Walker and the budget: Shorting the shortfall

Before his State of the State address, Gov. Scott Walker said addressing a projected shortfall (i.e., structural deficit) heading into the next state budget isn’t a priority for him. He reaffirmed that during the Jan. 22 address, saying he would, as part of a “Blueprint for Prosperity,” prefer to send $800 million of a $912 million surplus back to Wisconsin taxpayers.

For a man with a reputation as a fiscal hawk, this is more than a little disappointing. Our biennial budget shortfalls are still with us, which means the job is not quite done.

The structural deficit is estimated to be in the neighborhood of $725 million heading into the next state budget, the biennial spending blueprint the state will follow in 2015-17.

Yet in his State of the State, Gov. Walker spelled out a plan to return most of the projected surplus back to the taxpayers by cutting property taxes and changing income tax withholding rates.

As much as I appreciate getting money out of Madison before politicians get their hands on it, my property tax bill already has moderated (thanks in large measure to Walker) and we still have a structural deficit to deal with.

We also have the very real possibility of another looming Medicaid shortfall, and even though we’ve added to our rainy day fund in recent budgets, it won’t last very long in an emergency or an economic downturn.

Alas, it’s an election year, and passing out goodies is the order of the day.

Gov. Walker, all the members of the Assembly, and half the state senators face re-election in November, and this flood of tax revenue is burning a hole in their pockets.

Still, most of the Republicans on this fall’s ballot, including Walker, ran on fiscal responsibility, and while there has been hard-won progress on the structural deficit, it has not completely vanished.

“What do you do with a surplus?” the governor asked during his State of the State. “Give it back to the people who earned it. It’s your money.”

A fine sentiment, if we didn’t have this structural shortfall to deal with. But we do, and we should apply some of the surplus tax revenue to it.

I say some because there is one aspect of the governor’s proposal that I like, and that’s withholding less from our paychecks. The state takes more than is called for by law and returns it at tax time, which basically enables state government to secure an interest-free loan from you and me. I’d rather have it up front, thank you very much, and devote the remainder of the tax surplus to paying the state’s bills.

As for the rest of his plan, Gov. Walker pledged to work with the Legislature, and even though his party is in the majority of both houses, it looks like he’ll have to. That’s because wiser heads, even some heads that are up for re-election, want to devote some of that surplus to prudent things that aren’t politically expedient.

Walker therefore might not have the votes, especially in the state Senate, for his tax cut proposal. If not, he better be willing to deal.

Some Republican lawmakers are confident that revenue gains show that past tax rate cuts have proven their worth as economic stimulus, and that tax collections will continue to grow, thereby enabling them to play Santa Claus as election day approaches.

(Continued)

They have a point, up to a point. Marginal cuts in state tax rates have stimulated economic growth, resulting in modest job growth and more (not less) revenue to state government, but we’re not out of the economic woods yet.

Exhibit A: While the national economy grew at strong pace (4.1%) in the third quarter, it would be nice to see that sustained over consecutive quarters before people assume we’ve turned a corner.

Exhibit B: December’s preliminary national employment figures, which indicated that only 74,000 new jobs were created, are not exactly a reminder of the “go-go” days of the 1980s or 1990s. In his State of the State, Walker claimed that job creation in Wisconsin picked up in the latter half of 2013, but let’s wait and see what the quarterly data tell us. (After the State of the State address, the Department of Workforce Development released encouraging preliminary jobs data that indicates the state created 3,000 jobs from November to December of 2013, the state's unemployment rate fell to 6.2%, and that 43,900 jobs were created from December 2012 to December of 2013. The December figures are based on a very small sampling, about 3% of state businesses, which means they are subject to substantial revision in subsequent months. The quarterly data, produced in the Quarterly Census of Employment and Wages, is based on a much larger sample, roughly 95% of state businesses, and therefore is considered a more accurate barometer of job growth.)

What’s more, we’re still not sure what positive, negative, or neutral impacts the full implementation of the Affordable Care Act will have on job creation, and therefore tax revenue, in 2014.

Until we do, a little more prudence is in order, whether or not your name is on the ballot this fall. I realize this view isn’t politically sexy, but someone has to be the adult in the room. Grown-ups solve problems like structural deficits. They solve them completely. 

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