Kathleen Vinehout Explains How Walker Does it With Smoke, Mirrors and a Billion in Borrowed Cash

By Dennis Brault
The Daily Call (2/28/13)

“You borrow a billion and what do you get?

Another day older and deeper in debt.

Scott Walker don’t you lie to us, ’cause now we know,

you owe your soul to the company store”

(Hum to the tune of the old Tennessee Ernie Ford song Sixteen Tons.”)

The Wisconsin Sate Budget is like a giant pie stuffed with the coming years’ state revenue cash balance. This means there is only so much pie, so how you slice that pie is what the budgeting process is all about. The state’s yearly cash revenues are what stuffs each year’s pie. Under the State Constitutional requirement to cash balance the budget, if the pie being baked isn’t big enough to fill the state’s spending hunger, then the state can borrow some cash to stuff the pie with, so long that is, as the state can afford the cash payments, it’s constitutional.

Did you know that Scott Walker borrowed a billion dollar stuffing for a bigger cash pie and is using the money he borrowed to slice the pie in deceptive ways that support Walker’s narrative of being a tax cutting, budget balancing, surplus creating conservative. This political deception could not have been accomplished without the cooperation of the state’s corporate press, who never question his statements; whose silence belies their corporate bias and whose motto is: “All Corporate Propaganda is Fit to Print.”

The story begins last week when Governor Scott Walker released his budget. I was confused by the reporting of a just over two billion dollar GAAP deficit (Generally Accepted Accounting Principles) for the start of 2014. The reason for my confusion was the difference of almost a billion dollars, between two Walker budgets regarding the GAAP deficit amount at the end of 2013.  In 2011, Walker’s  2011-13  budget forecast ,2013 would end with a three billion dollar GAAP deficit. Then Walker released his 2013-15 budget last week and it showed 2014 starting with a GAAP deficit of just over two billion dollars! What happened?

I was confused. This was a reduction of almost a billion dollars in our GAAP deficit. I didn’t remember reading about this anywhere, so I wondered how Walker had magiacally accomplished this amazing reduction and why wasn’t he bragging about it?

I also wondered why the billion in borrowing Walker had done over the last two years didn’t show up in the new GAAP budget numbers. So I emailed my state representatives and asked them.

Thanks to a quick response from Sate Senator Kathlene Vinehout, I think I now know the answers.

State Media Asleep at the Wheel

Senator Vinehout confirmed that the $2.2 billion GAAP deficit for 2013 is correct and that by 2015 this deficit will increase about a half-billion dollars. Senator Vinehout explained the GAAP deficit was reduced by paying off some obligations but mostly by some slight of hand with taxes owed vs taxes paid.

Walker has pulled off a slick con job on the people of Wisconsin and he did it with the complicity of the state press/media. Walker has borrowed over a billion dollars during the last two years, yet this fact has been little reported by our corporate controlled state media.  Why? We always hear about the national debt. Why never about the state debt? Is media bias the answer? Sure, looks like it.

This billion in borrowed money has allowed Walker to tout, we have taken a complete 180 degree turn to true prosperity with a budget surplus that will help far into our future.” It is not a surplus when you had to borrow a billion dollars to fund the surplus.

Walker Rainy Day Fund Has a Big Leak

Walker claims to have contributed to the rainy day fund, “We are depositing money into the state’s rainy day fund in two consecutive years for the first time in our state’s history. Not if you’re borrowing lots of money to do it.

If you borrow a billion you’ll even have money for, what Walker is hoping will be, a politically popular tax cut: “I am pleased to announce an income tax cut of $343 million.” But again, isn’t calling this a tax cut a sham? I mean if you have to borrow a billion, with it’s added interest payments, so that, “A family of four making $80,000 would save $106 a year under the tax cut?” that’s just dumb.

As if that wasn’t enough Scott Walker deception for one day, Senator Vinehout also reports the state is on the hook for an additional “$560 million in debt payments coming due and not paid” for yet. In other words we will soon be in debt another half-billion. Wanna bet Walker borrows another billion dollars to pay off the debt and calls it surplus rainy-day tax cut pie?

Together these pieces of the Walker budget pie along with the crony capitalism rampant in the budget process and the whole thing just blows beyond stupid. Be silent no more, because your silence is your consent.

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The following is the reply to my questions from State Senator Kathlene Vinehout, it is well worth the read (Emphasis Mine—DB):

Hi Dennis,

I’ve spent a bit of time with the numbers from the budget. Here is what I have learned so far.

The GAP gap – the mismatch between money coming in and money going out using Generally Accepted Accounting Principles – increases in the 2013-2015 budget from $2,211,006,000 to a projected $2,644,600,000. The table you sent is (on page 33 of the Budget in Brief is required by state law. This is the first glimpse we have of the long term effect of the governor’s budget. That is the new budget – but – as you correctly wrote – the governor did decrease the GAPP gap in the current budget.

What the governor did to change the nearly $3 billion projected to $2.1 billion was to pay off some bills that were over-due – the borrowing from the Patient Compensation Reserve Fund and the Minnesota Tax Reciprocity payment. It is also my understanding that the Department of Revenue made a slight adjustment to withholding amount for Wisconsin income taxpayers which made the largest single part of the GAPP gap – the difference between Wisconsin income taxes withheld and Wisconsin income taxes owed – slightly smaller. In addition, the administration makes commitments to local government over the year but doesn’t pay them in full until the next July. As sad as it is to write this, when the governor wacked local government and schools, this decrease was reflected in a lower payment to locals owed but not paid until the final year.

Further, when the state estimated the fiscal situation for 2012-13, they likely low balled the revenue estimates. Which explains why the state ended with about $400 million in surplus. Wisconsin Statute 16.518 provides for the automatic transfer of 50% of the excess of the General Fund tax revenues over tax estimates to be deposited into the Budget Stabilization Fund. So the governor was required to put half of the surplus into what’s also known as the state’s rainy day fund. This contribution off-sets the GAPP gap dollar for dollar. The amounts were: $16.5 million in 2011 and $125.4 million in 2012.

You asked about borrowing. The debt is something very different from the GAPP gap or GAPP deficit. The borrowing is paid off in future year budgets. The GAPP gap only looks at the current year(s) and how the budget is balanced or in a deficit – in the red.

The governor has borrowed more money. Long Term Debt for Governmental Activities as calculated by the Legislative Fiscal Bureau has grown from $9,938,655,000 in 2010 to $10,593,140,000 in 2011 and $11,046,487,000 as of June 30, 2012.

In addition the governor has not paid debt payments coming due in 2011 and 2012. These payments were refinanced not to capture a lower interest rate but to avoid making payments and, in some cases, to raise additional cash through the sale of bonds “at a premium” meaning sold at a higher interest rate than market to capture a cash up-front payment. The total amount is over $560 million in debt payments coming due and not paid. This bad business practice will catch up to the governor in the next budget at the percent of debt payments as a percent of all general spending will increase well above the financial managers’ recommended threshold. I’ll  be writing more about this in the coming months.

Do you receive my weekly column? If not, I will add you to my list. You can always unsubscribe, but, my guess is that you will find it interesting.

I hope this helps you understand the convoluted financing of state government. Thanks so much for your interest in this topic, Dennis.

Sincerely,

Kathleen

Senator Vinehout’s weekly column:
http://www.legis.state.wi.us/senate/sen31/news/

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