Christian Schneider

Author, Columnist

Month: February 2008 (page 1 of 3)

My Condolences, My Card

From Overlawyered:

\”The mother of a teen killed by a drunken driver was standing at his casket during his wake when lawyers Robert D\’Amico and Jimmy Burchfield sidled up next to her and offered their services.

Kathleen Gemma filed a complaint with the Supreme Court\’s attorney disciplinary board, saying the two should have left her alone while she was saying her last goodbyes to her son Anthony Gemma. Gemma said one of the lawyers talked about his billboard.\”

Ironically, the website for their law firm contains this slogan:

We\’ll Take Care of You Like Family Would

(Providence WPRI, February 26)

Wisconsin Goes Hollywood

So it\’s official: Johnny Depp, Christian Bale, and that Frenchie that won Best Actress will be coming to Wisconsin to film the movie \”Public Enemies.\” This shouldn\’t be all that important, but it does seem pretty cool – especially since I have an inexplicable man-crush on Christian Bale.

Anyway, let\’s hope this is a sign of things to come for big-time movies in Wisconsin. In fact, this afternoon, there\’s another big Wisconsin project that has been announced:

Finding Nemo 2: Nemo Closes Wolski\’s

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The Race to the Vice Presidency

As we get closer to the general election, a lot of names are being thrown around as John McCain\’s possible running mate. This includes Wisconsin\’s own dreamy Paul Ryan, who was named as a contender by columnist Bob Novak on \”Meet the Press.\”

Conventional wisdom says that McCain has to pick someone strong on the economy, young, and from the Midwest – which is where he needs to shore up his support. This is why Ryan is such an attractive choice.

Another possibility is Minnesota Governor Tim Pawlenty, a young Republican in a blue state. But after seeing him on the Sunday morning shows last weekend, it occurred to me that I can\’t possibly support the candidacy of anyone with a mullet like this:

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I mean, I realize it\’s Minnesota and all, but are we picking a Vice President of the United States or the Grand Marshall at the State Fair? It appears in this picture that Pawlenty is doing his famous \”You might be a Vice Presidential candidate if…\” comedy routine.

Another favorite seems to Florida Governor Charlie Crist, who endorsed McCain during the Florida campaign. I was reading up on Crist in the Almanac of American Politics, and came across this crazy passage, related to his initial run for governor in 2006:

Below the surface of the campaign, and perhaps driving its themes, were persistent rumors that Crist is gay. A bachelor, Crist was divorced in the early 1980s after a seven-month marriage. At several public events, Crist was asked if he was gay and denied it; the issue did not get much attention in the newspapers, despite determined public efforts by the Reform Party candidate. […] The sleazy disclosures didn’t stop there. Shortly before the September primary, Crist had to confront an 18-year-old paternity claim after sealed records were anonymously faxed and emailed to various reporters; Crist had denied the claim at the time and had relinquished any parental rights to the child, who was put up for adoption. Thus the 2006 Republican primary election will go down in the annals of dirty politics: here a candidate was attacked both for being gay and for fathering a child out of wedlock.

Ah, yes… Florida. Where a candidate can be \”attacked\” for being gay. Perhaps they objected to his plans to raise revenue through a statewide Oscar pool.

Given that this presidential election is all about racial, gender, and ethnic classifications, McCain should take these factors into account when picking a VP – especially if he\’s looking to win Wisconsin. The message from this campaign is that people are much more likely to vote for a candidate with their own ethnic background. Fair enough.

The Almanac mentions that Wisconsin is of 29.9% German ancestry, with the next highest being Polish at 6.5%. As a result, I fully expect this ticket come November:

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Supreme Disinformation

I hate to beat a dead horse (see previous post), but come on, Wisconsin State Journal.

Here\’s yesterday\’s headline with regard to the State Supreme Court race:

Gableman Won\’t Retract Letters

The dust-up is about a letter sent by Judge Mike Gableman that references a vote cast by Justice Louis Butler to free a convicted sex offender. Butler claims the charge is unfair, since the individual was never freed. Gableman counters that the fact the offender was never released had nothing to do with Butler\’s vote – in fact, the sex offender was retained in spite of Butler\’s vote, not because of it.

Either way, it\’s pretty clear what the State Journal thinks about the dispute. Naturally, it\’s incumbent on Gableman to \”retract\” the letters, since the paper likely thinks they\’re so unfair. The presumption of wrongdoing is always with the conservative candidate, who then must \”retract\” whatever point they were trying to make. The headline could have easily been written thusly:

\”Butler Defends Vote to Release Sex Offender\”

Fat chance of that. Anyway, lest this become just another conservative sour-grapes screed about the \”liberal media,\” (too late, I know), there is a broader point to all this.

The State Journal has been breathlessly editorializing about how Wisconsin should do away with elected judges, and go to a \”merit based\” system, with judges being picked by some \”impartial\” board. (Perhaps as \”impartial\” as the State Bar.) They believe that the political process is clearly much too crude to pick \”qualified\” judges, despite not being able to offer a single example of how any sitting justice isn\’t \”qualified.\” Say what you will about the jurisprudence of Louis Butler and Annette Ziegler, but they are both most certainly qualified to be on the high court.

The irony here is, when given a chance to actually cover a Supreme Court race, the State Journal does nothing but cover the most political of issues in the campaign. In a sense, they are themselves contributing to the disinformation that they so fervently decry. We can\’t elect judges because they get such bad information during a campaign, but they get such bad information during a campaign because that\’s all they\’re willing to cover.

