding, reducing the size of Walker's proposed $300 million cut to the UW System or lowering the amount of bonding for transportation.

Huebsch said after tax cuts, additional revenues would likely be directed toward some of the five largest areas of spending in the state budget, including K-12 education, Medicaid, the university system, shared revenue and corrections.

Here’s why that statement is crap. THERE IS ZERO EVIDENCE THAT REVENUES WILL BE HIGHER, and if anything, are likely to be lower. It’s like saying “well, here’s what I’d do if I hit the $500 million Powerball tonight,” but I sure as hell wouldn’t plan on it happening. And I definitely wouldn’t expect others to think that's how I was planning my future. But the Walker Administration has pulled this hopeful "well, if this happens and this happens and this happens” garbage continually for the last year, and our media sits with its thumb up its ass and lets it waft out there as if it’s going to happen. It never does.

Let’s start by going back to the LFB’s revenue estimates from 3 weeks ago, which is a starting point for this budget. Here’s what the LFB predicted would happen with income tax revenues through June 30, which covers the rest of the 2015 fiscal year, as well as the next fiscal year.

Over the remainder of 2014-15, it is anticipated that collections will increase by 15.1% due to several factors. First, refunds for tax year 2014 will be significantly reduced and final payments will be increased because of the decreased amount of withholding taxes paid since last April. Also, beginning in April, 2015, growth in withholding collections should improve significantly because the current-year receipts will no longer be compared to collections that were based on the previous, higher withholding tables. In addition, it is believed that federal tax increases enacted late in 2012 induced taxpayers to realize additional investment income in that year, which otherwise would have been realized in 2013. This is believed to have artificially suppressed collections last Spring, which should lead to a "bounce-back" this year. These positive impacts will be partially offset by the effects of state tax reductions, primarily the decrease in the bottom marginal tax rate enacted in 2013 Act 145 and the continued phase-in of the manufacturing and agriculture credit. As noted, for the entire year, income tax collections in 2014-15 are expected to be 4.1% higher than in 2013-14.

An above-average growth rate of 6.7% is estimated for 2015-16, primarily because a large one-time revenue loss associated with the withholding table changes will no longer occur. In 2016-17, the increase in individual income tax collections is estimated to more closely approximate the increase in personal income, as a more normal pattern of growth in tax collections returns.

And LFB predicts that increase in 2016-17 to be another 5.2% on top of the increases at the end of 2014-15, and in 2015-16. That’s a huge hill to climb, and is only feasible because the LFB predicts real GDP growth in the U.S. staying between 2.7% and 3.1% for each of the next 3 years, which is faster that the decent growth we've seen in the last three years. The LFB also made that prediction assuming that 7 million additional jobs added, meaning that the Obama Jobs Recovery would keep cooking along, and going on 7 straight years of job growth.

Maybe that happens, and maybe Wisconsin keeps up with that strong growth and fewer Wisconsinites rent-seek on tax breaks and actually pay a fuller amount. But I wouldn’t count on it, and not just because we might be due for some kind of economic slowdown, but also because revenues are unlikely to keep up. Income tax revenues dropped by more than $426.5 million from January-April of 2014 vs the same four months in 2013 (a drop of 17.7%), and only about $55 million of that was due to lower withholdings that hit last April. With extra tax cuts thrown in and accelerated for tax year 2014, and inflation barely over 1%, do you really think we’ll get back to near 2013’s levels for the next 4 months?

In addition, LFB’s prediction that refunds will be lower and revenues higher in early 2015 leads to budget and/or economic problems, regardless of whether that prediction is right or wrong.

1. If it is true, then a whole lot of Wisconsinites are in for a negative shock when they get those lower tax refunds, and/or have to pay in. It makes it also less likely to keep sales tax revenues increasing at the level they have in future years (over 3% growth is predicted for the rest of Fiscal Year 2015, and for Fiscal Years 2016-17)

2. But if they’re wrong, and tax refunds due to tax avoidance encouraged through the two rounds of Koo-Koo tax cuts keeps revenues down, then we have a bigger revenue shortfall for this fiscal year (which must be corrected, and little time to adjust). It also makes for a lower base to start the 2015-17 budget with, which makes the already-ambitious growth amounts needed to balance in Walker’s budget become even higher.

