STEVENS POINT AREA
ECONOMIC INDICATORS
College of Professional Studies
2009: Third Quarter
Presented
November 13, 2009
Marshall & Ilsley Bank
Presented by:
The Central Wisconsin Economic Research Bureau
Randy F. Cray, Ph.D.
Professor of Economics, CWERB Director
Scott Wallace, Ph.D.
Associate Professor of Economics, CWERB Research Associate
Sarah J. Bauer
Research Assistant
James P. Draxler
Research Assistant
Special Report:
State Finances: Rewind? Or Recovery Ahead?
Todd A. Berry, Ph.D.
President, Wisconsin Taxpayers Alliance
1
TABLE OF CONTENTS
National and Regional Outlook .............................................................................................. 1
Table 1: National Economic Statistics.......................................................................... 1
Central Wisconsin................................................................................................................... 3
Table 2: Unemployment Rate in Central Wisconsin .................................................... 3
Table 3: Employment in Central Wisconsin ................................................................. 3
Table 4: Wisconsin Employment Change By Sector .................................................... 4
Table 5: County Sales Tax Distribution ........................................................................ 4
Table 6: Business Confidence in Central Wisconsin .................................................... 5
Figures 1-6 .................................................................................................................... 6
Stevens Point-Plover Area ...................................................................................................... 7
Table 7: Prominent Industries in Portage County – Average Employment ............... 7
Table 8: Retailer Confidence in Stevens Point – Plover Area .................................... 7
Table 9: Help Wanted Advertising in Portage County ............................................... 8
Table 10: Public Assistance Claims in Portage County ................................................ 8
Table 11: Unemployment Claims in Portage County .................................................. 8
Table 12: Residential Construction in Stevens Point – Plover Area ............................ 9
Table 13: Nonresidential Construction in Stevens Point – Plover Area ...................... 9
Figures 7-10 ................................................................................................................ 10
Special Report ...................................................................................................................... 11
State Finances: Rewind? Or Recovery Ahead?
Association for University
Business and Economic
Research
CWERB - Division of Business and Economics
University of Wisconsin-Stevens Point
Stevens Point, WI 54481
715/346-3774 715/346-2537
www.uwsp.edu/business/CWERB
National and Regional Outlook
The national economy appears to be improving. The Gross Domestic Product expanded by 3.5
percent on an annualized basis in third quarter 2009. This represented a huge improvement
from second quarter when GDP fell by 0.7 percent on an annualized basis and the 6.4, 5.4, and
2.7 declines in the previous three quarters. The National Association for Business Economics,
an association of business economists, believes that fourth quarter 2009 will register positive
growth, perhaps in the neighborhood of 2.5 percent. For those not familiar with GDP, it
measures the dollar output of final goods and services created by a nation over a given time
period. In addition the much watched index of leading economic indicators continues to trend
upward signaling that the economy will continue to improve over the next six to nine months.
Even though the economy may be improving in terms of GDP and other measures of activity,
the employment situation continues to cast a huge shadow over the economy. A number of
analysts think that it may take until 2012 before the labor market fully recovers from the Great
Recession. In September 2009 the seasonally adjusted unemployment rate stood at 9.8
percent. Even at this high level the unemployment rate understates the distress in our nation’s
households. This official unemployment rate does not take into account discouraged workers
who have dropped out of the labor force. Moreover, the official unemployment rate makes no
adjustment for people working part time who wish to be employed on a full time basis. If these
items were factored in, the true unemployment rate would be at least three or four percentage
points higher than the official rate of 9.8 percent. Considering that nonfarm payroll
employment numbers have fallen for an alarming twenty one months in a row, it is easy to
understand why the general public thinks that the economy is not improving in a meaningful
way. Until the growth in GDP is accompanied by substantial job creation the public will judge
the economy to be in recession.