Where are the stories analyzing Mike Gableman\’s philosophy as a judge? Where are the stories analyzing Louis Butler\’s reasoning in lead paint lawsuits? It\’s not like there\’s not an extensive paper trail on both these guys that might serve as a blueprint for their future jurisprudence. Instead, it\’s easier to sit back and wait for their press releases to hit your inbox.

In a sense, the State Journal is right – the public does get slanted, ill-informed facts during a judicial campaign. Only it\’s not the candidates and interest groups that are spreading the misinformation.

Finally, A Politician with the Guts to be for Hope

Here’s what we know about Barack Obama: He wants change, and he wants hope. The only question seems to be in what order.

Both of these promises are somewhat perplexing. How is being for “change” really a serious position in a presidential campaign? News reports actually refer to some voters as “change” voters – as in, “Barack Obama is winning the ‘change’ voters two to one over Hillary Clinton.” One would think merely voting for a new Commander in Chief qualifies one as a “change” voter. There’s probably one guy sitting at home in Nebraska that goes to the polls hoping his vote will keep things exactly the way they are. So when they say Obama is winning the “change” voters, they’re basically saying he’s leading among voters who don’t go into the booth and accidentally vote for George W. Bush.

After all, who can forget the famous “status quo” marches on the White House in the 1960s?:

“WHAT DO WE WANT?!”

“PRETTY MUCH WHAT WE’VE ALWAYS HAD!”

“WHEN DO WE WANT IT?”

“NOW!!!!”

The “hope” talking point is even stranger. “Hope,” by definition, is a desire for something that hasn’t happened yet. So promising people “hope” isn’t promising them any substantive action – it’s merely promising them the expectation that something will. I currently harbor a hope that Charlize Theron will come to my house and play Guitar Hero with me. If two years from now, I’m still hoping for that to happen, I will still be hopelessly disappointed. Promising someone “hope” is like promising them hunger – you won’t get to eat, but boy, you’ll enjoy your time thinking about those nachos bellgrande.

Of course, nobody wants to be on the wrong side of either the “hope” or “change” issues. By making these themes the lynchpins of his campaign, Obama has all but accused Hillary Clinton and John McCain of accepting contributions from big money, “anti-hope” organizations. During the general election, we’ll probably see heavy independent expenditures for John McCain by Citizens for a Hopeless America.

(Side note: can you think of any more depressing job than being a fundraiser for “Citizens for a Hopeless America?” Why even make any fundraising calls – there’s probably no hope of anyone contributing, right?)

Recently, Obama has tried to move past the accusations that he lacks substance.* This includes attacking Hillary Clinton for not sufficiently wanting to destroy the health care industry in the United States. The two candidates are taking turns ripping each other on health care, accusing each other of lacking the guts to implement a full government takeover of doctors and hospitals. Hillary Clinton’s plan calls for a mandate requiring individuals to purchase insurance, while Obama’s plan involves larger subsidies for making health care more affordable.

Since there’s little chance of either of these plans ever making it through Congress, it seems reasonable to wonder why the two candidates even limit their plans in any way. You have a better chance of seeing a unicorn drinking a Slurpee than either plans have of becoming law – so what really limits the promises they can make? This is akin to daydreaming about Katherine Heigl wearing a Hazmat suit. Once the orgy of big government promises is on the table, there’s no sense in not going all the way. Both candidates should promise each American free health care, no reduction in service, lower gas prices, and a Cinnabon.

I think that would be change we call all believe in.

* – Or, he’s “all mustache and no flowered shirt,” as fans of Magnum P.I. often say.

-February 25, 2008

I\’m Married to Lynndie England

This cold weather has been tough on all of us. But I just realized how hard the cold has been for those who don\’t have a voice. The ones who cry in silence. Namely, the plants in my house.

My wife was going around watering the plants on Saturday. They\’re all wilted and pathetic looking. I told her how cruel it was of her to just barely keep them alive throughout the winter. Basically, it\’s akin to waterboarding them. My house is now officially the Abu Ghraib of spider plants:

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The Best Headline Money Can Buy

It wasn\’t until Saturday that I realized there was a newspaper sitting in my driveway. This concerned me, since I do not subscribe to a newspaper. It turned out that it was Friday\’s Wisconsin State Journal.

This has happened before – a paper just shows up in my driveway, unsolicited. I asked my wife how that is any different than littering. If I didn\’t ask for it, how can paper companies just show up and throw stuff at my house? Maybe I should show up at the State Journal offices and dump off an old couch I\’ve been trying to get rid of. My wife said it\’s not any different than getting junk mail, but I objected to that comparison. For one, the postman doesn\’t show up and throw your junk mail all over your front yard.

Anyway.

As I opened this interloping newspaper, I noticed a big headline on the front page:

\”Gableman\’s Appointment Questioned\”

Wow, that must be pretty big news with a headline that prominent. I wonder what neutral, independent, well-respected third party is questioning Judge Mike Gableman\’s appointment to the Burnett County Circuit Court?

In fairness, the article does point out that it is the \”left-leaning\” Greater Wisconsin Committee that has made this accusation. (To say the GWC \”leans\” liberal is like saying Richard Nixon \”leans\” dead.)

But the damage is done with the headline alone. The chances of this headline ending up in a television ad down the road now stands at 95 percent. The only thing that would prevent this headline from showing up on your TV screen at home would be if a picture surfaced of Gableman dressed in traditional Somali garb.

