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Monday, September 22, 2014 |  Madison, WI: 44.0° F  Fair
The Daily
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Playing politics in Wisconsin with property tax relief?
Gov. Scott Walker's plan to return a onetime surplus to voters is a familiar strategy
So why spend rather than save?
So why spend rather than save?

Providing property tax "relief" seems to be the go-to crowd-pleaser for Wisconsin governors on both sides of the aisle.

Among those who recently went this route is former Democratic Gov. Jim Doyle, who proposed $700 million in increased school aid and $150 million in levy credits to effectively freeze property taxes in advance of his 2006 reelection bid. Former Gov. Tommy Thompson continued to crow during his recent bid for U.S. Senate that he delivered $1.2 billion in local property tax relief in the 1995-97 budget.

And now Gov. Scott Walker, a Republican up for reelection in November 2014, is promising to deliver property tax relief by using a projected $100 million "surplus" to increase aid to schools over the next two years. Because schools remain under state-imposed spending caps, most will have to reduce property taxes to offset the increased aid. Under this plan, property owners would not receive a refund, but Walker says the typical homeowner would save $680 over four years.

An analysis (PDF) by the Legislative Fiscal Bureau, however, suggests the savings would be much smaller: about $13 a year in 2014 for the owner of an average $148,000 home and $20 for the same homeowner in 2015. Walker's spokesman, Tom Evenson, did not return emails seeking clarification on the governor's savings estimate.

The Legislature's Joint Finance Committee unanimously passed Walker's plan Tuesday. The Senate also approved the plan Tuesday, and the Assembly is expected to take up the bill as early as Thursday.

Wisconsin governors and lawmakers regularly pounce and spend at the first sighting of a surplus -- even as the state's cash reserves for emergencies remain among the lowest in the nation and the state continues to borrow money for such basic services as transportation.

According to the 2013 Annual Fiscal Report (PDF) released by the Department of Administration on Tuesday, the state will make a deposit of $153 million into the state's rainy day fund -- also known as the budget stabilization fund -- due to a larger-than-expected surplus of $759.2 million. In a news release, Walker hailed the rainy day fund deposit as the "largest ever" in the history of the fund and noted it brings the total to $278.5 million.

That sum is a "significant improvement" from recent years, says Jon Peacock, research director of the Wisconsin Council on Children and Families and head of its Wisconsin Budget Project. For most of its existence, the rainy day fund has had year-end balances of less than $2 million, according to the Budget Project. But even at close to $300 million, it remains low compared to those of other states and amounts to just 2% of annual state spending, says Peacock.National Association of State Budget Officers, which tracks state budgetary and fiscal issues, advises that rainy day funds equal at least 5% of a state's total expenditures to "provide a relatively adequate fiscal cushion." In the wake of the recent recession, some analysts have suggested that even more be set aside.

So why spend rather than save?

"The reason we do that is because lawmakers find it so tempting to score political points by giving back money in ways that aren't sustainable," says Peacock. "I think Wisconsin politicians have felt less pressure to be careful stewards than legislators in other states. I'm not sure why."

Todd Berry, president of the Wisconsin Taxpayers Alliance, also suspects politics. The governor authorized a special session of the Legislature this week to fast-track his proposal so the tax cut would be delivered in December's property tax bills. As Berry told Wisconsin Public Radio: "December is the operative month because that's when property tax bills come out, and those are the last property tax bills before the [gubernatorial] election."

About 10 years ago Wisconsin lawmakers signaled they were ready to save some dollars when they passed legislation to raise the minimum balance in the state's general fund.

Think of the minimum balance as fluid funds in your checking account that can be used to deal with unexpected expenses, while the rainy day fund is that CD you don't want to touch unless you really have to.

But rather than put into effect the requirement to set aside 2% of annual spending, lawmakers have instead voted each budget cycle to delay implementation for another two years.

"If you have a requirement on the books to increase the budget balance by a couple of hundred million, that will add to the structural deficit," says Peacock. "But if you put that requirement off to the next biennium, then it doesn't show up and make you look bad."

Structural deficits result from a gap between future revenue and future spending.

Without the new law in place, the state continues to put aside just $65 million -- or less than one-half of 1% of annual spending.

"The biggest thing that contributes to structural deficits is building up a substantial surplus and then using it quickly for permanent new tax cuts or spending," says Peacock. "Where does that leave you in the next biennium? It leaves you with a hole."

And that is exactly what an Oct. 15 memo (PDF) from the Legislative Fiscal Bureau suggests will happen. The bureau estimates the structural deficit, also called a structural imbalance, in the 2015-17 biennium will be $725 million if Walker's property tax relief plan is approved.

It also estimated that only $125 million in "gross balance" will be left at the end of 2014-15.

That amounts to less than 1% of state general fund spending, says Peacock, and is a "precariously small margin of error in budgeting, especially when an ongoing impasse in Congress could have catastrophic consequences for the U.S. economy."

The governor's office did not respond to a request for comment about these fiscal estimates.

That Democrats joined with Republicans to vote for Walker's plan suggests just how politically unpalatable it is to vote against property tax relief.

"The bipartisan vote for the property tax legislation demonstrates yet again how short-term political gratification almost invariably trumps long-term fiscal responsibility in our state," says Peacock. "The bigger the budget balance at the end of one biennium, the more state lawmakers use onetime savings for long-term commitments and the larger the structural deficit in the following biennium."

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