In November of 2007, I issued a WPRI report warning of Wisconsin’s growing use of debt.  (It’s a good read, especially if you’re looking to cure your insomnia.)

This week, Moody’s Investor Service issued their own nationwide report detailing the massive amount of debt states are taking on in order to bolster their lagging tax receipts.  Wisconsin is no exception – and has issued debt at a much quicker rate than other states.

As I point out in my report, Wisconsin state government wasn’t even allowed to issue debt until 1969, when voters amended the state’s constitution to allow the legislature to issue bonds.  Shortly after ratification of the constitutional amendment, Wisconsin ranked 40th in the nation in debt per capita.  According to the Moody’s report this week, Wisconsin is now 12th in the nation in debt per capita, barely behind notorious big-spending states like New York, California, New Jersey, and Illinois.

According to the report, Wisconsin’s $1,720 in debt per capita puts the state $423 per capita above the national average (skewed slightly high due to the absolutely obscene per capita debt of Connecticut, Massachusetts, Hawaii, New Jersey, and New York), and $784 more than the national median of $936 of debt per capita.

Furthermore, the trend in Wisconsin has been to issue more debt than we can afford.  As detailed in the Moody’s report, Wisconsin debt has risen from 2.8% of personal income in 1998 to 4.6% in 2010.  That’s an increase of 64% in 12 years, and ahead of every other neighboring state (Illinois is next at 4.4%, while Michigan is at 2.1%, Minnesota 2.4%, and Iowa at 0.2%.)  The national median is 2.5%

Your average citizen might then ask, “so what? What difference does a higher debt burden make to me?”

A couple things:

First, debt service is the first draw on the state’s general fund.  It gets paid off before the state spends a single cent on schools, the environment, corrections, or anything else.  Obviously, the more debt the state takes on, the higher these payments will be, leaving less money to fund these other programs – although the state can sometimes refinance to take advantage of better bond rates, it can’t just reduce debt service.  (Although sometimes they will restructure the bonds to pay more over a longer period of time in order to save money in the short term – which is terrible budgeting.)

Secondly, bonding for ongoing spending programs makes those programs more expensive.  Instead of paying a teacher’s salary for one year, you’re paying for that teacher’s salary for one year, plus interest over the course of twenty to thirty more years.

Additionally, having an excessive debt load can possibly force the bond rating agencies to mark down the state’s rating, which gives its bonds a higher rate.  In other words, the more debt the state has, the more it has to pay to pay them back.  Too much debt is a red flag to the credit agencies – as are things like structural imbalances and low reserve funds.  (Wisconsin fares extremely poorly on all three counts, which is why its credit rating has fallen within the past few years.)

Finally, it is worth pointing out that Moody’s analysis is unclear as to which Wisconsin state bonds it uses in its analysis.  Some bonds are funded with tax money, some are funded by user fees, some are backed by the state’s moral obligation, and some are not.  When added together, all these bonds in Wisconsin in 2007 added up to $3,476 per capita – and that doesn’t even count local debt, such as municipal and school construction.

So when the new governor takes office in January of 2011, he’ll have the state’s large debt burden to thank for much of the state’s shabby fiscal condition.  And the public will eventually feel the pain for all the spending that debt propped up over the past decade.

2 thoughts on “The Exploding Use of Debt in Wisconsin

  1. Interesting, but it ain’t runaway govt spending that’s the culprit of increased debt burden. Revenues are stagnant.

    If ever there was a need to raise taxes, it’s now — to help retire debt. Bush Sr did it, even though it led to him losing an election. I say let the Bush tax cuts expire and use the revenue to pay off fed & state debt.

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