Wisconsin May Be Broke - But Not Because of Union Pensions

Madison.com:

Is Wisconsin 'broke'? Answer is in the eye of the beholder, experts say
In his inaugural budget address, Gov. Scott Walker stood before a joint session of the Legislature and delivered the somber news: We're broke.

"Too many politicians have failed to tell the truth about our financial crisis," he said. "The facts are clear: Wisconsin is broke and it's time to start paying our bills today so our kids are not stuck with even bigger bills tomorrow."

The governor has repeated the message time and again, from his Inauguration Day speech to a "fireside chat" to discuss his proposal to limit collective bargaining for most public employees. It is usually followed by calls for budget cuts.

Trouble is, many experts say Wisconsin isn't really broke.

"That is not correct," said Andrew Reschovsky, a professor of public affairs and applied economics at UW-Madison's La Follette School of Public Affairs. "Wisconsin has a range of options other than cutting spending."

There are a number of ways to judge whether a state's finances are in order.

Economists often look at a state's pension funds, and whether they have more liabilities to be paid than money saved. They also typically look at the imbalance between the money coming in and money going out in any given budget, known as the structural deficit.

Pension outlook good

When it comes to its pension system, Wisconsin is far from broke. Current assets in the Wisconsin Retirement System total about $80 billion, expected to cover its obligations promised to current workers and retirees, making Wisconsin's retirement system one of the largest and most solvent pension funds in the country.

"Wisconsin gets a gold star," Reschovsky said. "We have a strong pension system."

The state is in especially good shape compared to our southern neighbor, Illinois, which has one of the worst pension shortfalls in the United States.

Another common measure of a state's bottom line is how much of its budget is already spoken for because of commitments made in prior budgets, the structural deficit.

Before Walker introduced his budget, the state faced a $3.6 billion deficit for the two years ending July 2013. That's close to 13 percent of its budget, putting it in the middle of states nationally, according to the Center on Budget and Policy Priorities.

Eye of beholder

Even so, Wisconsin hasn't been bouncing checks or defaulting on loans.

"Wisconsin is Republican broke, but it's not broke," said Mordecai Lee, a UW-Milwaukee political science professor and former Democratic state lawmaker. "Broke suggests near bankruptcy."

Using the word "broke" helps Walker frame the debate around his controversial budget plans on his terms, Lee said, suggesting spending cuts are the only option and any tax increases are out of the question.

He cited Walker's business tax cut laws, passed during a special session on the economy, as an example. The legislation could end up costing the state about $116 million in the next budget.

"We weren't too broke to do tax breaks for corporations," Lee said.

Walker makes no apologies for using the term. "I've never said we stand alone," he said. "But if you have a budget deficit, you're broke."

Walker said he is not only concerned about balancing the upcoming budget but is thinking in terms of balancing the one after that.

Other budget options

Most agree this is not going to be an easy budget, especially without the option of tax increases. Walker's proposal includes $1 billion in cuts to education in addition to Medicaid cuts and less money going to counties and municipalities.

Walker and Republican leaders have said the law to dramatically limit collective bargaining for public workers, currently on hold because of a legal challenge, would help local governments make up for cuts in state aid by raising pension and health care contributions on employees. Many of those municipalities say it won't be enough to cover the cuts.

Of course, there are other options. Other governors, Democrats and Republicans, have raised taxes and fees, raided money from segregated funds such as the transportation fund, or used one-time sources of revenue to balance the budget.

Assembly Minority Leader Peter Barca, D-Kenosha, said he supports targeted tax relief tied to job creation. But he said proposed tax breaks could create tax loopholes for large corporations.

For example, changes to a current state law requiring large, multistate companies that do business in Wisconsin to be considered one company for tax purposes, a policy known as combined reporting, could mean millions of dollars less in tax revenues, Barca said, at the cost of key programs such as education.

"Education is your seed corn," he said.

He added Democrats faced a much larger deficit, about $6 billion, two years ago and addressed it while protecting things such as education and health care.

'Acting broke'

But to do that, Republicans say, Democrats and then-Gov. Jim Doyle used short-term fixes, causing the problem to reappear this year.

Senate Majority Leader Scott Fitzgerald, R-Juneau, said in recent years, budgets have been patched together by multiple "budget repair" bills, numerous fund raids and federal money to mask the continuous deficit. And he pointed to a November 2009 Pew Center report that named Wisconsin one of the top 10 states "in fiscal peril."

This budget will end those money tricks and create greater financial stability, he said.

"Do we have a responsibility to put in place an honest and legitimate budget? Yeah," Fitzgerald said.

He added the state has other obligations that need to be taken into account, including $1.6 billion in unemployment insurance money owed to the federal government.

But are we broke?

Maybe not. But when he looks at the increasingly desperate measures governors and lawmakers have taken to get from one budget to the next, Fitzgerald said, "we've been acting broke."