May 30, 2012
Details are emerging of financial transactions the Walker administration made last year to balance the budget by not paying debt bills coming due.
Recently I received memos from the nonpartisan Legislative Fiscal Bureau that describe actions of state officials to refinance debt payments coming due. The debt was in the form of commercial paper and general obligation bonds.
The state took three separate actions to avoid making debt payments and push that debt off into future years.
State officials refinanced $190.1 million in May 2011 that would have otherwise been repaid. New bonds were sold in September 2011 to avoid paying $45.4 million in payments coming due in November 2012. And in March 2012, $218 million in debt payments due in May were delayed. The administration will also postpone another $104.8 million this May.
In one year, May 2011 to May 2012, a total of $558.3 million in debt payments due were delayed. Taxpayers will pay $156.2 million in new interest charges because of those recent financial actions. This new debt won’t be paid off until 2030-31.
Governors delayed debt payments in the past. During the economic downturn Governor Doyle’s administration postponed debt to maintain state operations. But even during the recession, he did not delay debt payments at the speed or size Governor Walker delayed in the past year.
In fact, Governor Walker has restructured more debt in a single year than any governor in Wisconsin history. If this trend continues, during his four year term, Governor Walker would put off paying more debt than all governors in the previous decade combined.
These actions are most troubling in light of an improving economy. Recently Department of Administration Secretary Huebsch released a statement claiming tax collections are ahead of schedule.
It might make sense to consider delaying payments coming due if the state was behind in revenue collection. But if the economy is truly rebounding, why is Wisconsin not paying debt bills coming due?
Not paying bills coming due is usually a sign of financial distress. It is an action that has long-term financial consequences. It is an action that should not be entered into lightly.
Such action adds to the state’s long-term debt but does not add a long-term asset.
Building a bridge or a new state building for $500 million gives us, the taxpayers, something for the money we’ve spent. But refinancing debt leaves the money owed on the books. We have nothing to show for all this new money spent.
Any type of refinancing to simply avoid paying off a debt puts the state in worse financial shape. When this practice is followed year after year, it puts the state in a downward spiral from which it is hard to pull out. As the state’s financial condition worsens, we risk the downgrading of the state’s bond rating. If that happens, the state will pay higher interest rates; meaning more money will be spent on debt and less on schools and roads.
With more money spent on debt, the coming budget years will be much harder to manage. Even with an improving economy, new money coming into the state won’t go for schools and bridges if there are new debt bills coming due.
The people of Wisconsin deserve an honest appraisal of the financial status of the state and an honest discussion of plans to move the state forward.
I asked the leaders of the legislative budget committee for such a discussion. Specifically I asked the Co-Chairs of the Joint Finance Committee to hold a public hearing on the delaying of debt payments and the impact of this action on the state budget.
People need to know the long term implications of the administration’s actions.
But first, we need to understand just what is happening with state finances. If the budget is really balanced, why is the state not paying bills coming due?