Huebsch’s happy talk is also an infuriating reminder of the lies the GOP told during the 2014 election campaign, where Joint Finance Co-Chairs John Nygren and Alberta Darling made up an extremely unlikely scenario based on high revenue growth and no added expenses, and then claimed a “535 million surplus” when the LFB scored it out (because they’re not allowed to say “this will never happen"). I called this “what-if” report out as complete bullshit at the time, as could anybody else that did more than 2 minutes of digging. But there was Scott Walker claiming this “what-if” scenario as fact on the campaign trail, even while Mary Burke and the Dems tried to point to more realistic LFB estimates of a $1.8 billion structural deficit that was coming.

Turned out the Dems’ and LFB’s original assumptions were pretty close to the reality in 2015, as the LFB's January estimates said the GOP’s rosy revenue scenario would fall short by $256 million, and even with Gov Walker’s cuts in the 2015-17 budget, total General Fund expenditures are still slated to be up by nearly $865 million. That’s a $1.12 billion difference from the alleged “surplus” on those items alone. But because our media was too paid off interested in seeming “objective” to examine the numbers closely, they didn't shoot the BS down, and enough rubes fell for the GOP-aganda of a “balanced budget/ surplus,” allowing Walker to slip by with 52% of the vote in the November 2014 election.

This is why you have to push back on garbage like Mike Huebsch’s, because the average citizen doesn’t understand budget numbers and projections, and certainly doesn’t have the time or capability to evaluate who’s lying and who’s likely to be right. Watch for these zombie lies about “upside revenue surprise” over the next couple of months, even if official Department of Revenue figures start to reveal the truth about how much in the tank we are, because the WisGOP-aganda machine has to try keep the outrage down as to just how badly Scott Walker’s trickle-down mentality has failed in Wisconsin.

P.S. Hey Sec. Huebsch, if the budget is doing so well, then why did the Wisconsin Office of State Employee Relations, under your department’s orders, just sent out a letter today saying that they couldn’t afford to give any raises until further notice? Read between the lines, folks!

Do the Evolution, Scotty!

I guess this is a fitting song for those of us in Wisconsin today, after our "Unintimidated" Governor decides to punt on the origins of man ....in the home country of Darwin.

I'm ahead I'm a man
I'm the first mammal to wear pants yeah
I'm at peace with my lust
I can kill 'cause in God I trust yeah
It's evolution baby

I'm at piece I'm the man
Buying stocks on the day of the crash
On the loose I'm a truck
All the rolling hills I'll flatten' em out yeah
It's learned behavior uh huh
It's evolution baby

Admire me admire my home
Admire my son here's my clone
Yeah, yeah, yeah, yeah
This land is mine, this land is free
I'll do what I want but irresponsibly
It's evolution, baby

I'm a thief, I'm a liar
There's my church, I sing in the choir:

It kind of fits, don't it?

Menominee offer for Bucks arena needs to be put on paper

Well it looks like the Menominee Tribe and the Hard Rock Casino folks have just thrown an interesting curveball into the Bucks arena discussions, as the Menominee is now offering to replace the $220 million in state funding that Gov Walker offered up in the state budget. Instead, the Tribe is now saying that they’d be willing to pay that $220 million themselves, if Gov Walker will reverse his earlier decision, and sign off on allowing the casino in Kenosha.

In addition, Menominee Tribal Chair Gary Besaw said that the Menominee would pony up more money to cover for any losses that might result from the Potawatomi Tribe or other tribes not paying the state, as retribution for breaking earlier gaming compacts limiting the amount of gaming that could be permitted.

