This week, Milwaukee Magazine’s Bruce Murphy cites a recent New York Times analysis to make the point that Wisconsin’s budget deficit isn’t really so bad after all. According to the analysis, Wisconsin’s $1.8 billion deficit in 2012 represents 12.8% of the previous year’s budget, which puts us right in the middle of the 44 states that reported budget deficits.
Fair enough, but that’s not the whole story.
Wisconsin is well behind the nation in the tools it grants itself to deal with budget deficits. As I laid out in this lengthy research paper in 2009, most states require healthy “rainy day” funds to help ameliorate revenue shortfalls. Wisconsin’s is virtually nonexistent:
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 were reduced to 3.7% of expenditures. Balances built up over the previous years helped ameliorate many of the budget problems caused by lagging revenue.
Following the recession in 2001, most states set aside significant amounts of money in budget reserves. 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 contributed to these new funds, as states learned the importance of setting aside money for emergencies.
Wisconsin never learned its lesson. Wisconsin remains one of only four states with 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 budgeted a minimum balance of 0.4% in the fiscal year 2008 budget. This compares to a nationwide average of 8.2% in 2007. By the standards set by other states, Wisconsin’s government has been running on fumes.
Furthermore, Wisconsin has been using debt to finance more and more of its state government operations. When the state issues bonds, the debt service on that borrowing is inviolate – it cannot be reduced unless the bonds are refinanced:
In the past three budgets, the Governor and Legislature have generously used debt to fund ongoing appropriations indirectly. Additionally, new types of bonds have been created that allow government to circumvent the constitutional prohibition on bonding for general operating expenses. In several instances, Wisconsin’s elected leaders opted for short-term gain over long-term fiscal responsibility, and their creation of new types of borrowing carried risks for the future.
In 1969, when the state constitution was amended to allow the state to issue bonds, Wisconsin had $392.8 million in outstanding debt. In December of 2006, Wisconsin had $19.3 billion in outstanding debt, or $3,476 for every state resident. Shortly before the 1969 constitutional amendment passed, Wisconsin ranked 40th in the nation in state debt per capita. By 2003, Wisconsin had risen to 10th in per capita debt outstanding – and state debt has increased substantially since then.
Furthermore, the state has issued debt in excess of taxpayers’ ability to support that debt. In 1979, outstanding GPR supported GO bonding was 16.1% of state GPR revenues. By 2006, that number had more than doubled, to 33.9%. GPR funded GO bonding has grown substantially in relation to tax revenue.
Increased debt further ties the hands of the Governor and Legislature when trying to address budget shortfalls. Debt service simply can’t be cut like other government programs. General obligation bonds are backed by the full faith and credit of the state, and defaulting on those bonds is not an option.
So while Wisconsin may appear to be in the middle of the pack, it has far more restrictions on dealing with budget deficits than other states. The lack of long-term planning over the years has caught up with the state, and makes earnest attempts to balance the budget all the more painful.