Wisconsin’s coming choice: Grasshopper or ant?
In Aesop’s fable, a grasshopper enjoys a carefree summer while an indefatigable ant stockpiles food for the cold months ahead. When winter arrives, the famished grasshopper asks for help, only to be rebuked by the ant for his past indolence.
The lesson is timeless: Early and persistent saving is the best way to prepare for an uncertain future. Yet it is a lesson Wisconsin’s elected officials have failed to grasp after multiple recessions over 30 years. The result? Unnecessary tax hikes and divisive program cuts.
Now, as state government begins budgeting for 2013 and beyond, our political leaders will have to decide whether to embrace fully the discipline of the ant.
It will be a challenge, if the last recession and past state management of its budget balances and rainy-day fund are any indication.
When the downturn began in 2007-08, Wisconsin and Arkansas had the smallest budget reserves relative to spending of any states (1% and 0%, respectively). Most states were better prepared, with reserves averaging 8.6% of spending. Minnesota (11.3%) and Iowa (10.9%) did even better.
Wisconsin finances improved little in subsequent years. By 2010-11, only Arizona, Arkansas, California, and Washington were fiscally weaker than Wisconsin (0.6%). In 2012, budgeted reserves here rose to 1.6% of spending. Still, about four in five states had larger balances.
The state recently released its 2011-12 Annual Fiscal Report, which details how Wisconsin raises and spends its tax revenues. Wisconsin ended fiscal 2012 with a surplus of $342.1 million, an amount larger than first budgeted.
In dollar terms, this is the largest general fund surplus since 1999-2000, the final year of an economic boom. During nine of the last 12 years, budget balances were less than $100 million. Though this seems large to a family, school, or municipality, $100 million equals only 0.7% of last year’s net state spending. It’s a small amount that could last the state only a few days.
Moreover, the 1999 state budget required Wisconsin to maintain a “statutory reserve” equal to at least 2% of spending by mid-2005. But all subsequent governors and legislatures have delayed implementing the law.
In addition to this routine budget reserve, Wisconsin is one of 47 states with a budget stabilization, or rainy-day, fund. After the severe double-dip recessions of the early 1980s, there was bipartisan agreement that annual appropriations to such a fund would smooth out the state’s erratic boom-bust budgeting.
But unlike many other states, Wisconsin never appropriated any money for the fund. The only deposits to the fund occurred because of a 2001 requirement that some general fund taxes above budgeted amounts go to the fund at the end of a year. That first occurred in 2007, but the money was removed within a year. Similar required deposits were made in 2011 ($15 million) and 2012 ($109 million). Though it remains small, this means the amount in the rainy-day fund reached a high ($125.3 million) in mid-2012.
What of 2013? Now, with appreciable balances in both reserve and rainy-day accounts for the first time ever, Wisconsin approaches its 2013-15 state budget with a choice: Will we begin planned saving for future recessions or return to our old ways? Fiscal experts typically recommend states retain reserves equal to at least 5% of annual spending. If it finally honors the 2% statutory-reserve requirement and begins budgeting savings for its rainy-day fund, Wisconsin will take first steps toward that goal – and signal its intent to shed its grasshopper past in favor of a wise, antlike future.
Todd A. Berry is president of the Wisconsin Taxpayers Alliance.
Sign up for the free IB Update – your weekly resource for local business news, analysis, voices, and the names you need to know. Click here. If you are not already a subscriber to In Business magazine, be sure to sign up for our monthly print edition here.