Senate Democrats Offer Alternative to Debt Refinancing

It’s becoming obvious that there won’t be a compromise on the budget repair bill this week in time to meet the deadline for using one of the easier budget-balancing options -- Governor Walker's proposal to refinance $165 million of bonding debt that comes due in the current fiscal year. The Governor has been arguing that without that maneuver he will soon have to begin laying off state workers and/or delay paying about $153 million in Medicaid debt until the next fiscal year.  Democrats have argued that those consequences could be avoided simply by reaching a compromise that strips the non-fiscal policy items from the bill.

Senator Miller proposed an alternative approach today, which doesn’t require the debt restructuring. Miller’s new plan, which is described in a short press release and a 2-page Legislative Fiscal Bureau memo, would contain almost all the fiscal changes in the Governor’s plan, with a few changes described below and without the non-fiscal policy measures.

Most Favor Balanced Approach to Closing Budget Deficit, New Poll Shows

More than two-thirds of Wisconsin voters favor a mix of revenue increases and spending cuts to address the state’s budget deficit, according to a new poll by WisconsinReporter.com.

Perhaps the results of this poll will give the legislators food for thought as they deliberate on Governor Walker’s biennial budget proposal, due out tomorrow. According to the survey of 500 likely voters, 30% of respondents indicate the state should rely solely on spending cuts to close the state budget deficit. Another 67% favor a balanced approach that incorporates both spending cuts and tax increases. The remaining 3% prefer relying solely on tax increases or were not sure.

Deadline Looms for Debt Restructuring Option in Budget Repair Bill

Without a Deal Early This Week, Window Will Close for $165 Million Short-term Savings

As we reported in a previous blog post, one of the relatively easy ways to close the projected $137 million budget shortfall in the 2010-11 fiscal year is to restructure some state debt. That maneuver, which is part of Governor Walker’s recommendations in the “budget repair bill,” would increase interest payments on state debt by $42 million over the next decade, but would save the state $165 million in the current fiscal year. However, a Legislative Fiscal Bureau (LFB) memo has confirmed that the Legislature is rapidly running out of time to accomplish the debt restructuring.

The closing window of opportunity for the debt restructuring is one of the arguments being used by Republicans to pressure Senate Democrats to come back to the Capitol for a vote on the budget repair bill. Of course, that pressure cuts both ways, since the projected 2010-11 shortfall could be closed if Governor Walker would accept a proposed compromise that gives him all the items he asked for that address the current fiscal year, while deferring the rest until the debate on the 2011-13 biennial budget bill. (See our previous blog post for a summary of the non-fiscal items.) Thus far, the Governor has refused to compromise on any aspect of the bill.

Budget Adjustment Bill Imperils $47 Million in Federal Transit Aid

A provision in the budget adjustment bill that severely restricts collective bargaining rights for public employees could have the side effect of reducing federal aid available for public bus systems in Wisconsin.

In a nutshell, federal law requires bus systems receiving federal transit aid to maintain at least the collective bargaining rights that were in place when federal funds were first received. The state budget adjustment bill restricts the collective bargaining rights of nearly all public employees, including those at the municipal level. The Legislative Fiscal Bureau issued a memo at the request of Rep. Tamara Grigsby (D-Milwaukee), concluding that the total amount of federal aid at risk in 2011 is $46.6 million.

Debt Restructuring Could Bridge This Year’s Budget Gap, But Comes at a Cost

Among the items included in the budget adjustment bill is a provision to restructure $165 million in GPR debt. Restructuring this debt is a quick and relatively easy fix to get the state through the projected shortfall for this fiscal year, which Republican leaders have said is $137 million. Like many easy fixes, though, this action comes at a cost: the state will need to pay additional interest associated with repaying the debt over the next ten years.

The $165 million debt would otherwise be paid off in May, but the budget adjustment bill would roll the debt forward so that it would be paid over the next ten years (unless it was refinanced again in the future). According to the Legislative Fiscal Bureau, this action would increase the amount of debt payment the state needs to make in the 2011-13 biennium by $29.6 million. This amount includes $15.6 million in principal and $14.0 million in additional interest that would not be accrued if the state did not restructure the debt.