Besaw also said the Menominee will increase to $275 million the bond it would post to cover any potential, but very unlikely, state losses from other gaming agreements. The $220 million arena contribution and the $275 million bond would be on top of the $1.2 billion in Kenosha casino gaming proceeds the Tribe has already committed to the State of Wisconsin, making for a total contribution to the State of $1.7 billion.

(Ed. Note : The gaming proceeds “payback” to the state was previously reported as $1 billion over 25 years, and it was included as one of the last-ditch offers from the Menominee 2 ½ weeks ago, as noted in this article from Rich Kirchen of the Milwaukee Business Journal.)

“Gov. Walker has claimed many, many times that he will not leave taxpayers on the hook for $100 million or more in supposed losses due to gaming agreements with the Forest County Potawatomi. Candidly, his position is puzzling because no one – including the governor’s own outside counsel that he specifically hired to examine our project in detail – believes such losses are possible. Nonetheless, we’ve put a strengthened proposal to indemnify the state on the table,” he said. “Menominee guarantees that if the State has to refund all of the money the Potawatomi gave the State in the past, Menominee will cover that. If the Potawatomi refuse to honor their obligations and pay the State any more money going forward, Menominee will cover that. And if the Potawatomi try to sue the State – even though legal and policy experts have said such a lawsuit would be unsuccessful – Menominee will even pay for the State’s lawyers.

“Gov. Walker, the fact of the matter is that taxpayers are off the hook,” Besaw added. “They’re off the hook for any costs related to the Kenosha casino, and now they are off the hook from any burden related to a new NBA arena in Milwaukee.”

On its face, it sure looks like a no-lose situation when you’re talking about state finances, as the Menominee’s cash offer reduces the need for borrowing the $220 million, or for any kind of a “jock tax” which would divert Bucks employee income taxes from the General Fund and designate it for the arena. In fact, the state’s budget problems were mentioned in the Menominee’s release, with the intimation that allowing for the Tribe to pay into the arena would free up funding for other services that Gov Walker is planning to cut in his current budget.

That’s a good side benefit from the Menominee, but the catch is that it doesn’t help Wisconsin’s budget issues in the short term. Very little of the state money “saved” would be made up over the coming 2-year budget (meaning Walker’s cuts and deficits are still there), but instead the savings would hit in later years, because there would be no debt to pay off. In fact, in the immediate time period, there’s a chance that the Potawatomi would want their $49 million back from the state if the Kenosha project were to go through, as the Potwatomi had held back two years of payments as Walker was debating this casino, and only paid it last month when Walker turned down the Hard Rock project. Yes, the Menominee have offered to make up the difference for those payments as well (gives you an idea how successful they think this casino is going to be), but this also could drive up some state litigation expenses as that issue gets decided.

Putting that point aside, there is a lot of detail to clear up from the Menominee’s proposal.

1. This Menominee “offer” sure resembles a bribe to get Gov Walker to change his mind on allowing the project (although they insist it's not a bribe). Officially, you can call this “negotiating” because it's being done in public, but there’s a crassness to this that kind of takes me aback (well, from the tribe’s side, anyway. With Walker you expect it.) And how this would be paid in is a bit confusing.

The $220 million would be paid over 25 years and the total cost to the Kenosha casino including interest would be close to $300 million, Allen said. He said that would "basically mirror" the funding mechanism Walker has proposed for the arena.

Apparently, the money basically repurposes a "community needs" fund that the Hard Rock people had put in their October 2014 offer to Walker, so their argument is that it's not much more that's being shelled out. But would this money be sent to the state, or the team, and would there still be a need for a jock tax, but Menominee's money would replace whatever goes out of the state's coffers? I need to see this part.

On the flip side of this, it’s also no different than a corporation ponying up millions to get naming rights for a sports facility, like the giant brewing company in Milwaukee did to have the new baseball stadium be called Miller Park. This sort of back-scratching is regular everyday business in 21st Century pro sports, so I suppose when viewed through that lens, it’s not that big of a deal.