This is one of the reasons nobody should really be all that choked up about the Capital Times newspaper ostensibly going under. The only purpose that paper served was as a headline factory for left-wing campaigns. Of course, nobody in Milwaukee or Amery or Wausau knows what the Capital Times is, so when a clipping of one of their headlines showed up in a TV ad, people statewide falsely assumed it had a modicum of credibility. Wisconsinites may recall Governor Jim Doyle\’s bogus ad accusing Mark Green of \”corruption.\” One of the headlines featured was one from the Capital Times that read \”Mark Green\’s Lawlessness.\”

The true irony of the article lies with the Wisconsin State Journal\’s breathless cheerleading for campaign finance reform. In editorial after editorial, the State Journal urges limits on what outside groups can spend on campaigns. Yet, the only thing that really makes this story newsworthy is the amount of money the GWC is spending on spreading it around. Thus, by reporting this story, the State Journal is carrying water for an evil third party, who it believes shouldn\’t otherwise be able to speak during a campaign. If the Wisconsin Restaurant Workers Association were to issue a statement that accused Justice Louis Butler of being a bad tipper, it probably wouldn\’t be covered. However, if they spent $200,000 on an ad buy saying the same thing, it may sneak its way into the paper. (It would also mean that we\’re all probably tipping too much.) And thus, the cycle is complete.

So congratulations to the Greater Wisconsin Committee on this big victory. You paid a lot of money for that headline, make sure you enjoy it.

The Next Bogeyman (or is it Boogeyman) Of The Left?

An evil corporate industry jacks its prices up – in some cases to four times their previous levels – to take advtange of a natural disaster/stretch of unforseen severe weather/attack on America and soak the people of Wisconsin.

Behold, the next enemy of the left…BIG SALT!!

Surely by Monday morning, Jim Doyle and Russ Decker will finally find something they can agree on and form a special committee to immediately investiagte price \”gouging\” by the evil purveyors of America\’s most popular food seasoning.

Or maybe, just maybe, they will take a deep breath and dispaly a rudimentary understanding of the basic laws of supply and demand that every kid is taught (or at least used to be taught) in their high school economics class.

What? Stop laughing! It could happen. Maybe when hell freezes over, which given the surrent state of weather in Madison could happen some time next week.

**UPDATE** The morphing of BIG SALT into liberal menace #1 continues. Today, they are ruining the environment. How long before they\’re blaming salt for so-called golobal warming?

Wisconsin’s “Subprime” Budget Planning

The recession of 2001 exposed a dark secret in the way Wisconsin plans for economic downturns. It doesn’t. Wisconsin is near the bottom in the nation in setting aside money for fiscal emergencies, which makes budgeting during a recession a fiscal high-wire act.

Nearly every state in the U.S. sets aside a portion of their budget in a “rainy day” fund, or mandates a minimum balance to protect themselves from economic downturns. Wisconsin is near the bottom in the nation in both.

As demonstrated in this report, even a mild recession, as was seen in 2001, would cause a budget imbalance of up to $1.4 billion  in the Wisconsin’s current biennial budget. Furthermore, the lack of state planning for such a downturn serves as a recipe for more damaging tax increases and detrimental fiscal maneuvers. It appears that despite the pain caused by the last recession, Wisconsin state government has learned nothing. Wisconsin’s budget planning is clearly far from ideal; to use a term which has recently become familiar, it can be fairly characterized as “subprime.”

The possibility of recession

In early 2008, the American economy presents a mixed picture. On November 19, 2007, the National Association for Business Economics (NBER) released results of a survey showing roughly one in five of its economists figured the risk of a recession was more than 50%.[i]

In a speech before Congress in November 2007, Chairman of the Federal Reserve System Ben Bernanke warned of a slowing economy while announcing a quarter-point reduction in the federal discount rate. Bernanke noted that while economic growth in the third quarter of 2007 had been a strong 3.9%, indications were that such strong growth could not be maintained over the remainder of the year.[ii]  Bernanke warned that because of the reduced availability of credit, the contraction in housing-related activity would continue to intensify. If the housing market completely bottoms out, it could mean a significant negative effect on other sectors of the economy.

Some experts go even further in their negative reviews of the economy. In September 2007, University of Wisconsin-Madison economist Donald Nichols said he believed a recession was likely. Nichols based his prediction on the “popping of the risk and housing bubbles” caused by the collapse of the market for subprime mortgages.[iii]

Professor Nichols believes that the spillover effect from this housing crisis may have already begun, and could drive the economy into negative growth. He cites slumping auto and retail sales, as well as a survey that indicates willingness by business leaders to postpone large investment and curtail hiring.

Nouriel Roubini, a professor of economics at New York University, not only believes the American economy is headed toward a recession, but that the impending recession will be worse than the downturn in 2001. Roubini points out that 30% of the employment growth in the past three years was housing industry-related, and a significant downturn in home construction and sales could cause widespread damage throughout the economy.[iv]

While nobody knows precisely what direction the economy will take, it is prudent for governments to plan ahead for economic downturns. This is something state governments across the U.S. have figured out—yet Wisconsin still lags well behind most states in recession-readiness.

The recession of 2001

In order to understand what might await state government finances in the event of a recession, it is instructive to review the most recent downturn in 2001.

