Wednesday, August 02, 2006

Contextualizing the Structural Deficit

Most voters likely cringe when they hear that the state of Wisconsin has a $1.5 billion structural deficit. And that’s exactly what the Green Team wants them to do.

What Green doesn’t want voters to do is figure out exactly what that structural deficit figure means.

Essentially, the equation being used is this:

Cost of Commitments for Next Budget – Revenues from Current Budget = Structural Balance

The big piece that’s missing from the equation, of course, is the amount that revenues will increase from the current budget to the next budget. The biggest generator of state government revenue is the income tax. As state personal income increases, so too does state income tax revenue. Other revenue sources increase in similar ways.

So how much additional revenue is expected for the next budget?

There’s no way to get an exact figure, but estimates put it at $1.9 billion. This is assuming 5 percent revenue growth, which is on par with the growth experienced in recent years.

In short, the expected increase in revenue is enough to cover the current commitments in the upcoming budget – and then some.

Of course, it’s important to note that current commitments in the next budget can (and likely will) increase, which means some prioritization will need to take place when the budget cycle begins. This is normal.

But the Green Team is claiming that a structural deficit shouldn’t exist at all. As campaign manager Mark Graul put it: “Why don't you get to a point where you don't start in a hole?”

The fact is it’s difficult to have existing revenue levels cover all of the commitments made for a future budget. Just as cost of living for households increases each year, so too does the cost of providing government services. To expect stagnated revenues to cover those increasing costs is asking a lot.

More specific to the Doyle Administration, there’s that pesky issue of the largest deficit in Wisconsin history that was inherited from the previous Republican administrations.

And it wasn’t just the economic downturn at the start of the 21st century that brought us into a structural deficit. Here are the structural deficit figures from the past decade, courtesy (see page 5) of the Legislative Fiscal Bureau:

1997-1999: $1.532 billion
1999-2001: $1.503 billion
2001-2003: $1.719 billion
2003-2005: $2.867 billion
2005-2007: $1.546 billion
2007-2009: $1.537 billion

When Doyle came into office in 2003, the structural deficit was nearly twice was it is now. And when Mark Green left the state legislature in 1998 – while a Republican governor was in office – the structural deficit was nearly equal to what it is now.

So if Mark Graul is really interested in why it’s difficult to get to a point where you don’t start a budget cycle with a structural deficit, perhaps he should ask his boss.

And if you really want to see fiscal mismanagement that’s truly scary, then you’re going to want to turn your attention to the federal government over the past five years. I know Green has intimate knowledge of that one.


Anonymous Anonymous said...

it's actually a 2.6 billion dollar deficit

but who is counting?

August 03, 2006  
Blogger Erik Opsal said...

And anon, where do you get your 2.6 billion figure?

August 03, 2006  
Blogger Seth Zlotocha said...

He gets it from a special request by State Senators Mike Ellis and Rob Cowles to add tax breaks for businesses, a rise in public school and health care program aide, and pay raises for state workers (none of which are existing commitments) to the normal structural deficit figure.

This is nothing more than a shell game. To add those figures to the structural deficit throws off any comparision to prior years. Since funding increases aren't included in the structural deficit figures the LFB computes each budget year, it is hardly accurate to include them to this year's figure (if you added increases to the other years, they would go up, too). But, of course, it makes the current deficit figure look even bigger, so -- the GOP thinking goes -- why not play that game in an election year? Fortunately, even the JS was smart enough not to quote that $2.6 billion figure -- heck, even the Green Team isn't using it anymore.

What's more, I acknowledge the inevitable increases that happen outside of the existing commitments with each budget in my post by writing, "Of course, it’s important to note that current commitments in the next budget can (and likely will) increase, which means some prioritization will need to take place when the budget cycle begins." This is a normal part of the budget process -- it doesn't mean it's part of the structural deficit.

To include it in the structural deficit now is akin to saying your household debt is currently $40,000 more than it really is because you're just sure you'll buy a Lexus next year.

August 03, 2006  
Anonymous Anonymous said...

so paying for public schools is like saying you are going to buy a lexus?

i always thought teachers had cadillac health plans

August 04, 2006  
Blogger Seth Zlotocha said...

If we want to protect the 2/3 funding commitment (which Green hasn't taken a position on), the money will be found -- that's part of the prioritization I discussed. That doesn't mean that funding is currently part of the structural deficit, as that figure is defined by analysts.

The overarching point is that to add those increased funds to the 2007-2009 figure without also adding increases to the prior biennial figures makes a comparison (which is what I'm doing in this post) completely inaccurate.

When Mark Green left the state legislature under a Republican administration in 1998, the structural deficit was just as much as it is today -- that's true any way you want to add up the numbers.

August 04, 2006  

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