TABLE 1
NATIONAL ECONOMIC STATISTICS
2008
Third Quarter
2009 Percent
Third Quarter Change
Nominal Gross Domestic Product (Billions)
$14,546.7
$14,301.5
-1.7
Real Gross Domestic Product (Billions of 2000 $)
$13,324.6
$13,014.0
-2.3
107.3
98.5
-8.2
Industrial Production (2002 = 100)
Three Month U.S. Treasury Bill Rate
Consumer Price Index(1982-84 = 100)
1.10%
218.8
0.11% -89.9
216.0
-1.3
1
Further, strong employment growth is a necessary condition for strong GDP growth and a rising
standard of living. The economy can’t achieve robust growth without job creation. Household
consumption accounts for about 70 percent of all expenditures in the economy. It is difficult to
understand how GDP can grow at a prolonged and rapid pace without a strong rebound in
employment and in household income.
Additionally, increases in business investment, government spending, and net export activity
can only go so far in making up for the loss in household consumption spending. One needs to
understand that the government’s fiscal stimulus package and other temporary programs can
only serve as stop gap measures to prop up the economy. At some point, business firms will
need to expand their payrolls and hours worked. If this does not happen the recovery will be in
a tenuous position. Glimmers of hope come from a variety of data. For example,
manufacturing and trade inventories are declining. Inventories levels have been drawn down
and at some point in time firms will need to replenish them and in doing so will need to
increase the number of hours worked and eventually resort to hiring additional workers.
With unemployment levels being so high, real estate prices still well below historic highs, and a
stock market that is still a long way from a full recovery, household finances have been
battered. This situation has had a substantial impact on state and local finances. Later this
morning Todd Berry, president of the Wisconsin Taxpayers Alliance, will discuss the state of
Wisconsin’s budgetary outlook and how the state’s finances critically depend on the economic
recovery.
2
Central Wisconsin
The unemployment
TABLE 2
rates in all reporting
UNEMPLOYMENT RATE Unemployment Rate Unemployment Rate Percent
areas were
CENTRAL WISCONSIN
September 2008
September 2009 Change
significantly higher
Portage County
3.9%
5.8%
+49.0
than a year ago. In
Table 2, the Portage
City of Stevens Point
4.4%
7.3%
+65.9
county rate rose from
Marathon County
4.2%
7.7%
+82.1
3.9 to 5.8 percent over
the year. Marathon’s
Wood County
4.3%
7.4%
+71.9
rate climbed from 4.2
Central Wisconsin
4.2%
7.1%
69.0
to 7.7 percent and
Wood’s rate moved up
Wisconsin
4.2%
7.7%
+85.4
from 4.3 to 7.4
percent. The labor
United States
5.2%
9.5%
+80.5
force weighted
unemployment rate for central Wisconsin also shot up over the past year rising from 4.2 to 7.1
percent. The Wisconsin unemployment rate now stands at 7.7 percent compared to the U.S.
rate of 9.5 percent.
Table 3, which is
derived from a survey
of households, again
shows the impact of
Portage County
40.5
40.4
-0.3
the recession.
Employment levels in
City of Stevens Point
14.3
14.2
-0.7
all reporting areas are
below the previous
Marathon County
71.8
68.9
-4.1
year’s totals.
Wood County
39.7
38.7
-2.5
Employment in
Portage County
Central Wisconsin
152.1
148.0
-2.7
dropped by a modest
Wisconsin
2,939.8
2,826.2
-3.9
0.3 percent from
2008. Marathon
United States
145,927
139,079
-4.7
experienced a much
* Percent change figures reflect data before rounding
sharper decline of 4.1
percent and Wood
county payrolls also fell by 2.5 percent. For the three county areas employment is down by 4.1
thousand positions, representing a 2.7 percent drop. The state of Wisconsin has lost 113.6
thousand jobs or nearly 4.0 percent of its employment base over the past twelve months. The
U.S. has lost 6.8 million jobs over the last twelve months, or an even larger 4.7 percent of its
payrolls.