According to NBER, the U.S. economy went into recession in November or December of 2000.[v] This recession was the tenth such recession since World War II and followed a record ten straight years of economic growth. According to NBER, the previous record for uninterrupted economic growth was set in the 1960s, a period of eight years and 10 months lasting from February 1961 to December 1969.

The late 1990s delivered unprecedented economic growth and consumer confidence. The rise in internet-related stocks boosted Wall Street and the economy. Investors in the dot-com boom were making money and spending lavishly. As a result, state treasuries saw large increases in sales and income tax revenues.

In the 1990s, personal income of the average Wisconsinite grew by 57%,[vi] while inflation only grew by 32%.[vii] As a result, state revenues grew from $5.6 billion in 1990 to $10.9 billion in 2000, an increase of 94%.

Yale economist Robert Shiller believes that in many ways, the dot-com boom foreshadowed the housing problems of today. Shiller believes that the same irrational exuberance that caused investors to overvalue technology stocks has caused them to put too much faith in the value of their homes. As a result, housing is overvalued, partly driven by lowered credit standards.[viii]

Despite this large impact on the budget, many economists believe the 2001 recession was rather mild. According to Curt Hunter, Senior Vice President and Director of Research for the Federal Reserve Bank of Chicago, “the 2001 recession . . . was mild compared with other recessions,”[ix] and was short-lived by comparison. In fact, some believe that without the damaging effects of the September 11, 2001, attacks in New York City, the economic downturn may have been too mild to be considered a recession.[x]

This fact may lead one to ask: If the recession was so mild, why did it have such a severe impact on the Wisconsin budget? If a similar recession were to hit in 2007 or 2008, what would the effect be on the current Wisconsin budget? These questions will be addressed in the following sections.

Wisconsin’s history of weak fiscal mismanagement

There are several fiscal management tools used by state governments to mitigate the effects of economic downturns. Nearly every state has minimum statutory balances and budget stabilization funds from which to draw in the event of a shortfall.

In the years of strong revenue growth in the late 1990s, states were experiencing record ending balances (including stabilization funds). According to the National Association of State Budget Officers (NASBO), nationwide ending balances reached 10.4% of expenditures in 2000, and 9.4% in 2001. During the 2001 recession, states were able to draw on $25.8 billion of reserves to help balance their budgets. As a result, ending balances had been reduced to 3.7% of expenditures. Balances built up over the previous years served to ameliorate many of the budget problems caused by lagging revenue.

Following the recession in 2001, most states have gotten back on track in setting money aside in a budget reserve. In 2006, nationwide ending balances in state budgets had reached $62.1 billion, or 10.9% of expenditures. Increased revenue due to a growing economy has contributed to these new funds, as states have learned their lesson about the importance of setting aside money for emergencies.

But Wisconsin has not. Wisconsin remains one of only four states which retains a minimum statutory balance under 1% of expenditures. Wisconsin had ending balances of 0.4% of annual spending in 2006 and 0.6% in 2007, and has budgeted a minimum balance of 0.4% in the 2008 budget. This compares to a nationwide average of 8.2% in 2007.[xi] By the standard set by other states, Wisconsin’s government is running on fumes.

In November 2007, Standard and Poor’s downgraded the outlook for Wisconsin’s bonds from “positive” to “stable” based in large part on the state’s lack of reserves. According to S&P analyst Peter Block, “Any variation in revenue performance could produce relatively large funding gaps, which are not easily recoverable given existing resources.” Block added that while the state has taken steps to reduce its structural deficit, “we just don’t think they have the budget structure—which is a combination of revenues, tax structure, and level of expenditures—to achieve meaningful surpluses.”[xii]

The minimum statutory balance in Wisconsin

A minimum statutory balance protects the state from incidental revenue shortfalls or expenditure overruns within the current budget. The Wisconsin Legislature first passed a minimum balance requirement in 1981, requiring a balance of 1% of biennial expenditures. Yet before that legislative session expired, the requirement was lowered to 0.5% of expenditures. This was the first of many adjustments that minimized budget reserves. For the next four years the required balance fluctuated between 0.5% and 1% of expenditures.

In 1987-89 the minimum statutory balance was set at 1% of annual general purpose appropriations, where it remained until with minimal changes for a number of years. In the 1999-01 budget bill, Governor Tommy Thompson proposed a new graduated scale whereby the minimum balance would gradually be increased from 1% of annual expenditures to 2% over a period of five years. In the final version of the budget, the Legislature slightly altered the schedule, and completely eliminated the minimum percentage for 2001-02.[xiii] Fiscal management could not compete with other legislative priorities.

With enactment of the 2003-05 biennial budget, the scheduled minimum balances on a percentage basis were eliminated by Governor Doyle and the Legislature. They crossed out the targets of 1.6% and 1.8% for 2004 and 2005 and replaced them with flat amounts of $35 million in 2004 and $40 million in 2005. These balances were well below 1%. In the subsequent budget, the minimum balance was increased to $65 million through 2008-09 after which it was scheduled to become 2% of annual spending. Finally, the 2007-09 budget bill extended the $65 million figure for two more years, through 2010-11, and set the amount at 2% of annual spending thereafter. Through the years, budget reserves have been regarded as a luxury that governors and legislatures did not think they could afford.

