Conservatively Speaking

The recession ends, our fiscal collapse continues

Posted by Mary Lazich on Jan. 25, 2010

Economy, State budget

Pummeled in the press daily for its massive fiscal dilemma, the state suffered from a host of economic setbacks: loss of state revenues, huge budget gaps, increasing unemployment, high rates of foreclosures, and questionable fiscal management policies.

The state, of course, is California. But as referees in the National Football League say every Sunday, after further review, the scenario described could just as easily be Wisconsin. California is a member of an exclusive club when it comes to budget catastrophes, sending the Richter scale off the charts. Similar factors that have sent California's economy into the Pacific Ocean have plagued Wisconsin and its ability to recover, grow, and prosper.

The Pew Center for the States has released a report, "Beyond California: States in Fiscal Peril" that outlines 10 states, including Wisconsin that are experiencing the same kinds of problems that drove California into disaster. While Wisconsin doesn't have the magnitude of the problems California is facing, our state has similar problems. Punctuated with one alarming finding after another, the report should be a loud wake-up call for state government.

Wisconsin was slammed harder than most states by the current recession that has lasted more than 23 months. Income tax revenues faltered because close to 140,000 people lost their jobs. Out of work, people spent less resulting in a drop in sales tax revenues.

Analysts at the Pew Center squarely pointed accusatory fingers at state government, charging fiscal mismanagement. The report writes, "Wisconsin's state government has struggled for years to keep its promises to pay a higher share of school costs while holding property taxes low. Often, lawmakers shifted money around, taking money from the state's transportation fund, for example, to pay for day-to-day operations-and then borrowed to cover the transportation budget.

Legislators also failed to put money in reserve before the recession hit."

The conclusion is correct. Wisconsin has itself to blame for its current dire straits. 

Immediately following the signing of the 2009-11 state budget, Governor Doyle bragged in his defense of the most irresponsible budget in state history that it was completed on time. It was far more important to get it done right, and this budget failed in every way imaginable. It taxed, spent, and borrowed too much, and was just loaded with pork and non-fiscal policy.

The ink from Governor Doyle's pen wasn't even dry, and the budget he signed created a deficit of $2.049 billion in the 2011-2013 state budget according to the Legislative Fiscal Bureau (LFB). The yet-to-be addressed 2011-2013 state budget has a structural deficit of over $2 billion meaning projected revenues will not be anywhere near enough to cover committed costs in the next state budget. Under the 2009-2011 state budget, property taxes on a median-valued Wisconsin home will increase $93 this year and an additional $123 next year.

Compared to the $62.2 billion in spending from all sources that he approved, the governor vetoed about $10 million, or less than 0.02 percent according to the Wisconsin Taxpayers Alliance. That translates to yet another missed opportunity for fiscal responsibility leading to a budget that inflicts astounding fiscal damage, a vicious assault on taxpayers.

If you believe the mainstream media and some economists, the December 2007 recession is over. When it does officially expire, Wisconsin will struggle to crawl out of its economic abyss.

Dennis Winters of the Office of Economic Advisors in the Wisconsin Department of Workforce Development predicts Wisconsin can expect higher unemployment and more jobs lost in the months ahead because employment gains always lag economic gains. Winters reports that following the 2001 recession, Wisconsin's seasonally adjusted unemployment peaked 17 months later with 30,000 more workers unemployed. Worse yet, Winters says that after the 2001 recession, it took an alarming 50 months for job levels in Wisconsin to reach the previous seasonally adjusted peak.

Before businesses start hiring new workers, they will first increase hours and overtime. Only when they believe demand has increased will they add to the workforce. The brain drain will expand as Wisconsin will lose people moving to other parts of the country that recover more quickly. When the recovery does kick in, stimulus money states depended on will have run out causing more budget headaches.

Wisconsin's road to recovery will be rough and long. The outlook begs the question: Just how catastrophic must conditions become before we learn from our past economic errors?