TABLE 3
EMPLOYMENT
CENTRAL WISCONSIN
Total Employment
September 2008
(Thousands)
Total Employment Percent
September 2009 Change
(Thousands)
3
Table 4 presents
Wisconsin total
nonfarm
employment. The
Total Nonfarm
2,878.0
2,751.3
-4.4
payroll data
Total Private
2,464.2
2,338.0
-5.1
collected from
Construction & Natural Resources
128.4
113.3
-11.8
business firms
Manufacturing
492.0
443.4
-9.9
suggests that
Wisconsin has lost
Trade
428.4
412.7
-3.7
approximately 126.7
Transportation & Utilities
108.8
105.0
-3.5
thousand positions,
Financial Activities
162.5
158.6
-2.4
or about 4.4 percent
Education & Health Services
406.2
412.1
+1.5
of its jobs since last
Leisure and Hospitality
267.1
253.2
-5.2
year. Except for
Information & Business Services
331.7
307.7
-7.2
education and
Total Government
421.9
428.4
+1.5
health services and
government every
* Percent change figures reflect data before rounding
sector registered a
decline in employment. Manufacturing continues to be the hardest hit sector by this recession.
Manufacturing payrolls have collapsed from 492.0 thousand to 443.4 thousand a huge 48.6
thousand decline in just twelve months and represents a contraction of nearly 10 percent in
one year.
TABLE 4
WISCONSIN EMPLOYMENT
CHANGE BY SECTOR
Employment
September 2008
(Thousands)
Employment
September 2009
(Thousands)
Percent
Change
Figure 1 shows the employment trend in Wisconsin from 2005 to 2009. Mid 2008 is where total
employment started to decline. Further, figures 2 and 3 show the unemployment level and the
unemployment rate trends and the steep rise in both starting in mid year 2008. Figure 4
displays the number of people in the state’s labor force, those people working and those
actively seeking a job. Figure 5 and 6 shows the sharp decline in manufacturing wages and the
ascent of education and health services employment. Together the figures give the reader a
good sense of the major trends in the state economy.
Sales tax
TABLE 5
2008 Sales Tax
2009 Sales Tax
Percent
collections are a
COUNTY SALES TAX DISTRIBUTION
Third Quarter
Third Quarter
Change
good measure of
(Thousands)
(Thousands)
retail activity and
give insight into
Portage County
$1,336.4
$827.1
-38.1
the overall health
Marathon County
$2,764.1
$1,560.2
-43.6
of the economy.
Wood County
$1,287.5
$821.5
-36.2
With the current
recession hitting
* Percent change figures reflect data before rounding
households
especially hard it could be assumed that sales tax collections would be down. This is in fact the
case. What is so surprising is the extent of the decline. Portage County collections dropped
from $1.34 million to $.82 million a decline of 38 percent. Similarly the sales tax collections in
4
Marathon fell from $2.76 million to $1.56 million a contraction of nearly 44 percent. Wood
County fared no better when into its third quarter numbers dropped from $1.29 million to $.82
million or lower by 36 percent.
One of the few bright
TABLE 6
Index Value
spots in this report is
BUSINESS
CONFIDENCE
June
2009
September 2009
found in Table 6. The
CWERB’s business
Recent Change in National
49
61
confidence survey shows
Economic Conditions
some improvement taking
Recent Change in
42
59
place. This group of
Local Economic Conditions
executives feels that the
recent changes at the
Expected Change in
62
67
national and local level
National Economic Conditions
have been positive.
Expected Change in
61
66
When asked to forecast
Local Economic Conditions
economic conditions for
the nation, local area, and
Expected Change in
61
63
their industry the general
Industry Conditions
consensus was that
100 = Substantially Better
50 = Same
0 = Substantially Worse
matters would get better
and the economy had
bottomed out. This corresponded to national surveys of business executives and economists
that have expressed the idea that we will see an improved economic situation as the county
heads into 2010.
5
Figure 1: Employment Level: Wisconsin
Figure 2: Unemployment Level: Wisconsin
3000
2975
2950
2925
2900
2875
2850
2825
2800
2775
300
275
250
225
200
175
150
125
100
2005
3
2005
2006
2007
2008
2009
2010
Figure 3: Unemployment Rate: Wisconsin: %
3150
3125
8
3100
7
6
3075
3050
5
3025
4
3000
2006
2007
2008
2009
2007
2008
2009
2010
2009
2010
Figure 4: Labor Force: Wisconsin
10
9
3
2005
2006
2010
3975
2005
2006
2007
2008
Figure 5: Wisconsin: Manufacturing:
Avg. Weekly Earnings of Production
Figure 6: Wisconsin: Education and Health Services:
Thousands
740
730
720
710
700
690
680
670
660
650
640
415
410
405
400
395
390
385
380
375
2005
6
2006
2007
2008
2009
2010
2005
2006
2007
2008
2009
2010
Stevens Point-Plover Area
Table 7 presents data from the Wisconsin Department of Workforce Development. The
employment in Portage County’s prominent industries is given along with the five year percent
change. The industry change is also compared to the state of Wisconsin. The largest industry
type in Portage County is insurance carriers & related activities with almost 4 thousand
workers. Food services and educational services added another 2.6 thousand and 2.6 thousand
respectively to the area’s employment.