Non-Fiscal Proposals Are at the Heart of the Current Budget Stalemate

The point of the “budget repair” bill that has generated so much controversy in Wisconsin for the past week or so is to fill a projected deficit in the current fiscal year. Republicans generally put the shortfall at $137 million, and although that figure and the existence of a deficit are disputed by some, it’s a defensible number. On the other hand, the contentions that Wisconsin has a fiscal “crisis” are grossly exaggerated. This Wisconsin State Journal article by Dee Hall explains how various stakeholders are interpreting the state's budget numbers.

In light of the fact that a debt restructuring proposal included in the bill would save $165 million in the current fiscal year, it would appear that solving the immediate deficit challenge wouldn’t be very difficult, especially after public employee unions made a key concession – agreeing to the Governor’s demand that they contribute substantially more for their health care benefits and pensions.

Yet even though the solution to Wisconsin’s immediate deficit problem is within reach, the political stalemate continues, and at the root of that stalemate are numerous non-fiscal policy measures that were proposed by the Governor and approved by the Joint Finance Committee. This post contains a brief description of most of those measures, and links to additional information about them.

Everything You Wanted to Know About the Budget Process (But Were Afraid to Ask)

Governor Walker was originally scheduled to unveil his biennial budget tonight (2/22), but it has been delayed as the controversial "budget repair bill" remains stalled at this time.  He will, however, be addressing the people of Wisconsin tonight to discuss budget matters, though the actual introduction of his budget proposal is now slated for March 1. In any event, this is the perfect time to brush up on how the Wisconsin budget process works.

The Wisconsin Budget Project has developed two resources to help de-mystify the budget process.

1) If you like your descriptions of budget process set to music – and really, who doesn’t? – then you should check out our short video featuring Budget Bob. He provides an easy-to-understand account of the budget process, some of which is delivered in song. Now, if he can just think of something to rhyme with Joint Finance…

Recovery Act Keeps 4.5 Million People Out of Poverty

The federal Recovery Act kept 4.5 million people out of poverty, according to a recent Center on Budget and Policy Priorities (CBPP) analysis of Census Bureau figures.

Are public employees in WIsconsin overcompensated? Study released today says no.

An Economic Policy Institute study released today finds that full-time state and local employees in Wisconsin are undercompensated by 8.2%, when compared to the annual earnings and benefits of comparable private-sector workers. The study was conducted by Professor Jeffrey Keefe, a labor market researcher at Cornell University.

The release of the study was followed late Thursday by the preliminary release of some of the details of Governor Walker's fiscal year 2011 budget repair bill, which amounts to a wholesale assault on public employee benefits and collective bargaining rights of public sector workers.  (Curiously, the collective bargaining restrictions don't apply to law enforcement, fire employees and state troopers and inspectors.)  A story posted late this afternoon on the Journal Sentinel website fills in a portion of the changes that would affect public employees.

According to Professor Keefe’s findings, the public sector compensation disadvantage in Wisconsin is smaller but still significant when hours worked are factored in. Full-time public employees work fewer annual hours, particularly employees with bachelor’s, master’s, and professional degrees (because many are teachers or university professors).  As a result, when comparisons are made controlling for the difference in hours worked, full-time state and local government employees are undercompensated by 4.8%, compared with the hourly wages and benefits for similar private sector workers.

The comparisons made by the study control for education, experience, organizational size, gender, race, ethnicity, citizenship, and disability.

Jon

Look Up In the Sky -- It’s a Bird! It’s a Plane! It’s Federal Spending in Wisconsin!

For years, Wisconsin has ranked near the bottom among the states in per capita federal spending. That changed in fiscal year 2009, when federal spending in Wisconsin increased by more than 50 percent, and Wisconsin’s ranking skyrocketed to an astounding 21st place nationally. However, with Recovery Act dollars drying up, and with a new Governor who has shown reluctance to take advantage of federal dollars, it is possible that 2009 represents a short-term blip in the flow of federal dollars coming into our state.

This post touches on some of the highlights of recent federal spending trends in Wisconsin, but for a more complete treatment, check out the article in WCCF’s WisKids Journal.

DOA document puts 2011-13 deficit at $3.6 billion (on top of $137 million this year)

Walker Administration documents that were released on Monday provide updated figures on the General Fund deficit for the current fiscal year and the much larger budget hole for the 2011-13 biennium. The new deficit estimates -- $137 million and $3.6 billion, respectively -- are additive and they don’t include the $200 million (plus interest) that the state will have to pay back to the medical malpractice fund.

