A Groundhog Day Resolution for Better Budgeting

Monday, February 2, 2015 at 7:54 PM by

Lawmakers Should Stop Delaying Requirement for an Increased Budget Reserve

Groundhog Day always makes me think of the Bill Murray movie, and the movie sometimes makes me think of the Wisconsin budget process.  This year as I contemplate Murray’s almost endless entrapment in a Punxsutawney PA time loop, I can’t help wondering whether Wisconsin lawmakers are doomed to keep making the same fiscal policy mistakes, such as failing to set aside adequate reserves that could keep the state from having a deficit every time tax revenue falls short of the unanticipated level.  We may get at least a partial answer to that question when the Governor introduces his budget Tuesday. 

The $283 million deficit that the state must close over the next five months (in addition to the $2 billion structural deficit in the next biennium) once again makes the case that state policymakers need to budget more cautiously. A great place to start is to stop postponing a state statute that requires lawmakers to set aside a reserve or budget cushion equivalent to at least 2% of spending at the end of each fiscal year.  

The statute in question is now scheduled to take effect in fiscal year 2017-18, and at that time will require a budget balance of more than $300 million (compared to just $65 million now).  If that requirement hadn’t been delayed by each of the last several budget bills, the state would be able to finish the current fiscal year in the black without making substantial cuts or by using budget gimmicks to temporarily mask the red ink.  

We will learn Tuesday evening whether Governor Walker will again propose postponing the statutory requirement for a more reasonable budget cushion.  Although it might seem that the obvious thing to do right now is to preserve the current effective date for the increased reserve funds, or even speed up that requirement, don’t be surprised if the Governor pushes it two years further into the future. 

The reasons for the repeated days are never explained, but I think they are self-evident — as well as short-sighted.  First, when the state budget is tight, as it almost always is, Governors don’t want to have to set aside a couple hundred million dollars in the budget at hand to simply build up reserves – which would win them far less political goodwill than using the same amount of money for tax cuts or spending.  Second, even though you wouldn’t think that same sort of logic would apply to a requirement that doesn’t take effect until the following biennium (in this case 2017-19), the problem is that the increased reserve requirement is essentially a future cost, and that cost will get factored into the calculation of the next structural deficit.  

In other words, although this may seem paradoxical, the one metric our state uses regarding how fiscally responsible a budget bill is – i.e., the Fiscal Bureau’s calculation of the structural deficit in the following biennium – has become a perverse incentive to delay the fiscally responsible requirement to increase reserves.  This year, for example, if the Governor does the right thing and doesn’t delay the current effective date of the increased reserve, the structural deficit in 2017-19 will be about $250 million larger than if the budget bill once again postpones the requirement by two years.    

Perhaps this year will be when lawmakers in both parties can agree that it’s time to stop postponing the statute that would contribute to more fiscally responsible budget balances and could get Wisconsin out of a Groundhog Day purgatory of budget deficits.  

Read more about the need to increase the state’s budget reserves in this two-page issue brief written by my colleague Tamarine Cornelius in May 2013.  We will follow this issue closely over the next several months.

Jon Peacock

Categories: 2013-15 biennial budget, Blog, rainy day fund, STATE BUDGET | Comments Off on A Groundhog Day Resolution for Better Budgeting

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