June 18, 2011
After hours of debate in both the Assembly and Senate, lawmakers finished work on the state’s two year budget. The 1,532 page document now awaits the Governor’s signature.
A few budget facts might help to make sense of the financial shape of the state. This budget;
· Brings in more money.
· Spends more than previous budgets.
· Raises some taxes and fees.
· Lowers some taxes and fees.
· Adds in ‘policy’ or non-financial items, like changes to brewery laws.
· Transfers or ‘raids’ funds.
· Uses ‘one-time’ money to pay for ongoing bills.
· Leaves unpaid bills for the future.
· Postpones debt payments.
· Adds new interest costs to be paid in future years.
· Adds new spending that continues into future years.
This budget does all of the above, just like the last budget and many before that.
People want Wisconsin to live within her means. This isn’t easy to do for either Democrats or Republicans. Despite the campaign rhetoric, both sides are prone to spend more than the state takes in.
This is especially true when Wisconsin and the nation are recovering from a recession. In an economic downturn, lawmakers balance the increased needs of people with the decline of money coming in from taxes.
Wisconsin’s economy is beginning to recover. Now is a good time to think about what we must do to really get the state’s financial house in order.
For this wisdom I turned to the state auditor Jan Mueller. I spoke with her on the last day before her retirement. After thirty-five years of state service – thirteen years as state auditor – Jan will enjoy well earned time with family. Before she left she shared some thoughts on the state’s financial future.
“Don’t defer making the State’s debt payments,” Jan advised.
The state defers over three hundred million in debt due this coming year. And that costs the state nearly ninety million in interest over the next twenty years.
“Be careful to ensure that debt doesn’t continue to increase at rates faster than we can repay it,” Jan cautioned.
Debt from the general fund has been creeping higher. Partly because of the imbalance between money coming in and money going out – due to the bad economy – lawmakers turned to debt.
State financial analysts say our debt payments to total dollars coming into the state’s General Fund should never be more than 4%. At the end of the last budget that number was 3.97% – pushing the edge of the limit. By the end of this new budget the percent creeps up to 5.14% – well above the suggested limit.
Owing too much in debt has two effects. More money to debt means we have less for public education, health care and roads. Second, more debt may decrease the state’s bond rating. Higher interest payments mean fewer dollars for what the state needs to buy.
Third, Jan said, “Create a meaningful rainy day fund. Setting aside a fixed percentage of the State’s operating expenses to be tapped only in an emergency would be an important start.” Wisconsin governors have been reluctant to set aside money for the future. No headlines. No glitzy new programs when money just goes into a savings account.
“Never spend more than you take in,” Jan said.
“Watch the bottom line,” She added, “Be mindful of what is “off the books.” She meant pay attention to those pieces of state government that don’t show up in the balances in the budget book.
Her example; the state owes the federal government for unemployment insurance – $1.3 billion in principal and another $25 million in interest at of the end of May. This problem has been increasing since 2000. Many states face similar problems because of the high unemployment rate. Solving this problem will be difficult.
Finally, Jan offered, “Focus on the long term. Look not only at finances in the next two years but in the next twenty.”
This is hard but important wisdom for us to follow. I wish Jan the best in her retirement and thank her for watching the bottom line.