2. Who oversees this new arena, and who will have a say in its operations? Would this mean the Menominee now has a large voice in future plans for this, since they shelled out a lot of the money for it? Related to that, would the state get any say in this at all, if they’re not putting up any taxes or administration for it? Remember, in Walker’s budget bill there is also a provision to have a 9-person board administer the jock tax revenues and oversee operations of the new Bucks arena, similar to the Bradley Center Sports and Entertainment Corporation that oversees the current Bucks arena.

So would there have to be a similar governing structure set up, or would the arena be “given away” to Bucks ownership once it is built? This is something that would have to be fleshed out with the Menominee’s proposal, although that could conceivably be done after approving a new casino in Kenosha.

3. There still hasn’t been the answer as to where this arena would be built, and what other development would be part of it. This is the piece I’ve been waiting for before giving my final “yea or nay” thought on this arena deal, because I think it works better as a larger development that includes more than just the arena. Kirchen mentioned last month that the “favored site” now seemed to be just north of the BC, around 4th and Juneau, near land that was the site of the former Park East expressway.

I like the idea of locating the arena there, as a lot of that land is vacant and/or underdeveloped, and it could create a nice visual "welcome to downtown Milwaukee" as you get off of Highway 43. But I want to know if this is linked into other developments and businesses, and what kind of funding the City and/or County would be expected to contribute as a result. This could be in the form of the county selling some land it owns in the area, or with the City offering a TIF or some other incentive, but I do want to see where all of these pieces fit in. We keep hearing "soon enough", but the site decision has already been put off from its original plan of late January.

Obviously, there is a lot more that needs to come out with the Menominee's offer and the overall plan involving the Bucks arena. Maybe we see Kenosha and Racine-area politicans propose a bill in the coming days which will show how all of this financing would work from the state side. Of course, this is all moot if Walker doesn't reverse his intentions to disallow the Kenosha casino by the 19th (and it would make him look even less "Unintimidated" than he already did when he bowed to goofball Iowa fundies by turning this thing down). But it's yet another wrinkle in this multi-layered debate that makes me want to see where this is all heading. Not just for the Bucks arena, but for the casino and the budget.

How is borrowing and consolidating power "small government conservatism"?

Longtime Wisconsin Capitol reporter Steven Walters has a good summary in Urban Milwaukee regarding Gov. Walker’s plans for transportation funding in this budget, and he particularly focuses in on Walker’s proposal to keep putting highway funding on the state’s credit card.

The governor defends his request to borrow $1.3-billion more for transportation, and another $220 million for a new downtown Milwaukee Bucks arena, by saying his overall budget would borrow less than any budget in the last 10 years. It’s also important to note that Walker’s $1.3-billion bonding request includes every important statewide project – all of which are championed by local legislators, chambers of commerce and other civic groups – and increases aids to local governments.

The official budget summary puts it this way: "This includes timely investments to rebuild the Zoo Interchange, as well as the Hoan and Stillwater bridges. The governor also recommends enumeration of the I94 East/West project [west of Miller Park] to allow DOT to initiate substantive work on the project. The budget also includes $836.1 million over the biennium to keep major highway projects on schedule, such as the widening of I39/90," between Madison and the Illinois border.

What isn’t in that budget summary: The current two-year budget borrows $991 million for transportation programs, so the new proposal would borrow $1.3 billion more. It would require, by the 2016-17 budget, 22.8 percent of all state transportation taxes to go to paying off bonds, instead of for highway and bridge construction and maintenance.

The budget sends this hardball message to Republican legislative leaders and transportation special-interest groups: “If you don’t like my plan to borrow $1.3 billion, you raise taxes and fees – or you pick the major highway projects that will be delayed. And then you – and not me – get the blame for doing anything but borrowing $1.3 billion.”

So Walker passes off the duty of figuring out how to be more responsible with funding these road and highway projects to the Legislature while he galavants across the country. What an “Unintimidated” guy.

Walters doesn’t even mention the other sizable amount of can-kicking Walker pulls in this budget, the $1.5 billion in debt refinancing that is requested, continuing a trend that the Governor has pulled in all 4+ years that he has been in office, and bringing the total that the state can refinance to nearly $5.3 billion.