TABLE 7
PROMINENT INDUSTRIES IN PORTAGE COUNTY
AVERAGE EMPLOYMENT
2007 Average
Portage County
Insurance carriers & Related activities
3387
Food services & Drinking places
Educational services
Executive, Legislative, & General government
5 - Year Percent Change
Portage County
Wisconsin
12.9
5.8
2624
5.5
9.1
2621
-3.1
2.0
1300
4.6
-4.7
*
*
-6.7
General merchandise stores
1175
20.3
7.1
Truck transportation
1053
13.3
7.1
*
*
12.6
1011
-2.3
-12.5
943
-18.4
8.7
Food manufacturing
Hospitals
Nonstore retailers
Ambulatory health care services
*Data suppressed for confidentiality and not available for calculations
Local merchants surveyed by
the CWERB believe that store
traffic and sales are down from
the previous year. When they
were asked to forecast future
retail activity they felt store
traffic and sales would not be
all that much different three
months from now when
compared to a year ago. The
next three months represents
the all important holiday
shopping period. Many
businesses rely on these sales
to stay afloat.
TABLE 8
RETAILER CONFIDENCE
STEVENS POINT - PLOVER AREA
Index Value
June 2009
September 2009
Total Sales Compared
to Previous Year
40
48
Store Traffic Compared
to Previous Year
38
41
Expected Sales Three
Months From Now
43
48
Expected Store Traffic
Three Months From Now
43
48
100 = Substantially Better
50 = Same
0 = Substantially Worse
7
Table 9 is the CWERB’s help wanted advertising
index. As I have said on previous occasions the
index is a barometer of labor market conditions
and gives insight in to the likely direction of the
Stevens Point
47
10
unemployment rate. It is well known that job
(September)
1980=100
advertisement on the internet has had a negative
impact on the figures. Nonetheless, the help
U.S.
15
10
wanted index still gives valuable insight into the
(August)
local labor market. The index for the greater
1987=100
Stevens Point-Plover area declined from 47 to 10.
This is a dramatic turn of events as it represents a
decrease of 79 percent. The U.S. index also fell from 15 to 10 or a decline of 33 percent. Both
indexes indicate that the job market is going to be very difficult in the months ahead.
TABLE 9
Index Value
HELP WANTED ADVERTISING 2008
2009
Public assistance
2008
2009 Percent
claims are displayed in TABLE 10
PUBLIC ASSISTANCE CLAIMS
Third Quarter
Third Quarter Change
Table 10. New public
PORTAGE
COUNTY
(Monthly
Avg.)
(Monthly
Avg.)
assistance claims on a
monthly average basis
New Applications
273
150
-45.1
took an unexpected
Total Caseload
6,549
7,084
+8.2
dip in third quarter.
The number of new
claims fell from 273 to 150 or by 45 percent since a year ago. Perhaps this signals we have
reached the bottom of the recession. The total caseload for public assistance is a running total
of all continuing public assistance activity. The total caseload has gone up from 6,549 to 7,084
cases or by 8.2 percent from third quarter 2008. This indicates that there has been a substantial
increase in people seeking help over the year. Table 11 gives unemployment claims data and is
another indicator
TABLE 11
2008
2009 Percent of local family
UNEMPLOYMENT CLAIMS
Third Quarter
Third Quarter Change financial distress.
The results were
PORTAGE COUNTY
(Weekly Avg.)
(Weekly Avg.)
very disappointing.