It should be noted that the $65 million ending balance figure for 2008-09, at the end of the current biennium, equates to about 0.45% of annual appropriations, or roughly 0.23% of biennial appropriations. Hence, in the 28 years from 1981-82 to 2008-09 the ending balance requirement has gone from the initial 1% of biennial appropriations to effectively less than one-quarter of 1% of biennial appropriations. It’s somewhat depressing to realize that over the past quarter century the state’s required budget reserve has actually dwindled.

As can be seen above, the 2003 fiscal year was the last year in which the percentage balance standard was applied. Since then, minimum balances have been applied as a fixed dollar amount, which fall well short of 1% of gross appropriations. In fact, it is worth noting that the current $65 million minimum statutory balance is actually less than it was in 1984 when the balance was first enacted.

Budget stabilization fund

While minimum statutory balances protect states from short-term downturns, budget stabilization funds cushion governments from long-term revenue loss. According to NASBO, 47 states have some form of a budget stabilization fund. Nearly three-fifths of those states limit the size of their stabilization funds, usually setting them between 3% and 10% of appropriations. In most states, the fund is set up statutorily; however, in seven states the stabilization fund is mandated by the state constitution.[xiv] Furthermore, putting money in stabilization is automatic and is not reliant on legislative action. In most states there are heightened restrictions on how state legislatures may use the funds, such as requiring legislative supermajorities for appropriation.[xv]

In 1985, Wisconsin’s budget stabilization fund was created to “provide state revenue stability during periods of below-normal economic activity when actual state revenues are lower than estimated revenues.”[xvi] However, no funds were deposited in the fund until 1998, when State Representative Doris Hanson and Mr. Nathan Henry donated $10 and $2, respectively, to the fund.[xvii]

Governor Scott McCallum’s 2001 budget, introduced during the last recession, created a mechanism for funding the budget stabilization fund. Under McCallum’s budget, 50% of tax collections in excess of anticipated revenues were required to be deposited in the stabilization fund.

Under the new law, the moneys in the stabilization fund could only be used during a fiscal emergency. According to Wisconsin state law, a “fiscal emergency” occurs when “authorized expenditures will exceed revenues in the current or forthcoming fiscal year by more than one-half of 1% of the estimated general purpose revenue appropriations for that fiscal year.”[xviii]

The first transfer of money to the stabilization fund under this new law was made in September 2007, when the Department of Administration transferred $55.6 million to the fund. This is half of the revenue collected above the level anticipated when the 2005-07 budget was enacted.

When the $55.6 million stabilization fund and the $65 million minimum statutory balance are combined, Wisconsin’s budget still has total reserves of only $120.6 million, less than 1% of general fund appropriations.

There are several negative consequences resulting from carrying one of the lowest budget reserves in the nation. First, having no surplus leaves little margin for fluctuations in revenues or spending estimates. As has been the case over the last three budgets, the governor and legislature have had to take drastic actions to balance the budget, including fund transfers, delayed payments, and one-time funding. Each of these budget maneuvers exacerbates the state’s structural deficit.[xix]

While views of budget experts vary, an informal standard of 5% of general fund appropriations is generally seen as an adequate fiscal cushion for economic downturns.[xx] If Wisconsin were to reach the 5% standard, it would need to set aside $691 million in 2007-08 and have $710 million in reserve in 2008-09.[xxi] According to the 2007 Wisconsin Annual Fiscal Report, that would make the stabilization fund the sixth-largest single state appropriation, behind school aids ($5.2 billion), medical assistance ($1.7 billion), the University of Wisconsin System ($1 billion), corrections ($1 billion), and aids to local governments ($944 million).[xxii]

Between 2003 and 2007, insufficient revenue growth in the general fund prompted the governor and legislature to transfer $1.1 billion out of the state’s transportation fund and into the general fund. The resulting shortfall in the transportation fund was then replaced by bonding, which will cost state taxpayers more in the long term. Had the budget stabilization fund been funded adequately, this transfer and the related borrowing would not have been necessary.

Bond rating agencies consider budget reserves as an important indicator when rating the state’s debt. The combined effect of a high structural deficit and low surplus revenues may indicate financial difficulties to a bond rating agency. While the cost of borrowing for a state is largely driven by conditions in the bond market, a state’s rating can affect the price the state receives. The lower the rating, the more the state may have to pay for the bonds over the life of the term.

Is Wisconsin well prepared for a recession?

Given Wisconsin’s razor-thin margin for budgeting, an economic slowdown could cause significant problems for the state’s general fund. To estimate the impact of a recession on the Wisconsin budget, let’s examine how an economic slowdown similar to the 2001 recession would affect state revenue collections. State general fund revenues grew as follows during and immediately after the recession (after factoring out law changes which altered state tax collections):

2000-01:                                        0.1%

2001-02:                                        -0.1%

2002-03:                                        1.9%

2003-04:                                        4.9%

These revenue growth numbers can then be applied to the 2007-08 base year revenues.

First, let’s examine state government’s estimates for the next four years. Table 2 shows the revenues expected in the current budget and growth of 4.7% and 4.5% in the subsequent years as projected by Governor Doyle’s budget. Similarly, expenditures in Table 2 are the actual amounts budgeted for the current biennium and increases of 5.3% and 2.2% as projected in the Governor’s budget. Table 2 shows that in each year, the state budget would close the year with a positive balance.

Now let’s apply the recession scenario to these budget years. With revenue growth constrained as it was in the 2001 recession, the budget is quickly thrown out of balance. In this exercise, the hypothetical recession takes place in the 2008 fiscal year.