What’s also interesting about these borrowing provisions is that Walker wants to remove a level of oversight from his administration when it comes time to ask for more money from the debt markets, and allow his administration to oversee and pay for all project without any checks on that power. Mike Ivey of the Capital Times had an article mentioning this today, and like many other moves in this budget, it centralizes power with the Governor.

Under the Walker budget, the Building Commission would no longer meet in order to approve projects or the borrowing to make them happen. The commission — which by statute includes members of both political parties and is chaired by the governor — has traditionally met monthly.

Instead, the commission would operate under what the budget proposal calls a “passive review process” where items are considered approved unless a majority of Building Commission members request a meeting.

There is also this note from Page 42 of the budget bill.

Also under this bill, at the first meeting of the Building Commission following the enactment of the biennial budget act, the Building Commission may 1) authorize DOA (the Wisconsin Department of Administration) to contract certain public debt in an amount not to exceed the amount that the Building Commission is authorized to contract; 2) release an amount not to exceed the amount of state building trust fund moneys to DOA for planning for enumerated projects; and 3) authorize DOA to issue revenue−obligation refunding obligations. Also, after this first meeting of the Building Commission, DOA must report quarterly to the Building Commission regarding the status of projects under the state building program.

Under current law DOA may prepare a request for the issuance of operating notes and may submit the request to the Building Commission. The request must be signed by the governor and the secretary of administration and is subject to review by JCF [Joint Committee on Finance].

Under this bill, DOA is not required to submit a request for the issuance of operating notes to the Building Commission. Instead, DOA may prepare an authorizing certification for the issuance of operating notes that must be signed by the secretary, must be transmitted to the governor, and is subject to review by JCF.

In other words, if the state is running out of money to pay its bills and has to borrow for it, this seems to allow the Walker Administration to get the money without asking the full Legislature if this is OK, or if they should do other methods to come up with the funds (like cutting programs or delaying payments or raise taxes). Seems like quite the power-grab to stick into the budget for a “small government” guy, doesn’t it?

You have to think some of Walker’s GOP rivals for the 2016 nomination will bring up that Scotty is centralizing power into his inner circle by removing some of this oversight over borrowing and budget practices. And you also can’t help but notice that Walker uses the same Dubya-like “don’t tax but still spend” mentality that dropped this country into the $1 trillion+ deficit that greeted President Obama during the Great Recession (leading the increased overall debt that GOPs cry crocodile tears over but disavow any role in causing).

And once Walker’s rivals bring it up (or someone else does. HINT TO THE DPW!), you can bet that will encourage media will also start looking into Walker’s dismal record on budgeting, and they will find that Scotty is anything but the “fiscal conservative” he claims to be.

Wisconsin Budget Project catches the K-12 cuts

The Wisconsin Budget Project has now released their overview of Governor Walker's budget, and I'd encourage you to read their breakdown of the big document. Their focus on the Governor's K-12 education policies is especially thorough, given that these changes haven't gotten nearly the coverage that other provisions have, and the Budget Project rundown illustrates why that issue probably deserves a lot more attention.

To begin this overview, it’s important to note that the Governor’s recommendations dig a deeper hole for lawmakers to climb out of as they attempt to balance the budget. That is done by allocating $105.6 million per year for the school levy credit. While increasing that credit has often enjoyed support from legislators on both sides of the aisle, committing that funding for tax relief is much more problematic at a time when the state is faced with a large deficit and making substantial cuts....

Putting a squeeze on public schools – The changes the Governor is proposing for school financing are complicated, but seem to keep public schools in a very difficult fiscal bind. In addition to maintaining current revenue caps for schools, the bill cuts total funding for the Dept. of Public Instruction by 0.1% in the first year of the biennium (and cuts General Fund support by 2%), before increasing total funds by 4.2% in the second year. But even in the second year it appears to me that schools will only be able to increase spending by about half of the increase, based on the amount of the increase that is outside of the revenue caps. In addition, the bill lifts the cap on school choice vouchers, and the growth in spending for those vouchers will apparently be siphoned out of the funding for public schools. By holding support for public schools well below the inflation rate and diverting funding for vouchers, my preliminary reading of the Governor’s plan is that it would force many school districts to make additional cuts in their budgets.

