Senate Democrats Offer Alternative to Debt Refinancing

Tuesday, March 1, 2011 at 5:33 AM by

It’s becoming obvious that there won’t be a compromise on the budget repair bill this week in time to meet the deadline for using one of the easier budget-balancing options — Governor Walker’s proposal to refinance $165 million of bonding debt that comes due in the current fiscal year. The Governor has been arguing that without that maneuver he will soon have to begin laying off state workers and/or delay paying about $153 million in Medicaid debt until the next fiscal year.  Democrats have argued that those consequences could be avoided simply by reaching a compromise that strips the non-fiscal policy items from the bill.

Senator Miller proposed an alternative approach today, which doesn’t require the debt restructuring. Miller’s new plan, which is described in a short press release and a 2-page Legislative Fiscal Bureau memo, would contain almost all the fiscal changes in the Governor’s plan, with a few changes described below and without the non-fiscal policy measures.

Governor Walker’s Office issued a press release today giving Senate Democrats “24-hour notice” that “they have one day to return to work before the state loses out on the chance to refinance debt, saving taxpayers $165 million this fiscal year.”  As we’ve reported in previous blog posts, that’s essentially true, but the press release doesn’t mention that this year’s savings will increase the structural deficit by $207 million over the next decade – as the principal and $42 million in increased interest charges are gradually paid. Moreover, both sides have to bear some responsibility for not meeting this week’s deadline to authorize the debt restructuring, since the Governor has refused to consider any amendments to his bill.
                                                                                                  
According to Senator Miller’s press release today, the newly proposed compromise requires the Governor to complete the final $79 million in lapses that the last biennial budget bill directed agencies to make. The new proposal would also “utilize funds in the statutory balance and eliminate an accounting maneuver that increases state spending [for Medicaid] in this budget to help balance the upcoming 2011-13 budget.”

Miller’s proposal would spend $42.7 million less General Fund revenue for Medicaid in the current fiscal year, compared to the Assembly-passed bill.  However, that change merely takes the Medicaid spending level back to what the Governor proposed. The Joint Finance Committee (JFC) increased the amount by accelerating certain Medicaid payments that otherwise would be made in July. That JFC amendment would take advantage of the higher federal reimbursement rate for Medicaid, which is slated to run out on July 1. Failing to make those Medicaid payments in June instead of July will cost the state $7.2 million in reduced federal aid. On the other hand, restructuring the state debt would cost $29.6 million more in the next biennium, and $42 million in increased interest over a decade.

The new compromise would leave the state with an estimated balance at the end of the current fiscal year of $21.8 million, That falls short of the required $65 million statutory balance, and means the has state little margin for error, although there is plenty of precedent for temporarily lowering the minimum required balance.

Categories: 2011 budget repair bill, Blog, Medicaid | Comments Off on Senate Democrats Offer Alternative to Debt Refinancing

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