Legislature Adept at Spending Money We Don’t Have

By James Wigderson
Special Guest Perspective for the MacIver Institute

How many different ways can the legislature spend money that it doesn’t have? That is the question after the Legislative Fiscal Bureau released a new revenue estimate for the next biennium that claim the state will see $636 million more than previously expected.

The state of Wisconsin still faces a $3 billion structural budget deficit and has several pressing debts to pay. Wisconsin owes the State of Minnesota nearly $60 million as part of a tax reciprocity deal.  Wisconsin was ordered by the courts to repay the Patients’ Compensation Fund over $200 million to make up for the money taken from it by former Governor Jim Doyle. Wisconsin also owes $1.4 billion to the federal government for an unemployment compensation fund reserve loan.

Of course, the $636 million in new revenue hasn’t even been seen yet. If everything goes according to plan, Wisconsin should see an additional $233 million in 2010-11, $204 million in 2011-12, and $199 million in 2012-13, over previous projections. Even then, Act 10, the budget fix for the last biennium currently being held up in the courts, may cause those estimates to go down by as much as $40 million each year if local governments make the increased contributions from government employees for health and retirement benefits part of the employees’ pre-tax incomes.

For those Democrats crowing about their role in raising taxes in the last budget cycle possibly contributing to the increased revenue estimate, it’s worth noting that corporate taxes are actually expected to decline in the next biennium.  According to the LFB, “Compared to the previous estimates, the revised estimates represent decreased corporate income and franchise tax revenues of $55 million in 2010-11, $10 million in 2011-12, and $3.4 million in 2012-13.”

The increased revenue comes largely from increased collections from individual income taxes. Growth in income tax withholding has also increased to 5.5% for the year so far. So much for sticking it to the rich corporations and making them pay their “fair” share.

While the new revenue estimate indicates that Wisconsin may be turning the corner economically, there is still a long way to go. There is even a warning hidden in the LFB revenue estimate. Sales tax revenue is actually expected to go down $240 million.

The anticipated increased revenue may never even materialize. As the Wisconsin Taxpayers Alliance points out, the estimated increase in revenue is only 1.4% to 1.8% of general fund collections, and actually less than the variance between anticipated revenue and actual revenue in 2011. The estimate is only an estimate, and well within the range of past error.

Still, some state legislators are reacting to the “found” money like the poor stiff that just lost everything at the casino, has no idea how he’s going to pay for his mortgage, and finds five dollars in the parking lot. Watch out roulette wheels, here come the legislators and special interest groups.

State Representative Marc Pocan reacted to the news by celebrating the previous legislature’s budget efforts, neglecting to mention that they raised taxes by $2 billion and increased spending by $3.6 billion, and still the budget fell short of paying the bills. Undeterred by past failure, Pocan proposed, among other spending, $250 million more for the University of Wisconsin System.

WEAC demanded the “found” money for the public schools, as did the Wisconsin Association School Boards. Not spending the money on public schools, according to the hyperbolic Tom Beebe of the Wisconsin Alliance for Excellent Schools, would demonstrate “that any efforts to cut school funding are not related to the budget at all, but are meant to undermine Wisconsin’s schools.” Of course, the governor’s proposed budget cuts state aid to schools by $834 million, so Beebe wants all of the $636 million that Wisconsin doesn’t even have yet plus an additional $198 million. Special interest groups are never happy.

Democrats in the legislature were not ready to go quite that far (guess they hate public education, too), instead proposing to add into the budget $356 million for local education spending over the next biennium. They also proposed adding $20 million for the state’s technical schools. The Joint Finance Committee shot the proposal down.

For all the protests by the Republicans that the new revenue projection should not be used as an excuse to spend more money but to pay the bills, Republicans are spending more money.

State Representative Robin Vos, the Joint Finance Committee Co-chairman, said on the day the new revenue estimate was released that part of the money could go to recycling program grants, local road aid, and Senior Care. On Friday, the Joint Finance Committee voted to increase K-12 education spending by $100 million.

If Republicans thought that would be enough to mute the criticism over the spending cuts in the budget, they were wrong. Those that want more spending will never be appeased by any amount lawmakers can spend. Those that recognize that the state is still in a fiscal crisis know that the choices the legislature makes today will directly affect the amount of taxing and spending the state does in the future.

In what has become known as Weiss’ Law, former New Berlin School Board member Matt Weiss once said, “Nobody ever thanks you for not spending money.” It may be politically expedient to try to placate critics by spending more money that you’re unsure is actually coming, but if there was ever a time to disprove Weiss’ Law, the time is now when the state needs fiscal discipline the most.