From my email inbox:
“I was wondering how Wisconsin’s state debt has been trending over the last several years,” Dave from Durand wrote me. “I’m also curious to know why there has been no talk of paying off the state’s debt.”
The state’s debt is important. Before any other bill gets paid, or any other service delivered, the state must make payments on debt. When money goes to pay off bonds – the way the state incurs debt – that money is not available for roads, schools, health care or public safety.
Too much debt can lead to less money available for everyday operations – as more general revenue is used to pay off debt. Think of the credit card or mortgage payment taking up more of your take home pay.Over the past twenty years the state’s debt has tripled.
In a paper I recently received from the Legislative Fiscal Bureau (LFB), the state’s total indebtedness went from $4.4 billion in 1996 to a projected $14.6 billion in 2015.
For comparison, in the fiscal year 2014-15, the state is projected to take in a total of $14.7 in tax revenue.
From 2007 through 2010, during recession years, total indebtedness increased by 23%. In 2011 through 2015, projections show an increase of a little less than ten percent.
Part of the reason debt grew at a slower rate in the past four years is that two funds- one to clean up petroleum spills and another to finance clean water projects- are winding down. These bonds will eventually be paid off, lowering the total indebtedness of the state.
But other types of debt are increasing – potentially at an unsustainable rate.
The two main types of bonds, General Obligation and Transportation Revenue, grew by 15% during the recession and 18% since 2011. One reason debt grew at such a high rate in the past 8 years? Both Governors Doyle and Walker restructured debt to avoid making a payment – using the cash saved to cover state operations. This led to extraordinarily high debt payments.
Perhaps the most serious financial problem going forward is that the state cannot support the current level of borrowing for transportation. Borrowing for roads and bridges was nearly $1 billion in the last state budget. Debt payments on this loan is projected to be 20% of all the money coming into the Transportation Fund by the first year of the next state budget according to another paper I recently received from LFB.
Some state officials imply the current problems with money for roads are because of borrowing from this fund for state operations ten years ago. This is utter nonsense.
For the last two state budgets, money was moved from the General Fund (85% of which goes to pay for schools and universities, health care, local government and public safety) to the Transportation Fund. Much of this money was “one time” meaning the gap between spending and revenue only got higher in the next budget.
Instead of cutting spending, the governor and legislative majority increased borrowing for transportation.
This is why interest on the transportation debt has jumped from 11% of the fund in 2009-10 to a projected 20% in 2015-16.
Too much debt can affect the state’s credit rating leading to increased interest costs on future bonds. States are rated based on risk by several bond-rating agencies.
When bond-rating agencies look at the credit worthiness of a state, they look at the state’s overall financial performance compared to other states. With the exception of Illinois, Wisconsin already has the lowest Moody’s bond rating of seven states in the Midwest.
In January, Moody’s mentioned Wisconsin’s “below average balance sheet position” and “sizable negative GAAP balances” in assigning a credit rating. Looking towards the future, Moody’s said, “The state’s ability to make progress toward structural budget balance and improve its liquidity and fund balances will be important to future credit analysis.”
There is no free lunch in state budgeting. Spending too much and collecting too little in taxes leads to a budget imbalance and more borrowing.
Dave, you’re asking the right questions. We need to talk about the state debt.
How does this square with Walker’s insistence that he wiped out the debt? It’s one thing to restructure the debt and another to say you wiped it out. How does Walker get away with this? Why isn’t Mary Burke calling him out? Not only hasn’t Walker eliminated the debt, he has set the stage to increase it significantly. Few people know this!
Front page news from the Eau Claire Leader Telegram this morning was the top headline that Walker “has created 28K new jobs in Wisconsin.” It goes on to say that this is “37% of the 250K new jobs he promised during his 4 year tenure.” Sorry, no link, LT hasn’t posted the story online yet. I think the media recognizes a significant move away from
Walker to Mary Burke and wants to counter. The Federal Court’s rejection of Wisconsin’s voter and corporate campaign regulations and the John Doe investigation has also added a perception of significant anti-Walker sentiment. This, however, is no reason for Democrats to relax as the media will be priming to keep Walker followers up in order to induce the huge expected Republican campaign spending in Wisconsin from around the nation and world.
Finance 101
The key phrase in financial double talk is “restructure the debt.” In any organization, public or private, it is a warning, an alarm, a signal of a shortfall in revenue combined with an inability or refusal to reduce spending or worse to increase spending. It is also a sign of mismanagement or even fraud or a hoax if it is chronic and repetitious. It is hypocritical for any governor who defines himself as a conservative to inflict this continuing extension of debt resulting in increased interest costs to the people.
He supposedly wiped out the $3 billion budget deficit. But there is an unconfirmed report that his borrowing and refinancing debt as it came due has grown the state debt [borrowed money that must be paid back] from $6 billion when he took office to over $12 billion by the end of his first term. Some claim it will be $14.6 billion by Jan. 2015. I agree I think most people are unaware of this and I’ve asked the Burke campaign to look into this and I received a polite thank you. Thus if he has borrowed $6 billion and used $3 billion to balance the budget and handed out tax breaks to corporations and tax cuts to voters his economy had nothing to do with the supposed surplus…..he created it with borrowed money. What kind of economic policy for the state is that. I fear he is going to run the state deep into the red and then leave office for a private sector job such as a shill for the Koch brothers. Remember Pres. Reagan is his idol and he raised the national debt astronomically during his 8 years
I think the Democratic leadership is afraid to address this debt, because it may be too great an impediment to many of the civil programs that need shoring up. And this follows the strategy of the GOP. That is keeping to public to poor and deprived to resist the dominance of the 1$. Kathleen Vinehout is not afraid of the debt challenge, however, and this is why we need to keep her in office at all costs.
Sorry. Rushed this morn. Correction: “…too poor and deprived to resist the dominance of the 1%.”
This explains the Walker refusal of federal Medicaid payments as well as the railroad grant of $50 million and the do-nothing tax cut.
Note that one of the best national public qualities of life is said to be in Norway where the nation has a 78% gasoline tax and a well run fast rail system.