UPDATE: After studying the budget documents more carefully, it’s clear that the negative impact for schools is considerably worse than I initially thought – particularly in the first year of the biennium, when most schools will have to cut spending by $150 per student. My preliminary calculations missed that effect because one of the DOA documents creates the impression that schools are getting an increase of about $103 million per year in federal funds, which is not actually the case. In addition, I didn’t originally realize that schools aren’t able to raise property taxes to offset a $127 million cut in state categorical aid during the first year of the biennium.

So it appears that Walker is attempting to do the "spend more for property tax cuts without taxing for it" trick that he did with Tech College funding last year. This has the double-whammy of adding to the state deficit, and not allowing the funding to go into instruction, teacher pay, or anything that might improve the level of service from those schools.

There will be plenty more items to discuss as these departments go through their hearings, but the cut in per-pupil aid and related K-12 provisions are a good catch from the great folks at the Wisconsin Budget Project.

A lights-out January US jobs report

The Obama Recovery seems to be in high-speed mode, even more than we previously knew. The January U.S. jobs report came out this morning with huge numbers not only for the start of this year, but at the end of the last one.

Nonfarm payrolls increased 257,000 last month, the Labor Department said on Friday. Data for November and December was revised to show a whopping 147,000 more jobs created than previously reported, bolstering views consumers will have enough muscle to carry the economy through rough seas.

At 423,000, November's payroll gains were the largest since May 2010, when employment was boosted by government hiring for the population count.

While the unemployment rate rose one-tenth of a percentage point to 5.7 percent, that was because the [labor] force increased, a sign of confidence in the jobs market.

January marked the 11th straight month of job gains above 200,000, the longest streak since 1994.

Not too bad, if I might say so myself. Even average hourly earnings were up by $0.12 for January, in a month when inflation is likely to drop with gas bottoming out, and it now puts the year-over-year increase at 2.2%- which is above the 1.6% inflation rate for 2014. That’s a welcome change from the largely stagnant to declining real wages we have seen in recent years.

Even without this positive data, the January U.S. jobs report is always a big one, because it features revisions for several years in the past, based on the “gold standard” jobs report, new population information and related statistics that improves the accuracy of the originally-reported figures. Here’s the explanation from the Bureau of Labor Statistics on that, as part of the larger overall report.

In accordance with annual practice, the establishment survey data released today have been benchmarked to reflect comprehensive counts of payroll jobs for March 2014. These counts are derived principally from the Quarterly Census of Employment and Wages (QCEW), which enumerates jobs covered by the unemployment insurance tax system. The benchmark process results in revisions to not seasonally adjusted data from April 2013 forward. Seasonally adjusted data from January 2010 forward are subject to revision. In addition, data for some series prior to 2010, both seasonally adjusted and unadjusted, incorporate revisions.

The total nonfarm employment level for March 2014 was revised upward by 91,000 (+67,000 on a not seasonally adjusted basis, or less than 0.05 percent). The average benchmark revision over the past 10 years was plus or minus 0.3 percent.

The rest of 2014 was also given revisions, and while those numbers showed only a slight increase (17,000 more jobs added from April-October than first reported), the huge upward revisions in November and December along with the added 91,000 jobs in March solidified 2014 as the best year for U.S. job gains since 1999. It also continued a strong four-year record of gaining back jobs lost during the Great Recession.

Job gains 2011-2014
2011 total: 2.080 million (1.6%)
2011 private sector: 2.396 million (2.2%)

2012 total: 2.257 million (1.7%)
2012 private: 2.315 million (2.1%)

2013 total: 2.388 million (1.8%)
2013 private: 2.452 million (2.2%)

2014 total: 3.116 million (2.3%)
2014 private: 3.043 million (2.6%)

It’s been a pretty good four years in the U.S. We’re still not at full employment, as the 5.7% unemployment rate indicates, but we’re a whole lot better off than we were at the end of 2010, when the U.S. was struggling with a 9.3% rate.

