Monday, February 10, 2014

It's cold outside, so pay the bills instead of cutting taxes

There have been a couple of interesting updates on the proposed new round of tax cuts and the effects of this awful winter on the state and local budgets.

First of all, as temps are again projected to fall to -20 tonight, we've seen several stories showing the toll this cold and snowy winter is having throughout the state. Salt shortages continue throughout the state, and several places are having to take measures to deal with large amounts of frozen pipes and water main breaks (we had one on our street in Madison last week). This includes Fond du Lac, the cities of Waukesha and West Bend, numerous communities in Western Wisconsin, and in Monona and Reedsburg. This will run up bills for both homeowners and local governments for the water repairs, and also will likely require extra work on the streets for this Spring and Summer.

There are also higher costs coming from huge increases in the costs to heat buildings and homes. The Milwaukee Journal-Sentinel gave an idea on the level of this hit resulting from this winter.
Frigid January temperatures pushed heating costs for Wisconsin utility customers up by 25% to as much as 40%, depending on the utility.

Back-to-back bitterly cold air masses — those polar vortexes — are to blame for the big run-up in heating costs for customers using natural gas.

Demand for natural gas was so heavy with the frigid weather that We Energies shipped more of the fuel to customers in January than it had done in any other month on record, utility spokesman Brian Manthey said.
And this was before this latest cold outbreak that could drive those numbers even higher. It would seem prudent to wait to find out how much the increased costs would be, as legislators would look quite foolish if they had to double back and cut something else to pay for these bills later this year.

The recent developments also makes the $43 million proposed for extra road projects nothing more than a token measure that may do little to reduce the needs in the state. That bill is scheduled to be taken up by the full Assembly tomorrow, and while it's nice to accelerate a little road work, it is still slated to be taken out of the Transportation Fund instead of the surplus in the General Fund. That decision means there is even less cushion inside of the Transportation Fund left for this year, and there is still $1 billion in extra Transportation needs unaccounted for in the next budget. That $1 billion was before we figured any emergency funds that might be needed due to the added costs from this winter, by the way.

The Legislature is also still talking about the tax cut package, and there was another development in that today. The Legislative Fiscal Bureau released information on 3 amendments to the package that was passed by the Assembly's Jobs, Economy and Mining Committee (in itself an odd decision by Speaker Robbin' Vos, as the Joint Finance Committee usually takes up budget bills like this). Jason Stein has an article on these provisions and other fiscal bills being taken up (including the $43 million in highway spending), and it looks like the amendments include a targeted giveaway to contractors that do work for non-profits and government buildings.
AA 4 would extend the exemption from the state sales and use tax to include sales to a construction contractor who makes purchases of tangible personal property and, in fulfillment of a real property construction activity, transfers that property to an exempt entity...provided that the property were to become a component of a facility in Wisconsin that is owned by that exempt entity. For purposes of this exemption, a "facility" would mean any building, shelter, parking lot, parking garage, athletic field, athletic park, storm sewer, or water supply system. "Facility" would not include a highway, street, or road. The proposed exemption would take effect on the day after publication of SS AB 1, and would first apply to contracts entered into on July 1, 2015. The amendment should be modified to also include an effective date of July 1, 2015. Otherwise, the new tax exemption would appear in the statutes for more than one year before it first applies.

In general, construction contractors must pay sales and use taxes on their purchases of taxable goods and services under current law. However, if an entity exempt from the tax purchases property on behalf of the construction contractor, transfers those items to the contractor, and the items become a component of a real property construction in Wisconsin that is owned by the exempt entity, no sales and use tax is collected from the construction contractor under current law. Surveys of construction contractors indicate that many, but not all, local units of government and not-for-profit organizations purchase tax-exempt property to be used by contractors. The Department of Administration's Division of Facilities Development, however, indicates that the state does not purchase taxable property on behalf of state contractors. Based on data from the U.S. Census Bureau, state expenditure reports, growth estimates from IHS Global Insight, Inc., and construction contractor surveys, it is estimated that the amendment would reduce state sales and use tax revenues by $20 million, annually, beginning in 2015-16. It should be noted that the estimated reduction in state tax revenue could vary from year to year depending on the number of construction projects authorized and entered into by the tax-exempt entities.
Two major problems with this 1. You know that amendment is the result of a sketchy situation where some interested party whispered in a legislator's ear (in this case, State Rep. Andre Jacque), and it got thrown in there for no other reason other than making a contributor certain party happy. 2. It adds another $40 million to our structural deficit ($20 million less in each of two years), bringing the total deficit near $850 million if all tax cuts and changes were passed.

In addition, the LFB reported today that if all of the tax cuts in the Walker/WisGOP package were to be approved, there would be basically zero breathing room left over the next 17 months of this budget.
Recently, the Governor signed into law seven bills dealing with mental health (2013 Acts 126 to 132). For 2013-15, those bills appropriate $4,220,000 from the general fund to various programs. Thus, the transfer to the budget stabilization fund is reduced by that amount to $4,943,800 ($9,163,800 - $4,220,000).

If additional bills are enacted during the current legislative session, the general fund fiscal effect of those bills cannot exceed $4,943,800 if the statutorily required balance of $65 million is to be maintained.
It also means that if our revenues fall short of the LFB estimates by even 1%, we will need a significant budget repair bill before the end of June 2015. And by the way, this is before deciding what to do with the state's $93 million Medicaid deficit, or its $43 million W-2 deficit. In addition, the last two months of U.S. job reports have been lackluster, and other reports have shown the economy isn't expanding as fast as predicted. With these factors in mind, and with state and local governments needing funds to take care of expenses resulting from this rough winter, does it make any sense to you to blow a not-yet realized surplus on more tax cuts?

Only if you think George W. Bush's Administration's strategy of "cut taxes, run up the deficit, and screw the next one in office" was a good one (this is also known as "starve the beast"). And I thoroughly believe that tying the hands of future (Dem) governors is part of the plan with this puppetmasters of this administration, (whether Governor Walker knows it or not is debatable). This crowd doesn't care how many needs go unmet and what type of condition Wisconsin is left in, as long as they and their campaign contributors got paid first, and got out before the disaster hit.

1 comment:

  1. The thing to keep an eye on is table 3 on page 11 of the LFB's January revenue re-estimates.

    FY14 and FY15 have to grow revenue by 2.2% and 4.3% or else we're in trouble.

    The good news is that sales tax revenue in FY14 through January is up 6.5% on the same 7 months in FY13, this compared to the 5.2% it is projected to rise by. Note that withholding is going to take a funny path with the newly-revised withholding tables for calendar 2014: the second half of FY14 should see low or more likely negative year-on-year revenue growth as a result.