Delay in Revenue Transfer Makes State Budget Balance Appear Larger
A close look at Wisconsin’s annual fiscal report released last week reveals that state officials delayed a $25.75* million transfer, which made the budget balance larger than it otherwise would have been at the end of fiscal year 2013-14. However, that’s a cosmetic and deceptive improvement in the budget balance, since the payment will still be made during the current biennium. And because the Department of Administration (DOA) report buries mention of the delay in a footnote, that document presents a somewhat misleading picture of the difficulty of avoiding a budget shortfall in the current fiscal year. [*That figure is a correction to the original post, in which I incorrectly wrote that the delayed amount was $27.5 million.]
According to the DOA’s fiscal report released on Oct. 15, the General Fund balance at the end of the last fiscal year was about $517 million, which was $207.5 million lower than what state lawmakers were anticipating when they passed a tax cut bill early this year. But when one accounts for a delayed transfer of $25.75 million from the General Fund to the Transportation Fund, the drop-off in the state’s fiscal health is $233 million.
Thanks to the latest round of tax cuts, net appropriations for the current fiscal year exceed the budgeted revenue level by $569 million, and lawmakers had expected that difference to reduce the net balance to only $100 million at the end of the biennium. But that was before tax collections fell $281 million short of projections in FY 2014 and before the balance at the end of that fiscal year fell by $233 million. Those developments mean that the budget could be well in the red in the second half of this biennium, necessitating a budget repair bill early next year – if spending isn’t substantially below the appropriated level and revenue doesn’t surge. (See this Sept. 3 LFB paper about the potential for needing a budget adjustment bill.)
The hopes for avoiding a budget repair bill would have been buoyed if the spending numbers for 2013-14 had been far below the budgeted level, and some lawmakers contend that’s what the annual fiscal report suggests. At first blush, that report appears to indicate that net spending – including lapses and transfers – was $68 million less than budgeted in 2013-14; however, after accounting for the delayed transfer, the net drop in spending is $42.6 million. That’s a start, but it doesn’t make much of a dent in the potential revenue shortfall, especially since most of the reduction in spending comes from short-term lapses.
When I first reviewed the DOA document, I missed the footnote about the delayed transfer, and I later read about it in a blog post on Jake’s Economic TA Funhouse. Jake’s blog post goes on to make the case that the newest numbers suggest that the shortfall in the current biennium could exceed $400 million. (Of course, estimates of the shortfall will change as new revenue projections become available.)
The timing of the transfer to the Transportation Fund makes no substantive difference in the state’s fiscal health, but understanding how that timing compares to the previously assumed timetable does make a significant difference in accurately gauging how actual spending and reserves compared to the budgeted levels.
Failing to clearly reveal the delay in the annual fiscal report makes the state’s fiscal picture appear to be stronger than it really is. That omission obscures the transparency of an important fiscal document.