New Claims
187
284
+51.9
The number of new
unemployment
Total Claims
1279
2541
+98.7
claims on a weekly
average basis
climbed from 187 to 284 an increase of nearly 52 percent. Likewise continuing total
unemployment claims shot up from 1,279 to 2,541 or by a very substantial 99 percent. Thus,
indicating a sharp deterioration in the employment situation.
8
We have some good news
TABLE 12
to report on in Table 12.
RESIDENTIAL CONSTRUCTION
2008
2009 Percent
New residential
STEVENS POINT - PLOVER AREA
Third Quarter Third Quarter Change
construction permits in
the area increased from 24 Residential Permits Issued
24
34
+41.7
to 34 a gain of 42 percent.
Estimated Value of
$5,007.9
$6,857.9
+36.9
The associated value of
New
Homes
(thousands)
(thousands)
this new construction rose
from $5.0 million to $6.9
Number of Housing Units
34
74 +117.6
million or by 37 percent.
Also the number of new
Residential Alteration
280
252
-10.0
housing units slated for
Permits Issued
construction went up from
Estimated Value
$2,912.8
$1,613.3
-44.6
34 to 74 over the past
of Alterations
(thousands)
(thousands)
twelve months. This
number of residential
alteration permits was slightly down, falling from 280 to 252. The value of the 252 residential
alteration permits declined from $2.9 million in third quarter 2008 to $1.6 million in third
quarter 2009.
Table 13 lists the
nonresidential
2008
2009
construction figures for
Third Quarter Third Quarter
the Stevens Point-Plover
area. Percentage changes
Number of Permits Issued
6
7
are not given because this
activity tends to be very
Estimated Value of
$10,444.2
$4,196.7
volatile from quarter to
New Structures
(thousands)
(thousands)
quarter. The number of
new project permits rose
Number of Business Alteration Permits
52
53
from 6 to 7. However, the
estimate value of the
Estimated Value
$3,008.5
$5,101.7
projects declined from
of Business Alterations
(thousands)
(thousands)
$10.4 million to $4.2
* Includes Stevens Point, Village of Plover, and the Towns of Hull, Stockton, Sharon,
million in our year over
and Plover.
comparison. Meanwhile
the number of business
alternation permits climbed ever so slightly from 52 to 53, but the value of these alterations
rose impressively from $3.0 million to $5.1 million over the period. In sum Table 13 shows that
the local capital stock has increased in our area.
TABLE 13
NONRESIDENTIAL CONSTRUCTION
STEVENS POINT - PLOVER AREA
9
Lastly, Figures 7-10 give a longer term perspective of the local economy.
Figure 7: Employment Level: Portage County, Wisconsin
41500
41000
40500
40000
39500
39000
38500
38000
37500
37000
36500
2005
2006
2007
2008
2009
Figure 8: Unemployment Level: Portage County, Wisconsin
2010
Figure 9: Unemployment Rate: Portage County, Wisconsin
8.5
8.0
7.5
7.0
6.5
6.0
5.5
5.0
4.5
4.0
3.5
3.0
2005
10
2006
2007
2008
2009
2010
3750
3500
3250
3000
2750
2500
2250
2000
1750
1500
1250
2005
2006
2007
2008
2009
2010
Figure 10: Labor Force: Portage County, Wisconsin
43500
43000
42500
42000
41500
41000
40500
40000
39500
39000
2005
2006
2007
2008
2009
2010
State Finances: Rewind? Or Recovery Ahead?
Todd A. Berry, Ph.D.
President, Wisconsin Taxpayers Alliance
With the U.S. economy showing signs of establishing a base from which to recover, the obvious
question for Wisconsin is: What lies ahead for the state economy? Perhaps an even more
unsettling question for public officials and taxpayers is: What lies ahead for state finances? Are
state deficits behind us?
If recent years have taught us anything, it is the considerable difficulty economists face in
forecasting future economic activity. America’s late-2007 move into recession, the severity of
that plunge, and the subsequent calamity in the financial markets were all developments not
well anticipated.
That uncertainty has brought with it Wisconsin’s share of state and local budget woes. General
fund tax collections during 2007-09 were initially anticipated to rise almost 6.0% when the state
budget was enacted in October 2007. Hindsight now tells us they dropped by about that
amount.
