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Regards, Rick Stadelman - Executive Director.

State Budget Repair Bill – June 2008

On Monday, May 12, 2008, the State legislative leaders announced the details of a conference committee report to the Assembly Bill #1 in the March 2008 Special Session (known as the State Budget Repair Bill). As reported in the WTA April Report this bill was required due re-estimates of projected state revenues and expenditures for the balance of this biennium. The latest legislative estimates projected a $525 million deficit as of June 30, 2009, unless legislative action was taken.

Each house acted on the conference committee report. Legislators cannot amend a conference committee report. They can only vote for or against the report. On Tuesday, May 13, 2008, the State Senate voted 17 in favor and 16 against the report. On Wednesday, May 14, 2008, the State Assembly voted 51 in favor and 46 against with two members not voting. The bill as passed by the legislature then went to the Governor who exercised his veto pen and signed the bill with vetoes on Friday, May 16, 2008. This article will describe some of the most significant provisions of the budget repair bill as passed by the legislature and then modified by the Governor’s vetoes.

The budget repair bill as passed by the legislature provided the Secretary of the Dept. of Administration (DOA) was directed to lapse or transfer $69 million for the remainder of the biennium (before June 30, 2009) to the general fund which was to be in addition to the lapses or transfers of $200 million required under the State Budget Act (2007 Wis. Act 20) adopted last October. The budget repair bill specifically limited the transfers from the Transportation Fund to no more than $50 million which was to be replaced by $50 million of General Purpose Obligation Bonds. However, Governor Doyle through the use of his veto power, eliminated the $50 million limit on transfers from the Transportation Fund. The Governor stated he would direct the Secretary of DOA to transfer $103 million from the Transportation Fund to the General Purpose Fund to cover the projected deficit. The total amount of lapses or transfers to the General Purpose Fund will require a total of lapses and transfers to be $270 million of which this $103 million from the Transportation Fund will be a part of. More about the impact of this transfer from the Transportation Fund later.

The legislature had proposed in the budget repair bill several other measures to balance the state budget. For example, the budget repair bill presented to the Governor proposed delaying an additional $125 million of school equalization aids from the third week of June to the first week of July beginning in 2008. This delay would be in addition to an existing $75 million of school aid payments already delayed by past legislative action from June to July. Another provision in the budget repair bill proposed delaying the April quarterly county general transportation aid payment to July. Both of these provisions did not actually reduce the state’s obligation to make the payments, but by pushing the payment date past June 30, 2009, the amounts under both of these obligations would not be due in this biennium ending June 30, 2009, thus on paper reducing the projected state deficit as of that date.

The Governor vetoed the $125 million delay in the school equalization aid payment (however remember past legislative action still provides for a delay of $75 million from June to July). The Governor did not veto the delay of the county general transportation aid payment from April to July. Therefore, starting in this year (2008) counties will not receive an April payment and must wait until July for that payment. This is a statewide delay of $24.85 million that must be absorbed by counties across the state.

Many criticized these two delays in payments as accounting gimmicks to reduce the state deficit on paper only as of June 30, 2009, because the amounts were still due in the next month (July), which in 2009 will be a new state fiscal year. While schools are protected at least as to the veto of the $125 million delay, counties will have to carry the burden of a delay in very important payments to meet highway expenditures at the county level.

The state legislature’s budget repair bill would have increased the amount of funds generated by refinancing future tobacco settlement payments to generate payments in this biennium from $50 million (as established in the state budget Act 20 last year) to $309 million. For your reference, the tobacco settlement payments are payments to states from the tobacco companies in settlement of national lawsuits several years ago. For several state budgets the state has been selling off proceeds from future tobacco settlement payments to generate dollars in the short term. As proposed in the budget repair bill and based upon past legislative action, tobacco settlement payments projected out to nearly 2030 will be sold off. The budget repair bill would authorize selling off no more than $1.7 billion in payments which would generate only $309 million in this biennium. The Governor vetoed this provision in part, but did not change the amounts of future tobacco settlements that could be sold off (the $1.7 billion) but only changed the method by which the Secretary of DOA could sell of the future payments to generate the $309 million. Many individuals have criticized the legislature and the Governor for using these tobacco settlement payments to balance the state budget, and in particular for such an extended period of time of future payments.

While local government may criticize both the legislature and the Governor for his vetoes of some of these provisions, a particular veto by the Governor should be commended. The legislature proposed in the budget repair bill a property tax exemption for low-income housing by tax exempt organizations, typically exempt under Federal Tax Code IRS Sec. 501 (c)(3). This provision would not have had any effect on the state deficit situation, but would only have created a property tax exemption for the type of low-income housing as described, which would have shifted the property tax burden to other classes of real property, such as single family residences. Governor Doyle vetoed this provision because it was major nonfiscal policy (at least as to the state deficit) which he indicated should not be included in the budget repair bill. Local government can commend the Governor for this veto.

In general, while the budget repair bill was necessary to address the projected state deficit of $525 million as of June 30, 2009, the end result after the Governor’s vetoes is that the State Transportation Fund will be balancing the General Purpose Fund to the tune of $103 million or more. These transfers are in addition to over $1.1 billion in the 2003-05 state budget and 2005-07 state budget. While past budgets have included (as does this budget repair bill includes) payments back filling in part to repay the Transportation Fund from State General Obligation Bonds, the loss of Transportation Funds not being repaid will exceed over $400 million over the last five years. While the state legislature has recognized the need to fund transportation to some extent through vehicle registration increases in the last two state budgets, these funds have actually been used as a result of the Governor’s vetoes to balance the State General Purpose Fund.

