Closing the Budget Shortfall by Delaying a Debt Payment
We finally learned this week one of the major tactics being used to fill the large hole in this year’s state budget. The Governor plans to push part of the problem further into the future by delaying a $108 million debt payment that is coming due in May.
A Legislative Fiscal Bureau (LFB) memo released yesterday by Reps. Hintz and Taylor explains that there are two kinds of debt restructuring – one that has the effect of reducing the total amount of interest paid on an outstanding debt, and another type that extends the life of an existing debt and increases the total cost to state taxpayers. The planned delay in the $108 million payment is the second type. Although the LFB memo doesn’t show the full impact of the revised payment schedule, it indicates that the delay will increase debt service costs by $544,900 in 2015-16 and more than $18.7 million in 2016-17.
“Restructuring” or delaying debt payments isn’t anything new. The LFB memo lists the General Fund debt restructuring since 2001, and it shows that there was a total of $920 million of debts that were restructured in the 10 years before Governor Walker took office – primarily during the 2009-10 session when the state was grappling with the fiscal impact of the Great Recession. According to the LFB memo, the delay of the $108 million payment coming due in May will bring the total restructuring since the spring of 2011 to $643 million.
Some types of debt restructuring require legislative approval, but that is not the case in this instance. It can be accomplished by the Department of Administration without any action by the legislature.
Although pushing debts further into the future is worrisome and should be avoided, in some respects I’m relieved that the state has a way to avoid making deeper cuts over the next few months to get the budget back into balance. With so little time left in the current fiscal year, it is extremely difficult to close a substantial deficit, which was most recently projected to be $283 million. However, the state could have acted many months ago to scale back the tax cuts that got the state into this fiscal mess, after it became apparent that those tax cuts were premised on overly optimistic projections of revenue growth.
At a time when the national economy has been showing more robust signs of growth, Wisconsin shouldn’t be in its current fiscal predicament. I bring that up not because I want to play a blame game, but because lawmakers and their constituents should objectively assess what our state has done right and wrong and what we could do differently to avoid having budget deficits that compel policymakers to push debt payments into the future.
One of the clear lessons to take to heart is that lawmakers need to set aside a larger budget balance, which would prevent the state from going into the red every time there is a modest downturn in revenue or in the rate of revenue growth. The state has a statute on the books that is intended to accomplish just that, but once again the proposed budget pushes off that common sense solution by two years – delaying the requirement for a larger budget cushion until 2019.
Maybe I’m being naïve, but I think that if there’s one area of the budget where there should be bipartisan agreement, it would be to stop putting off the fiscally responsible policy of increasing the budget balance, which is currently much too small to provide a margin of error when revenue estimates prove to be off the mark.