Now that the U.S. economy appears poised for recovery, can Wisconsin economists assume
that an equally healthy state rebound is forthcoming? And, more significant, can state and local
officials now expect that their budget problems are behind them?
WHITHER WISCONSIN’S ECONOMY?
The answer to the first question is only as good as economic projections. However, recent
recessions suggest the state economic cycle “leads” the U.S. In both 1990s and again during
2004-07, Wisconsin’s economy surged and then slowed before the country’s. In the graph
below, the state’s real GDP outpaced the nation’s in both 2001 and 2002 as we emerged from
recession. Note, also, that in 2008, Wisconsin apparently grew (+0.2%) while the U.S.
contracted (-0.2%).
Annual Growth in Real GDP: US vs. Wisconsin, 1998-2008 (BEA)
4%
3.6%
3.2%
US
3%
2.5%
2.5%
2%
1.1%
1%
1.0%
1.0%
1.5%
0.5%
0.5%
0.2%
0.3%
0%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
-0.2%
-0.1%
-1%
WI
11
From an economic perspective, then, does that mean Wisconsin’s problems will soon be behind
us? Probably not. What history also tells us, unfortunately, is that during periods of sustained
prosperity, (e.g., late 1990s and mid-2000s), the Badger State often fails to grow as fast as the
U.S.
A more fundamental reason that growth here will probably be more moderate than elsewhere
is demography. Wisconsin is an “older” state than others: Our senior population is in the
process of doubling by 2030, while the total school-age population has been falling since the
late 1990s. Indeed, over 60% of state school districts are losing enrollment. What this
eventually means is contraction of the state labor force followed by fewer household
formations. It also means that there will be more consumer-retirees whose incomes and needs
are less—and their reluctance to pay taxes, greater.
Wisconsin Population Growth by Age Group, 2000-2030
Pct. Change, 2000 = 100
200
187
65+
160
114
120
25-64
107
100
<25
99
80
00
05
10
15
20
25
30
Another reason for a more modest recovery here than elsewhere is our “employment mix.”
Long one of the nation’s leading manufacturing states, Wisconsin’s job mix is skewed more to
high school graduates than to those with college degrees. Thus, our average wages in most
sectors are lower here than elsewhere, and those wages are continuing to lose ground to
national averages. Federal and state tax data confirm that the adjusted gross incomes of our
taxpayers are skewed more to the lower- and middle-income ranges than is the case
nationwide. By the same token, the percentage of U.S. filers with incomes over $1 million is
about double the Wisconsin share.
12
Per Capita GDP ('98) vs. Real PCGDP Growth '98-'08
"Product Matrix": Dogs, Stars, Cows (BCG)
75%
65%
Low GDPpc
High Growth
High GDPpc
High Growth
US Avg
MT
VT
MD
HI
NM
55%
MS
VA
ME
WV
FL
US Avg
NE
KT
ny
NJ
CO
WI
AZ
LowGDPpc,
Low Growth
CT
CA
MN
PA
IA
45%
35%
MA
TX
Ark
IL
NC
OR
HI GDPpc,
Low Growth
OH
IN
GA
MI
25%
15,000
20,000
25,000
30,000
35,000
40,000
Wisconsin’s relative economic strength becomes clear when state per capita GDP (GDPpc) is
compared to state GDP growth over the past ten years (previous graph). Borrowed from a
business consultancy to evaluate consumer products, this approach divides states into four
groups. In the upper right quadrant are states with above-average GDPpc and above-average
GDP growth. In consultants’ parlance, these states are “stars.” In the lower left quadrant are
the “dogs”—states whose GDPpc and GDP growth are both below average. Wisconsin is
located in the lower, left portion of the graph.
PAST ACTIONS . . .
Regardless of the timing and nature of Wisconsin’s pending rebound, other factors impact the
state’s future fiscal health. Large budget reserves would position Wisconsin for a relatively
pain-free return to normalcy even if the recovery is slow and modest. Unfortunately,
“solutions” to past budget problems will complicate decision-making when work begins in
earnest after the 2010 mid-term elections on the state’s 2011-13 biennial budget.
