September 16, 2014
by James Wigderson
Special Guest Perspective for the MacIver Institute
Reading the Milwaukee Journal Sentinel editorial on the state budget, “If there’s a budget mess this time, it belongs to Gov. Scott Walker,” one would get the impression the entire state is on the verge of joining Detroit as a fiscal policy disaster area. “Wisconsin’s state budget may be out of balance by nearly $1.8 billion when the new two-year cycle begins next July, and for that you can thank Gov. Scott Walker’s fiscal policies.”
One can almost hear Marlon Brando addressing the ruling council in Superman. “While the expected shortfall may end up being smaller — or larger — than it appears to be now, it’s clear that a combination of Walker policies and lagging growth in tax revenue blew a hole in the state’s finances.” My friends, Krypton is doomed.
Let’s start with the obvious. We’re not even in the state budget cycle that ends in 2017. We’re still in the state budget cycle that ends in July 2015. The budget that ends in 2017 hasn’t even been written yet. There has not even been a discussion of what the budget should even look like or what policies will change between now and then. In fact, a projected deficit, a “structural deficit,” in 2017 assumes no economic growth and no changes to state spending.
It’s like driving a car in the left lane on a freeway and being told there might be construction in that lane. That means at some point the driver might have to switch lanes, not that the car is doomed to slam into the construction barrels.
It’s a point the editorial readily concedes, yet they still criticize the governor for the still hypothetical deficit to try to promote other disastrous policies. “Though Burke is being politically opportunistic, she makes a good point when she chides the governor for passing up millions of additional health care dollars available through the Affordable Care Act.”
What the editorial is referring to is the proposed expansion of Medicaid under Obamacare. What the editorial does not mention is that there is no such thing as free money. Even if the federal government kept to its promised reimbursement rates, a big if to be sure, the state will still be paying 10% of the cost of the Medicaid expansion after three years. That will only make the budget situation worse, not better.
They also blame Walker’s tax cuts. “The governor and Republican allies reduced income taxes and property taxes across the board, as well as taxes on businesses. As a matter of politics, that might have been smart; as a matter of the budget, maybe not so much. Targeted tax cuts can be helpful — we’ve favored tax credits for investments in early stage companies, for example, but Walker’s tax breaks went too far.”
Walker and the state legislature cut taxes by $2 billion, including $746 million in income taxes and more than $500 million in property taxes. His predecessor, Governor Jim Doyle, raised taxes by $3 billion and the state lurched from budget crisis to budget crisis.
However, the policy of “targeted tax cuts” that the newspaper favors was also the policy of Doyle in a system where the state decides economic winners and losers. As much as the newspaper laments the influence of special interests in government, encouraging special interest influence by placing the reward of possible government subsidies in front of them is certainly counter to the intent of other Journal Sentinel editorials.
Instead of trying to advance bad policy goals with budgetary fear-mongering, the editorial writers should be telling readers the state budget is the most sound it’s been in years. The state just finished fiscal year 2013-2014 with a surplus of $443.2 million. The “rainy day” budget stabilization fund has $280 million in it.
In 2015, the state may fall short by $396 million for the biennial budget, which may require a budget adjustment or some other actions taken. However, we won’t have an update until the mid-October Annual Fiscal Report, and even then the legislature will probably not make a decision on correcting the budget until next year.
In the meantime, it’s worth noting how we got here. When Walker took office, the state faced a $3.6 billion structural deficit. That’s double what is currently projected for the budget beginning in 2017. The state of Wisconsin also faced an immediate, not projected, budget deficit of $137 million. In addition, the state owed the medical malpractice fund $200 million and owed the state of Minnesota $58 million.
Under Doyle, the state raided $1.3 billion from the transportation fund and spent another $2 billion in one-time federal stimulus money to fund the operating budget. Doyle raised taxes $3 billion and it still was not enough. In 2009, the Pew Center on the States named Wisconsin as one of the 10 worst states in fiscal peril.
Apparently the Milwaukee Journal Sentinel’s editorial writers would rather the state returned to those days. In the editorial about a future hypothetical budget crisis, they lamented how Walker dealt with the actual budget crisis he inherited.
“Walker plugged the last big budget gap — more than $3 billion — by reducing shared revenue to schools and local governments and then made up for much of the difference by cutting benefits and take-home pay for teachers, state workers and other public employees. The vehicle for those changes — the misguided Act 10 — sparked weeks of protests at the state Capitol and threw the state’s politics into polarizing turmoil.”
Misguided? Does the Milwaukee Journal Sentinel’s editors have another means of coming up with the $3 billion Act 10 has saved Wisconsin’s taxpayers?
If the Milwaukee Journal Sentinel prefers wrecked budgets, higher taxes, ever-expanding commitments to entitlement programs, furloughs and layoffs of public employees, and less money being spent on our infrastructure and in our classrooms, they should just “own it” (to use their juvenile phrasing). But using a hypothetical structural deficit to hide behind while they promote that agenda is just being dishonest to the readers.