Table 3 shows what would happen if general fund revenues were to drop as they did in the recession of 2001.[xxiii] By the end of the current biennium, only eighteen months away, the state would face a shortfall of about $1 billion. By 2011, even if the deficits that arose each year were addressed, estimated expenditures would still outpace revenues by more than $1.3 billion.

Chart 1 graphically shows the gap between revenues expected for the next four years versus what those revenues would be if there was a recession of the depth of the 2001 recession.

As demonstrated in this exercise, even a mild recession could send the state’s finances into a substantial deficit. The disparity between revenues and appropriation would balloon to nearly $1.5 billion in fiscal year 2010, before closing slightly to $1.3 billion in 2011. The $50 million from the budget stabilization fund would barely dent the deficit.

The table and the related chart above show a negative balance at the end of fiscal year 2008. For the purposes of projecting the impact of a recession, it is assumed that the Governor and Legislature would act to eliminate the deficit each year—either by reducing spending or raising taxes. Thus, the negative balance is not carried forward from year to year. (Since it can’t be assumed that any positive balance would be created, no opening balance is shown for future years.) If the negative balances were carried forward, the resulting fiscal imbalance would be significantly greater.[xxiv]

The total magnitude of the problem the state would face in the event of a mild recession can be determined by adding together the deficit figures for all the years that would be affected by the recession. In the current biennium, the state would have to figure out how to cope with a total deficit of $1.359 billion—$352 million in the first year of the biennium, and $1.007 billion in the second year. Over the course of a four-year period, the deficit problem would total a whopping $4.185 billion. Table 4 details the cumulative problem if negative balances were carried over from year to year.

In the event this happens, the state has several options: it can raise taxes, cut programs, or continue the fiscal shell games that have produced structural deficits for the last decade. None of these choices are especially appealing. Yet the lack of any significant rainy day fund makes them inevitable.

Conclusion/recommendations

As demonstrated above, Wisconsin could be in serious trouble in the event of an economic slowdown. The state’s lack of a fiscal cushion is a recipe for tax increases and budget tricks in the event of hard economic times.

The state could take several steps towards fiscal responsibility in order to protect itself against declining revenue. Among them:

  • Phase in greater minimum statutory balance levels, ending with a balance of 2% of gross annual appropriations. For instance, start with a 1% balance one year, 1.2% the next year, 1.4% the next, until the balance reaches 2%. Under currently budgeted numbers, that would require setting minimum balances of $138.2 million in 2008 and $170 million in 2009.
  • Phase in a requirement that the state fund the stabilization fund up to 5% of gross appropriations. Require that the stabilization fund be the first draw on general fund revenue growth to the state.
  • Require that all unanticipated revenues be deposited in the state’s budget stabilization fund, until the fund reaches 5% of gross appropriations and compensation reserves. Current law only requires 50% of these revenues to be deposited in the stabilization fund.
  • Continue the requirement that the Governor introduce a bill to spend the stabilization fund and the minimum balance in the event of a fiscal emergency. Require a two-thirds majority of both the Senate and Assembly to appropriate these funds, to ensure that they don’t merely become easily accessible pools of money.
  • Initiate legislative action to make these requirements constitutional. As has been seen recently, statutory minimum balance and stabilization fund requirements are only as enduring as the commitment to prudent fiscal management. The Governor and Legislature have routinely suspended these requirements.

Sound financial practices should not be a partisan issue. Democrats should applaud having a fiscal cushion, because it will avoid sudden and drastic cuts in funding for core services in the event of a downturn. Republicans should be equally supportive, since rainy day funds avoid the pressure for increasing taxes and fees during a recession. Rainy day funds would also lessen the need for transfers from segregated funds.

It is time for Wisconsin to join the rest of the nation in planning for fiscal downturns. Wisconsin’s lack of foresight has led to a vicious cycle of bad budgeting practices and acrimonious budget sessions in recent years, and threatens to do so in the future should revenues recede.

 

 

[i] Rick Barrett, “Risk of Recession Jolts Wall Street,” Milwaukee Journal Sentinel, November 19, 2007

[ii] Ben S. Bernanke, Chairman of the Board of Governors of the Federal Reserve System, testimony before the Joint Economic Congress, November 8, 2007.

[iii] Donald A. Nichols, “Economic Outlook for Late 2007 and 2008: Recession Likely,” Prepared for the Economic Outlook Conference: The Management Institute, School of Business, UW-Madison, September 14, 2007.

[iv] Nouriel Roubini, “The Biggest Slump in US Housing in the Last 40 Years…or 53 Years?,” RGE Monitor, August 23, 2006.

http://www.rgemonitor.com/blog/roubini/142759/

[v] Initially, NBER declared the recession to have begun in March of 2001, but later revised that estimate to extend it retroactively into 2000.

[vi] U.S. Department of Commerce, Bureau of Economic Analysis.

[vii] U.S. Department of Labor, Bureau of Labor Statistics.

[viii] Barron’s, “The Bubble’s New Home,” by Jonathan R. Laing, June 20, 2005.

[ix] William C. Hunter, Senior Vice President and Director of Research, Federal Reserve Bank of Chicago, Speech at the America Club Annual Economic Outlook Luncheon, January 10, 2002.

[x] Quote from NBER, Business Week, “Good News: Mild Recession: Bad News: Mild Recovery” December 10, 2001.

