Christian Schneider

Author, Columnist

Hooray for Deficits!

Lately, we\’ve been talking a lot about the possibility of recession and what that could mean for the state\’s finances.  An economic slowdown would harm Wisconsin far more than it would other states, since our state doesn\’t have any kind of meaningful budget reserve on which to draw.  And if you don\’t believe me, I have 18 pages to prove it.

Naturally, it\’s going to be hard to set money aside when the state is trying to plug the shortfall that is almost certain to come.  As the old saying goes, \”you don\’t fix your roof when it\’s raining.\”  It would be much easier to set money aside during the good times – but since the state has never really recovered from the deficits caused by the 2001 recession, there really haven\’t been any \”good times\” recently.

As it turns out, the Legislature has recently contemplated the need to set money aside.  State Representative Eugene Hahn, who has announced he\’s not running for another term, has introduced Assembly Bill 329, which would dedicate one percent of state expenditures to a budget stabilization fund.  Apparently, responsible budgeting is reserved for people who don\’t have to worry about running again – which may be a decent argument for term limits.

In the grand scheme of things, Hahn\’s bill is fairly modest.  As the WPRI report points out, nationwide rainy day funds had reached $62.1 billion, or 10.9% of expenditures, by 2006.  Hahn\’s bill merely appropriated 1% of expenditures to assist in future budget crises.  Given, Hahn\’s bill has no chance of being signed into law as separate legislation – any money set aside would almost have to be done as a larger budget package.  But it is instructive to smoke out members of the Legislature who refuse to think ahead and save money for future downturns.

In May of 2007, the Assembly Committee on Ways and Means held a hearing on Hahn\’s rainy day fund bill.  Naturally, Hahn showed up to testify in favor of the bill.  Curiously, the \”nonpartisan\” League of Women Voters showed up to oppose the bill.  In their testimony, they compare the bill to the now-defunct Taxpayer Bill of Rights (TABOR) and say they \”oppose it as the antithesis of the real need of the State to increase its revenues.\”  They said that the bill \”contrasts with purpose of the \’rainy day fund\’ which is to ensure revenues are available despite shortfalls in tax and other revenue collection which are due to swings in the economy.\”

(To see an actual copy of the League of Women Voters\’ testimony, click here.)

Trying to parse such incoherence is impossible.  Basically, they\’re saying that the state\’s biggest problem is that they don\’t collect enough in taxes.  Yet even if they achieved their \”high tax utopia,\” (we\’re already there, incidentally) there would still be substantial deficits in times of declining revenues.  In fact, the more the state relies on taxes, the bigger the crash will be when a recession hits.  It appears that rather than using money saved up, they would much rather increase taxes during an economic downturn, which would further punish people who are out of work or making less in salary.

(By the way, ladies,  aren\’t you glad the League of Women Voters speaks for you? Apparently, a requirement of being a \”woman\” in Wisconsin is to push for more income and more spending.  Something Wisconsin husbands figured out years ago.  Am I right guys?  Hello?  Is this thing on?) 

Despite the fact that their position will likely send the state careening into economic discord, it appears they were convincing to a number of members of the committee.  When the committee voted on the bill in July,  it passed by an 8-to-5 margin:  Republicans Kerman, Lothian, Hahn, Jeskewitz, Wood, Pridemore and Strachota were joined by Democrat Bob Ziegelbauer in favor.  Democrats Steinbrink, Fields, Hebl, Toles and Kessler all voted to protect Wisconsin\’s standing as the worst-budgeting state in the nation.

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In other news, the Legislative Fiscal Bureau today estimated a $300 to $400 million shortfall in the current biennium.  My paper assumed a $408 million shortfall this biennium, based on the length and depth of the 2001 recession.  So it appears my estimates may be pretty close.  (In fact, the LFB memo essentially says they\’ll get back to us in February – so my $408 estimate may be enough to get me to the Showcase Showdown.)

In Governor Doyle\’s State of the State speech last night, he bragged that the state had \”cut spending, cut taxes, and deposited $50 million in a rainy day fund.\”  Set aside, for a moment, the laughable notion that this past budget cut taxes and spending.

