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Analysis: Despite budget woes, state less in crisis now than two years ago

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« on: February 18, 2011, 11:26:29 am »

Analysis: Despite budget woes, state less in crisis now than two years ago

Story Discussion Font Size: Default font size Larger font size Analysis: Despite budget woes, state less in crisis now than two years ago
MIKE IVEY | The Capital Times | | (39) Comments | Posted: Friday, February 18, 2011 7:45 am

Wisconsin Gov. Scott Walker talks to the media Thursday at the State Capitol in Madison, Wis., in response to 14 state Senators leaving the state to block his bill that would eliminate collective bargaining rights for many state workers.
 Andy Manis/Associated Press

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Sweeping governmental changes are needed, Gov. Scott Walker and his backers claim, because the state is a facing money problems like never before.

"We cannot ignore the fact that Wisconsin is in a fiscal crisis," Sen. Alberta Darling and Rep. Robin Vos, co-chairs of the Joint Finance Committee said following passage of the budget repair bill by that committee Wednesday. "Our state is $137 million in the red. While some people are content with doing nothing, the consequences of inaction are dire."

The bill curtails collective bargaining rights for all public employees in the state, with the exception of firefighters and most police officers, and requires some 350,000 participants in the Wisconsin Retirement System to begin contributing toward their pension. Public workers must also pick up a larger share of health insurance premiums.

But are state finances really "in crisis?" Budget figures can be moving targets, of course, depending on who is spinning the numbers, but a closer look at the state's finances suggests that while there are major problems to be addressed, the situation is better now than it was two years ago.

A Jan. 31 memo from the Legislative Fiscal Bureau estimates the state will actually finish the fiscal year on June 30 with a $56 million surplus. That is $54 million more than state administrators estimated and far more than the $137 million in red ink that Darling and Vos refer to.

Neither Vos, R-Rochester, nor Darling, R-River Hills, responded to requests for comment for this report, but those accounting differences have Democrats claiming Republicans are overstating the depth of the problem to push a hard-right agenda and break public worker unions.

"In our conversations with the non-partisan Legislative Fiscal Bureau, it has become blatantly evident Governor Walker has manifested this fiscal crisis as a Trojan horse in order to enact unfair public policy in the name of fixing the budget," says state Rep. Mark Pocan, D-Madison.

Scot Ross of the left-leaning group One Wisconsin Now went a step further, calling the Walker plan a "handout in special interest spending to his corporate pals."

Ross was referring to $117.2 million in tax breaks approved by the Republican-controlled Legislature in January. Those items making health savings accounts tax deductible, tax deductions for businesses that relocate and tax exclusions for hiring new employees.

Ross and others have said those tax breaks alone have created the shortfall through the end of this budget cycle that Darling and Vos have cited. But the $117.2 million figure cited by the Fiscal Bureau refers to the cost of those tax breaks over the next 2.5 years, not just the next few months.

Going forward, it is clear Wisconsin has some serious budget issues to face. Estimates say the state is facing anywhere from a $3.1 billion to $3.6 billion deficit in the upcoming two-year budget cycle.

That amount represents about 13 percent of total annual state spending, according to Andrew Reschovsky, professor of public affairs and applied economics at UW-Madison.

"The short answer is that we are arguably in a crisis ... but the crisis is the large size of the fiscal 2012 and 2013 budget gap, not the 2011 gap, which is relatively modest," he says.

Reschovsky says states like California, Nevada and Arizona are in far worse shape than Wisconsin, although he didn't want to underplay the problems here.

"I'd put Wisconsin somewhere in the middle of all the states, maybe a little worse," he says.

Still, Reschovsky agrees that Wisconsin is arguably in better shape financially than it was two years ago when the state was facing an estimated $6 billion deficit for the 2009-2011 budget cycle.

Former Gov. Jim Doyle was able to reduce the deficit then through a combination of furloughs for state workers, increases to the cigarette tax, a move to combined reporting for corporate tax collections and a boost in income taxes for those in the upper bracket. The state was also helped by $1.3 billion in one-time federal stimulus funding.

Moreover, state tax collections have continued to rise as the economy recovers. In January, the state collected $1.46 billion in revenue, up 7.1 percent from a year ago.

And Wisconsin's unemployment rate of 7.5 percent is better than the 9 percent for the U.S. as a whole. While the state has lost thousands of manufacturing jobs, the recession has not hit as hard here as other places.

Wisconsin is also in far better shape than other states when it comes to funding pensions for its retired public workers. The $72 billion Wisconsin Retirement System is over 97 percent funded, according to the Center of Retirement Research, a non-partisan think tank.

By comparison, the Illinois teachers fund, for example, is only 52 percent funded. Other states from California to New Jersey are facing tremendous liabilities in their public pension systems going forward.

Walker's plan to have public employees cover half of their pension costs and pay more for health insurance is designed to save $30 million through the end of the current fiscal year and $300 million over the next two years.

The $300 million in savings from the pension and health plan changes amounts to about 8 percent of the current budget deficit estimates, meaning there's a lot more cutting that would need to happen to close the gap.

Pocan says Walker's calculation of the state's budget problem is skewed by the fact that a significant portion of the gap in the next biennium is driven by agency budget requests, which always come in higher than what the actual funding turns out to be.

For example, in 2009-2011, agencies requested a 9.7 percent increase in general purpose revenue dollars, but were actually given a 2.6 percent reduction. That amounted to a $3.5 billion difference between the budget request and actual spending, although $1.3 billion of that reduction was due to the federal stimulus money.

A better comparison might be the 2007-2009 budget, when agency requests were reduced by 2.1 percent for a $1.6 billion difference between requests and actual spending.

In either case, Pocan maintains Walker has manufactured a crisis to push a hard right-wing agenda that will raise his national profile among conservatives.

"The only way you can slip a bunch of bad policy into law in Wisconsin is to disguise it as something else," he says. "You create a crisis, claim you are the sole path to solving it, enact whatever measures are necessary and be a hero to the people."

Ross took special aim at the recently enacted $48 million in tax breaks for health savings accounts or HSAs, which he says primarily benefit upper-income earners. According to a 2008 report from the federal Government Accountability Office, the average annual income of HSA participants was $139,000, at least in 2005. Nearly half of participants then reported withdrawing nothing from their accounts the previous year.

"This is evidence that HSAs are serving as tax shelters for the wealthy," says Ross.

He also rapped the $67 million in tax breaks for companies that add workers.

"This tax shift is so ill-conceived at best the benefit provided to job creators would be less $1 a day per now job," he says, quoting figures from the Associated Press.
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