The roots of this problem can be found in the economic boom of the 1990s. A soaring stock
market, income and job growth that outpaced the nation, and a state income tax whose
brackets, deductions, and credits were not adjusted for inflation all combined to swell the state
treasury. State politicians could be “all things to all people.” Examples include a dramatic jump
in state support for public schools that exceeded $1 billion, sweeping welfare reform that
attracted national attention but whose associated childcare and healthcare costs were large,
new prescription drug benefits for seniors, and a $700 million sales-tax rebate.
As long as the economy continued to grow and state tax collections continued to beat
estimates, these many new commitments could be sustained. With the 2001 recession and the
9/11 terrorist attacks, however, tax collections dropped. The rest is history. A billion-dollar
13
state deficit emerged; and, although this has not been widely suggested, a convincing argument
can be made that Wisconsin has never fully come to grips with the excesses of the 1990s and
the subsequent budget imbalance. For the past five biennia, governors and legislators of both
parties have lurched from budget crisis to budget crisis.
On paper, state budgets have been balanced using a number of one-time techniques and, what
some would label, accounting tricks. In 2001-03, tobacco bonds were sold to generate over $1
billion in one-time money to produce a “balanced” budget. In subsequent biennia, one-time
dollars were transferred from other funds to the general fund to keep the latter in the black.
More than $1.3 billion was moved from the transportation fund; another $200 million – now
disputed in court – was moved from the physician-funded Injured Patients Compensation fund;
smaller sums of money were moved from a public utility benefits fund, the recycling fund, and
so on. Perhaps the most egregious “budget-balancing” move was repeated use of an
accounting trick that allowed the state to pay out property tax-relief credits in one year but not
fund them until the following budget year.
To make matters worse, the state has, for more than three decades, almost entirely ignored a
1986 “budget stabilization” law that allowed it to set aside surplus revenues in good times in
order to avoid budget cuts and tax hikes during downturns. Entering the current recession, the
average state had amassed surpluses equal to almost 7% of annual spending; percentages in
Iowa and Minnesota were in the ten-percent range. Wisconsin reserves, by comparison, were
less than 1% of expenditures and sometimes approached 0%.
Although governors and legislators could hide unbalanced budgets through various tricks and
techniques, Wisconsin’s official financial statements, prepared by the state controller according
to generally accepted accounting principles (GAAP), could not. On a GAAP basis, the Badger
State has officially reported general fund deficits for years. The following graph reveals that
those shortfalls have approached or exceeded $2 billion since 2003. Projections done by the
executive branch at the time the proposed 2009-11 state budget was unveiled suggest more
GAAP deficits over the next few years.
Wisconsin’s Official GAAP Deficits, Actual and Projected ($ Billions)
98
00
02
04
06
08
10e
0.0
-0.83
-1.21
-1.0
-1.27
-1.93
Feb. ’09 est.
-2.0
-2.24
-3.0
14
-2.42
-2.15
-2.44
-2.50
-2.46
-2.28
RECENT DEVELOPMENTS
There is little debate that Wisconsin’s state budget problems deteriorated over the past two
years when the economy—and tax collections—slumped. Nevertheless, as the prior discussion
shows, state budget problems emerged more than a decade ago and have gone largely
unaddressed since. Short-term and quick “fixes” have kept the general fund balanced on paper,
but the average CPA or savvy citizen knows better. In 2007, the Badger State’s GAAP deficit
(see above) was the second largest in the nation in raw dollar terms, the largest per capita.
Earlier in 2009, the governor and legislature had another opportunity to work on state finances.
The resulting product enacted this summer was a biennial budget that will serve Wisconsin
through mid-2011. What did the governor and legislators accomplish, and what does the
state’s fiscal future now look like?
In a budget bill whose weight exceeds three pounds, one can devote volumes to discussing the
contents of the 2009-11 spending plan. But, with a few facts and figures, the answer to that
question becomes apparent. The following table recaps the budget, comparing 2007-09
expenditures with those budgeted for 2009-11. In terms of the general fund (“GPR”), austerity
is evident. The amount budgeted for the next two years ($27.68 billion) is less than estimated
spending for the prior two-year period ($27.73 billion).
