$1 billion surplus + $1 billion deficit = Tax cuts?

ECON 101 with Jake formerly of the LP

Note about the author: Jake formerly of the LP writes extensively about his personal opinions of economic development issues. 

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Wisconsin’s transportation fund is a billion dollars in the hole. So why is Governor Walker proposing tax cuts?

Wisconsin’s big fiscal news is the Legislative Fiscal Bureau’s recent announcement that the state’s General Fund will have nearly $912 million in extra revenue through the middle of 2015. Not surprisingly, with a statewide election coming up in the fall, the Republicans running the Legislature and the Governor’s Office want to blow this surplus revenue on tax cuts. This is short-sighted and misguided because, as we’ll see below, the state is running a billion-plus-dollar deficit.

The surplus should be used to pay the bills for current and future road-building projects, pay for human services, and bank some of the rest in the state’s Budget Stabilization Fund, giving protection against future economic downturns. 

Spending a temporary surplus on tax cuts is imprudent, and here’s why: Wisconsin has urgent funding needs that actually exceed the $912 million in extra revenues.

Setting aside the serious need to restore funding to K-12 education, the UW system, and tech colleges, the state has gaping deficits in human services. Because of increased poverty, slow job growth, and Governor Walker’s rejection of the Medicaid expansion in the Affordable Care Act, Wisconsin has to either come up with more funds for the state’s low-income individuals or subject them to serious cuts. The Legislative Fiscal Bureau mentioned the $92.6 million shortfall in Medicaid for this biennium in its recent revenue update, and the announcement of a surplus makes the decision to kick off up to 89,000 Wisconsin adults and children off BadgerCare especially cruel, as the funds are now clearly available.

Another funding need highlights the dishonesty of something Governor Walker said when the new revenue figures came out. He claimed: “The days of billion-dollar deficits and double digit tax increases are over, and we have led ourselves into a new era of financial responsibility and continued investment in Wisconsin’s priorities.”

Unfortunately, the days of billion dollar deficits are most certainly not over, because we have a billion-dollar deficit in transportation.

That’s right, the LFB reveals that the Transportation Fund is even worse off than DOT Secretary Mark Gottlieb recently claimed in the Milwaukee Journal-Sentinel, when Secretary Gottlieb estimated a 2015-’17 deficit of $750 million in the state’s Transportation Fund. The LFB said in its revenue notes that despite the Transportation Fund having an $84.6 million cushion for this biennium, the extra needs put it heavily in the red for the next budget. Over the two years of the biennium, the extra costs for the Milwaukee-area projects vs. this budget will be $785 million.

Let’s add this up, shall we?
2015-’17 start: +$84.6 million
Excess expenditures 2015-’17: -$224.0 million
Keep GTA and Transit aids level: -$24.4 million
Higher debt service due to borrowing: -$87.8 million
Extra costs for Milwaukee-area freeways: -$785.0 million
TOTAL STRUCTURAL DEFICIT FOR TRANSPORTATION FUND 2015-’17: $1,036.6 million…or $1.04 BILLION.

Hmmm, $1 billion up on one hand, but $1 billion down on the other. Sounds like we’re basically even, aren’t we? This means that any income or property tax cut that Walker may propose will have to be made up with higher gas taxes, registration fees, or even more borrowing for Transportation.

There’s a straightforward solution: Take care of our needs, move some money from the General Fund into the Transportation Fund, and save some of the rest until we can see what effect existing tax cuts will really have on revenue. Of course, this solution is far too prudent for this crew, so get ready for the exploding deficit in 2015!