$636 Million Worth of Change in the Sofa Cushions?

Thursday, May 19, 2011 at 3:48 AM by

A recent re-estimate by the Legislative Fiscal Bureau shows that we will likely have an additional 636 million poisonous snakes between now and the end of fiscal year 2013.

Actually, the Fiscal Bureau forecasted an additional $636 million in revenue over that period, above previous estimates. But based on the way many state policymakers reacted to the news, you could be forgiven for thinking that the re-estimate involved something truly distasteful.

Faced with the opportunity to roll back some of the most damaging cuts proposed in the Governor’s budget, many policy makers urged great caution. Exercising caution is fine, but a number of arguments made against using the additional revenue mischaracterize the increase:

Mischaracterization #1: In a May 16 editorial, the Wisconsin State Journal called the new revenue “found money” and likened it to a $20 bill stumbled upon on the sidewalk.

The additional $636 million is not “found money,” and the new revenue estimates are nothing like finding money on the sidewalk or even in the sofa cushions. Those analogies would be apt if the money was from a one-time source. But in this case the additional revenue represents an increase in the amount of income tax revenue the state is expected to collect. This is ongoing revenue – to the tune of about $200 million per year over three years.

Rather than likening it to money found on the sidewalk, a better analogy would be to getting a raise at work. While it’s true that the state’s revenue could go down in the future (just like your income could go down in the future), it’s a perfectly reasonable use of additional ongoing revenues to support ongoing costs. The key is simply to ensure that the ongoing spending commitments (or reduced spending cuts) don’t outpace the ongoing revenue stream, thereby creating a structural deficit.

Mischaracterization #2: Senator Alberta Darling, co-chair of the Joint Finance Committee, said “We’re not going to use the credit card and create new programs.”

Senator Darling is attacking a straw man in this statement, since no one is arguing that we should use the revenue to create new programs. What some are arguing is that that we should use the revenue to roll back some of the most detrimental cuts in the Governor’s budget, including cuts to public education health care, and the Earned Income Tax Credit.

And as far as her characterization of the additional revenue as similar to using a credit card – that gets added to the list of things the new revenue is not like: it’s not like finding money on the ground or in the sofa cushions, and it’s not like credit card spending. There’s nothing fiscally irresponsible about using the higher-than-expected revenue to reduce cuts, provided that the increased spending in the second year of the coming biennium (which will set the base for the 2013-15 biennium) does not surpass the $200 million per year increase in the base revenue level.

Mischaracterization #3: Governor Walker said the state’s priority for the money should be “to pay off our bills,” including the Minnesota tax reciprocity and the Patients Compensation Fund. He turned down the idea of using the revenue to mitigate cuts to schools, likening that approach to what he saw as Governor Doyle’s misguided use federal Recovery act money to plug the hole in state support for public K-12 schools.  There’s nothing wrong with using funding for those purposes — other than suggesting that the budget didn’t already at least partially address both debts, and suggesting that this is one-time money (see #1).

Wisconsin currently owes Minnesota $59 million (plus interest) because of Minnesota’s termination of the tax reciprocity agreement between the two states. (See our January 19 blog post.) The Governor says that the new revenue should be used to pay Minnesota its due, but that money is already accounted for in the budget. Don’t just take our word for it; look on page 185 of the Legislative Fiscal Bureau summary.

The budget also includes a proposal to borrow $50 million to start paying back the amount owed to the state’s medical malpractice fund. (As of yet, the court has not set a schedule for the state to replenish the fund.) Clay Barbour reports on this issue and the debt to Minnesota in the Wisconsin State Journal (“Walker Plans to pay state bills twice?”), citing a recent Legislative Fiscal Bureau memo prepared for Senator Mark Miller, which confirms that the budget already contains funds for a first installment for the medical malpractice fund, as well as the funding owed to Minnesota.

This $636 million doesn’t solve the budget deficit. But it could go a long ways towards helping restore some of the most damaging cuts that have been proposed, and it can be used in ways that won’t create a structural deficit in 2013-15. When Wisconsin finally shakes off the lingering effects of the recession, we need to make sure our communities will be poised to take advantage of new economic opportunities. We can’t do that by cutting to the bone, and the new revenue shows that we don’t need to.

Tamarine Cornelius

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