In fact, Doyle was required to deposit that $50 million in the budget stabilization fund by a little-known law passed in Governor McCallum\’s 2001 budget.  The provision, tucked away in the 2001-03 budget, required half the state\’s unanticipated revenue be placed in the rainy day fund.  Had that provision not existed, I think we all know what the chances are that Doyle would have set that money aside.

So thank you, Governor McCallum.  Your assistance in writing Jim Doyle\’s talking points is duly noted.

6 Comments

  1. In fact, Doyle was required to deposit that $50 million in the budget stabilization fund by a little-known law passed in Governor McCallum’s 2001 budget. The provision, tucked away in the 2001-03 budget, required half the state’s unanticipated revenue be placed in the rainy day fund. Had that provision not existed, I think we all know what the chances are that Doyle would have set that money aside.

    So thank you, Governor McCallum. Your assistance in writing Jim Doyle’s talking points is duly noted.

    Ah, come on. No mention of the $0 allocated for the rainy day fund in the Assembly budget proposed back in July? I memory serves me, that was the “zero tax increase” one.

    So much for the thinly-veiled link you try to make between lower taxes and fiscal responsibility.

    And, just for the record, the Senate budget — with all its tax increase insanity — had $130 million for the rainy day fund.

  2. Keep up pointing out the agenda of the league of women voters. It bothers me greatly that they sell themselves as non partisan and just a group that educates voters. They take liberal, big government, high tax solutions to problems. They are quite liberal. They have an agenda which is ok. The problem I have with them is the pretense that they are non partisan. Perhaps they are but they are very liberal. To the league I say just be honest about who you are and what you after.

  3. Seth,

    Your claim that the most recent budget put $130 million in the “rainy day fund” isn’t entirely accurate. The final budget left a minimum statutory balance of $65 million for two years – which is different than actually appropriating money to the “rainy day (budget stabilization) fund.” There are different ways of drawing on those two different pots of money.

    And if you’re arguing that $65 million a year is something to cheer about, keep in mind that it represents about a half a percent of expenditures. Basically, the state is running on fumes. We’re bottom in the nation in terms of operating margin. And taxpayers will feel the brunt of it very soon.

    At no point have I made this a partisan issue – it’s clear that both Republicans and Democrats haven’t even paid lip service to this in the past. It just looks now that it’s a little too late.

  4. I didn’t say the “the most recent budget put $130 million in the ‘rainy day fund’,” I said the Senate budget did. The total balance for the Senate budget at the end of the biennium was $180 million, while the total balance for the “zero tax increase” Assembly budget was $9 million. Subtract the required statutory balance of $130 million from the Senate budget and you still have $50 million left; do the same from the GOP budget and, well, what you have left isn’t too fiscally responsible. You can find the details here.

    And giving credit to the previous Republican governor for the existence of any rainy day funds in the current budget — and in the process ignoring that legislative Dems had more than enough in their budget for the required rainy day funds while legislative GOPers proposed none at all — isn’t making this a partisan issue?

  5. I should add, for those interested in keeping track, the current budget ends with a total balance of $67 million, which is about $113 million less than the Senate budget and $59 million more than the Assembly budget.

    Meanwhile, the governor’s initial budget proposal was for a $132 million total balance, which is about $50 million below the Senate, $65 million above the actual, and $120 million above the Assembly.

  6. Not sure what happened to my other comment that I put up earlier today, but here it is again.

    I didn’t claim “the most recent budget put $130 million in the ‘rainy day fund’,” I said the Senate budget did. The Senate budget ended the biennium with a $180 million balance, $113 million more than the actual budget; $130 million of the $180 million was dedicated to the required statutory balance, twice as much as the actual budget, leaving $50 million in an additional balance. The same is true of Doyle’s initial budget proposal, which had a total balance of $132 million, $130 million of which was for the required statutory balance, putting it $65 million over the actual budget. This very much puts in doubt your — quite partisan — suggestion that Doyle wouldn’t have had any balance without the work of McCallum in the 01-03 budget.

    The Assembly budget, on the other hand, offered $0 toward the required statutory balance — opting instead to suspend that requirement for the biennium to help meet its “zero tax increase” pledge — and finishing with a paltry total balance of $9 million.

    The condition statements for the Senate and Assembly budget are here, and the condition statement for Doyle’s initial budget is here.

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