This blog post examines the evolution of the deficit figures and the magnitude of the state budget hole. In a future post we’ll look more closely at the irony of the way the Doyle Administration figures released in November were revised upward (partly because they assumed very large cuts and lapses), and we’ll consider whether that revision could be a step toward the long-overdue development of an agreed-upon way for measuring budget deficits.

Reading between the lines -- DHS Secretary's testimony supports conclusion that health care reform act is likely to save WI money

Catching up on some news from late last month, Wisconsin’s new Secretary of the Department of Health Services (DHS) testified at the January 26th  hearing of the House Budget Committee, which is now chaired by Rep. Paul Ryan (R. WI).  Smith, who served as the national Medicaid Director for nearly 8 years during the Bush administration, was one of four witnesses who testified about the fiscal impacts of the health care reform law (aka, the Affordable Care Act or ACA).

A Journal Sentinel article by Guy Boulton does a great job of examining the Secretary’s testimony and explaining that the ACA’s net effect on Medicaid spending in Wisconsin is likely to be quite positive. By my calculations, which are based on figures in the Secretary’s testimony and on a conversation with him, Wisconsin is likely to save well over $500 million from 2014 through 2019.

Read more in today's WCCF Blog post.

Jon Peacock

Legislature Continues to Work Towards Requiring a Supermajority to Raise Taxes

Senate Vote Scheduled for Tuesday

In the future, will a supermajority of the Legislature be required to raise tax rates? The current Legislature continues to take steps to move us closer to such a requirement.

When the Wisconsin Budget Project last posted on this issue, it was to report that the Governor had proposed a bill in the special session that would require a two-thirds majority of the Legislature to raise the rates for the sales, individual income, or corporate income taxes. The supermajority requirement would not apply if a statewide referendum approved the hike.

That supermajority bill has passed the Assembly and is scheduled to be voted on in the Senate on Tuesday. Meanwhile, a more restrictive proposed constitutional amendment has been introduced. Unlike the bill, the proposed amendment does not include a provision to bypass the supermajority requirement if a statewide referendum approves an increase in the tax rate. The amendment as introduced does not include a provision in an earlier version of the amendment that extended the supermajority requirement to increasing fees.

WCCF Blog Examines the Current Medicaid Deficit

In his State of the State address Tuesday night, Governor Walker reiterated that he will introduce a budget adjustment bill to close a deficit in the current fiscal year (2010-11). That budget hole results in part from a shortfall in funding for Medicaid and BadgerCare Plus. (We outlined other factors in Monday’s Budget Project Blog post.)

Last week when Walker first indicated he would propose a budget adjustment bill, he put the 2010-11 Medicaid deficit at $214 million. Fortunately, by Monday when the Legislative Fiscal Bureau released its report on the status of the state budget, the current Medicaid deficit had declined to $153 million. A WCCF blog posted Wednesday summarizes the factors affecting that deficit and contains several recommendations for slowing the growth in Medicaid spending.

Read more here.
Jon Peacock

The State of the State We’d Like to Hear

Governor Walker is slated to give his first State of the State address tonight at 7 PM. If it’s not too late for suggestions, the Wisconsin Budget Project would like to offer some possible talking points for Governor Walker to consider. Here’s what we would like to hear in his State of the State address:

• A declaration that a shift to responsible budgeting practices will be a top priority in the Walker Administration, starting with the upcoming 2011-13 budget negotiations. Governor Walker doesn’t even have to wait until he introduces his budget in February to get a start on better budgeting. Step one is to follow the old adage, “When you’re in a hole, stop digging.” Significant revenue cuts, such as the ones passed in the special session, contribute to the state’s budget deficit and increase the need for painful spending cuts that will have detrimental effects on our communities.
• A recognition that the state will need to employ a balanced approach in developing the upcoming budget. Spending cuts will be necessary, but an all-cuts budget will degrade the public structures and services Wisconsin needs in order to be poised to take advantage of new economic opportunities that will arise as the recession ends.  If taxes were the primary consideration for where businesses locate, all the major corporations would have their headquarters in Alabama or South Dakota.
• A pledge to keep fiscal policy out of the state constitution. Tying future lawmakers’ hands and reducing the range of choices available could result in cuts to critical services, harm Wisconsin’s long-term economy, and restrict innovation.
• A nod to the Packers for their remarkable season. If Governor Walker congratulates the Packers in his address, you can be sure he got the idea from the Wisconsin Budget Project.

 Tamarine Cornelius