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.
A Feb. 11 sumamry of the budget repair bill by the Department of Administration (DOA) stated that the Legislature needed to authorize the debt restructuring by February 25. However, there was some skepticism about the validity of that deadline. The credibility of the department’s assessment wasn’t helped by the fact that the same DOA document said that the debt restructuring was being done to pay for two expenses that actually aren’t part of the budget repair bill: repaying money that is owed to Minnesota after our neighbor unilaterally terminated the tax reciprocity agreement between the two states, and repaying the $200 million (plus interest) that the Wisconsin Supreme Court said was unlawfully transferred from the medical malpractice fund.
A February 22 LFB memo describes the requirements for issuing a new bond to restructure the current debt:
“In order to carry out a bond issue, Capital Finance staff with the Department of Administration compiles the official statement for the bond issue, obtains a bond counsel opinion on the bonds, obtains a bond rating from rating agencies, takes bids, and carries out other duties related to the sale. These actions typically take staff two to three weeks to complete, but have been completed within two weeks. If less time is allowed, there is a risk that the transaction cannot be completed.” (emphasis added)
The LFB memo explains that the proceeds from the new bond need to be in hand by March 16. Thus, in light of the two to three-week timeline, proponents of the debt restructuring would hope that Capital Finance staff in DOA would be able to begin working on the new bond issue on Monday morning, February 28. However, it might still be possible to accomplish the debt restructuring if the Legislature passed a bill on Tuesday or Wednesday.
Without using the debt restructuring to move a $165 million debt payment out of the current fiscal year, the task of avoiding a $137 million deficit in the current fiscal year becomes more difficult. Even if the Republicans can get one or more Senate Democrats to come back to the Capitol to provide a quorum, the Governor’s bill will no longer resolve the projected deficit. That means the Governor and Senate GOP leaders are going to have to decide whether to reopen the stalled bill for amendment or whether to achieve the needed savings (or deferred payments) through unilateral actions of the executive branch (or some combination of those two options).
In the meantime, if Governor Walker would budge from his rigid position, there are still a couple of days left to pass a compromise that would give the Governor everything he proposed that affects the current fiscal year, if he and the Democrats simply agreed to fight over the rest in the biennial budget process.