However, the story behind the new budget really lies in the final three columns of the table.
When user fees, program charges, and federal dollars are added to general fund revenues,
largely income, sales, and excise taxes, the result is the “all-funds” budget. Proposed
expenditures are slated to rise over 9% from $56.64 billion to $61.99 billion. The key to
reconciling GPR and all-funds budgets can be found in the next column. Federal dollars flowing
through state coffers in 2009-11 will be $4 billion more than in 2007-09.
State Spending (Estimated 2007-09 vs. Budgeted 2009-11; $ Billions)
Fisc. Yr.
Ends
GPR
All
Funds
Fed.
Tax/Fee
Incr.
2008a
2009b
13.526
14.199
27.725
27.365
29.279
56.644
7.1
7.4
14.5
~400m
0.4
0.4
2010g
2011g
13.476
14.204
27.680
30.930
31.065
61.995
9.4
9.0
18.5
1.3
1.5
2.9
07-09 to
09-11
-0.2%
9.4%
27.4%
-
15
The 27% jump in federal monies is due to several factors, but an important one is Washington’s
economic stimulus package enacted early in 2009. Some stimulus dollars are going for onetime expenditures, such as roads or school weatherizing, but the new state budget also uses
stimulus funds to “backfill” for cuts in general fund programs, most notably the two programs
that normally combine to account for almost 60% of GPR spending, school aids/credits and
Medicaid (medical assistance for low-income and disabled recipients).
What the 2009-11 budget does then is very much like what was done in past budgets. Onetime monies are paying for permanent, ongoing programs. In recent budgets, it was
transportation or recycling fund monies that “papered over” general fund deficits; this time it is
federal stimulus dollars. Use of these various one-time revenues along with accounting tricks
and promises of future tax cuts or new spending yield a structural imbalance that will have to
be dealt with come 2011.
This so-called “structural deficit” is projected to approach $900 million in 2010-11 and, if no
action is taken, it will more than double the following year. The graph that follows shows that
the approaching structural problems in the next budget are hardly new. In fact, Wisconsin has
entered every biennium since 1997 with an imbalance. That said, the 2011-13 “deficit” will be
the second largest in 14 years.
State “Structural Deficits” Entering Each Biennium Since 1997
($ Billion; shaded bars, first year; outlined bars both years)
Cum. 2-Yr. Deficit
1st Yr. Deficit
1,107
J
F
2,258
713889
G
1,574
2,014
800
1,682
1,499
653
701
1,546
2,867
693
1,719
589
1,503
1,529
1,000
624
1,340
2,000
97
99
01
03
05
07
09
11
11g 11jf
The one new budget development this year, unlike years past, is the magnitude of state tax
increases contained in the 2009-11 budget bill (now, Act 28) and its prequel (Act 2). Including
retroactive tax increases, the total new revenues the state is hoping to collect over fiscal years
2009-10-11 are about $3 billion. Included in the increases are technical, but significant
increases in corporate taxes, a new hospital tax, big jumps in tobacco tax rates, and over onehalf billion in new income taxes through a higher “top” rate and a reduced capital gains
exclusion.
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The size of such tax hikes might give some state officials hope that expanded tax laws coupled
with a strong recovery would combine to erase the approaching structural deficit. The problem
with that hope is mathematical. If the state collects $12.9 billion in general fund taxes as it
projects for 2010-11, and if those collections grow at 5% in 2011-12—a rate that is historically
possible but less likely coming out of a serious recession—the state general fund could expect
almost $650 million in new revenues. Even that amount of new money, however, does not
begin to erase a carryover structural gap that, in the final analysis, will probably approach $1
billion.
And so . . . we end where we began—with a question about the state’s future fiscal health:
“Rewind or Recovery Ahead?” Barring an unexpected and almost unprecedented surge in the
economy and tax collections, it appears that, regardless of the identity of the individuals
occupying the executive and legislative branches come 2011, as they begin work, they will only
need to push the “rewind” button. The 2011-13 state budget situation is likely to be quite
similar to ones experienced over the past decade.
Santayana comes to mind: “Those who do not learn from history . . . “
17