The transfers that are not covered by general fund obligation bonds (the over $400 million figure) will be forever lost to fund transportation purposes. These holes in transportation funding will mean transportation needs will continue to grow.

Many legislators have expressed that they can not support raising transportation revenues if in the end the increases are not used for transportation but are transferred to balance the state budget. Our Association believes that a state constitutional amendment needs to be passed by two successive legislative sessions and voted on in statewide referendum to prohibit the transfer from “segregated funds” to balance the General Purpose Budget.

Another issue is that the authorizing of both General Obligation Bonds and the increase of Transportation Revenue Bonds in the past budget has increased the state debt load to the extent that the amount of principal and interest that must be repaid from both general obligation bonds and revenue bonds (which are supported by the vehicle registration fees) have increased to the point that our future state capacity to meet current financial needs is jeopardized for many years. In addition, the Legislative Fiscal Bureau had estimated that had the budget repair bill been signed without any vetoes, our state would have faced a state structural deficit (which means projected committed expenditures for the next biennium July, 2009 through June 2011 over projected revenues) would have exceeded $1.7 billion as of July 1, 2009. While the Governor’s vetoes are in part expected to reduce this projection, many are expecting that the structural deficit could still exceed $1.5 billion next July, 2009.

As I indicated at the WTA district meetings this year, there are also three possible contingencies (the failure of the Ho-Chunk Tribe to make compact payments; the possible Menasha Corporation sales tax refund case; and the possible Patients Compensation transfer lawsuit) that could result in even this budget repair bill being another $500 million short by next June 30, 2009. Add in the fact that the current economic projections could become even worse over the next 13 months, resulting in less income and sales tax collections, there may be a need for the state legislature and Governor to take action in another budget repair bill in January, 2009 before even addressing the biennial state budget for 2009-2011.

While there are many opinions on how this budget repair bill was handled or could have been better handled, we would encourage all town and village officers to question all legislative candidates how they intend to meet the states needs in the future, and in particular transportation needs. Our Association would argue that the state should not continue to balance the state General Purpose Budget on transfers from the Transportation Fund. Either general purpose programs need to be cut or other funds (such as increased general purpose taxes) must be raised. Our state transportation system is too important to carry the burden that has been placed on it in the last three state budgets and the current budget repair bill. Ask your legislators and legislative candidates what they would do to meet the state general purpose needs and the needs of transportation.

If you wish to see more on the budget repair bill or the Governor’s veto message, you can link to some of this information on our Association website. We urge you to become informed and ask the legislators and legislative candidates to respond to your questions on these issues!

Invasive Species

Although the state legislature will not be in session for the rest of 2008, there are always issues being developed and worked on in Madison, particularly at the state agency level. One of the issues that our Association has been asked to participate in is developing “best management practices” to identify, eradicate if possible, control or manage invasive species of all types. The state legislature has given the Dept. of Natural Resources the authority and directive in Sec. 23.22 of Wis. Statutes to develop rules to achieve this goal. While invasive species is defined in this section as “an nonindigenous species whose introduction causes or likely to cause economic environmental harm or harm to human health,” it should be understood that the term invasive species covers plants, insects, and animals. Some of the most publicized invasive species in recent times have been the “emerald ash borer” which has devastated ash trees in Michigan and other states and has been identified to be moving north from Illinois (actually having been sited just 75 miles south of the Wisconsin/Illinois state line). An animal disease example is the “VHS virus” which has been identified in fish in Lake Winnebago and adjacent waters and is a threat to fresh water fish across the state.

Invasive species includes plants and although our state has currently only three noxious weeds listed under state law, the Dept. of Natural Resources is in the process of identifying and listing as many as thirty or more plant species that could be harmful to the environment or human health. This is why a very specific advisory committee has been created by the Department to address the identification of invasive species, eradication, control and management of such plant species on “right of way corridors” in our state. These corridors include highway rights of way, railroad rights of way, utility (both electric and pipeline) rights of way, and any other possible linear rights of way.

The advisory committee (of which I have been asked to serve as a member on behalf of towns) will oversee the development of “best management practices” which can be used by those responsible for management of these corridors to prevent the spread of invasive species wherever possible. For example, the concept is to develop reasonable and practical methods that highway employees can use to both identify possible invasive plant species and take appropriate action to prevent the spread of these invasive plants, or even take appropriate steps to eradicate or at least avoid the spread of these plants. One of the most basic practices that may be used would be to limit at certain times of the year the mowing of highway rights of way to prevent the spread of the seeds from some of these invasive plants.

The problem for town, village, and county highway employees will be how to learn to identify these invasive species. Many of the possible thirty invasive plant species are not currently in Wisconsin, and many others have very similar looking related species. I have openly expressed to the Department and other committee members that town and county highway employees are not trained “botanists” and towns can not afford to hire botanists to “scout” the over 61,000 miles of town highway rights of way to search for up to thirty possible invasive species. In addition, while some invasive plants should not be mowed at certain times of the year, others can not be mowed at other times. Learning which invasive plant species are spread by seed or which are spread by moving earth and thus tracked regardless of the time of the year will be a very real challenge to develop in “best management practices.” It is my hope that whatever recommendations the advisory committee on corridor “best management practices” develops that they are reasonable and practical for local highway employees to implement without extreme costs and time. Our main priority should always remain to provide the safest and most efficient highway system across the state. More on this issue as the year goes on.

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