[xi] National Association of State Budget Officers, “The Fiscal Survey of States,” June 2007, p. 21

[xii] Yvette Shields, “Wisconsin Loses S&P’s Positive Outlook As It Readies $150 million GO Offering,” The Bond Buyer, November 15, 2007.

[xiii] The Governor’s initial budget proposed minimum balances of 1% in 1999-00, 1.1% in 2000-01, 1.2% in 2001-02, 1.4% in 2002-03, 1.6% in 2003-04, 1.8% in 2004-05, and 2% in 2005-06 and thereafter. The budget as passed by the Legislature required minimum balances of 1% in 1999-00, 1.2% in 2000-01, no requirement in 2001-02, 1.4% in 2002-03, 1.6% in 2003-04, 1.8% in 2004-05, and 2% in 2005-06 and thereafter.

[xiv] Legislative Fiscal Bureau Budget Paper #240, “Required General Fund Statutory Balance,” June 7, 1999.

[xv] http://www.ncsl.org/programs/fiscal/rdfaxa.htm

[xvi] LFB, “Required General Fund Statutory Balance.”

[xvii] Ibid.

[xviii] Wis. Stat. 16.50(7).

[xix] Wisconsin’s Constitution requires budgets to be balanced on a cash basis; however, there is often an imbalance between ongoing revenues and ongoing spending commitments in future biennia. This is known as the “structural deficit.”

[xx] National Association of State Budget Officers, “The Fiscal Survey of States,” June 2007, p. 21.

[xxi] According to the state budget passed in October 2007, gross general fund appropriations will be $13.8 billion in 2007-08 and $14.2 billion in 2008-09.

[xxii] Wisconsin Department of Administration, “2007 Annual Fiscal Report,” p. 9.

[xxiii] For a full explanation of the calculation of the 2001 recession see the full version of this paper, Wisconsin’s Subprime Budget Management at http://www.wpri.org/.

[xxiv] If the negative ending balances were carried forward from year to year, the gap between available revenue and spending would be $4.2 billion at the end of fiscal year 2011.

Timewaster of the Week

I implore you to immediately stop working (unless you happen to be performing head cancer surgery on someone) and check out \”Stuff White People Like.\” It is absolutely hysterical.

It is kind of hard to navigate around, so I\’ll provide a handy list of links:

1-6 \”Coffee,\” \”Farmers\’ Markets\”
7-16 \”Having Black Friends,\” \”Wes Anderson Movies,\” \”Making you feel bad about not going outside,\” \”Non-profit organizations\”
17-26 \”Awareness,\” \”Microbreweries\”
27-36 \”Marathons,\” \”Not Having a TV,\” \”The Daily Show/Colbert Report\”
37-46 \”Netflix,\” \”Public Radio,\” \”The New York Times\”
47-52 \”Sarah Silverman,\” \”Irony,\” \”Living by water,\” \”Whole Foods\”
53-61 \”Apologies,\” \”Lawyers,\” \”Juno,\” \”Toyota Prius\”
61-71 \”Knowing what\’s best for poor people,\” \”Expensive sandwiches,\” \”Recycling,\” \”Being the only white person around\”

I almost coughed up a lung reading through that.

John McCain – Prisoner of… Love?

Now that the New York Times has supposedly uncovered John McCain\’s declaration that he\’s down with OPP, I have some thoughts:

In a subconscious way, I kind of saw this coming. In McCain\’s Wisconsin victory speech Tuesday, he slid this line in near the end:

\”I have been an imperfect servant of my country for many years.\”

When he said that, my ears perked up a little. Generally, politicians don\’t readily concede their faults unless they\’re trying to beat someone else to it. So while he wasn\’t specific about allegations that he was a \”booty enthusiast,\” it did seem like he was paving the way for something. I\’m sure he knew this story was coming.

Of course, one of the rules of trying to look smart is to actually point this stuff out before it happens. Mental note for next time.

As everyone else seems to have pointed out, the evidence that McCain actually had an improper relationship with this other woman seems pretty thin. Now, if stories begin to leak that McCain also spent a lot of time with the lobbyist for Viagra, then the puzzle pieces may start to come together.

As for the Times story, it shows how desperate things are for the Gray Lady when they\’re spooked into running a semi-story just because The New Republic was going to run with it first – and these are the two entities fingered for horrific plagiarism scandals; now it\’s seemingly a race to see which one can examine their own rectums, head-first.

After hearing the news, I flipped to CNN, only to hear Bay Buchanan savaging McCain for being such an alleged dirtbag. Of course, she didn\’t have any more information than the New York Times did – but had no problem ripping McCain a new one for not being \”straight\” with GOP primary voters (she had worked for the Romney campaign.) I honestly have no idea why any members of the Buchanan family are allowed on television. Plus, the sight of Bay Buchanan in high definition scared me to death. If you\’re a wife trying to dissuade your husband from dropping $2K on a new HDTV, just use Bay Buchanan as an example. It should send him sprinting out of Best Buy.

I\’ve heard some people speculate as to whether we\’ll be hearing more from the mainstream media about Barack Obama\’s Tony Rezko problem. I\’ve been pretty consistent on this – I have a pretty high bar for proving \”corruption\” by elected officials. There are a lot of sleazeballs from both parties that contribute heavily to campaigns, which is their right. And certainly people have a right to criticize it if they don\’t like it. But until that elected official takes some government action to pay back those favors, I think we have to hold our nose and take it. Unless, of course, the money sitting in their campaign account was raised illegally, as may be the case with Rezko. But Obama\’s plans to socialize health care in the U.S. scare me enough – I still have an open mind on the \”corruption\” charges.

