With the GOP-led Wisconsin legislature digging in its heels against Democratic Gov. Tony Evers’ budget and bond proposals, Capital Finance Director David Erdman says it’s a good time to remind the market that the state can keep paying its bills without a new budget in place.
The potential for gridlock provides “an opportunity to highlight the state of Wisconsin’s continuing budget authority. If there isn’t a new budget we automatically continue to operate under the appropriation levels in the previous year’s budget,” Erdman said.
Statutes also provide that debt service will continue to be paid. The state operates on a two-year fiscal biennium with the next one beginning July 1.
The discord began after Evers ousted two-term Republican Scott Walker in November but before Evers took office. Republican majorities in the Assembly and Senate passed a series of laws that stripped the incoming governor of some powers. In two separate court rulings this month many of those measures were overturned. The rulings will be appealed and a stay leaves some intact for now.
The acrimony swelled last week when, in an unprecedented move in recent history, Republicans on the State Building Commission rejected Evers’ proposed $2.5 billion capital budget on a party-line vote. It relies on $2 billion of borrowing.
The commission, which signs off on most state borrowing, is comprised of lawmakers and chaired by the governor. It has historically recommended the proposed capital plan be advanced to the legislature’s budget-writing Joint Finance Committee where it becomes part of the operating budget proposal.
The capital budget would fund more than 80 projects with more than $1 billion earmarked for the University of Wisconsin system. It relies on $2 billion of mostly general obligation borrowing. Evers’ proposed $83.4 billion two-year operating budget would authorize another $450 million of borrowing.
“This was about playing politics, plain and simple, not doing what’s best for the people of our state. Republicans would rather have us sit here in gridlock than do the jobs we were sent here to do, and that’s a shame,” Evers said after the vote late last week.
Republicans said their concerns stemmed from the size of the package and borrowing levels.
"To enact this large a program in one biennium is both unrealistic and unsustainable," Assembly Speaker Robin Vos, R-Rochester, and Senate Majority Leader Scott Fitzgerald, R-Juneau, said in a statement of the package and recommendation to members that it not be approved.
While the size of the capital bill is larger than in recent years, Erdman said the borrowing levels between the capital bill and operating budget are “nothing extra ordinary relative to total past bonding amounts.”
“The legislature with the Joint Committee on Finance will now work on a capital budget. They just won’t take recommendations from the building commission,” said Erdman, who added the vote last week marked the first rejection by the commission of a governor’s capital budget in his 25 years working in the capital finance office.
While a fight looms over the budget, capital and transportation spending, the state is no stranger to budget impasses, possibly because there aren't severe consequences for missing the July 1 deadline.
Two years ago, Walker and his fellow Republicans didn't agree on a budget until two months into the fiscal year.
Republicans had already voiced opposition to some of Evers’ proposed tax and fee hikes and vowed to rewrite the governor’s proposed operating budget based on natural tax growth. Evers' budget would spend $40.7 billion, up 5.4%, in the first year and $42.7 billion, up 4.9%, in the second year.
To raise $600 million annually in new transportation funds, Evers wants to raise by eight cents the state’s existing 32.9 cent-per-gallon gasoline tax and some other transportation-related registration fees.
“Our analysis of the governor’s proposed 2019-21 state budget finds that it addresses several important priorities, but leans on a net increase in taxes and a drawdown of state reserves to help finance the cost. A key question is whether it strikes the correct balance between needed re-investment and prudent financing,” the Wisconsin Policy Forum wrote in its recent review of the package.
The state is rated Aa1 by Moody’s Investors Service, AA by S&P Global Ratings, and AA-plus by Fitch Ratings and Kroll Bond Rating Agency.
Erdman said the state’s first competitive issue — a $156 million transportation revenue bond sale — that required compliance with the Securities and Exchange Commission’s a
The state distributed documents several days earlier than it might otherwise have to “provide sufficient” review time for potential bidders. The state did receive one email from an underwriter requesting a slight tweak in documents that Erdman described as not being material to the rule amendments.
Erdman has expressed concerns that the first group of issuers complying with the new rule would set an expectation that would be so wide that it would make it difficult for other issuers to adhere to and that remains a concern. “We don't want to set precedents that are burdensome on future issuers,” he said.