This also brings further into focus how badly Wisconsin has lagged in growth in the Age of Fitzwalkerstan. With these huge upward revisions, the overall Scott Walker jobs gap now stands at more than 50,000 at the end of 2014, and nearly 59,000 in the private sector. This is even taking into account the large increase in jobs the state has reported over the last 6 months, which has cut around 10,000 of both of these gaps.





Of course, the state will also have its numbers be benchmarked in its next jobs report, which comes out in early March. Given that this is benchmarked to the QCEW, this would indicate that Wisconsin’s jobs numbers are unlikely to go up with these revisions, and if anything, may go down (as noted in this post).

So stay tuned, and see how much of this reality is discussed or ignored as our fair Gov’nor travails around the country trying to talk his “accomplishments” in Wisconsin. It’s quite obvious that the real success story is the strength of the U.S. economy dragging Wisconsin up, despite the austerity and income-shifting to the rich and corporate that has been a hallmark of the Scott Walker reign. Scotty won’t say this publically, but behind the scenes, you know he and his backers are saying “THANKS OBAMA” for keeping the state’s economy afloat through the November 2014 elections, which limited the damage and allowed him to fool just enough voters to slip by with 52% of the midterm vote, lifting off his current nationwide grifting campaign.

About that current-year Wisconsin deficit? It's still there

I was curious to see if Governor Walker’s budget had any comments or actions regarding the $283 million current-year budget deficit the Legislative Fiscal Bureau projected in their revenue estimates from a couple of weeks ago. This is particularly noteworthy because by law, there must be a budget repair bill if “the Secretary of the Department of Administration determines that previously authorized expenditures will exceed revenues in either year of the biennium by more than 0.5% of the estimated general fund appropriations for that fiscal year.” For the fiscal year ending June 30, that’s a little less than $80 million – which means the projected shortfall is more than $200 million more than that.

Well, the only reference to the 2014-15 budget situation is in Table 4 of the Governor’s Budget in Brief (thanks to poster GeoffT for pointing this out), and the general answer is that there is no formal bill that would take care of this deficit, but that somehow the Walker Administration will take care of it.

So how would this gap be closed? Part of the answer is that the Potawatomi will now pay the state $49 million as a thank you for rejecting the Kenosha casino their two-year payment to the state as part of their gambling compact. For the rest, compared the numbers in the LFB’s revenue estimates with the Budget in Brief, and got these differences.

Closing 2014-15 gap of $234 million
Other Departmental revenues: UP $1.8 million vs LFB
Gross Appropriations + Sum sufficient: DOWN $4.3 million
Compensation Reserves: DOWN $98.0 million
Lapses: INCREASE by $130.4 million
TOTAL: $234.5 made up, $300,000 in reserve.

The first two seem possible, although I'd like to see what went into the assumptions as to how they get to those numbers. But the big numbers are the Compensation Reserves and the Lapses. The Compensation Reserves are basically extra funds set aside on top of the amount appropriated to expenses, and this summary from the last budget describes why it’s added in.

Typically, amounts within the compensation reserves are funds to pay for such items as: (a) the employer share of increased premium costs in the forthcoming fiscal biennium for state employee health insurance; (b) the costs of any general wage adjustments or negotiated pay increases; (c) increases in the employer share of contributions to the state retirement fund for employees' future state retirement benefits; and (d) pension obligation bond payments for the state's unfunded prior service liability for retirement benefits and the accumulated sick leave conversion credit program.

In the first year of the biennium, only $57.9 million of the $78.75 million set aside in the Comp Reserves was used, (shown on Page 15 of this report) allowing nearly $21 million to lapse back into the General Fund(it’s worth noting that the 2015-17 budget only accounts for $29.5 million COMBINED in this Comp Reserve. Good luck with that).