So, as it turns out, this presidential campaign will likely boil down to \”cocaine vs. ho\’s.\” We should just elect Tony Montana and be done with it.

Inaugural Idol Rundown

I\’m getting sick, so I\’ll just throw out a couple lazy and moderately considered thoughts about American Idol this year:

Most of the white girls are total junk. Especially that pasty Irish illegal immigrant. I might vote against John McCain if his plan gives her amnesty. And if the \”Rock and Roll Nurse\” were singing in my basement, I wouldn\’t get off the couch to go see her.

It is impossible to watch a 2-hour Idol without TiVo. Paula Abdul should go to prison for stealing time from millions of peoples\’ lives that they will never get back. In the time she wastes, the nation could be learning things like \”how raising taxes on gas companies will make gas more expensive.\” For example.

The guys weren\’t much better, except for the dreadlocked Italian. The same week one Castro steps down, another steps up. He was pretty good.

Speaking of hair, this guy can dye it and style it any way he wants, but he can\’t hide the fact that it is fleeing his cranium. And I thought PBS had exclusive rights to Big Bird – how did Fox pull that off?

I really like Asia\’h, but I\’m getting a little tired of her whole \”my dad died two days before my audition\” schtick. Every time she mentions it, she justifies her going on to the audition by saying that he would have wanted her to keep singing. I\’m not really comfortable with people channeling the wishes of dead people, so let me make this abundantly clear – in the event of my untimely death, I want everyone I know to stop whatever the hell it is they\’re doing for three straight days and mourn the hell out of my death. I don\’t want anyone to do a damn thing. Now that you\’ve read this, you have legally entered a binding agreement. Sorry.

I have to admit, I am sooooo jealous of Danny Noriega. I bet he gets all the chicks.

By the way, what are the the chances American Idol would have two contestants named Castro and Noriega? Somewhere in America, there\’s some failed contestant named Pinochet who\’s pretty pissed right now. In order to restore the balance of the universe, perhaps we need to support a murderous South American dictator named Chikeze.

Early favorites: Hippy Brooke, Syesha, and this guy. That Australian man candy will be out in the third round – bet on it.

All Hail the Queen of Terrorism

While everyone still seems to be excited about a woman running for President of the US, an even more groundbreaking development has occurred in the world of Islamic terrorism – the terrorists have chosen Sharon Stone as their leader:

Extremist Islamic Terrorists Hail Their New Queen, Sharon Stone

After giving an anti-war interview to Middle Eastern newspaper Al Hayat, Sharon Stone is finally getting rave reviews. Sadly, they\’re not from the trades; they\’re from the terrorists. After visiting the region on a very Angelina Jolie-esque \”fact-finding mission,\” Stone told the paper she feels \”great pain\” thinking about the war in Iraq, prompting extremist leaders like Muhammed Abel Al to get downright gushy with praise: \”This lady is smelling and seeing the dangers for the future of America.\” It\’s not quite the same as getting a plucky pullquote from Jeffrey Lyons, but it\’ll do.

TERRORIST LEADERS APPLAUD SHARON STONE\’S ANTI-WAR REMARKS

Earth to Mister Awesome

This weekend, I watched the outstanding movie \”The King of Kong.\” It\’s about two men who compete for the world high score in Donkey Kong. Plenty of drama and insight into the world of competitive video gaming, especially among guys in their 40s who have been up to it since their youth.

One small side story in the movie deals with a man named Roy Shildt who calls himself \”Mister Awesome.\” This video, not included in the film, talks about the trials and tribulations of Mister Awesome. It is truly not to be missed. (And is mildly NSFW.)

(Thanks to Josh Modell at the Onion AV Club for digging this gem up.)

The Falling Bar of Fame

I went to see a talk by pop culture author Chuck Klosterman tonight at the UW Memorial Theater. I\’ve read a couple of his books, and thought he was worth checking out.

He made an interesting point when talking about fame, and how the bar has been lowered for who is now considered \”famous.\” This fact, I think, is indisputable – but he actually had a salient point linking it to blogging.

The point was this – when bloggers start a blog, they essentially declare themselves a public figure. Whether you have 10 readers a day or 10,000, you have made yourself \”eligible\” for fame. You are in the realm. As a result of this decision to live your life in public, you tend to think of anyone who has more readers than you do as more \”famous.\” If I get 100 readers a day, and my friend Jay gets 200, I consider him to be famous – and since there are millions of bloggers, there tends to be millions of people who are gaining both real and imagined fame in cyberspace. If that makes any sense.

He also made some other points worth mentioning. He commented on a strange phenomenon with regard to the presidential campaign: that you won\’t find very many Democrats that will say that Barack Obama is more qualified to be president than Hillary Clinton – yet you find a lot more Democrats who really want Obama to be president. A really strange disconnect, if you think about it.

I also agree 100% with some points he made about the internet and its effects on music. Basically, he said that too much music goes unappreciated in the era of CD burning and downloading. Back in the day, if you spent your hard-earned money on a tape, you would really put the effort into liking that album, since you invested cash in it. Now, you can get so much more music for free, it\’s hard to really feel any connection to it – if it doesn\’t hit you after one listen, you can always just move on to something else. This could spell the death of the complete album, and could dissuade artists from recording anything that takes repeat listens to appreciate.

Then I came home.

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