Thursday, May 15, 2014

Growing State Debt is Unsustainable

From the 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 billion 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.

Senator Kathleen Vinehout 

14 comments:

  1. that is weird. Vinehout makes no mention of Doyle robbing the transportation fund, or the decrease in vehicle miles traveled, or that the gas tax hasn't been adjusted in over a decade. Is the debt too high? maybe it is. but I wholeheartedly believe that it would be worse under liberal leadership.

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    1. Cory,

      you sure are something. Who cares what doyle did. thats past history.

      We sure moved from busch as soon as obama was elected.

      Right now and I mean now we have debt and it needs to be addressed period.

      Get your head out of the us, we phase and think abouit the state as a whole.

      Delete
  2. You are correct it is weird she didnt mention that because Walker sucked $3,000,000,000 dollars of demand out of the Wisconsin economy, people are traveling less and buying less.

    I find it interesting your solution is raise taxes. Not surprising but interesting.

    I also love your conclusion that under liberal leadership it would be worse because we have had republican and democratic control in our history and no one has borrowed more money than Walker.

    That is my favorite thing about the new Fitzwalkerstan. Full Speed ahead, facts and data be damned!

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  3. Jeff, you are a fool. But I cannot hold that against you. You are who you are. However, I don't believe I ever mentioned that we should raise the gas tax. I merely pointed out that it hasn't been done. In fact, raising the tax, in 2014 or beyond, is the dumbest idea one can have to solve the long term transportation shortfall, for the exact reasons I mentioned above. So, you read my first comment fine, that is good. Now let's work on comprehension.

    And I am waiting for Anon @10:20 to chastise you for US vs THEM like he did to me. I won't hold my breath though because I know in general of the double standard held by most fans of this blog.

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    Replies
    1. Cory,

      Which is worse double standards or no standards at all.

      You be the judge.

      You seem to have all the answers.

      Delete
  4. As long as there is a republican in the office. Deficits Don't Matter. As per Dick Cheney and Paul Ryan

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  5. On the same mailing list Jeff and I was disappointed that the hundreds of millions in Republican regime tax breaks for the "job creators," has consequences. The rest of us will be paying the interest on the gifts we've needed to borrow for in order to be able to pass that borrowed wealth to the few friends of Walker. (How many friends would he have without buying them?)

    Notice the new talk of toll roads and gas taxes being touted as likely necessary to be imposed on those least able to afford them, yet NOTHING is discussed, even as an option, in the sense of modernizing and re-creating a vision of mass transit as a better place to be spending transportation dollars as the Kochs push for higher rates of carbon based fuels to be funneled through pipeline, truck and rail in WI with its attendant mandatory spills, explosions and air quality degradation and no regard to anything but short term profits for them and their minions.

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    Replies
    1. Sorry, should have typed, "...has consequences and these were not mentioned in the letter."

      Thinking faster than I can type. Thanks for publishing Sen Vinehout's letter.

      Delete
  6. How can we have tax cuts if we pay off the debt? Tax cuts win votes. Paying off the debt only matters if a Democrat is in office.

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  7. Amazing how Republicans sell out. They're so blinded by irrational hatred of unions (which impact a small sliver of the workforce anyway) they've ceded fiscal conservatism and a position of smaller, future looking government investment to Democrats. Every Democrat in the state should make this an issue.

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  8. We are next...http://goo.gl/h0ZaHD

    What a pair Laurel and Hardy. Guess who's who.

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  9. Then truth is - Walker has set this state up for another financial crisis in 2015.

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  10. Sen Vinehout, we need a simple chart that tells this story at a glance. Otherwise, voters just don't get it.

    Every picture tells a story...

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  11. Great -- now dems have a platform to demand austerity...

    We really can't win with this strategy. Yes, walker did set the state up for a fiscal train wreck -- but by hook or crook, he will be out of state when the sh!t hits the fan (just like tommy).

    But NO -- the answer is not to continue to kill our economy by spending less and reducing demand across the economy.

    ReplyDelete