What the Walker budget document anticipates is that only $35.0 million of a budgeted $133.0 million will be spent out of the Comp Reserves for this fiscal year. This seems overly hopeful, given that classified employees received a 1% pay increase at the start of Fiscal Year 2014-15, but perhaps the state is able to realize some savings from the employer (and employee) contributions to the state’s pension fund. That required contribution dropped to 6.8% from 7.0% of pay for 2015 largely as a result of the WRS pension fund’s strong returns in the stock market in recent years.

It is also possible that the increase in fringe benefits is lower, reflecting smaller increases in health care costs that have happened in the Age of Obamacare. Not that the Walker Administration would ever admit this, but it would be quite ironic to see Obamacare’s “bending of the cost curve” be a big reason why they would avoid the inconvenience of having to do a budget repair bill as Walker ramps up his presidential bid. A bid which has as one of its planks….defying and repealing Obamacare.

So this $98 million in Comp Reserves savings seems very ambitious, but if it is to happen, it’s only due to the Obama Recovery on Wall Street and the cost-containment that’s happened due to Obamacare. Hilarious!

The other area to look at is the lapses. The $130 million in additional lapses that is built into Walker’s budget plan for 2014-15 brings that total to $454.8 million for this fiscal year, or 2.87% of the Gross Appropriations. This would be well above the $345.2 million and 2.3% in lapses that we had in the last fiscal year. Outside of a memo by UW System President Ray Cross after word of the major UW cuts leaked out last week, I know of no other agencies that have been put on cost controls (although if I’m wrong, feel free let me know).

With that being the case, I’m wondering where all of these extra lapses might come from. My guess is that the Walker Administration is just hoping and praying and trying to avoid the issue. But I’m betting they won’t be able to do so much longer, as I am extremely skeptical that the revenue estimates that are out there will hold for the last five months of the fiscal year. Again, I’ll direct you to the LFB’s revenue estimate paper from two weeks ago, which counts on a major increase in income taxes starting in January 2015 and carrying through to the end of June.

…Over the remainder of 2014-15, it is anticipated that collections will increase by 15.1% due to several factors. First, refunds for tax year 2014 will be significantly reduced and final payments will be increased because of the decreased amount of withholding taxes paid since last April. Also, beginning in April, 2015, growth in withholding collections should improve significantly because the current-year receipts will no longer be compared to collections that were based on the previous, higher withholding tables. In addition, it is believed that federal tax increases enacted late in 2012 induced taxpayers to realize additional investment income in that year, which otherwise would have been realized in 2013. This is believed to have artificially suppressed collections last Spring, which should lead to a "bounce-back" this year. These positive impacts will be partially offset by the effects of state tax reductions, primarily the decrease in the bottom marginal tax rate enacted in 2013 Act 145 and the continued phase-in of the manufacturing and agriculture credit.

While I agree that the lower tax refunds are going to help the income tax numbers vs last year (but it’ll sure piss off a lot of unsuspecting Wisconsinites), the other parts I’m not so sure about. The “bounce-back” thing, and a 15.1% increase in overall revenues, which will blunt the corresponding drop that will happen due to rent-seekers on those tax credits? I’ll believe that result when I see it.

We should start to get an indication on the revenue figures in the near future, with January’s figures scheduled to be reported in 2 weeks, and the “tax season” months of February, March and April giving the definitive details. If those don’t reach the LFB’s lofty projections, look out below!

To summarize, some of the current-year budget adjustments that the Walker Administration says it will take care of seem to be in reach, particularly involving the Gross Appropriations, and perhaps even the Comp Reserve cuts (with a lot of help from President Obama’s accomplishments). But if the Walker Administration can’t lapse the $109 million extra it says it will, or if revenue figures continue to disappoint as they have in the first 18 months of this budget, then a budget repair bill will have to happen. And there will be very little time to correct the damage, leading to huge short-term cutbacks or budget tricks that have to be played.