Yes, Virginia, There is Occasionally Positive Budget News

Monday, May 14, 2012 at 9:08 PM by

Wisconsin got some very good fiscal news last week. In a May 10th memo to the Governor, Department of Administration (DOA) Secretary Mike Huebsch said that the Department of Revenue (DOR) now estimates that state tax revenue will be $265 million higher in the current biennium than the February estimate by the Legislative Fiscal Bureau (LFB).

Even with the increase, total revenue will be $65.5 million below the amount assumed in the 2011-13 biennial budget bill. Nevertheless, the increase in projected tax revenue and a decrease in projected spending mean that the state is now expected to finish the biennium with a balance of about $154.5 million (which is $89.5 million above the required cushion of $65 million, known as the required “statutory balance”). Those figures assume that the state proceeds with plans to lapse $51 million from agency budgets to the General Fund in the second year of the biennium.

In a departure from the typical practice, the new figures were released by DOA prior to the development of a consensus revenue estimate with the LFB. With the recall election looming, I suspect that the Walker Administration wanted to release the positive fiscal news as quickly as possible, so it bypassed the normal timetable and the usual process of coming to an agreement with the LFB on the new revenue estimates. That decision has caused some of the Governor’s critics to question the objectivity and accuracy of the new estimates.

Although those questions are understandable, and I’m disappointed that the Walker Administration is departing from the nonpartisan revenue estimating process that has been the norm, the DOR projection for the current fiscal year seems reasonable. The 2011-12 estimate amounts to a 3.7 percent increase over the previous fiscal year. Considering that tax collections for the first 10 months of the fiscal year have been 4.2 percent above the tax revenue in the same portion of the previous year, the 3.7 percent increase for the full year sounds plausible. 

My biggest disappointment with the current process is that the Department of Revenue hasn’t issued a Quarterly Economic report since last fall. Those reports lay out the assumptions that underlie the revenue estimates, and the long delay between “quarterly” reports leaves us in the dark about those assumptions.

If tax collections do grow by 3.7 percent during the current fiscal year, the DOA will be required to transfer a portion of the increase, about $45 million, into the state’s “rainy day” fund. Even after subtracting that amount, the state is now projected to finish the biennium with a General Fund balance $80 million higher than was assumed when the biennial budget bill was enacted almost a year ago. Part of the improvement stems from lower spending, including $78 million more “savings” from debt restructuring than was estimated by the LFB in February.  (Unfortunately, the debt restructuring changes will cost the state more over the long haul.) 

We are pleased that the state will be able to set aside some revenue for the rainy day fund. We are also pleased that the improved revenue estimates not only eliminate the projected deficit, but provide the state with a great opportunity to reverse some of the damaging decisions in the budget bill, including the harmful cuts to BadgerCare and the increase in taxes for low-income households.

Jon Peacock

2 Responses to “Yes, Virginia, There is Occasionally Positive Budget News”

  1. Anonymous says:

    I thought I read somewhere these good numbers were partly due to delaying payments into the future in some areas which would actually cost more due to interest on the payments. Could you clarify this for me?

  2. Jon Peacock says:

    Thanks for raising that issue; it’s a very important point, and I should have noted it in the original post. The DOA memo to the Governor says that debt restructuring yields a $78 million reduction in debt service costs in the current biennium, compared to the assumptions made by the Legislative Fiscal Bureau in February. However, that “savings” in the current biennium results primarily from doing even more restructuring than originally planned and changing the terms of the new bonds in a way that pushes more of the costs out of this fiscal year and into future years. Looked at from a long-term perspective, the $78 million in short-term savings is actually a loss to the state, as well as increase in the structural deficit.